Durant Const., Inc. v. Gourley

• Decision Date: 01 August 1983
• Docket Number: Docket No. 57575
• Citation: 125 Mich.App. 695,336 N.W.2d 856
• Parties: DURANT CONSTRUCTION, INC., a Michigan corporation, Plaintiff-Appellant, v. Roy E. GOURLEY and Judith Gourley, husband and wife, John D. Hooker and Sandra Ann Hooker, husband and wife, and Schneider Carpet Company, Inc., a Michigan corporation, Defendants, and NATIONAL BANK OF YPSILANTI, a National Banking Association, Defendant-Appellee, v. ACME GLASS AND PAINT COMPANY, a Michigan corporation, Third-Party Defendant. 125 Mich.App. 695, 336 N.W.2d 856
• Court: Court of Appeal of Michigan — District of US

Page 856

336 N.W.2d 856

DURANT CONSTRUCTION, INC., a Michigan corporation, Plaintiff-Appellant, v. Roy E. GOURLEY and Judith Gourley, husband and wife, John D.

Hooker and Sandra Ann Hooker, husband and wife,

and Schneider Carpet Company, Inc., a

Michigan corporation,

Defendants, and NATIONAL BANK OF YPSILANTI, a National Banking Association, Defendant-Appellee, v. ACME GLASS AND PAINT COMPANY, a Michigan corporation,

Third-Party Defendant.

Docket No. 57575.

125 Mich.App. 695, 336 N.W.2d 856

Court of Appeals of Michigan.

Submitted March 2, 1983.

Decided May 17, 1983.

Rehearing Denied July 11, 1983.

Released for Publication Aug. 1, 1983.

[125 MICHAPP 696] Schuur, Keating & Wells, P.C. by Patrick J. Keating, Detroit, for plaintiff-appellant.

Fischer, Franklin, Ford, Simon & Hogg by George Hogg, Jr. and Arthur J. LeVasseur, Detroit, for National Bank of Ypsilanti.

Before BEASLEY, P.J., and V.J. BRENNAN and WAHLS, JJ.

BEASLEY, Presiding Judge.

Plaintiff, Durant Construction, Inc., appeals as of right from an order granting accelerated judgment in favor of defendant, National Bank of Ypsilanti. The gravamen of this case is whether a first mortgage held by defendant bank has priority over a mechanics' lien held by plaintiff. The issue depends upon the legal effect of alleged waivers of lien given by plaintiff to defendant.

In ruling upon defendant's first motion for accelerated judgment, the trial court held that the language used in the waiver was similar to that found to be ambiguous in Williams & Works, Inc. v. Springfield Corp. ¹ After an evidentiary hearing was held, the trial court made specific findings of fact and granted judgment in defendant's favor.

The record shows that on April 2, 1979, plaintiff, a construction firm involved in residential and commercial building, began renovation work on real property pursuant to an agreement with the [125 MICHAPP 697] four property owners. On May 4, 1979, the property owners, in exchange for purchase money and construction loans, gave a mortgage and mortgage note to defendant bank. The validity of defendant's mortgage, which was recorded on May 11, 1979, was not an issue in the proceedings.

Over an 11-week period in 1979, defendant disbursed $267,472.71 toward the construction of the property. Three payments totalling $197,228.47 were distributed to plaintiff and the remainder was distributed to other parties. In return for the second and third payments, plaintiff, on June 6, 1979, and July 16, 1979, executed waivers of lien which contained the following language:

"FOR A VALUABLE CONSIDERATION, paid to the undersigned, the receipt whereof is hereby confessed and acknowledged, the undersigned hereby waive, release and relinquish any and all claims or right of lien which the undersigned now have or may have hereafter upon the premises."

On January 31, 1980, plaintiff filed a complaint in the Washtenaw County Circuit Court against the four property owners to foreclose on its mechanics' lien. Among other things, plaintiff sought a determination that its lien had priority over the mortgage held by defendant bank against the property. Plaintiff alleged that its mechanics' lien for labor, materials, and equipment was effected on April 2, 1979, and that the parties intended for the waivers to have application only to past work.

While recognizing that a valid mechanics' lien has priority over a subsequently recorded mortgage, defendant contends that the clear and unequivocal waivers of lien by plaintiff resulted in plaintiff's mechanics' lien being inferior to defendant's mortgage.

[125 MICHAPP 698] In a comprehensive written opinion, the trial court made the following pertinent findings of fact:

"This Court's review of the evidentiary hearing transcript indicates 1) Durant's subjective intent on signing the waivers was to only waive any lien for work already completed because this was a 'cost-plus' contract where the total cost (lien) was not predictable * * *, 2) Durant did not use a partial waiver form because he intended to waive all liens for completed work * * *, 3) Durant believed, because a 'cost-plan' contract was involved, all work done after each payment was a new contract * * *, 4) the Bank intended to have a first priority mortgage * * *, 5) the Bank used standard waiver forms used in the trade for construction loans * * *, and 6) the trade custom is for the Bank to always get a first mortgage position unless a subordinated position was specifically structured into the loan * * *.

* * *

"This Court holds the plaintiff made a full waiver of all past and future Mechanic's Liens thus giving the defendant a priority position. Hence the motion for accelerated judgment by the defendant is granted."

Under M.C.L. Sec. 570.1119; M.S.A. Sec. 26.316(119), a construction lien, which takes effect when the first actual physical improvement occurs, has priority over a mortgage instrument recorded subsequent to the commencement of the construction work. ² A holder of a mechanics' lien may release such right, but the waiver must be clear and unambiguous. ³ A mechanic's lien may be expressly waived by contract or agreement, or it may be impliedly waived from the acts and conduct of the parties. ⁴

[125 MICHAPP 699] In a mechanics' lien case, the burden of proof rests upon the party who seeks to show a valid waiver of the lien. ⁵ Once waived, a mechanics' lien cannot be resuscitated in the absence of an express agreement binding upon those whose interests are adversely affected. ⁶

A review of the evidentiary hearing transcript reveals that plaintiff's president, Thomas Durant, who had 14 years of experience in the construction business, understood the difference between a full waiver and a partial waiver. Notably, Durant testified that he used partial waiver forms in other cases and that he prepared the partial waivers that were submitted to defendant by the subcontractors involved in the project.

An assistant vice president of defendant bank who was involved in the transactions with plaintiff testified that it was the bank's policy to disburse money on construction loans only where the bank had the first lien on the property:

"Q [Defendant's attorney] Why would you have them? Why would you request those? [Waivers of lien]

"A [Witness John Klee] Well, there would be two main reasons. Number one, to insure that everybody was paid. And number two, to insure the bank of a first mortgage.

"Q Was it your intent, then, to make this loan conditional upon obtaining a first lien on the property?

"A Yes.

* * *

"Q Did you ever in that capacity agree to disburse [125 MICHAPP 700] money on a construction loan without being assured the National Bank of Ypsilanti would have the first mortgage?

"A On this particular one?

"Q On any?

"A No.

"Q Was your intent that these waivers and these sworn statements would insure the National Bank of Ypsilanti of the first lien?

"A Yes. You know, there were cases where we took second mortgages, we understood our position.

"Q But, in this situation it was?

"A It was clear that we had the first mortgage."

Defendant also presented the testimony of Joseph Koretz, an attorney and expert in the area of construction loans. Koretz stated that it is the custom and practice of the construction trade for a lending institution, in order to secure a first mortgage and lien on the premises, to require full waivers of liens before distributing portions of the construction loan. In support of defendant's interpretation of...