McConnell v. Mortgage Inv. Co. of El Paso

• Decision Date: 24 July 1957
• Docket Number: No. A-5976,A-5976
• Parties: J. C. McCONNELL et al., Petitioners, v. MORTGAGE INVESTMENT COMPANY OF EL PASO, Texas, Respondent.
• Court: Texas Supreme Court

Page 280

305 S.W.2d 280

157 Tex. 572

J. C. McCONNELL et al., Petitioners, v. MORTGAGE INVESTMENT COMPANY OF EL PASO, Texas, Respondent.

No. A-5976.

Supreme Court of Texas.

July 24, 1957.

Rehearing Denied Oct. 9, 1957.

Blanton & McMahon, Odessa, for petitioners.

Burges, Scott, Rasberry & Hulse, and Schuyler B. Marshall, E1 Paso, for respondent.

Clinton Foshee, Dallas, amicus curiae.

NORVELL, Justice.

This litigation involves the priority of liens covering fourteen city lots and improvements thereon situated in Odessa, Texas, namely, (a) the McConnell vendor's liens, held by petitioners, J. C. McConnell and J. C. McConnell Land Co., Inc., (b) deed of trust lien held by respondent Mortgage Investment Company of E1 Paso, Texas and (c) various mechanics' and materialmen's liens which the Mortgage Investment Company also holds by assignment.

Being of the tentative opinion that the Court of Civil Appeals had erred in its construction of this Court's holding in Oriental Hotel Co. v. Griffiths, 88 Tex. 574, 33 S.W. 652, 30 L.R.A. 765, we granted a writ of error.

The case was submitted to the trial court upon stipulated facts which are set forth in some detail in the opinion of the Court of Civil Appeals. McConnell v. Mortgage Investment Co. of E1 Paso, Tex.Civ.App., 292 S.W.2d 636. We shall accordingly confine our statement here strictly to those facts deemed essential to our holdings hereinafter set forth.

The events giving rise to the present controversy all occurred during the year 1953. The McConnell vendor's liens had their origin in two conveyances executed by J. C. McConnell and J. C. McConnell Land Co., Inc., dated February 25th whereby the fourteen lots here involved (among others) were conveyed to Chaney & Singleton Brothers, a co-partnership which we shall refer to as Chaney & Signleton in accordance with the usage adopted by the Court of Civil Appeals.

On April 1st, a date admittedly prior to the commencement of construction activities upon the fourteen lots in controversy, McConnell or the corporation bearing his neme held valid subsisting first vendor's liens against the property. The amounts secured by these liens aggregated the principal sum of $17,500 at the time of trial.

Between April 2nd and 5th, Chaney & Singleton had surveys made and the lots staked so as to mark the corners of each of the fourteen dwelling houses they proposed to build thereon. Prior to April 15th, the date of the Mortgage Investment Company deed of trust, it appears that plans and specifications for a fourteen dwelling house project had been prepared; poles had been set for electric lines; better boards had been placed around the building sites; trenches had been dug; reinforcing steel put in place and plumbing roughed in preparatory to pouring concrete slabs for foundations.

On April 15th, Chaney & Singleton, as owners of the fourteen lots in question, executed a deed of trust to S. M. Murchison, trustee, to secure the payment of a promissory note for the principal sum of $119,300 payable to the order of Mortgage Investment Company. In connection with this deed of trust, Chaney & Singleton joined by John O'Sullivan as surety, executed a written instrument designated as an 'Owner-Contractor Bond' which, however, contains a number of contractual obligations aside from the surety provision. Chaney & Singleton obligated themselves to construct fourteen dwelling houses upon the property and in turn Mortgage Investment Company by acceptance of such 'Owner-Contractor Bond' agreed to advance money to Chaney & Singleton against the $119,300 note as the work progressed upon the proposed construction. The agreement was apparently prepared by filling in a mimeographed form and the spaces for the day and month of execution were left blank, but reference was made to the deed of trust of 'even date.' The document was signed by John O'Sullivan, the surety, in E1 Paso on April 17th then mailed to Chaney & Singleton in Odessa who executed the same and mailed it to Mortgage Investment Company in E1 Paso, where it was received on April 20th.

On April 17th J. C. McConnell and J. C. McConnell Land Co., Inc., executed agreements whereby they agreed to subordinate their vendor's liens to the Mortgage Investment Company's deed of trust.

In accordance with the understanding whereby Mortgage Investment Company were to advance money on the $119,300 note as the work progressed, said company paid over to Chaney & Singleton sums totalling $73,450 during the months of April, May and June. Chaney & Singleton ran into financial difficulties shortly thereafter and failed to complete the building project with the result that numerous claims against the co-partnership and liens against the property were asserted. Mortgage Investment Company thereupon purchased claims against Chaney & Singleton which were secured by statutory or constitutional liens against the fourteen lots covered by their deed of trust and expended the sum of $33,366.20 in acquiring claims having a face value of $59,187.61. It appears that all of the labor and materials giving rise to the mechanics' and materialmen's liens was furnished after April 15th and prior to July 29, 1953. Apparently those who did the surveying, set the baffle boards, dug the trenches, etc., have long since been paid.

Based upon the above state of facts, it is the position of Mortgage Investment Company that:

a. Work upon the construction project began prior to April 15th.

b. The mechanics' and materialmen's liens purchased by it were therefore superior to the deed to trust lien executed by Chaney & Singleton on April 15th.

c. The McConnell vendor's liens having been subordinated to the deed of trust lien was consequently inferior to the mechanics' and materialmen's liens. Shaddix v. National Surety Co., 221 Ala. 268, 128 So. 220, 224.

The situation is somewhat unusual in that we have a mortgage company asserting that its deed of trust lien is inferior to mechanics' and materialmen's liens based upon labor and materials furnished after the date of the deed of trust. However the effect of accepting this contention insofar as the petitioners' vendor's liens are concerned would be to place them last in the category of priorities.

Petitioners' primary contention is that their vendor's liens were restored to a position of first priority because the Mortgage Investment Company by accepting the 'Owner-Contractor Bond' on April 20th in legal effect rendered their deed of trust lien inferior to any and all mechanics' and materialmen's liens that might thereafter be fixed against the premises and that such action had the effect of vitiating the subordination agreement of April 17th. Petitioners however vigorously counter the proposition that the mechanics' and materialmen's liens occupy a place of first priority as to both the deed of trust and vendor's liens because construction work was begun prior to April 15th, the date of the execution of the deed of trust to which the vendor's liens were subordinated by agreement of April 17th.

While the stipulation of the parties listed numerous items and accounts for labor and materials, it was simply agreed that such accounts were secured by valid statutory and constitutional liens. The Court of Civil Appeals held that the statutory mechanics' and materialmen's liens 'related back' to the beginning of the work upon the project, but stated that it had found no authority for applying this doctrine to constitutional liens. This holding necessitated a remand of this case so as to determine which of the mechanics' and materialmen's liens were statutory and which were constitutional in nature. Priorities as established by the Court of Civil Appeals were as follows: (1) the statutory mechanics' and materialmen's liens, (2) the deed of trust lien, (3) the vendor's liens and (4) the mechanics' and materialmen's liens which derived their validity from the constitution but which had not been fixed in accordance with statutory provisions.

We first consider the matter of priority as between the statutory mechanics' and materialmen's liens and the Mortgage Investment Company's deed of trust lien. This is the controlling question in the case and involves an examination of the 'relation back' theory of mechanics' and materialmen's liens under the Texas Statutes. As above pointed out respondents contend that the mechanics' and materialmen's liens had their inception at the beginning of the work upon the project. This contention was sustained by the Court of Civil Appeals upon authority of Oriental Hotel Co. v. Griffiths, 88 Tex. 574, 33 S.W. 652, 30 L.R.A. 765. The Court said:

'It is clear at the outset that certain work had started on the project before plaintiff's Deed of Trust was executed. It has been held repeatedly that the liens of materialmen and laborers are superior to any mortgage created after the work has begun, and that all such liens shall be on an equal basis, whether by materialmen or laborers, so long as they are for work done or material supplied for the erection or completion of the building. It has also been established that each lien thereby properly created shall be equal to all other such liens, regardless of inception-that is, the lien for he who completes the last bit of building is equal in time and dignity to the lien of he who has labored on the erection of same, the courts, holding that all the liens have their inception at the same time, to-wit, the beginning of the erection or construction of the building or buildings, and that all of said liens are superior to any mortgage executed after the erection of the building is begun. Oriental Hotel Co. v. Griffiths, 88 Tex. 574, 33 S.W. 652, 30 L.R.A. 765; Tomlinson v. Higginbotham, Tex.Civ.App., 229 S.W.2d 920.' 292 S.W.2d 638.

As we understand the rule of the Oriental Hotel Co. case it is a comparatively narrow one and its holding is strictly confined to a set of facts similar to that...