Richards v. Security Pacific Nat. Bank

• Decision Date: 09 March 1993
• Docket Number: No. 920679-CA,920679-CA
• Citation: 849 P.2d 606
• Parties: J. Lamar RICHARDS, Plaintiff and Appellee, v. SECURITY PACIFIC NATIONAL BANK; Debra L. Youngman; Deborah Diamanti; Ameristar Financial Corporation; Associates Financial Services Company, Inc.; First Boston Mortgage Securities Corp., Defendants and Appellants.
• Court: Utah Court of Appeals

Page 606

849 P.2d 606

J. Lamar RICHARDS, Plaintiff and Appellee, v. SECURITY PACIFIC NATIONAL BANK; Debra L. Youngman; Deborah

Diamanti; Ameristar Financial Corporation; Associates

Financial Services Company, Inc.; First Boston Mortgage

Securities Corp., Defendants and Appellants.

No. 920679-CA.

Court of Appeals of Utah.

March 9, 1993.

Certiorari Denied July 6, 1993.

Sherman C. Young (argued), Jerry L. Reynolds, Ivie and Young, Provo, for defendants and appellants.

Ralph R. Tate, Jr. (argued), Salt Lake City, for plaintiff and appellee.

Before BENCH, BILLINGS and ORME, JJ.

BILLINGS, Presiding Judge:

Security Pacific National Bank appeals from the trial court's grant of summary judgment concluding the mechanics' lien of J. Lamar Richards had priority over Security Pacific's mortgage on the property in question. We affirm.

FACTS

On May 15, 1985, Debra Youngman purchased, under a uniform real estate contract (U.R.E.), residential property located in Salt Lake City. The property was subject to five encumbrances: Three simple deeds of trust totaling $139,130, an "all-inclusive" deed of trust for $284,239.80 in favor of Gail Zscheile, and a second all-inclusive deed of trust for $395,000 in favor of Lafayette Properties. The three simple trust deeds and the Zscheile trust deed were all recorded in 1985. The U.R.E. and the Lafayette trust deed were not recorded until June 29, 1988.

Sometime prior to June 29, 1988, but in that month, J. Lamar Richards, a painting contractor, commenced work on the property at Youngman's request. By August 26, 1988, Richards had completed his work, supplying materials and services valued at $9499.50. Youngman paid $4000 towards retiring that debt. On November 16, 1988, Richards filed a mechanics' lien in the amount of $5985.

On July 7, 1988, Ameristar Financial Corp. and Youngman closed a loan for the purpose of refinancing Youngman's obligations on the property. Ameristar loaned Youngman $320,000. Of that amount, $98,029.95 went to the three individuals holding the simple trust deeds, $151,970.05 went to Zscheile, and $53,546 went to Lafayette Properties. Thus, $303,546 of the loan paid off existing encumbrances on the Richards filed an action against Youngman and others, ultimately including Security Pacific, asserting that his mechanics' lien was superior to the Ameristar trust deed. Richards filed for summary judgment. Richards argued that because a mechanics' lien relates back to the commencement of work and he commenced work at least by June 29, 1988, his lien was superior to the Ameristar loan recorded July 7, 1988. Security Pacific filed a cross-motion for summary judgment. Security Pacific argued that under the doctrine of equitable subrogation its mortgage had priority over Richards's mechanics' lien.

                property.  The balance of the loan, $16,454, covered the costs of the loan.  Ameristar received a trust deed in the amount of $320,000, which was recorded on July 7, 1988, as security for the loan.  On October 15, 1988, Ameristar assigned its trust deed to First Boston Mortgage Securities Company.  On the same day First Boston assigned the trust deed to Security Pacific.  The record does not indicate if Ameristar ever asked Ms. Youngman whether any remodeling or construction work had been, or was being, undertaken.  Ms. Youngman did, however, sign a "Fannie Mae" affidavit containing, among many other things, preprinted language that she had not "given, conveyed, permitted, or contracted for, or agreed to give, convey, or permit any lien upon the Property to secure a debt or loan."   In addition, two forms prepared by Ameristar's underwriter, neither of which have Ms. Youngman's signature, have checks next to a box labeled first mortgage
                

On August 20, 1991, the trial court granted Richards's motion for summary judgment against Security Pacific. In doing so, the court ruled: "Based on the undisputed facts of record and equities between the parties, the court concludes that the doctrine of equitable subrogation as claimed by defendant Security Pacific is not applicable in this case" and Security Pacific's interests were "inferior and subordinate to plaintiff's mechanics' lien."

On appeal, Security Pacific argues the trial court erred in granting Richards's motion for summary judgment. It asks us to reverse the trial court's summary judgment and hold the doctrine of equitable subrogation requires judgment in its favor.

STANDARD OF REVIEW

Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Hill v. Seattle First Nat'l Bank, 827 P.2d 241 (Utah 1992); Jones v. Bountiful City Corp., 834 P.2d 556, 558 (Utah App.1992). We examine a trial court's grant of summary judgment for correctness, according "no deference to the trial court's legal conclusions." Jones, 834 P.2d at 558. This is true whether the issue presented on summary judgment is one of law or equity. See Town of Alta v. Ben Hame Corp., 836 P.2d 797 (Utah App.1992) (applying summary judgment standard on review of an injunction); Vergote v. K Mart Corp., 158 Mich.App. 96, 404 N.W.2d 711 (1987) (applying summary judgment standard on claim for specific performance). When reviewing a grant of summary judgment, we review the record, including all inferences arising therefrom, in the light most favorable to the party opposed to the motion. Hill, 827 P.2d at 242.

I. EQUITABLE SUBROGATION

The doctrine of equitable subrogation has not often been applied in Utah. The only detailed analysis of the doctrine is in a case from early in this century, Martin v. Hickenlooper, 90 Utah 150, 59 P.2d 1139 (1936). Thus, we examine the doctrine in some detail before determining the trial court correctly refused to apply equitable subrogation in this case.

A. General Doctrine

The doctrine of equitable subrogation is widely recognized in American jurisprudence and has long been part of Utah law. See Hickenlooper, 59 P.2d at 1140-51. An individual's access to equitable subrogation as a "remedy depends upon the principles of justice, equity, and benevolence to be applied to the facts of the Nevertheless, courts have focused on two critical questions in determining whether to apply the doctrine of equitable subrogation to grant a subsequent lender priority over an intervening lienor. First, whether there was an agreement, either express or clearly implied, that the subsequent lender would succeed to the priority position of the earlier lender. Hickenlooper, 59 P.2d at 1152. The extent to which an agreement between the lender and the debtor must be evidenced before subrogation is applied depends on the "attitude of the particular court toward subrogation." ¹ Nelson & Whitman, § 10.5, at 714 (footnote omitted). Second, whether the subsequent lender had knowledge of the intervening lien. Nelson & Whitman, § 10.6, at 716. See also Collateral Investment Co. v. Pilgrim, 421 So.2d 1274 (Ala.Civ.App.1982) (holding constructive notice defeats claim under doctrine); Canton Morris Plan Bank v. Most, 44 Ohio App. 180, 184 N.E. 765 (1932) (holding actual notice defeats claim under doctrine). Because the knowledge issue is dispositive, we need not decide whether the facts of this case satisfy the agreement prong of the doctrine. ²

particular case." Hickenlooper, 59 P.2d at 1140; see also Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 10.1, at 707 (2d ed. 1985) (Nelson & Whitman). Equitable subrogation allows a creditor, who satisfies a prior creditor's lien, to acquire the lien priority of the prior creditor under certain circumstances. Hickenlooper, 59 P.2d at 1141; Nelson & Whitman, § 10.1, at 706. Because of its equitable nature, application of the doctrine "may be defeated by intervening rights which would be prejudiced." Peterman-Donnelly Engineers & Contractors Corp. v. First Nat'l Bank, 2 Ariz.App. 321, 408 P.2d 841, 846 (1965); see also Metropolitan Life Ins. Co. v. First Security Bank, 94 Idaho 489, 491 P.2d 1261, 1265 (1971). The equitable nature of the doctrine prevents articulation of an unwavering rule that applies in all cases. Hickenlooper, 59 P.2d at 1141; see also Peterman-Donnelly, 408 P.2d at 845.

B. Knowledge

1. Utah Cases

Older Utah cases provide some guidance on the issue of knowledge. In Badger Coal & Lumber Co. v. Olsen, 50 Utah 307, 167 P. 680 (1917), a mechanics' lienholder was granted priority over a later lender because the subsequent loans were not made " 'in ignorance of an intervening lien.' " Id. at 682 (quoting 2 Jones on Mortgages, § 971). Thus, the supreme court recognized that a later lender with actual knowledge of an intervening lien could not take advantage of equitable subrogation.

Another early case refused to grant complete subrogation because of the earlier lender's constructive knowledge of an intervening lien. In George v. Butler, 16 Utah 111, 50 P. 1032 (1897), Butler borrowed $2500 from an investment company. He then borrowed $1000 from George. He next borrowed another $1000 from the investment company. Finally, Butler borrowed $3500 from Sutherland to pay off the investment company. Each loan was secured by the property. The mortgage Butler gave George was recorded but misidentified the actual lot. Neither Sutherland nor the investment company had any actual knowledge of the loan from George.

                Sutherland thought he was secured to the same extent as the investment company.  The investment company thought the entire loan was secured by a first lien.  George brought suit to foreclose her mortgage.  The trial court subrogated Sutherland to the rights of the investment company and granted him priority as to the first $2500.  50 P. at 1033.   The supreme court affirmed.  Id. at 1034.   Sutherland was not subrogated to the full extent of the $3500 which he loaned.  The court apparently held that the investment company was constructively aware of George's intervening loan even though the recordation

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