Western Mortg. Loan Corp. v. Cottonwood Const. Co.

• Decision Date: 27 February 1967
• Docket Number: No. 10516,10516
• Citation: 18 Utah 2d 409,424 P.2d 437
• Court: Utah Supreme Court
• Parties: d 409 WESTERN MORTGAGE LOAN CORPORATION, a corporation, Plaintiff and Respondent, v. COTTONWOOD CONSTRUCTION COMPANY, a corporation et al., Defendants, Oscar E. Chytraus Company, Inc., a corporation, Gibbons & Reed Concrete Products Company, a corporation, Richard P. Garrick, Boise Cascade Corporation, a corporation, Defendants and Appellants.

Page 437

424 P.2d 437

18 Utah 2d 409

WESTERN MORTGAGE LOAN CORPORATION, a corporation, Plaintiff and Respondent, v. COTTONWOOD CONSTRUCTION COMPANY, a corporation et al., Defendants Oscar E. Chytraus Company, Inc., a corporation, Gibbons &amp Reed Concrete Products Company, a corporation Richard P. Garrick, Boise Cascade Corporation, a corporation Defendants and Appellants.

No. 10516.

Supreme Court of Utah.

Feb. 27, 1967.

VanCott, Bagley, Cornwall & McCarthy, Fabian & Clendenin, Cannon, Duffin & Pace, Mark & Schoenhals, Neslen & Mock, Salt Lake City, for appellants.

Halliday & Halliday, Backman, Backman & Clark, Ray Quinney & Nebeker, Salt Lake City, for respondent.

TUCKETT, Justice.

This case is now before the court on an interlocutory appeal. It involves the relative priorities of mechanics lienors' and a construction mortgage which the plaintiff and respondent seeks to foreclosure on lot 10, Lazy Bar Subdivision of Salt Lake County.

The district court made certain rulings of which the following two are the subject of this appeal:

1. That the documents evidencing the mortgage transaction between the plaintiff-respondent, Western Mortgage Loan Corporation and the defendant, Cottonwood Construction Company, provided for obligatory or nonvolitional advances, and that such advances together with attorneys fees and costs take priority as of the time of the recording of the mortgage.

2. A denial of the mechanics lienors' motion for a partial summary judgment to the effect that certain work constituted the 'commencement to do work or furnish materials on the ground for the structure or improvement' within the meaning of Section 38--1--5, U.C.A.1953.

The work of laying out and developing the subdivision, including engineering, installing water mains, sewer mains and laterals, curb and gutter, surfacing streets and other off-site construction was accomplished by Cottonwood Construction Company (the mortgagor) and its predecessors. The lateral sewer line installed on Lot 10 terminated inside the lot. The sewer and lateral were completed about January 1, 1961. Water mains were completed about August, 1962, streets, curb and gutter were commenced in 1961 and completed in 1962.

The Mountain States Telephone and Telegraph Company erected utility poles in the subdivision, including one on Lot 10.

Application for a construction loan was made to Western Mortgage Loan Corporation and approved. A note and mortgage in the amount of $15,750.00 were executed October 29, 1962, and the mortgage was recorded that day.

A separate loan agreement was entered into between Western and Cottonwood Construction Company, which provided in part that in event of default on the part of the mortgagor, Western was released from all further obligations to the borrower, or in the alternative, it could take possession of the premises, finish the improvements and charge the costs to the borrower to be secured on the note and mortgage.

When it later became apparent that Cottonwood had misapplied funds advanced by Western, the latter elected to complete the home. At the time Western took over the construction it had advanced approximately $9,500. An additional sum of about $5,000 was used to complete the home on Lot 10.

A provision of the note and mortgage is as follows: 'This mortgage shall also secure additional loans hereafter made by the then holder of the note secured hereby to the then owner of the real estate described herein, provided that no such additional loan shall be made if the making thereof would cause the total indebtedness secured hereby to exceed the amount of the original indebtedness stated herein.'

It is the appellants' contention that the language of the note and mortgage quoted above provided for nonvolitional or nonobligatory advances and that each advance made thereunder takes priority only as of its date.

Under the construction loan agreement Western was obligated to pay out the funds as the building progressed. We are of the opinion that the agreement to disburse the funds created an obligation on the part of lender to pay over the funds in accordance with the borrower's directions. ¹ We see no distinction between the mortgage in Utah Savings & Loan Association v. Mecham ² and the mortgage before us in this case. Under the terms of the loan agreement Western was obligated to deposit the net proceeds of the loan in a separate account to be expended in accordance with the agreement. The mortgage provides for additional loans to be secured by the mortgage, nevertheless, the instrument is for a single fixed amount, and no additional loans were in fact made.

The appellants' second assignment of error relates to the court's denial of the motion for summary judgment based upon a finding that the facts set forth in the supporting affidavits did not constitute 'commencement to do work or furnish materials on the ground for the structure or improvement's within the meaning of Section 38--1--5 U.C.A.1953. The appellants claim they are entitled to have their liens relate back and take effect as of the time the first work was done in respect to laying out the subdivision and the installation of water lines, sewers, curb and gutters and street paving.

We are not inclined to give the statute such a broad meaning as contended for by the appellants. We are inclined to the view that the legislature intended the language 'commencement to do work or furnish materials on the ground' to be limited to relate to the home or other structure which was being or about to be built upon...