River Rouge Sav. Bank v. Victor Bldg. Co., s. 32

Citation359 Mich. 189,101 N.W.2d 260,91 A.L.R.2d 409
Decision Date01 October 1959
Docket NumberNos. 32,s. 32
Parties, 91 A.L.R.2d 409, 5 A.F.T.R.2d 1002, 60-1 USTC P 9337 RIVER ROUGE SAVINGS BANK, a Michigan banking corporation, Plaintiff, Cross Defendant and Appellant, v. S & M BUILDING COMPANY, a Michigan corporation, et al., Defendants, Cross Defendants and Appellees. RIVER ROUGE SAVINGS BANK, a Michigan banking corporation, Plaintiff, Cross Defendant and Appellant, v. VICTOR BUILDING COMPANY, a Michigan corporation, et al., Defendants, Cross Defendants and Appellees. RIVER ROUGE SAVINGS BANK, a Michigan banking corporation, Plaintiff, Cross Defendant and Appellant, v. GILBERT CONSTRUCTION COMPANY, a Michigan corporation, et al., Defendants, Cross Defendants and Appellees. RIVER ROUGE SAVINGS BANK, a Michigan banking corporation, Plaintiff, Cross Defendant and Appellant, v. LE BLANC CONSTRUCTION COMPANY, a Michigan corporation, et al., Defendants, Cross Defendants and Appellees. United States of America, Defendant, Cross Defendant and Appellant. ,
CourtSupreme Court of Michigan

Page 260

101 N.W.2d 260
359 Mich. 189, 91 A.L.R.2d 409, 5
A.F.T.R.2d 1002,
60-1 USTC P 9337
RIVER ROUGE SAVINGS BANK, a Michigan banking corporation,
Plaintiff, Cross Defendant and Appellant,
v.
S & M BUILDING COMPANY, a Michigan corporation, et al.,
Defendants, Cross Defendants and Appellees.
RIVER ROUGE SAVINGS BANK, a Michigan banking corporation,
Plaintiff, Cross Defendant and Appellant,
v.
VICTOR BUILDING COMPANY, a Michigan corporation, et al.,
Defendants, Cross Defendants and Appellees.
RIVER ROUGE SAVINGS BANK, a Michigan banking corporation,
Plaintiff, Cross Defendant and Appellant,
v.
GILBERT CONSTRUCTION COMPANY, a Michigan corporation, et
al., Defendants, Cross Defendants and Appellees.
RIVER ROUGE SAVINGS BANK, a Michigan banking corporation,
Plaintiff, Cross Defendant and Appellant,
v.
LE BLANC CONSTRUCTION COMPANY, a Michigan corporation, et
al., Defendants, Cross Defendants and Appellees.
United States of America, Defendant, Cross Defendant and Appellant.
Nos. 32, Oct. Term, 1959, 33, Oct. Term, 1959, 34, Oct.
Term, 1959, 35, Oct. Term, 1959.
Supreme Court of Michigan.
Feb. 26, 1960.

[359 Mich. 192]

Page 262

Kenneth J. Logan, River Rouge, for plaintiff and appellant.

Covington, Davidson & Osborn, Port Huron, for defendant, cross-plaintiff, appellee and cross-appellant, Kerr Lumber Co.

Said M. Touma, Port Huron, for defendant, cross-plaintiff, appellee and cross-appellant.

Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, A. F. Prescott, Fred [359 Mich. 193] E. Youngman, Attys., Dept. of Justice, Washington, D. C., Frederick W. Kaess, U. S. Atty., Elmer L. Pfeifle, Jr., Asst. U. S. Atty., Detroit.

Before the Entire Bench.

KAVANAGH, Justice.

Sometime prior to 1956 the S & M Building Company, a Michigan corporation, was organized to engage in certain residential building projects. This company in connection with certain other building or construction companies, namely, Victor Building Company, Gilbert Construction Company and LeBlanc Construction Company--which were directly controlled and entirely owned by S & M Building Company--commenced a residential building project embracing some 75 homes in the city of Marysville, Michigan.

The appellees, Raymond Excavating Company and Kerr Lumber Company, were retained by the building companies, the former for excavating work and the latter for furnishing lumber and other construction materials.

As construction progressed on the residences, construction loans were obtained by the building companies from plaintiff River Rouge Savings Bank. These loans were evidenced by promissory notes secured by mortgage indentures, which were recorded by plaintiff mortgagee. Subsequently, default was made by the building companies in the payment of principal and interest on each of the promissory notes secured by the real estate mortgages. Upon default, plaintiff commenced its several

Page 263

actions in the St. Clair county circuit court for foreclosure of its mortgage security.

At this time title searches disclosed the presence of second and third mortgages, mechanics' lien claims and government tax liens. Therefore, plaintiff[359 Mich. 194] joined all such lien claimants as parties defendant in its bill of complaint.

Subsequently, both Kerr Lumber Company and Raymond Excavating Company filed cross bills to foreclose their respective mechanics' liens. Cross bills were also filed by the second mortgagees to foreclose their mortgage liens.

Prior to the time plaintiff filed its bill of complaint, and beginning in Fedruary 1957, the United States government, through its district director of internal revenue, assessed sums against the S & M Building Company for withholding taxes and filed liens for such amounts. Upon demand for payment of the assessed taxes, the taxpayer, S & M Building Company, neglected and refused to pay the same or any part thereof.

On February 14, 1958, after plaintiff had filed its bill of complaint in the St. Clair county circuit court, the S & M Building Company and the other corporations under its control were named in a petition in involuntary bankruptcy, filed in the United States district court for the eastern district of Michigan, southern division. On February 28, 1958, a receiver in bankruptcy was duly appointed. The United States district court issued an order temporarily restraining plaintiff and cross plaintiffs from further proceedings in the circuit court. However, upon objections, the concurrent jurisdiction of the circuit court was recognized and the restraining order vacated. The parties were then permitted to proceed with the foreclosure of their respective liens in the circuit court.

The decision and decree of the lower court granted a priority to the mechanics' liens of Kerr Lumber Company and Raymond Excavating Company over the first mortgage lien of plaintiff, River Rouge Savings Bank. The court also ruled the government tax liens were subordinate to the mechanics' liens [359 Mich. 195] and the first and second mortgage liens, and further that the government was only entitled to a 6-month period of redemption. Regarding attorney fees and costs, the court felt the issues raised presented legal questions not covered by Michigan precedent and, therefore, denied costs to all parties.

Rivor Rouge Savings Bank has appealed, claiming the mechanics' liens claimed by Kerr Lumber Company and Raymond Excavating Company are invalid and, therefore, not entitled to priority over its first mortgage lien. The bank seeks confirmation of all other provisions of the lower court decree.

Both Kerr Lumber Company and Raymond Excavating Company have filed cross appeals claiming they are entitled to costs and allowances for reasonable attorney fees under applicable statutory provisions (C.L.1948, §§ 570.12, 570.21 [Stat.Ann. §§ 26.292, 26.301]). The cross appellants also claim the decree as to the claim of the United States should be reversed to allow the government tax liens to be prorated over the 19 lots in case No. 71-36 and accorded priority after the amount of the mortgages only and ahead of their respective mechanics' liens. The cross appellants seek affirmance of all other parts of the circuit court decree.

The United States has appealed, asking the decree of foreclosure, to the extent it awards priority to mechanics' liens over the United States tax liens, be vacated and remanded to circuit court with directions to award priority to the tax liens over the mechanics' liens. The United States further seeks correction of the decree to allow it 1 year from date of sale within which to redeem the mortgaged property.

[359 Mich. 196] On this appeal River Rouge Savings Bank claims the Raymond Excavating

Page 264

Company does not have a valid mechanics' lien because of failure by the company to make service of the sworn statement of contractor upon the building corporation owners as part of the statutory 1 pre-condition to the filding of a valid mechanics' lien. The company conceded no sworn statement had been personally served upon the owners, because the company was unable to find the owners or their agents in the county after having made sufficient and repeated efforts to do so, thus fully complying with the statute. Testimony was introduced by the company which would tend to show the company had in fact, on repeated occasions, attempted to discover and serve such statement of contractor upon the owners in the county, but that all such attempts were fruitless since neither the owners nor their agents could be found.

River Rouge Savings Bank contends the Kerr Lumber Company is not entitled to a valid mechanics' lien because of the negotiation by the lumber company of the notes received by it from the various building corporation owners in amounts representing the materials furnished by the company to the owners. None of these notes was due within the time for Kerr Lumber Company to file claims of lien. These notes were indorsed by the lumber company by blank indorsement and delivered to the Port Huron branch of the Michigan National Bank, at which time the company received cash or credit to its bank account for the value of the notes from the bank. While these notes were outstanding and while they were discounted at the Michigan National Bank, Kerr Lumber Company filed its claims of lien, notice of intention and sworn [359 Mich. 197] contractor's affidavit having been duly served. All statutory steps to perfect its liens were properly taken by the company. Some of the lots for which liens were originally served were in time paid off and waivers of lien were given by the company. However, no lien was discharged until the company had been paid in cash.

All the owner-builders' notes to Kerr Lumber Company, or their renewals, were past due and charged back to the company by the Michigan National Bank, and were in the company's possession prior to its filing its cross bills of foreclosure. All outstanding notes were tendered by the company to the court at the trial for cancellation upon receiving payment from the sale. If valid, there is no question that the Kerr Lumber Company mechanics' liens have priority over all mortgages in this case, since construction began before any mortgages were given or recorded (C.L.1948, § 570.9 [Stat.Ann. § 26.289]). The same is true as to the mechanics' liens of Raymond Excavating Company.

The appeal of the United States is based upon error claimed in the decree of the circuit court relative to the priority given the government tax liens. The lower court subordinated the tax liens to the mechanics' liens of Kerr Lumber Company and Raymond Excavating Company.

The Federal tax liens involved in this case arose under sections 6321, 6322 and 6223 of the Internal Revenue Code of 1954, 26 U.S.C.A. §§ 6321-6323. Section 6321 provides that if any person liable to pay any tax neglects or refuses to pay such tax...

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