Joralman v. McPhee

• Decision Date: 12 January 1903
• Citation: 71 P. 419,31 Colo. 26
• Parties: JORALMAN et al. v. McPHEE et al. [*]
• Court: Colorado Supreme Court

71 P. 419

31 Colo. 26

JORALMAN et al. v. McPHEE et al. ^[*]

Supreme Court of Colorado

January 12, 1903

Appeal from district court, Arapahoe county.

Suit to foreclose mechanics' liens by Charles D. McPhee and others against Ida B. Snell and others, in which H. M Joralman, trustee, and others, intervened. From a decree adjudging priorities, the trustee and others appeal. Modified.

Steele J., dissenting.

Section 2885 provides that mechanics' liens shall relate back to the commencement of the work, and shall have priority over incumbrances which may have been created, and of which the lienors had no notice. It also provides that nothing in the section shall impair any valid incumbrance on the land, made and recorded before the work was commenced. Mortgagors loaned money with the understanding that it was to be applied to the erection of a building. The incumbrance, which was recorded included a brick dwelling on the premises, though no such building was then in existence. Mechanic's lien claimants had notice of the arrangement, and received part payment from the mortgagee himself. Held that, as to advances actually made for the building, the mortgage was a prior lien thereon over the mechanics' liens, notwithstanding section 2884.

T. J. O'Donnell, Milton Smith, and Benedict &amp Phelps, for appellants.

Hartzell & Steele, D. V. Burns, and Whitford, Whitford & May, for appellees.

GABBERT J.

In the original opinion the decree and judgment of the trial court was modified. Certain of the appellants and appellees filed a petition for rehearing. Without granting the petition, all parties have been heard on the questions thus raised; and, while we are still of the opinion that the judgment must be modified, we have also reached the conclusion that the original opinion must be changed in some particulars.

For these reasons, we file the following in lieu of the original opinion:

This was an action commenced on the part of lien claimants to foreclose mechanics' liens on real property situate in the city of Denver. Such proceedings were had that other lien claimants and the trustees under deeds of trust on the property, and their beneficiaries, were made parties. The trial court adjusted the several liens thus represented, in rank and amount. From this judgment the trustees and their beneficiaries appealed.

There is no controversy between the mechanic's lien claimants. The appellants, claiming rights under the deeds of trust, however, attack their claims, and complain of the judgment in so far as it subordinates their rights to these liens, and also complain of the adjustment of the several liens claimed under the deeds of trust as between themselves. The important questions to determine are (1) the relative rank of the liens represented by the respective deeds of trust; (2) the rank of such liens with respect to the several mechanics' liens; (3) the validity, amount, and other questions directly affecting the latter liens.

At the inception of the transactions out of which this litigation arose, the lots upon which a building was afterwards erected stood in the name of Ida B. Snell, subject to a first incumbrance securing the sum of $2,000, and also a second deed of trust representing, in part, the purchase money for such lots. The note secured by the latter incumbrance belonged to the appellant Mrs. O'Donnell. At this time a mutual agreement was entered into between Mrs. Snell, Mrs. O'Donnell, and the appellants Tooker and Joralman, whereby Tooker loaned Mrs. Snell $7,500, and Joralman loaned her $500, to be applied as follows: $2,000 to discharge the first incumbrance, and the remainder in the construction of a building on the lots, in consideration of which Mrs. O'Donnell released her incumbrance. Mrs. Snell executed a trust deed for the benefit of Tooker, and another in favor of Joralman, which were placed of record in the order named, and a third deed of trust for the benefit of Mrs. O'Donnell, subject to the other two, in the sum of $4,000, which was recorded as a third incumbrance. Joralman & Co., who were the representatives of appellants Tooker and Joralman, then entered into a building contract with Mrs. Snell for the erection of a building upon the lots in question. Under this contract the building was constructed. The indebtedness incurred in its erection not having all been paid, those claiming liens on account of labor performed and materials furnished for its construction filed liens, and later commenced an action to foreclose. On the trial the court found as a fact that, of the $8,000 represented by the deeds of trust executed for the benefit of Tooker and Joralman, $2,000 had been advanced to discharge the first incumbrance, and $2,770.10 in paying workmen engaged in the construction of the building, and for materials furnished for that purpose. We understand that the rights growing out of the Tooker and Joralman deeds of trust have, in effect, been pooled. The beneficiaries under these incumbrances claim to have made other advances on account of their engagement with Mrs. Snell, to which they are entitled to credit; but, over and above the $4,770.10 applied as above indicated, none of these advances, or any sum which may be due them on account of the notes represented by the deeds of trust, were applied to the betterment of the property. The rank of the several liens of the respective beneficiaries under the deeds of trust, as between each other, was not provided for in detail, and we must therefore determine the intention and rights of the parties in this respect from the results which would follow the execution of their contract under which these deeds of trust were given. Originally Mrs. O'Donnell's lien was subject only to the prior incumbrance of $2,000. The consideration which moved her to postpone this lien to prior incumbrances aggregating $8,000 was twofold: (1) That a prior incumbrance of $2,000 should be discharged; and (2) that the remainder should be expended in improvements on the property. By carrying out this arrangement, the value of the property pledged for the payment of her indebtedness would be enhanced, so that, while it was incumbered for a greater amount than before, the discharge of the first incumbrance and its improved condition gave her a greater value, to which the lien of her deed of trust would attach. Tooker and Joralman had agreed with Mrs. O'Donnell that the money secured by their deeds of trust should be applied in a manner which would bring about this result, and their rights as against her would therefore be limited accordingly. To accomplish this end, they had agreed with Mrs. O'Donnell to apply the advances secured by their deeds of trust to two objects: (1) To the discharge of the first incumbrance of $2,000; and (2) to the improvement of the property. In each instance, however, their liens would be limited, as against her rights, to the extent the value of her lien was increased, because under their agreement with her that would be the result of an application of the funds secured by their deeds of trust. They have discharged the first incumbrance, and are therefore entitled to a first lien upon the lots for this sum, because to that extent Mrs. O'Donnell has been benefited. Subsequent advances for the purposes contemplated by the agreement would not change or enlarge this lien. They were to apply the remainder in constructing a building. For this purpose they have advanced $2,770.10. For this sum they are also entitled to a lien upon the lots and buildings in advance of Mrs. O'Donnell's, because to that extent the value of her lien has been increased; but this lien upon the building is limited to this sum, because it is all that has been advanced for the purpose of constructing it. Whatever other sums the parties primarily liable for the indebtedness secured by the Tooker and Joralman deeds of trust may owe the beneficiaries under these incumbrances, and which may be a lien upon both lots and building, would be subject to the lien of Mrs. O'Donnell, because not applied in the manner provided for in the contract under which these several deeds of trust were executed. The lien under the Tooker and Joralman deeds of trust, as against Mrs. O'Donnell, would therefore be limited (1) to $2,000 upon the lots; (2) to $2,770.10 upon the lots and building, which would, in effect, be a first lien in their favor for $4,770.10 upon the lots, $2,770.10 of which would be a first lien upon the building. Mrs. O'Donnell's lien would attach to the land subject to the first lien under the Tooker and Joralman deeds of trust in the sum of $2,000, and to a lien in favor of these parties upon both lots and building in the sum of $2,770.10. The remaining amount due the beneficiaries under the Tooker and Joralman deeds of trust would attach to both lots and building, subject to all of the foregoing liens.

The next question presented is the relative rank between the liens secured by the respective deeds of trust and those claimed by the mechanic's lien claimants. That the lien of Mrs. O'Donnell upon the lots is superior to the mechanic's lien claimants is apparent from the statute (section 2885, 3 Mills' Ann. St.), which provides that mechanics' liens shall not impair any valid incumbrances upon the land upon which improvements are erected, and on account of which liens are claimed, which are recorded prior to the execution of the building contract, or the commencement of work upon the structure. The deed of trust securing Mrs. O'Donnell was executed and recorded before the building contract was entered into between Joralman & Co. and Mrs. Snell, or the commencement of work and is therefore fully protected as to the lots...