M. E. Kraft Excavating & Grading Co. v. Barac Const. Co.
| Decision Date | 16 February 1968 |
| Docket Number | No. 40432,40432 |
| Citation | 156 N.W.2d 748,279 Minn. 278 |
| Parties | M. E. KRAFT EXCAVATING AND GRADING CO., Inc., Appellant, v. BARAC CONSTRUCTION CO., et al., Defendants, L. H. Bolduc Co., et al., Appellants, Knutson Company, Respondent, H. W. Fridlund, Architect, Inc., dba H. W. Fridlund Architect, intervenor, Appellant. |
| Court | Minnesota Supreme Court |
Syllabus by the Court
1. Mechanics liens are purely creatures of statutes and the rights of the parties are governed by the language of the statutes.
2. The statutory words 'the actual and visible beginning of the improvement on the ground' have a definite meaning. It is clear from this statutory language as interpreted by our decisions that whether one has the status of a bona fide mortgagee without notice depends upon whether or not there was an actual and visible beginning of the improvement On the ground prior to the recording of the mortgage.
3. Services of an architect in preparing plans for improvement of the premises do not constitute an actual and visible beginning of the improvement on the ground so as to permit a lien filed subsequent to a mortgage to attach at the date of the commencement of the services of the architect as against a bona fide mortgagee without notice.
4. A preliminary survey of premises for the purpose of marking the perimeters of the property on which the mortgage is to be placed was not such an actual and visible beginning of the improvement as to permit liens filed subsequent to the mortgage to attach as of the date of the survey as against a bona fide mortgagee without notice.
5. Wooden markers placed at the corners of a tract during a survey made prior to the giving of a mortgage on the tract do not constitute such an actual and visible beginning of the improvement on the ground as will permit liens filed subsequent to the mortgage to attach as of the date of the placing of the markers against a bona fide mortgagee without notice.
Moore, Costello & Hart, and William M. Beadie, St. Paul, for all appellants.
Carlsen, Greiner & Law, Minneapolis, for respondent.
Appeal from a judgment of the District Court of Hennepin County.
This action, a mechanics lien foreclosure, was commenced by M. E. Kraft Excavating and Grading Company, Inc., against Barac Construction Company, Lyman L. Phelps, Martha M. Phelps, Alexander M. Barac, L. H. Bolduc Company, Inc., Jesco, Inc., St. Paul Foundry & Manufacturing Company, and Knutson Company as defendants.
The facts may be stated as follows: Alexander M. Barac and Lyman L. Phelps, hereinafter referred to as Barac and Phelps, and at times collectively as owners, entered into purchase agreements with five different individuals to purchase six adjacent lots on which they expected to build an apartment building. They consummated the purchase of the lots in May and June of 1962 with the proceeds of a $100,000 mortgage loan obtained from defendant Knutson Company.
Before consummating the purchase, Barac and Phelps contacted the Barac Construction Company relative to acting as contractor for construction of the building. The contractor engaged the services of the intervening defendant-appellant, H. W. Fridlund, Architect, Inc., to design a building and develop preliminary plans. The normal practice of the architect in designing or planning a building was to obtain a survey of the site, making clear the boundaries, the contours, and the location of sanitary facilities, curbs, sidewalks, and trees. A survey was necessary also to establish required setbacks and determine the area of the site for zoning requirements, so either the contractor or the architect hired a surveying firm, Egan, Field & Nowak, to survey the six-lot tract. This was done on January 24 and 25, 1962. Following the survey iron stakes were driven flush to the ground at the four corners of the six-lot tract, although it appears that at one or more of the four corners the surveyors merely located iron stakes from a previous survey. The only other visible work the surveyors performed on the site was placing wooden markers at the four corner monuments. The record does not show how long the wooden markers remained standing or visible. The architect could not state whether the wooden markers were visible in February 1962, when he was on the site, and the surveyors could not state whether the wooden markers were standing and visible on May 4, 1962, when Barac and Mr. and Mrs. Phelps signed their mortgage deed in favor of the Knutson Company; on July 10, 1962, when the mortgage was recorded; or in October 1962, when the surveyors did additional work on the site.
In January 1962 there were situated upon the six-lot tract several residences. All but one of the residences were occupied. At the time of closing the purchase, some of the residences were still occupied. When the mortgage was recorded, there were no recently completed improvements on the tract, nor were there any improvements in the process of construction.
At the direction of the contractor the architect proceeded with the designing of a building. These first preliminary drawings and plans were completed in late February or early March 1962. Certain revisions were made in April 1962. One of the reasons for preparing the preliminary plans was to provide owners something they could use to negotiate mortgage financing, so the plans were in essence art work.
An absolute prerequisite to the construction of the building was the obtaining of adequate mortgage financing, since Barac and Phelps were not going to finance the apartment project with their own money. They estimated that it would require a permanent mortgage of $1,050,000. The preliminary plans and specifications, as well as anticipated operating statements, were necessary to obtain a mortgage commitment.
In late February or early March 1962, Phelps contacted Knutson Company relative to borrowing $100,000 in order to purchase the six lots, the loan to be secured by a mortgage on them. With this mortgage application, a copy of the January survey was delivered to Knutson Company for purposes of title examination, and prints of the preliminary drawings were also given it for the purpose of negotiating the permanent mortgage. On May 4, 1962, Barac, Phelps, and Mrs. Phelps executed and delivered to Knutson Company their negotiable first mortgage note for $100,000, secured by a first mortgage on the six lots. They used the proceeds of the loan to acquire the lots. On July 10, 1962, the deeds conveying title to Barac and Mr. and Mrs. Phelps were duly recorded. On the same day the mortgage was recorded.
During this period Knutson Company had no knowledge that the architect had not been paid for his services. Since Knutson Company was a mortgage broker, at Phelps' request it attempted to get the permanent mortgage commitment the owners sought, although it gave no assurance that it could do so. By the fall of 1963 Knutson had been unable to get the commitment and the owners attempted to obtain one elsewhere.
At the time the purchase money mortgage was executed, the architect's preliminary plans called for a six-story high-rise apartment building. To furnish satisfactory access for the tenants the owners acquired an adjacent lot in July 1962 and the plans were revised to incorporate that lot into the project site. In August 1962 the architect finally started on the working drawings.
By the time the architect's drawings were finalized, the owners had succeeded in obtaining a commitment for the permanent financing from the Eberhardt Company. The contractor thereafter obtained a building permit from the city of Minneapolis, and in June 1963, M. E. Kraft Excavating and Grading Company, Inc., a subcontractor of the contractor, commenced removing the structures standing on the seven-lot site. Thereafter the other subcontractor defendants-appellants began furnishing labor and materials to the project pursuant to contracts with the contractor.
Originally, the owners had anticipated that the mortgage broker, on the basis of a permanent mortgage commitment, could borrow interim construction money from a bank. On August 11, 1963, as an accommodation to the owners the Knutson Company permitted a shell mortgage in the amount of $1,125,000 to be placed on the seven-lot site, with the plan that this mortgage could be assigned to the permanent investor. The shell mortgage was never used. While construction was proceeding, Phelps continued unsuccessfully to attempt to obtain interim construction financing. Failing to obtain construction money, the contractor was unable to make progress payments to the lien claimants and construction stopped in early 1964.
Subsequently, defendants-appellants filed their mechanics liens...
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...with pins, lathes, marking pipeline and sewer easements do not constitute commencement); M.E. Kraft Excavating & Grading Co. v. Barac Constr. Co., 279 Minn. 278, 156 N.W.2d 748, 753-54 (1968) (preliminary staking does not constitute commencement); H.B. Deal Constr. Co. v. Labor Discount Cen......
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