Lewis v. Shawmut Bank, N.A.

• Decision Date: 29 September 1994
• Docket Number: No. 93-427,93-427
• Citation: Lewis v. Shawmut Bank, N.A., 650 A.2d 744, 139 N.H. 50 (N.H. 1994)
• Parties: Bruce LEWIS d/b/a Lewis Companies, v. SHAWMUT BANK, N.A.
• Court: New Hampshire Supreme Court

Page 744

650 A.2d 744

139 N.H. 50

Bruce LEWIS d/b/a Lewis Companies, v.SHAWMUT BANK, N.A.

No. 93-427.

Supreme Court of New Hampshire.

Sept. 29, 1994.

Motion to Reconsider Withdrawn Nov. 7, 1994.

Gormley, Mayer & Gormley, P.C., Nashua (Arthur O. Gormley, III on the brief and orally), for plaintiff.

Jordan, Gall and Buchanan, P.A., Nashua (Edward A. Jordan on the brief and orally), for defendant.

JOHNSON, Justice.

The plaintiff, Bruce Lewis d/b/a Lewis Companies, a subcontractor, appeals the decision of the Superior Court(Dalianis, J.) that the defendant, Shawmut Bank, N.A., had priority over the plaintiff's mechanic's lien with respect to all the proceeds from the foreclosure of the mortgaged premises.We reverse and remand.

The plaintiff, a subcontractor of G.M. Holdings (G.M.), provided a water booster station and incidental labor, material, and services for G.M.'s development of approximately 160 acres of land in Raymond.In order to acquire this land, G.M. conveyed two mortgages: one for $420,000 to Brian and Adela Griset, and one for $537,000 to Cobb, Inc.

On April 20, 1988, the Arlington Trust Company, predecessor to the defendant, issued a commitment letter for a $2,000,000 loan to G.M. and its principals, Brian Griset and Kevin Price.On May 10, 1988, Griset and Price signed the commitment letter, thereby creating an enforceable loan agreement.The loan agreement purported to grant a "first mortgage land loan," but otherwise was consistently replete with references to the loan as a "construction loan."In particular, the first line of a paragraph describing the primary terms of the loan reads: "A.Type: Construction loan."The security was to be a first mortgage on the real estate to be developed.The agreement provided that $1,200,000 would be disbursed promptly, $138,000 was to be held back for soft costs, $522,000 held back for road and site work, and $140,000 held back for the construction of two homes.At the closing, $1,200,000 was disbursed to G.M.Of this amount, G.M. paid Cobb, Inc. $521,384, and Adela Griset $225,000, thereby discharging all other mortgages on the property.Later, Arlington Trust and/or its successor, the defendant, disbursed additional funds totaling $730,000 to G.M. primarily to pay for site work, a model home, and soft costs.The last disbursement was requested on January 11, 1989.

The plaintiff completed work on December 30, 1988, and requested payment of $60,000.Since G.M. refused to pay, the plaintiff perfected a mechanic's lien on the site subsequent to the last disbursement.The plaintiff obtained a judgment against G.M. on October 18, 1989, for $60,000.After G.M. defaulted on the Arlington Trust loan, the defendant foreclosed on June 4, 1991.The foreclosure sale yielded $565,001.The plaintiff sued the defendant, claiming it was entitled to satisfy its mechanic's lien out of the foreclosure proceeds.The superior court held that the defendant enjoyed priority with respect to the full $565,001.The plaintiff appealed.

The general rule of priority in New Hampshire is "race-notice," i.e., a purchaser or creditor who records without notice of a prior unrecorded interest has the senior lien.SeeAmoskeag Bank v. Chagnon, 133 N.H. 11, 14, 572 A.2d 1153, 1155(1990).An exception to the general rule, however, exists for mechanic's liens.RSA 447:12-a (1991)(current version at RSA 447:12-a (Supp.1993)).Both parties rely upon the 1991 version of the relevant statute.Accordingly, for purposes of this opinion, we do as well.In pertinent part, that statute states:

[A mechanic's lien] shall have precedence and priority over any construction mortgage.For the purposes of this section a construction mortgage shall mean any mortgage loan made for the purpose of financing the construction, repair or alteration of any structure on the mortgaged premises where the lien secured by such attachment arises from the same construction, repair or alteration work.Provided that such attachment shall not be entitled to precedence as provided in this section to the extent that the mortgagee shall show that the proceeds of the mortgage loan were disbursed either toward payment of invoices from or claims due subcontractors and suppliers of materials or labor for the work on the mortgaged premises, or upon receipt by the mortgagee from the mortgagor or his agent of an affidavit that the work on the mortgaged premises for which such disbursement is to be made has been completed and that the subcontractors and suppliers of materials or labor have been paid for their share of such work.

RSA 447:12-a (1991).The legislative purpose in enacting this statute relative to construction attachments was to provide for special treatment for mechanic's liens in determining priority status so that laborers could get paid for their services.SeeN.H.S. Jour. 1020(1971)(comments of Sen. Morrissette).The statute only provides priority over prior mortgages based on construction loans.Therefore, if the defendant's loan is regarded as a "mixed" loan (i.e., its purpose is to finance not only construction, but also land acquisition or discharge of mortgages on land), then, under the race-notice rule of priority, the defendant would enjoy priority with respect to non-construction disbursements.Even if the loan were regarded as a pure construction loan, the defendant would still have priority with respect to those disbursements made to pay subcontractors and traceable in one of the two ways provided in the statute.

Accordingly, the defendant would be entitled to all the foreclosure proceeds if: (1) the loan was "mixed" and non-construction disbursements plus construction disbursements properly traced as payments to subcontractors exceeded $565,001; or (2) the loan was a pure construction loan and disbursements properly traced as payments to subcontractors exceeded $565,001.The trial court found that the...