Hunnicutt Const., Inc. v. Stewart Title and Trust of Tucson Trust No. 3496
| Decision Date | 19 November 1996 |
| Docket Number | CA-CV,No. 2,2 |
| Parties | , 230 Ariz. Adv. Rep. 43 HUNNICUTT CONSTRUCTION, INC., an Arizona corporation, Plaintiff/Appellant/Cross-Appellee, v. STEWART TITLE AND TRUST OF TUCSON TRUST NO. 3496, Intervenor/Appellee/Cross-Appellant. 96-0036. |
| Court | Arizona Court of Appeals |
The primary issue in this case is whether an equitable, unrecorded constructive trust on real property, arising from a party's having been fraudulently induced to furnish material and labor for improvements on the property, has priority over a bona fide purchaser for value's (BFP) subsequent recorded deed of trust on the property. Concluding that the recorded lien had priority, the trial court granted summary judgment for, and quieted title in, appellee Stewart Title and Trust of Tucson Trust No. 3496 (the Trust). For the reasons stated below, we affirm.
The pertinent facts are undisputed. In May 1990, plaintiff/appellant Hunnicutt Construction, Inc. (Hunnicutt), a licensed general contractor, contracted with Ultra Membrane International (Ultra) to construct a warehouse and office facilities on property owned by Ultra. After Hunnicutt completed the project, Ultra was unable to pay the $182,590 balance owed under the contract. Ultra's principal successfully induced Hunnicutt to refrain from filing and recording a mechanics' lien on the property, see A.R.S. §§ 33-981 to 33-1008, in return for Ultra's promise to borrow money to pay Hunnicutt. Ultra never paid Hunnicutt and Hunnicutt never recorded a mechanics' lien.
In November 1990, Ultra applied for a loan from Commonwealth Mortgage Company (Commonwealth) to "refinance current payables on building and working capital." In March 1991, approximately six months after Hunnicutt had completed the construction project and Ultra had taken possession, Commonwealth agreed to loan Ultra $275,000 in return for a promissory note secured by a first position deed of trust on Ultra's improved real property. The loan transaction closed and Commonwealth's deed of trust was recorded in April 1991. Commonwealth had no knowledge before or at the time of closing of any agreements or understandings between Ultra and Hunnicutt, or of any claim by Hunnicutt against the property.
The procedural history of this case is rather convoluted. In March 1992, Hunnicutt filed this action against Ultra and its principal, asserting various theories to recover the $182,590 principal balance owed on the construction contract. Two years later, in March 1994, Hunnicutt amended its complaint to include a claim (count 6) for fraud in the inducement against Ultra. The amended complaint alleged for the first time that Hunnicutt had an equitable lien on the property in the amount of $182,590 plus interest, with priority over all other liens, and sought to impose a constructive trust on the property dating back to the time of the fraud in May 1990. Although Commonwealth received a courtesy copy of the amended complaint, Hunnicutt never named or added it as a party.
During settlement conference proceedings between Hunnicutt, Ultra and its principal, the settlement judge granted Hunnicutt's uncontested motion for partial summary judgment on count 6 of its amended complaint. 1 On July 6, 1994, the settlement judge entered a judgment submitted by Hunnicutt which, inter alia, found by clear and convincing evidence that Ultra had fraudulently induced Hunnicutt to enter into the construction contract in May 1990; granted judgment for Hunnicutt against Ultra in the total amount of $332,033.30, including interest and attorney's fees; imposed a "first lien" constructive trust in that amount in favor of Hunnicutt on Ultra's property relating back, nunc pro tunc, to May 1990; and provided that the constructive trust "shall be deemed prior in right and time to all other liens on the real property," expressly including Commonwealth's recorded deed of trust. Hunnicutt recorded the judgment that same day.
In March 1994, before Hunnicutt obtained its judgment, Commonwealth had assigned its beneficial interest in the note and deed of trust to the Trust, the beneficiaries of which were Commonwealth's principals. The Trust recorded a notice of trustee's sale in early April, and was the successful bidder at the sale in early July.
On July 7, after obtaining and recording its judgment, Hunnicutt filed an application for writ of special execution, seeking to foreclose the Trust's interest in the property. The Trust then successfully moved to intervene in this action, seeking to quiet title and claiming statutory damages under A.R.S. § 33-420. 2 The trial court granted summary judgment in favor of the Trust in October 1995, finding and concluding that: Hunnicutt had no valid judgment binding on Commonwealth and no judgment of constructive trust with priority over Commonwealth; Commonwealth was a BFP without actual or constructive notice of Hunnicutt's claim, which was junior to Commonwealth's claim and extinguished by its trustee's sale; and Commonwealth was entitled to judgment of quiet title against Hunnicutt. The court also awarded the Trust statutory damages of $1,000 under A.R.S. § 33-420(C) and attorney's fees of $19,376. Hunnicutt appealed from the trial court's October 1995 judgment, and the Trust cross-appealed from the court's denial of its request for an award of attorney's fees against Hunnicutt's counsel underA.R.S. § 12-349.
As assignee of Commonwealth's beneficial interest in the note and deed of trust on Ultra's property, the Trust "stands in the shoes" of Commonwealth, taking only those rights and remedies Commonwealth would have had. Van Waters & Rogers, Inc. v. Interchange Resources, Inc., 14 Ariz.App. 414, 417, 484 P.2d 26, 29 (1971). It is undisputed that any interest Hunnicutt had in the property was not recorded at the time Commonwealth acquired its interest, and that Commonwealth recorded its deed of trust more than three years before Hunnicutt recorded the judgment which imposed its constructive trust. Hunnicutt contends, however, that its unrecorded equitable interest established by the constructive trust is superior to the Trust's recorded deed of trust. Hunnicutt's position is based on the premise that an unrecorded equitable interest is not subject to Arizona's statutory recording requirements and takes precedence over a subsequently recorded legal interest, even if the latter interest is that of a bona fide secured lender.
In support of its position, Hunnicutt relies primarily on Blalak v. Mid Valley Transp., Inc., 175 Ariz. 538, 858 P.2d 683 (App.1993). In that case, Division One of this court held that "A.R.S. § 33-412(A) does not, standing alone, affect the validity of unrecorded equitable liens as against creditors or purchasers for value without notice of the liens." Id. at 541, 858 P.2d at 686. That broad holding, however, went beyond the scope of the issue posed in the case, which was "whether the failure to record the existence of a beneficial interest in land held in trust, as provided by A.R.S. § 33-404, subjects that beneficial interest to a judgment lien obtained against the trustee." Id. at 539, 858 P.2d at 684. Thus, the court focused on "the enforceability of a judgment lien against trust property where the existence of the trust or the beneficiary has not been disclosed to the world," id. at 540, 858 P.2d at 685, and concluded that equitable liens "need not be recorded to prevail over judgment creditors of the actual titleholder." Id. at 541, 858 P.2d at 686. The court's statement that Arizona's "recording statutes have not required that an equitable interest in land be recorded to be valid against creditors or third party bona fide purchasers " was, in our view, overbroad and unnecessary for its decision. Id. at 541, 858 P.2d at 686 (emphasis supplied).
Regardless of what may or may not be dicta in Blalak, however, that case is distinguishable. First, and perhaps most importantly, Blalak and Arizona cases cited therein did not involve mechanics' or materialmen's liens. Arizona's statutes governing such liens grant licensed contractors like Hunnicutt "a lien on such building, structure or improvement for the work or labor done or professional services, materials, ... [or] fixtures ... furnished," A.R.S. § 33-981(A). Such liens "are preferred to all liens, mortgages or other encumbrances upon the property attaching subsequent to the time the labor was commenced or the materials commenced to be furnished." A.R.S. § 33-992(A). See Scottsdale Memorial Health Systems, Inc. v. Clark, 157 Ariz. 461, 759 P.2d 607 (1988). "In order to impress and secure" a mechanics' or materialmen's lien, however, the contractor must timely record a notice and claim of lien with the county recorder's office. A.R.S. § 33-993(A); Irwin v. Murphey, 81 Ariz. 148, 155, 302 P.2d 534, 538 (1956). Hunnicutt concedes it did not record and perfect its lien as required.
We agree with the Trust that where a legal remedy such as a statutory lien exists, but has not been utilized, a claimant should not be permitted to substitute an equitable remedy. See Valley Drive-In Theatre Corp. v. Superior Court, 79 Ariz. 396, 400, 291 P.2d 213, 215 (1955) (); Lewis v. Midway Lumber, Inc., 114 Ariz. 426, 432, 561 P.2d 750, 756 (App.1977). To rule otherwise would allow a contractor who fails to comply with the mechanics' or materialmen's lien statutes to nonetheless obtain and prioritize a lien.
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...grounds by Sertich v. Moorman, 162 Ariz. 407, 412, 783 P.2d 1199, 1204 (1989); Hunnicutt Constr., Inc. v. Stewart Title & Trust of Tucson Trust No. 3496, 187 Ariz. 301, 304, 928 P.2d 725, 728 (App.1996) (recognizing that the assignee of a beneficial interest in a note and deed of trust take......
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