No. 8 5 - 3 6 7
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986
TRI-COUNTY PLUMBING & HEATING, INC.,
a Montana corp., and ATLAS ELECTRIC,
INC., a Montana corp., & INGRAM-CLEVENGER,
INC., a Montana corp., Intervening Plaintiff,
Plaintiffs and Respondents,
LEVEE RESTORATIONS, INC., a Montana corp.,
and DEER LODGE BANK & TRUST CO., a corp.,
Defendants and Appellants.
APPEAL FROM: District Court of the Twelfth Judicial District,
In and for the County of Choteau,
The Honorable Chan Ettien, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Swanberg, Koby, Swanberg & Matteucci; Gorham Swanberg,
Great Falls, Montana (Levee Restorations)
Jardine, Stephenson, Blewett & Weaver; Greg Luinstra
argued, Great Falls, Montana (Deer Lodge Bank)
For Respondent:
Hooks & Rudewitz; Tom Budewitz argued, Townsend,
Montana
Ronald F. Waterman argued, Helena, Montana
Submitted: April 2 2 , 1 9 8 6
Decided: June 5 , 1 9 8 b
Filed: yub! 5 - 1986
Clerk
Mr. Justice John Conway Harrison delivered the Opinion of the
Court.
Plaintiff Tri-County Plumbing and Heating, Inc./Atlas
Electric, Inc. (hereinafter "Tri-County") brought this action
in Chouteau County District Court to foreclose a mechanics'
lien filed by them against certain real property located in
Fort Benton, Montana, owed by defendant Levee Restorations,
Inc. (hereinafter "Levee"). The Deer Lodge Bank and Trust
Company (hereinafter "Bank") was also named as a defendant by
virtue of its mortgage on the same real property.
Ingram-Clevenger, Inc. (hereinafter "Ingram-Clevenger") filed
a motion to intervene as a plaintiff in order to foreclose
its own mechanic's lien on the same property. The Bank then
cross-claimed against Levee to foreclose its mortgage on the
subject property.
The matter was heard by the District Court, sitting
without a jury, in March of 1985. In June of 1985, the trial
court issued its findings of fact, conclusions of law, and
decree granting judgment against Levee in favor of Tri-County
and Ingram-Clevenger for the amounts requested in their
respective mechanic's liens plus interest, attorneys fees and
costs. The trial court also awarded judgment against Levee
in favor of the Bank for the amount of their mortgage plus
interest, attorneys fees, and costs. The trial court further
accorded the liens of Tri-County and Ingram-Clevenger equal
status and declared them to be superior in priority to the
mortgage of the Bank. In addition, the trial court granted
lien status to certain items furnished by Tri-County and
Ingram-Clevenger which followed the date on which their
mechanic's liens were filed. These additional items were
supplied by the two plaintiffs for the preservation and
protection of the subject property and were awarded a first
priority by the trial court over payment of all other liens
and encumbrances. Only the Bank, and not Levee, appeals from
this judgment of the trial court. We affirm.
On November 4, 1983, Ingram-Clevenger (a general
contractor with its principal place of business in Helena,
Montana) entered into several contracts with Levee for the
interior restoration, remodeling and renovation of the Grand
Union Hotel ("Hotel") located in Fort Benton, Montana. The
total contract price for the work to be performed under these
contracts was $862,260. Ingram-Clevenger then subcontracted
a major portion of the work to Tri-County (a plumbing,
heating and electrical contractor with his principal place of
business in Helena, Montana) for the performance of the
plumbing, heating and electrical work on the Hotel.
On February 6, 1984, Levee obtained a loan from the Bank
in the amount of $210,000. The majority of this loan
($179,500) was applied by Levee to the Hotel renovation
project. This loan was secured by two mortgages given by
Levee to the Bank, one of which included a mortgage on the
Hotel. The other mortgage given by Levee to the Bank was not
at issue in this lawsuit. The mortgage on the Hotel was
recorded in the Chouteau County Clerk and Recorder's office
on February 10, 1984.
Ingram-Clevenger started work on the Hotel project on or
about November 4, 1983. From time to time, as required under
the construction contracts, Ingram-Clevenger submitted
applications for payment to Levee's architect for the
project, Richard Shope. Ingram-Clevenger submitted a total
of nine applications for payment to Shope, of which only the
first four were approved and paid covering the period from
November, 1983 through February, 1984. The last five
applications for payment (covering March through May, 1984)
were not approved or paid by Shope because Levee had not
secured future financing for the Hotel project. After the
last payment was made by Levee to Ingram-Clevenger in
February of 1984, Ingram-Clevenger continued to work on the
project apparently in anticipation of Levee securing future
financing. During the late spring of 1984, it became
apparent that future financing for the project could not be
found and Ingram-Clevenger halted work at the end of May. It
appears that the only financing obtained by Levee for the
Hotel project was the above mentioned loan from the Bank. To
date, Levee has only paid the sum of $145,440 to
Ingram-Clevenger under the Hotel project contracts, despite a
total of over $600,000 worth of work having been performed by
the plaintiffs.
On June 7, 1984, Tri-County filed a mechanic's lien
against the Hotel in the amount of $149,829. This sum
represented the amount it was owed by Ingram-Clevenger for
its unpaid subcontracting work. On July 7, 1984,
Ingram-Clevenger filed its own mechanic's lien against the
Hotel for the sum of $441,344. This sum was the unpaid
portion of the Hotel project contracts at the time the lien
was filed, and it was based on the unpaid applications for
payment presented to Levee. Both of these liens were
properly recorded with the Clerk and Recorder of Chouteau
County.
It should be noted tha.t Tri-County's mecha.nic' s lien
claim was included in its entirety in Ingram-Clevenger's lien
except for the sum of $2,369. This amount represented items
which were negotiated directly between Tri-County and Levee,
and this sum was included in Tri-County's lien of $149,829.
Following the filing of the mechanic's liens by
Tri-County and Ingram-Clevenger, both Ingram-Clevenger and
Tri-County continued to incur expenses relating to the
protection and preservation of the Hotel project. These
expenses included $10,000 for the installation of a water
line, $3,671.99 for insurance premiums, $5,303.91 for gas and
electricity, and $629 for repairs due to freezing.
Once it became apparent that no more funds were
forthcoming from Levee for the Hotel project, Tri-County
filed suit on its mechanic's lien on June 8, 1984, and the
above-described proceedings ensued. The District Court
granted judgment against Levee in favor of Tri-County and
Ingram-Clevenger for the respective amounts of their
mechanic's liens, $149,829 and $312,491 (which included a
$20,976 mathematical error discovered during trial).
Ingram-Clevenger's judgment was later reduced by the trial
court to the sum of $300,076 due to the sale of certain
construction supplies from the Hotel project. The trial
court also accorded equal lien status to the liens of
Ingram-Clevenger and Tri-County, and declared the mortgage of
the Bank ($210,000) to be second in priority. The trial
court further decreed that the "preservation" expenses
incurred by Ingram-Clevenger and Tri-County should be
accorded a first priority of payment over all other liens and
encumbrances.
The Bank now presents the following pertinent issues for
review by this Court:
1. Did the District Court err in not granting a
continuance of the trial in order that discovery could be
initiated and completed?
2. Was there substantial evidence to support the
finding of the District Court as to the amount of
Ingram-Clevenger's lien and that the lien was not in fact
overstated?
3. Did the District Court err in awarding lien status
to certain "preservation expenses" incurred subsequent to the
filing of Ingram-Clevenger's and Tri-County's mechanic's
liens and granting a priority to these expenses superior to
that accorded either the mechanic's liens or the Bank's
mortgage?
4. Did the District Court err in awarding
Ingram-Clevenger an amount in excess of the stated amount of
its lien as actually filed with the Clerk and Recorder where
no additional or supplemental lien was filed?
5. Did the District Court err in awarding the liens a
priority status over that of the Bank's mortgage?
I.
Did the District Court err in not granting a continuance
of the trial in order that discovery could be initiated and
completed?
The Bank basically argues the District Court erred in
not granting its request for a continuance on the day of
trial. The Bank argues it needed the continuance because it
was not prepared to adequately cross-examine the lien
claimant's witnesses due to an insufficient amount of time to
conduct discovery. The Bank points out this case had
originally been set for trial in November, 1984. At that
time, the parties stipulated to a vacation of that trial date
due to pending settlement negotiations. Thereafter, on
January 24, 1985, the original counsel for the Bank withdrew
from the case and present counsel was substituted. The
District Court then set the case for trial on February 26,
1985, which was just over one month after the present counsel
for the Bank came into the case. The Bank argues its present
counsel immediately filed a motion for a continuance, which
was granted, but the trial date was only set back some three
weeks to March 12, 1985. The Bank points out its present
counsel had only been appointed for seven weeks when the
trial began.
The Bank contends due to the quick trial date of this
case after its substitution of new counsel, adequate
discovery was not conducted by any of the parties involved.
In fact, the Bank argues, no discovery had been initiated by
any of the parties until the Bank's present counsel came into
the case. Therefore, the Bank argues, it was prevented at
trial from properly cross-examining the claimants' witnesses
(especially with regard to the amounts of the mechanic's
liens), and this Court should grant it a new trial. We
disagree.
First, it must be pointed out that any motion for a
continuance of trial is within the sound discretion of the
District Court. This Court has said it will not overrule a
District Court's decision to deny a motion for a continuance
of trial unless there is "an affirmative showing that the
complaining party has suffered prejudice." State v. Bailey
(1935), 99 Mont. 484, 488, 44 P.2d 740, 742. In the present
case, there is no showing that the Bank suffered prejudice by
proceeding to trial on the scheduled date.
As the claimants point out, the Bank had nine months to
do whatever discovery it deemed necessary from the date the
suit was filed (June 8, 1984) until the date of trial (March
12, 1985). Admittedly, new counsel was substituted for the
Bank on January 24, 1985, but one continuance of the trial
was granted for this reason (February 26 to March 12, 1985).
Furthermore, once new counsel was substituted for the Bank,
they made no effort to do any discovery on their own. The
record indicates they made no effort to schedule any
depositions or request the production of documents.
Therefore, the District Court did not abuse its
discretion in denying the Bank's motion for a continuance
made on the day of trial.
Was there substantial evidence to support the finding of
the District Court as to the amount of Ingram-Clevenger's
lien and that the lien was not in fact overstated?
The Bank correctly points out that under Montana law a
mechanic's lien claimant does not have a right to a lien
until he can show or prove his lien.
The burden is upon the plaintiff to establish his
lien (citation omitted), and, to support this
burden, he must show, not only that he furnished
the materials, but also that they were used for the
enhancement of the property to which he claims he
has a right to resort as security for the debt thus
created. In the absence of this showing, his
equity does not arise (citations omitted).
Rogers - Templeton Lumber Co. v. Welch (1919), 56 Monte 321,
The Bank further points out it is clear in Montana that
a lien holder is entitled to the reasonable value of its
labor and materials furnished.
The abandonment of an improvement before the
completion thereof, by the owner of the premises,
without fault on the part of the contractor, does
not abrogate the right of the contractor, laborers,
and material men to mechanics' liens for the value
of the work done and the material furnished.
(Citations omitted) .
Williams Brothers Construction v. Vaughn (Mont. 1981), 631
In light of these standards, the Bank argues that
Ingram-Clevenger, and therefore Tri-County, have not
established the amounts of their liens. The Bank asserts the
measure of damages to which the lien claimants are entitled
is determined by the value of the materials and labor
furnished which, of course, is a matter of proof. The Bank
argues the claimants cannot base the amounts of their liens
solely on estimates of the labor and materials they put into
the Hotel project. Yet, the Bank argues, that is exactly
what the lien claimants have done and that is the basis upon
which the District Court awarded them the amounts of their
liens.
The Bank contends in the present case the amount of
Ingram-Clevenger's lien, which includes Tri-County's lien,
was established mainly through the testimony of Joe Petrini,
the secretary/treasurer for Ingram-Clevenger. The Bank
claims that Petrini testified at trial that he was the person
who prepared and submitted the applications for payment to
Levee's architect for the Hotel project, Richard Shope. The
Bank further claims that Petrini testified that these
applications for payment submitted to Levee were not based on
the actual amount of materials and labor put into the
project, but rather he testified that these applications for
payment were based solely on estimates of the labor and
materials furnished. The Bank strongly relies on the
following testimony from Petrini to establish that
Ingram-Clevenger's applications for payment were solely based
on estimates:
Q. (By Ronald Waterman, Ingram-Clevenger's
counsel) Mr. Petrini, in the application
forms, as an example, the application dated
through the period of December 3rd, 1983,
would you tell the court, are these commonly
prepared by you?
A. (By Petrini) In the course of our business,
yes.
Q. And how are these prepared?
A. At the request of an architect, owner. And to
eliminate confusion, to try to allow the
architect and the owner to reasonably review
percentage of completion, we prepared a
breakdown. In this case, at the request of
the architect prior to submittal, this was
acceptable to him. And we proceeded on that
basis.
Q. Did you actually develop this application,
you, yourself?
A. Yes. Idid.
Q. And were these figures drawn from other books
and records which are regularly kept within,
with Ingram-Clevenger?
A. Okay. These figures are developed using our
estimated, estimating procedure. This I
funnel all of those estimated costs into a
category. Just to allow everyone to be able
to better understand the billing process.
(Emphasis added. )
The Bank claims the above testimony, together with other
testimony by Petrini, establishes that the figures used on
the applications for payment submitted to Levee were based
only on estimates of the work completed and were not
developed from an actual tally of hours spent on the job or
from materials invoiced and installed. The Bank argues there
was no proof presented at trial whatsoever which established
a certain dollar figure of the labor and materials actually
put into the Hotel project. Consequently, the Bank argues,
because these estimated applications for payment were the
basis for the amounts of the claimants' liens, the liens
themselves are only estimates and must be disregarded.
Furthermore, the Bank argues, there was also strong
evidence presented at trial that Ingram-Clevenger's lien,
which includes Tri-County's lien, was in fact overstated.
The Bank points to the testimony of Richard Shope (Levee's
architect for the project) and Larry Truchot (an architect
and independent contractor who testified on behalf of Levee
and the Bank) to establish that Ingram-Clevenger's lien was
excessive. The Bank argues both of these men separately
evaluated the amount of materials and labor which actually
went into the project and compared this amount to the figures
on Ingram-Clevenger's filed lien, and both men concluded that
Ingram-Clevenger's lien was excessive. In fact, the Bank
asserts, Shope and Truchot testified that Ingram-Clevenger's
filed lien should be reduced somewhere between 15 percent and
22 percent. Therefore, the Bank argues, because
Ingram-Clevenger's lien appears to be intentionally
overstated based on a faulty "estimating procedure," the lien
itself should be vitiated (voided). See, Duval v. Fuchs
(1962), 141 Mont. 123, 375 P.2d 541. At the very least, the
Bank seems to argue, this case should be remanded for a new
trial for an accounting of the actual amounts of the
claimants' liens. We disagree.
We hold there is substantial evidence in the record to
support the award as to the amount of a Ingram-Clevenger's
mechanic's lien and that this lien was not in fact
overstated. First, the amount of Ingram-Clevenger's lien was
not based on estimates as the Bank suggests. Joe Petrini
(Ingram-Clevenger's secretary/treasurer), testified
thoroughly and completely during trial about the work which
had been performed by the claimants on the Hotel project but
which remained unpaid. Petrini's testimony was not based on
estimates, but rather it was based. upon the actual records of
labor performed, materials supplied, and subcontract work
done. The District Court had before it the summaries of the
labor and materials supplied by the claimants (plaintiffs'
exhibits A-1 through A-10) and also the primary documents
from which these summaries were taken (plaintiffs' exhibits B
and C). As Petrini testified with regard to exhibit C:
Q. (By Mr. Waterman) Handing you what has been
marked proposed exhibit C, what is exhibit C?
A. (By Petrini) Exhibit C is a computer prepared
job cost information.
THE COURT: What?
A. Job cost information for all of our projects.
Q. This is all of your projects that are ongoing?
A. That's correct.
g. Does part of these records contain the job
cost information relative to the Grand Union
Hotel?
A. That's correct.
Q. And is that designated in exhibit C with this
white mark?
A. That's correct.
Q. And where are those records drawn from?
A. From actual costs, labor, actual invoices.
Subcontract expenses. (Emphasis added.)
Q. Do these job costs, were these job costs then
used in making the calculations to come up
with the exhibits A and A-1 through A-lo?
A. That's correct.
As evidenced from the above testimony, we hold
Ingram-Clevenger's lien was not based on estimates, but
rather it was based upon actual job cost figures. Therefore,
there is substantial evidence in the record to support the
amounts of the claimants' liens.
We further find that Ingram-Clevenger's lien was not
overstated. The testimony of Richard Shope and Larry
Truchot, who both testified that Ingram-Clevenger's lien
should be reduced by 15 percent to 22 percent, was obviously
disregarded by the District Court. We see no reason to
disturb that finding by the lower court, especially in light
of the overwhelming evidence in the record, as discussed
above, that supports the amount of Ingram-Clevenger's filed
lien. Therefore, we find the amount of Ingram-Clevenger's
lien was not overstated and the award as to the amount of the
lien shall stand.
Did the District Court error in awarding lien status to
certain "preservation expenses" incurred subsequent to the
filing of Ingram-Clevenger's and Tri-County's mechanic's
liens and in granting a priority to these expenses superior
to that accorded either the mechanic's liens or the Bank's
mortgage?
As noted in the facts section of this opinion, following
the filing of the mechanic's liens by Tri-County and
Ingram-Clevenger, both of these claimants continued to incur
expenses relating to the protection and preservation of the
Hotel project. These expenses included $10,000 for the
installation of a waterline, $3,671.99 for insurance
premiums, $5,303.91 for gas and electricity, and $629 for
repairs due to freezing. The District Court concluded that
these preservation expenses incurred by the claimants should
be accorded a first priority of payment over all other liens
and incumbrances involving the Hotel project.
Apparently the Bank does not take issue with the
District Court's characterization of these expenses as
"preservation and protection expenses." Rather, the Bank
argues these items should not be accorded lien priority
status ahead of the claimants' mechanic's liens or its
mortgage. The Bank essentially argues there is no authority
in Montana which entitles a mechanic's lien claimant to tack
onto its lien, after it is filed, expenditures for the
"preservation and protection" of the encumbered property.
The Bank argues this does not mean the preservation expenses
are not due and the claimants are not entitled to recover
these sums from Levee, it simply means these expenses are
only a general judgment lien on the Hotel property with a
priority behind that of both the mechanic's liens and the
Bank's mortgage. We disagree.
We hold there is sufficient statutory authority to allow
the claimants to add on to their liens, after they are filed,
expenditures for the preservation and protection of the Hotel
property. Section 71-3-112, MCA, provides:
Holder - - - not entitled - compensation.
of lien to
Except as otherwise provided by the Uniform
Commercial Code, one who hold property by virtue of
a lien thereon is not entitled to compensation from
the owner thereof for any trouble or expense which
he incurs respecting it, except to the same extent
as a borrower under 70-7-110 and 70-7-111.
Of the two statutes mentioned in § 71-3-112, MCA,
§ 70-7-110 is the statute which is pertinent to the instant
case and reads as follows:
Who- -
- to bear expenses. The borrower of a thing for
use must bear all its expenses during the loan,
except such as are necessarily incurred by him to
preserve - -
it from unexpected and unusual injury.
For such expenses he is entitled to compensation
from the lender, who may, however, exonerate
himself by surrendering the thing to the borrower.
(Emphasis added.)
Although these statutes do not specifically address the
situation of the instant case, they make one obvious point--a
lien claimant is entitled to reimbursement from the owner for
any expenses necessary to preserve his security from
unexpected and unusual injury. Section 71-3-112 is contained
under the general provisions regarding lien statutes (Title
71, Chapter 3, Part 1, MCA), therefore its meaning applies to
all types of liens involving both real and personal property.
We agree with the claimants that installation of the
water line, premiums for fire insurance, the costs of gas and
electricity, and repairs due to freezing were necessary to
"preserve it [the Hotel property] from unexpected and unusual
injury." It is clear that the absence of any of these items
would have adversely affected the Hotel property and the
improvements made by the claimants. Further, these are
expenses that Levee would benefit from if it were to redeem
its interest in the Hotel property at some future date.
Therefore, the protection of the claimants ' mechanic ' s liens
should extend to these items.
Finally, after finding the preservation expenses may be
added to the claimants' mechanic's liens, we agree with the
District Court that these items should be accorded a first
priority of payment. If a lien priority status is not
awarded to these items, a mechanic's lien claimant would be
forced with a choice of either permitting damage or
destruction to its security, or spending money without hope
of reimbursement. Furthermore, as mentioned above, the owner
of the property (i.e. Levee) also indirectly benefits from
any necessary preservation expenses. Consequently, the
District Court's ruling regarding the preservation expenses
shall stand.
IV.
Did the District Court err in awarding Ingram-Clevenger
an amount ($20,976) in excess of the stated amount of its
lien as actually filed with the Clerk and Recorder where no
additional or supplemental lien was filed?
Simply stated, the Bank argues that Ingram-Clevenger is
not entitled to the amount of a mathematical error discovered
during the course of trial. During trial, Petrini
(Ingram-Clevenger's secretary/treasurer) testified there was
a $20,976 mathematical error in Ingram-Clevenger's filed
mechanic's lien and that the lien should be increased by this
amount. The District Court ultimately awarded
Ingram-Clevenger this math error and tacked it onto the
amount of their filed lien. The Bank argues there is no
authority in Montana which permits a lien claimant (such as
Ingram-Clevenger) to increase (amend) its lien over that
which has officially been filed. The Bank goes on further to
argue that Ingram-Clevenger's only remedy would have been to
file a new lien, which was not done. Just as with regard to
issue 3, the Bank argues this does not mean the mathematical
error is not due and Ingram-Clevenger cannot recover this sum
from Levee, it simply means the mathematical error is only a
general judgment lien on the Hotel property with a priority
behind that of both the mechanic's liens and the Bank's
mortgage. Once again, we disagree with the Bank.
The Bank correctly points out that under Montana's
mechanic's lien statutes, certain procedures must be followed
in order to establish a valid lien. Further, these statutory
procedures by which a lien is perfected and enforced must be
strictly followed or the lien is void. See, Crane and Ordway
Co. v. Baatz (1917) 53 Mont. 438, 164 P. 533; ~arco-~ruden
v.
Nelson (1979), 181 Mont. 252, 593 P.2d 48; General ~lectric
Supply Co. etc. v. Bennett (Mont. 1981), 626 P.2d 844, 38
St.Rep. 553. However, this Court has also repeatedly said
that this state's mechanic's lien laws are to be "liberally
construed":
[It is a] well-known rule that mechanics' lien laws
are remedial, and therefore to be liberally
construed and applied ...It is that, the
necessary steps having once been taken to secure
the lien, the law is subject to the most liberal
construction, for it is remedial in character, and
rests upon broad principles of natural equity and
commercial necessity.
Crane, 164 P. at 534.
Also, along this same line, this Court recently stated:
This Court has uniformly held that the requirements
of the mechanic's lien statutes as to procedure
will be strictly enforced. Once the procedure has
been fulfilled, the statutes will be liberally
construed so as to give effect to their remedial
character. (Citations omitted.)
General Electric, 626 P.2d at 846.
We hold the above principles are applicable to the
instant case. Ingram-Clevenger, as the record indicates,
precisely followed Montana ' s statutory procedure
(5 71-3-51 (1), MCA) in perfecting and securing its
mechanic's lien--the only problem being it made a good faith
mathematical error in the amount of the lien. As the General
Electric case indicates, once the procedure to establish a
lien has been fulfilled, the statutes will be liberally
construed so as to give effect to their remedial character.
We hold Ingram-Clevenger should not be prejudiced by its good
faith mistake. The company made every effort to comply with
the steps necessary to acquire its lien, and equity demands
it receive the entire value of its labor and materials put
into the Hotel project. Therefore, the District Court was
correct in awarding Ingram-Clevenger the amount of its
mathematical error.
Did the District Court err in awarding the mechanic's
liens a priority status over that of the Bank's mortgage?
The Bank begins its argument by stating that assuming
arguendo the mechanic's liens filed by Ingram-Clevenger and
Tri-County are valid and enforceable for their stated amounts
(which we have held they are), they are still not entitled to
a priority over the Bank's mortgage.
The Bank asserts that 5 71-3-502(4), MCA, is the section
that controls with regard to the priorities of the instant
case. This statute provides:
Section 71-3-502. Priorities.
(4) The liens attach to the buildings,
structures, or improvements for which
they were furnished or the work was done
in preference to any prior lien,
encumbrance, or mortgage upon - -
the land
upon which sai~buildings,structures, or
improvements were erected; and any person
enforcing such lien may sell the same
under execution, and the purchaser may
remove the property sold within a
reasonable time thereafter. (Emphasis
added. )
The Bank essentially argues that although this statute
specifically says that a mechanic's lien has priority over a
prior recorded mortgage, by the words "mortgage upon -
the
land" and "were erected" the priorities of this statute apply
only where a mechanic's lien arises out of the construction
of a new structure on previously unimproved land. The Bank
adopts this interpretation from two early cases by this
Court: Interstate Lumber Company v. Rider (1933), 93 Mont.
489, 19 P.2d 644 and Dewey Lumber Company v. McQuirk (19341,
96 Mont. 294, 30 P.2d 475.
With regard to the instant case, the Bank argues that
although its mortgage on the Hotel property was recorded
prior to the claimants' mechanic's liens, their mechanic's
liens - - have priority under 5 71-3-502(4) because their
do not
liens arose out of an existing structure on previously
improved land. The Bank asserts that because the claimants
were remodeling and renovating an existing structure (i.e.
the Hotel), the priorities of $ 71-3-502(4) do not apply and
the claimants' liens must yield to the Bank's mortgage.
To reach the above result, the Bank admits this Court
must overrule one of its recent decisions. In Home
Interiors, Inc. v. Hendrickson (Mont. 1984), 692 ~ . 2 d1229,
41 St.Rep. 2408, this Court directly interpreted the meaning
of $ 71-3-502(4) and stated under the facts of the case that
mechanic's liens are superior to prior recorded.mortgages or
trust indentures regardless of the nature of the work done by
the lien claimants. The Court in Home Interiors refused to
strictly interpret the words "upon the land" as the Bank now
suggests, and stated such an interpretation would defeat the
purpose of § 71-3-502(4) which is that a mechanic's lien has
priority over a prior recorded mortgage.
The claimants, on the other hand, argue their mechanic's
liens have priority over the Bank's mortgage by virtue of a
simple statute which the Bank has overlooked. Section
71-3-502 (3), MCA, provides:
71-3-502. Priorites.
(3) The liens for work or labor done or
material furnished, as specified in this
part, shall be prior to and have
precedence over any mortgage,
encumbrance, or other lien made
subsequent to the commencement of work on
any contract for the erection of such
building, structure, or other
improvement.
The claimants point out they contracted with Levee to
restore and remodel the Hotel on November 4, 1983, and
commenced work on or about the same day. The Bank advanced
its loan to Levee on February 6, 1984, and filed its mortgage
on February 10, 1984. The claimants note that under the
clear wording of subsection (3) of 5 71-3-502 their
mechanic's liens are superior to the Bank's mortgage.
Therefore, the statute and cases relied upon by the Bank are
- relevant to the present case.
not Section 71-3-502 (3), MCA,
is the only pertinent law which needs to be applied to this
case. We agree.
We further find no merit in the Bank's argument that
5 71-3-502(3) should be strictly construed to pivot on the
phrase "for the erection of such building, structure, or
other improvement." Under subsection (3), the priority of a
mechanic's lien over a subsequent mortgage is - limited to
not
a situation where a new structure is built (erected) on
previously unimproved land. Such an interpretation would
defeat the obvious purpose of the statute.
Finally, the claimants argue, and we agree, even if
S 71-3-502(3) was not applicable to the present case (which
it is) , this Court has recently held under the facts in Home
Interiors that a mechanic's lien is superior to a prior
recorded mortgage. In Home Interiors we stated that
mechanic's liens held by material suppliers had priority over
a prior recorded trust indenture under § 71-3-502(4) because
the holder of the trust indenture was the party with the
greatest ability to protect its interest by either
withholding funds to the extent of the contemplated
improvements or by requiring the landowner to obtain lien
waivers. We went on to say this result does not spell
imminent disaster for the holder of a prior recorded trust
indenture; it merely requires the holder of a trust indenture
to exercise ordinary business prudence where construction is
contemplated. As we stated:
We therefore hold the party having the greatest
ability to protect its interests has the burden of
exercising due care to prevent overreaching by an
interested party. In this case respondent [a
mortgage corporation] was in the best position to
protect against non-payment by the landowner by
either withholding funds to the extent of the
contemplated improvements or by requiring the
landowner to obtain lien waivers from the
mechanics.
Home Interiors, 692 P.2d at 1232.
We see no reason to distinguish the Home Interiors case
from the instant case. The Bank in the present case had the
same opportunity and responsibility as the respondent in Home
Interiors if it wanted to protect its mortgage from the lien
claimants rights. We hold our decision in Home Interiors is
still sound law, and we reject the Bank's analysis of
$ 71-3-502(4) as set forth above.
3 Therefore, even under this
Court's ruling in Home Interiors, the claimants' liens take
priority over the Bank's mortgage.
The judgment of the District Court is affirmed.