JS Purcell Lumber Corp. v. Henson

• Citation: 405 F. Supp. 1130
• Decision Date: 10 December 1975
• Docket Number: Civ. A. No. CA 75-0390-R.
• Parties: J. S. PURCELL LUMBER CORPORATION et al. v. Hannah L. HENSON, etc., et al.
• Court: U.S. District Court — Eastern District of Virginia

405 F. Supp. 1130

J. S. PURCELL LUMBER CORPORATION et al. v. Hannah L. HENSON, etc., et al.

Civ. A. No. CA 75-0390-R.

United States District Court, E. D. Virginia, Richmond Division.

December 10, 1975.

Richard W. Arnold, Jr., Louisa, Va., for plaintiffs.

N. George Metcalf, Asst. U. S. Atty., Richmond, Va., for defendants.

MEMORANDUM

WARRINER, District Judge.

This is a dispute between lienholders as to which has priority. The United States Government, through Farmer's Home Administration (hereinafter FHA), advanced money to the Hensons to buy a lot and erect a dwelling thereon. FHA secured its loan by a first deed of trust duly recorded under Virginia law.

Subsequently, Purcell Lumber Corporation (hereinafter Purcell), furnished building materials for the construction of the dwelling and when the payments therefore were not made it duly perfected its mechanics lien under Virginia law.

Though the filing and perfection of the mechanics lien by Purcell was subsequent in time to the recording of the government's deed of trust, both parties concur that under Virginia law the mechanics lien would have priority. The government contends, however, that Virginia law should not apply to affect the priority of a lien claimed by the United States Government and that the federal law recognizes only the rule of "first in time, first in right."

Purcell says the government, having made use of Virginia law to secure its loan by a deed of trust, is bound by Virginia law as to the rights and privileges attendant to that security device. Thus, Purcell says, the deed of trust must be subordinated to Purcell's mechanics lien. The parties stipulated all the facts they deem material and have submitted the case on briefs to a determination on the merits.

The government's brief in support of its motion to dismiss cites, but does not discuss in any meaningful way, a case directly on point. The case is Bellegarde Custom Kitchens v. Select-A-Home, Inc., 385 F.Supp. 318 (S.D.Me.1974). Purcell compounded the federal government's failure to develop the applicability of the case to Virginia law by failing to mention the case in its reply brief. Neither the government nor Purcell cited or discussed the closest analogous Fourth Circuit decision, Agsten & Sons, Inc. v. Huntington Trust and Savings Bank, 388 F.2d 156 (4th Cir. 1968), cert. denied 390 U.S. 1025, 88 S.Ct. 1413, 20 L.Ed.2d 282 (1968).

The amount of money involved in this case is small which may explain the disposition of counsel to give it rather cursory attention. The issue involved, however, is substantial. The issue is: When the federal government seeks the protection of state loan security laws, must it subordinate itself to the rights and privileges afforded by the state in the same manner as private lenders, or is it entitled to special priority because of its public status? Stated differently, when carpenters, plumbers, and building supply houses extend credit on a construction project financed by federal money, are their rights and priorities under state law to be superseded by a "federal law of priority?" The answer under the law is that federal priority prevails.

It would appear that in equity and good conscience a federal agency should not avail itself of a state created security interest, in this case a deed of trust, and yet be privileged to disregard the state ordained order of priority flowing from that instrument. There is an element of deception involved in the use of a deed of trust to secure a loan, the rights and priorities under which are well known in the building industry, when all the while the government does not intend to be bound by those well known rights and priorities. Any truth in labeling act covering this situation would not permit such an opportunity for misunderstanding and financial loss to persist.

Moreover, when the federal government refuses to be bound by state law with respect to priorities, the purpose for which the federal lending agency was created may well be frustrated. In the case of the Farmer's Home Administration, the lending agency in this action, Congress intended that FHA would make loans to marginal and submarginal rural borrowers for the purpose of permitting them to attain a dwelling of their own. See 42 U.S.C. § 1471. This laudable goal can hardly be attained if the construction trade and materialmen realize that their universal right to priority in enforcement of their liens will be subordinated to the government's deed of trust. Indeed, it was the unwillingness of mechanics and materialmen to furnish goods and services in the construction trade without their priority which led to the adoption of mechanic lien laws in Virginia as elsewhere. See Mathews v. Meyers, 151 Va. 426, 145 S.E. 352 (1928); Gilman v. Ryan, 95 Va. 494, 28 S.E. 875 (1898).

But this Court is not permitted to look to the wisdom of the law, only to its existence. It is clear that the rule of law mandates federal priority under the factual situation existing in this case. District Judge Gignoux of the Southern District of Main in Bellegarde, supra, discussed the matter succinctly but fully. In that case the materialmen had complied with all aspects of the perfection of mechanics liens. Were the mortgage holder a private lender, rather than FHA, the mechanics liens clearly would have been superior under the state law of Maine. The law with respect to the priority of mechanics liens in Maine is, for all practical purposes, identical with Virginia's law. In that case, as here, at the time the FHA lien attached, the mechanics' lien was inchoate. See, United States v. New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954). The mechanics' lien becomes "choate" only if the identity of the lienor, the property subject to the lien, and the amount of the lien are established. United States v. New...