Neely v. Clarence Saunders Co.

• Decision Date: 06 April 1935
• Parties: NEELY v. CLARENCE SAUNDERS CO. et al.
• Court: Tennessee Supreme Court

81 S.W.2d 390

169 Tenn. 30

NEELY v. CLARENCE SAUNDERS CO. et al.

Supreme Court of Tennessee.

April 6, 1935

Appeal from Chancery Court, Shelby County; L. D. Bejach, Chancellor.

Suit by F. Sim Neely against Clarence Saunders Company and others. Decree for complainant was reversed by the Court of Appeals and the defendants appeal.

Decree of Court of Appeals reversed, and cause remanded to chancery court for further proceedings in accordance with opinion.

Martin & Martin, of Memphis, for appellants.

W. B Rosenfield and Canada & Russell, all of Memphis, for appellee.

CHAMBLISS Justice.

The bill was filed by Neely to enforce a mechanics' lien on land in Memphis which had been sold to Saunders Company by Tennessee Realty Company, another corporation and a defendant herein. The consideration given was $100,000 in notes payable to bearer, payment being secured by a deed of trust naming Union Planters' National Bank & Trust Company as trustee. Following the execution and registration of these instruments, the notes were negotiated by the vendor Realty Company to the aforesaid Bank & Trust Company as collateral to secure payment of (1) $10,000 loaned at the time, and (2) $95,000 of pre-existing indebtedness of the Realty Company to the bank. Some two months thereafter the Saunders Company contracted with Neely for certain concrete foundation work on the land. Following default on the part of Saunders Company in payment of a portion of the contract price, Neely brought this suit to enforce a lien upon the land. The chancellor finding that the notice required by section 7924 of the Code to be given a mortgagee in order to fasten a lien superior to that of the mortgage had not been given, decreed that the lien of the mortgage indebtedness held by the Bank & Trust Company was therefore superior to that of Neely. His decree granted a lien to Neely upon the equitable interest only of Saunders Company in the land. The Court of Appeals reversed holding that the statute had been substantially complied with; that an active officer of Realty Company participated in the execution of a written contract between Neely and Saunders Company for the doing of the work, and was familiar with its terms, and in legal effect consented thereto; that notice was thus given to and received by Realty Company, and that under the facts of the case Realty Company was the "mortgagee" to whom under the statute written notice must be given; and that notice having thus been given to the "mortgagee," the mechanics' lien attached to the land in priority over the rights of the Bank & Trust Company, although a bona fide holder in due course of the mortgage notes. The Court of Appeals mistakenly refers to these notes as payable, not to bearer, as the record shows, but to Tennessee Realty Company, and it is possible that this error of fact may have influenced that court's conclusion, since, if this had been the case, Neely's notice would have been given to the record owner of the mortgage debt, and the ruling in Fischer Lime & Cement Co. v. Kaucher, 164 Tenn. 657, 51 S.W.2d 492, might have been held to have application, by analogy; although it is not intended to suggest that the holding in that case that a mechanics' "lien claimant is entitled to rely on the record title to show ownership" (and see Thomas v. Setliffe, 160 Tenn. 689, 28 S.W.2d 344; Electric Light Co. v. Gas Company, 99 Tenn. 371, 42 S.W. 19) would apply when negotiable paper was involved. In the instant case, the registered mortgage, in deed of trust form, did not show that Tennessee Realty Company had any interest whatever in the mortgage, its name nowhere appearing in the instrument.

The statute in question reads:

"7924 3536 (1982). Priority over special lien of mortgagee.--If the contract be made with the mortgagor, and the mortgagee has written notice of the same, before the work is begun or materials furnished, and consent thereto, the lien shall have priority over the mortgage; and if he fail to object, in writing, within ten days after receipt of the notice, his consent shall be implied. (1857-58, ch. 24, §§ 1, 2.)"

We concur with the Court of Appeals in its holding, upon the facts set forth in its opinion, supported by the record, that Tennessee Realty Company is not in position to deny that it received notice of the contract and consented thereto, in substantial compliance with the requirements of the statute. No particular form of "written notice" is prescribed by the statute. It is not provided that the notice shall be given by the contractor, but only that "the mortgagee has written notice of the same, before the work is begun *** and consent thereto." When the mortgagee has seen the written contract, he "has written notice of the same." And when he participates actively in its making it cannot be said that he did not "consent thereto." And while there is evidence and much argument to the contrary, we find with the Court of Appeals that the knowledge and participation of its officers was that of the corporation; but does it follow that the...