Southern Life Ins. Co. v. Pollard Appliance Co., 42610

• Decision Date: 04 March 1963
• Docket Number: No. 42610,42610
• Citation: 247 Miss. 211,150 So.2d 416
• Parties: SOUTHERN LIFE INSURANCE COMPANY and Southwest Savings and Loan Association v. POLLARD APPLIANCE COMPANY et al.
• Court: Mississippi Supreme Court

Page 416

150 So.2d 416

247 Miss. 211

SOUTHERN LIFE INSURANCE COMPANY and Southwest Savings and Loan Association v. POLLARD APPLIANCE COMPANY et al.

No. 42610.

Supreme Court of Mississippi.

March 4, 1963.

McIntyre & McIntyre, Brandon, Satterfield, Shell, Williams & Buford, Jackson, for appellant.

Pierce & Waller, Jackson, Willis T. Matthews, Magee, for appellee.

ETHRIDGE, Justice.

This case involves consolidated suits by five materialmen, against a contractor who constructed a home for the owners and the assignee of a bona fide mortgagee without notice, which assignee had or should have had notice of the liens, and was a prior construction mortgagee. These actions sought judgments (a) against the contractor for the amount of their liens, and (b) for the imposition of materialmen's liens on the property superior to the deed of trust held by the assignee. The Circuit Court of Rankin County granted the relief requested.

Southern Life Insurance Company, the original mortgagee (called Southern Life) and Southwest Savings and Loan Association, its assignee (called Southwest), appealed from that decree with supersedeas. The other defendants, Paul J. Embler, the contractor, and his wife, Helen R. Embler, against whom judgments were rendered for the amounts of the five materialmen's liens, $6,261.55, did not appeal. The appellees (plaintiffs below) are Pollard Appliance Company and four other materialmen.

Generally, a purchaser of real property with notice (of prior equities) from a bona fide purchaser takes free of the claims existing against it in another person. The main question is whether Southwest, assignee of the bona fide encumbrancer, Southern Life, falls within an exception or limitation on this rule, by which a conveyance is not protected when made back to a former owner or mortgagee who had notice of the equities, and who did not originally derive title through a bona fide holder. We think it does.

J. P. Oliver owned a lot in Rankin County, upon which he desired to construct a home. He was an employee of Paul J. Embler, doing business as Embler Masonry Homes. He arranged with Embler for the latter to construct a house on the lot. On June 9, 1960, Oliver and wife executed a deed of trust to Embler, as beneficiary, in the amount of $21,500.00, 'payment in full upon closing of loan,' to cover construction costs of the house to be erected by Embler. It was recorded on June 15, 1960, and on that day Embler assigned it to Southwest. This deed of trust was executed before any construction was had, and Southwest, through its president, R. O. Brasfield, knew it was assigned to Southwest for the purpose of securing construction funds.

This assignment was in violation of Miss. Code 1942, Rec., Section 373, which provides that no contractor shall have the right to assign or otherwise dispose in any way of the contract or the proceeds to the detriment or prejudice of laborers and materialmen, and all such assignments shall be subordinate to their rights, as well as those of the owner, unless the contractor enters into a solvent bond conditioned for payment of labor and materials. Section 373 prohibits assignment of 'the contract or the proceeds thereof', which includes assignment of a deed of trust to the contractor from the owner. Neither Embler nor Southwest made any effort to comply with this statute. Southwest paid no immediate consideration for the assignment of this deed of trust, but subsequently advanced $10,000 to Embler on construction of the house.

Embler made various purchases of materials from Pollard Appliance Company and the other four materialmen, who are appellees. However, he was in financial difficulties with reference to this and other homes, which he was constructing in the vicinity, and manifestly did not use the funds, advanced to him by Southwest under the construction deed of trust, to pay materialmen. The record supports the finding of the trial court, before whom these matters were tried without a jury, that the materials furnished by appellees went into the Oliver house.

No precautions whatever were taken by Southwest, the construction mortgagee, to protect appellees. Brasfield said he 'supposed' the money was to be used in the construction. He visited the premises on unidentified occasions to see 'how it was getting along.' He did not know who was supplying the materials, and was under the impression Embler was using the money to pay materialmen and laborers. He obtained no affidavits or other evidence of payments, and took Embler's word instead of an accounting. He undertook at no time to find out what payments Embler was making to materialmen and laborers.

Oliver and wife obtained a commitment from Southern Life for a loan of $14,000 on the lot and residence. It was represented by W. E. McIntyre, Jr., an attorney. After McIntyre obtained the certificate of an appraiser, showing the dwelling had been completed in accordance with plans and specifications, he proceeded with closing the loan. This was done on November 7, 1960. That afternoon the Olivers and Embler came to his office. The Olivers executed the deed of trust, and McIntyre went to the courthouse, checked all records from the time of an earlier examination, and learned there were no intervening claims of any type on the property, except the construction deed of trust owned by Southwest. The Olivers gave an owners' affidavit, and Embler a contractor's affidavit, stating there were no claims for labor or materials remaining unpaid against the house. After the Olivers executed a promissory note and deed of trust to Southern Life, McIntyre filed the latter for record at 3:15 P.M. on that date.

McIntyre also obtained from Southwest and Embler a cancellation of the construction deed of trust, assigned by Embler to Southwest (dated June 9, 1960). After having taken in a diligent and proper manner these precautions and steps, McIntyre disbursed proceeds of the $14,000 Oliver loan as follows: $10,586 to Southwest Savings and Loan Association, to pay off its construction deed of trust; $3,148.01, the balance after deducting survey and other fees, to Embler. Mr. and Mrs. Oliver endorsed the Southern Life check payable to McIntyre as attorney and to them. The disbursements as stated were then made.

Process was had on Embler and wife, but they made no appearance. Oliver testified. At the time Embler made the contractor's affidavit in McIntyre's office, stating all materialmen and laborers had been paid, he knew that appellees had not been paid. Oliver also knew this. Hence both Embler and Oliver gave McIntyre, attorney for Southern Life, false and fraudulent affidavits as to payment of materialmen and laborers on the construction job.

On the morning before the Southern Life loan was closed that afternoon, the Olivers executed a deed to Helen R. Embler, wife of Paul J. Embler, conveying to her this property. Oliver said that he did this on the advice of Embler, to whom he owed money. Embler took possession of the deed. Hence at the time the Southern Life loan was closed by the Olivers in McIntyre's law office, they knew they did not own the property. Oliver received no monetary consideration for this deed, but only Embler's agreement that he would allow him several weeks to sell the house, and receive as profit anything over the cost. The deed from the Olivers to Mrs. Embler was recorded on that afternoon at 4:00 P.M., forty-five minutes after McIntyre had filed the Southern Life deed of trust.

Subsequent to November 7, 1960, Embler's financial difficulties arising from construction of several homes continued to increase. During the summer and fall of 1960, Embler discounted all of his loans with Southwest, which assisted in the construction financing of houses being built by Embler. Brasfield, president of Southwest, admitted it had a number of transactions with Embler. The appellees, materialmen, filed lis pendens notices of their liens on November 22 and December 14, 1960, and January 11, 1961.

On December 21, 1960, Helen R. Embler, to whom the Olivers had conveyed the property in question, executed a deed of trust to Southwest to secure a debt of her husband to Southwest in the sum of $25,000. It covered the property in question and another lot, and she assumed jointly with her husband his debt to Southwest, which was also secured by another deed of trust on other property. As to the Oliver property, this was a second deed of trust, subsequent and subordinate to that of Southern Life. The present suits, consolidated for trial, were filed by the materialmen on February 3, 1961. On March 10, 1961, the second deed of trust, from Helen R. Embler to Southwest, was foreclosed by the trustee and sold to Southwest.

In the meantime, however, the first monthly installment on the Southern Life deed of trust, due December 1, 1961, was not paid, and Southern Life requested its attorney, McIntyre, to foreclose. The officers of Southwest were aware of the delinquent status of the Southern Life deed of trust, and late in January, 1961 contacted McIntyre about purchasing it and the note. On March 8, 1961, Southern Life endorsed the note secured by the first deed of trust to Southwest 'without recourse,' and assigned to Southwest 'without recourse on the assignor' the Oliver deed of trust. Southwest paid Southern Life $14,320 for these instruments. On June 16, 1961, while these suits were pending, the Southern Life deed of trust, owned by Southwest, was foreclosed and sold to it. The record discloses no accurate value for the property, but evidence indicates a market value of between $21,000 to $30,000.

The circuit court found that, although Southwest did not have actual notice of these unpaid claims of materialmen when it bought the Southern Life deed of trust, it loaned the construction money, and, under all the circumstances, the facts were such as would reasonably put Southwest on notice or inquiry which would be...