Kloster-Madsen, Inc. v. Tafi's, Inc.

• Decision Date: 07 February 1975
• Docket Number: KLOSTER-MADSE,No. 44589,INC,44589
• Citation: 303 Minn. 59,226 N.W.2d 603
• Parties: , Respondent, v. TAFI'S, INC., Respondent, Prudential Insurance Company of America, Appellant, Northwestern National Life Insurance Company, Respondent, Londer Company, Inc., Respondent, Kronicks Floor Covering Service, Inc., Respondent, Photosound Systems, Inc., Respondent, P & D Mechanical Contracting Company, Respondent, Dale Tile Company, Respondent.
• Court: Minnesota Supreme Court

Page 603

226 N.W.2d 603

303 Minn. 59

KLOSTER-MADSEN, INC., Respondent, v. TAFI'S, INC., Respondent Prudential Insurance Company of America, Appellant Northwestern National Life Insurance Company, Respondent Londer Company, Inc., Respondent Kronicks Floor Covering Service, Inc., Respondent, Photosound Systems, Inc., Respondent, P & D Mechanical Contracting Company, Respondent, Dale Tile Company, Respondent.

No. 44589.

Supreme Court of Minnesota.

Feb. 7, 1975.

Syllabus by the Court

1. A mechanics lien is entitled to priority over a mortgage interest where the work done by plaintiff's electrical subcontractor, pursuant to plans and specifications for the remodeling of a building, prior to the recording of the mortgage was found by the trial court to constitute 'the actual and visible beginning of the improvement on the ground' within the meaning of Minn.St.1971, § 514.05.

2. Where there is an actual and visible beginning of the improvement on the ground, a purchase money mortgage interest filed subsequent to he beginning of such improvement is not entitld to priority under the equitable doctrine of instantaneous seisin where the vendor of the real property has knowledge of the commencement of such improvement and the purchase money mortgagee is chargeable with constructive knowledge of its actual and visible beginning.

Kueppers, Kueppers & Von Feldt, and Fred A. Kueppers, Sr., St. Paul, for appellant.

Larkin, Hoffman, Daly & Lindgren, and James P. Larkin, Minneapolis, for Kloster-Madsen, Inc.

Michael J. Mollerus, Minneapolis, for Tafi's.

Janice K. Frankman, Minneapolis, for N.W. Nat. Life.

Katz, Taube, Lange & Frommelt, Minneapolis, for Londer Co.

John J. Ribnick, Minneapolis, for Kronicks.

Fredrikson, Byron, Colborn, Bisbee, Hansen & Perlman, Minneapolis, for Photosound.

William J. Tegeder, Minneapolis, for P. & D.

Kenneth P. Gleason, Minneapolis, for Dale Tile Co.

Heard before ROGOSHESKE, TODD, and YETKA, JJ., and considered and decided by the court en banc.

ROGOSHESKE, Justice.

This appeal arises out of a mechanics lien foreclosure action brought by Kloster-Madsen, Inc., a general contractor which furnished labor and material for the remodeling of a three-story building purchased by defendant Tafi's, Inc., from Minneapolis Elks Lodge No. 44. The critical issue is whether the mechanics asserted by plaintiff and other coordinate lienors also joined as parties have priority over the purchase money mortgage interest of defendant Prudential Insurance Company of America (Prudential). ¹ The trial court, upon findings that the work performed by plaintiff's electrical subcontractor constituted an actual and visible beginning of an improvement on the ground within the contemplation of Minn.St.1971, § 514.05, before the Prudential mortgage was duly recorded, concluded that the mechanics liens were entitled to priority. Prudential appeals from the order denying its post-trial motion for a new trial. Determining that the trial court correctly interpreted and applied § 514.05 to the facts found by the trial court, which have evidentiary support, we affirm.

The critical facts as found by the trial court appear to be undisputed. In July 1970, a purchase agreement was executed between Tafi's, Inc., and Minneapolis Lodge No. 44 of the Benevolent Order of Elks by which Tafi's agreed to purchase a building from Elks for $225,000. The building was a three-story structure including a main floor, which had been largely given over to a bar and restaurant, and two upper floors devoted to office and meeting rooms. The purchase was financed in part by a mortgage loan from Prudential in the amount of $232,000, of which $180,000 was to be advanced toward the purchase price and $52,000 was to be disbursed after remodeling improvements had been made. ² The purchase transaction was closed on August 3, 1970, at which time Elks delivered a deed dated July 29, 1970, to Tafi's and Tafi's delivered a note, also dated July 29, to Prudential in the amount of $232,000. The deed and mortgage were duly recorded on August 3.

On July 20, 1970, anticipating the purchase of the property, Tafi's entered into a contract with the general contractor, Kloster-Madsen, for remodeling of the premises in accordance with prepared plans and specifications. At about the same time, Kloster-Madsen subcontracted to Wilson Electric Company the electrical work called for by the general contract and by the remodeling plans. On July 30, an employee of Wilson Electric went to the building and spent an 8-hour day working there. To make room for a curtain wall, he removed four light fixtures, including two chandeliers, from the ceiling. He also cut four new holes in the ceiling and placed the removed light fixtures in the new holes. He cut a 'crawl hole' in the ceiling and also removed two electrical outlet receptacles from a partition in the dining room. As the trial court found, all of this work was done in compliance with the remodeling plans and specifications prepared by a design company for Tafi's. The trial court also found that '(s)aid improvements, specifically the new holes for the fixtures in their new locations and the installation of the fixtures made therein, were visible.' There was testimony that the removal of the receptacles was also visible. While not covered by findings of the trial court, it is undisputed that such work was commenced without the actual knowledge or authorization of Prudential and without the authorization of Elks. There is conflicting testimony as to whether Elks had knowledge that remodeling had begun on July 30. In denying Prudential's motion for amended findings, the court rejected the latter's proposed amendment that the work done on July 30 was 'without the knowledge' of Elks. Such denial is equivalent to a contrary finding. Roberge v. Cambridge Co-op. Creamery Co., 248 Minn. 184, 79 N.W.2d 142 (1956). There is, in our opinion, ample evidence to support such contrary finding. On March 3, 1971, Tafi's was placed in receivership, prompting plaintiff's foreclosure action and giving rise to this lien priority dispute. The trial court found in favor of plaintiff and the other coordinate lienors, and Prudential appeals.

Two issues are presented: (1) Whether the work performed by the electrician on July 30 constitutes an 'improvement' to the premises and 'the actual and visible beginning of the improvement on the ground' within the meaning of Minn.St.1971, § 514.05; and (2) where there is an 'actual and visible beginning of the improvement on the ground,' whether a purchase money mortgage interest filed subsequent to the beginning of such improvement is entitled to priority if neither the vendor nor the purchase money mortgagee authorized the commencement of the work constituting the improvement. Contrary to Prudential's argument, we hold that the work done...