Reuben E. Johnson Co. v. Phelps
| Decision Date | 12 January 1968 |
| Docket Number | No. 40426,40426 |
| Citation | 156 N.W.2d 247,279 Minn. 107 |
| Parties | REUBEN E. JOHNSON CO., Appellant, v. Lyman L. PHELPS, et al., Defendants, Clinton Electric Co., et al., Appellants, Hamline Hardware Co., and Joseph V. Simon dba Simon Contracting Company, Intervenors, Appellants, Hartford Life Insurance Company, et al., defendants, Respondents. |
| 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 statute.
2. A mortgage executed and filed before a lien attaches which obligates the mortgagee to make future advances for the improvement of the premises has priority over liens subsequently filed. As to such mortgagee, a lien attaches when there is an actual and visible beginning of the improvement on the ground.
3. Services of an architect in preparing plans for improvement of premises do not constitute an actual and visible 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 the premises so as to mark perimeters of property on which a mortgage is to be placed is 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. A few grade or fill stakes that are not readily visible does not constitute such an 'actual and visible beginning of the improvement on the ground as' will permit liens filed after a mortgage to attach as of the date of the placing of such stakes against a bona fide mortgagee without notice.
6. Knowledge of a contemplated improvement or the fact that architect's plans for the improvement or a preliminary survey have been made does not constitute an 'actual and visible beginning of the improvement on the ground' so as to permit liens filed subsequent to the mortgage to attach as of the time of such preliminary plans or survey.
7. Whether payments to be advanced by mortgagee for the improvement of premises are obligatory so as to give priority of the mortgage over liens subsequently filed is usually a question of fact and must be determined from the entire transaction. Where a mortgage broker and the owners of premises to be improved are parties to a commitment by others who agree to purchase mortgages from the mortgage broker upon completion of the improvement, a finding is justified that the one who is to initially advance the money for the improvement is under an obligation B. C. Hart, Jonathan H. Morgan and Samuel L. Hanson, St. Paul, for appellants.
to advance the entire amount of such mortgages, if need be, to complete the improvement.
Kueppers, Strong & Kueppers, St. Paul, amicus curiae.
Faegre & Benson, Charles L. Horn, Jr., and Stephen E. Lee, Minneapolis, for respondents.
This is an appeal from an order of the district court denying a motion to amend findings of fact, conclusions of law, and order for judgment or, in the alternative, for a new trial in an action involving foreclosure of several mechanics liens. The case involves essentially a dispute between the holder of a mortgage on the property and the mechanics lien claimants.
The facts are not seriously in dispute. Lyman L. Phelps and his wife and Alexander M. Barac became the owners of some property in Golden Valley on which they proposed to erect an apartment complex. They sought financing through various mortgage brokers, which was finally arranged through the Schumacher Mortgage Company, Inc., hereinafter called Schumacher.
The financing arrangements were somewhat complicated in that Schumacher did not wish to enter into long-term commitments. The Monarch Life Insurance Company and the Hartford Life Insurance Company (hereinafter called Monarch and Hartford) agreed to long-term loan commitments upon completion of the building. However, neither wanted to have a mortgage for the whole amount subordinate to the other, so the property was divided into two lots, and Monarch agreed to purchase a mortgage for $400,000 on one lot when rentals had reached $68,442. 1 Hartford agreed to purchase a mortgage of $350,000 on the other when rentals reached $58,845.84. 2 These commitments ran to Schumacher but were accepted by Schumacher, Phelps, and Barac. The instruments were not themselves mortgages but simply commitments to buy the mortgages when the buildings had been completed.
Armed with these assurances that it would not be burdened with long-term commitments Schumacher made available the funds necessary to build the complex. On October 18, 1962, it agreed with Phelps and Barac to make a construction loan. The agreement contained the following provision (paragraph 2):
'Schumacher agrees to advance to Builder and Partnership for use in the work of such construction and improvements on Property an amount not to exceed $280,000.00, to be advanced as hereinafter provided from the proceeds of that certain Mortgage of even date herewith executed by Partnership to Schumacher covering property in the principal amount of $350,000.00.' 3
Paragraph 3 of this agreement provides in part:
'Said construction loan funds shall be used by Builder and Partnership only for the purpose of such work of construction, land purchase advance and improvements on Property.'
Another loan agreement executed on the same day contained provisions identical to the one quoted, except that it provides for advances of $320,000 'from the proceeds of that certain Mortgage of even date herewith executed by Partnership to Schumacher covering property in the principal amount of $400,000.00.'
Actually, the mortgages 'of even date' were executed October 30, 1962. They were recorded on the same day. During the next 16 months Schumacher actually advanced $750,000, the face amount of the two mortgages less holdbacks for interest and fees. On October 22, 1963, the mortgages were assigned, according to the commitments theretofore made, to Hartford and Monarch.
On the day the mortgages were filed, two officers of Schumacher went to the building site to determine whether any work had been commenced thereon. They testified that the land was overgrown with tall grass, weeds and shrubs, and that as they walked about the property they saw no stakes and no indication of construction or grading. Photographs which they took reveal no indication of construction or grading stakes.
Willis W. Snyder, the excavating contractor for the project, testified that he did see stakes on the site prior to the date the mortgages were recorded. About a week before November 1, 1962, he inspected the site on a tour with the builder. On this tour he saw both surveyor stakes and grade, or 'cut and fill,' stakes. Snyder admits there was tall grass, 2 1/2 feet or so, all over the site and that he would not have seen the stakes if they had not been pointed out to him.
As a result of the construction of this building numerous mechanics liens were filed. The first was filed by the Reuben E. Johnson Company on October 18, 1963. The validity of the liens against the owners is not in dispute. The Johnson company instituted the present proceedings in the district court to foreclose its mechanics lien. The trial court found that the mortgages of Hartford and Monarch were recorded before any material or labor was furnished and before the actual and visible beginning of the building improvement, and concluded that the mortgages had priority over the liens for all amounts remaining unpaid thereon. Nine claimants moved the court for amended findings of fact, conclusions of law, and order for judgment or, in the alternative, for a new trial. There were 19 claimants in all and all have appealed from the order of the court.
The questions presented here are: (1) May those claimants who did not join in the motion for amended findings or a new trial appeal from the order denying it? (2) Was Schumacher required to make advances of $750,000, or was its obligation limited to advancing only $600,000? (3) Did Schumacher record the mortgages with notice that a mechanics lien had attached? (4) Did the trial court err in finding that no actual and visible beginning of the improvement had been made at the time the mortgages were recorded?
1. Mechanics liens are purely creatures of statutes. Minn.St. 514.01, so far as material here, reads:
'Whoever contributes to the improvement of real estate by performing labor, or furnishing skill, material or machinery for any of the purposes hereinafter stated, whether under contract with the owner of such real estate or at the instance of any agent, trustee, contractor or subcontractor of such owner, shall have a lien upon the improvement, and upon the land on which it is situated or to which it may be removed, for the price or value of such contribution. * * *.'
Section 514.05 sets forth the conditions under which a lien comes into being and attaches. It reads:
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