HOUSE OF CARPETS, INC. V. MORTGAGE INV. CO., 1973-NMSC-095, 85 N.M. 560, 514 P.2d
611 (S. Ct. 1973)
HOUSE OF CARPETS, INC., a New Mexico
Corporation,
Plaintiff-Appellee,
vs.
MORTGAGE INVESTMENT COMPANY, Defendant-Appellant, v. JACK
DANIELS, dba JACK DANIELS CONSTRUCTION, DAR TILE,
HALBERT CABINET MANUFACTURING CO., INC. and
NAIL PLUMBING CO., INC.,
Defendants-Appellees
SUPREME COURT OF NEW MEXICO
1973-NMSC-095, 85 N.M. 560, 514 P.2d 611
Appeal from the District Court of
Bernalillo County, Larrazolo, Judge
RODEY, DICKASON, SLOAN, AKIN & ROBB,
ROBERT M. ST. JOHN, REX D. THROCKMORTON, Albuquerque, New Mexico, Attorneys for
Appellant.
BRANCH, DICKSON & DUBOIS, THREET,
THREET, GLASS, KING & MAXWELL, McNEANY, ROSE & SHOLER, Albuquerque, New
Mexico, Attorneys for Appellees.
STEPHENSON, Justice, wrote the opinion.
John B. McManus Jr., C.J., Joe L.
Martinez, J.
{*561} STEPHENSON,
Justice.
{1} This suit was brought in
the District Court of Bernalillo County to foreclose a mechanic's and
materialmen's lien against a Mr. Daniels. Other mechanics and materialmen and
Mortgage Investment Company of El Paso,
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a mortgagee, were joined as defendants to resolve lien priorities. The
pleadings and party situation then becomes exceedingly complex, replete with
third party claims, interventions, counterclaims, cross claims and perhaps
others. For purposes of this appeal, suffice it to say that the mentioned
mortgagee (Appellant) is aligned against several claimants of mechanic's and
materialmen's liens (Appellees). The case was tried to the district court,
without a jury, upon stipulated facts. Judgment was entered partially in favor
of the appellees. Mortgagee appeals.
{2} On June 2, 1970 the
appellant took a promissory note and construction loan mortgage from Mr.
Daniels and his wife to furnish construction financing for a house on real
estate in Albuquerque. The mortgage was recorded in the Bernalillo County
Clerk's office on June 3, 1970. Appellees commenced work and the delivery of
materials after the mortgage was recorded. Appellant made advances of funds to
Daniels as construction progressed on the premises. All of these advances were
made after work had commenced. Construction was substantially completed in
September, 1970, when appellant had advanced $29,500.00, the face amount of the
note. Thereafter appellees filed mechanic's and materialmen's liens on the
premises. From November 19, 1970 to April, 1971, appellant continued to advance
funds in order to preserve, finish and repair the constructed house. The total
amount advanced by appellant was $32,366.19. The case was submitted to the
district court on stipulated facts. The note and mortgage, and the deposition
of Mr. Wilson, an official of appellant, to determine the priorities of the
various mechanic's liens and the mortgage. Final judgment was entered by
awarding priority according to the date of each advance by the appellant.
{3} The court's conclusion of
law around which argument centers here is:
"II. That the mortgage of the defendant, MORTGAGE
INVESTMENT COMPANY OF EL PASO, TEXAS, provided for optional rather than
obligatory advances.
"That the optional mortgage of the defendant, MORTGAGE INVESTMENT
COMPANY OF EL PASO, TEXAS, attached as a lien upon the premises not from the
date of its recording, but from the date of each advance and to the extent of
each advance thereupon."
{4} The court then proceeded
to assign priorities on that basis.
{5} Inasmuch as the mortgage
was recorded prior to commencement of any work or the delivery of any materials
to the construction site, absent any other facts the mortgage lien would
clearly prevail over the materialmen's liens by reason of § 61-2-5, N.M.S.A.
(1953) which provides:
"The liens provided for in this article [i.e. mechanics'
and materialmen's liens] are preferred to any lien, mortgage or other
encumbrance which may have attached subsequent to the time when the building,
improvement or structure was commenced, work done, or materials were commenced
to be furnished; also to any lien, mortgage, or other encumbrance of which the
lienholder had no notice, and which was unrecorded at the time the building,
improvement or structure was commenced, work done, or the materials were
commenced to be furnished."
{6} Although the statute in
terms prefers mechanic's and materialmen's liens, we have construed its
language to protect mortgage liens recorded prior to commencement of work.
Stearns-Roger Co. v. Aztec Co.,
14 N.M. 300,
93 P. 706 (1908).
{7} Appellees seek to avoid
this result by asserting that all funds under the note were not advanced at the
time the mortgage was recorded; that advances by the mortgagee were optional
rather than obligatory; and that the priority of the mortgage lien commences
only from the date of the advance, not from the date of its recording. The
{*563} cornerstone of their argument is Heller
v. Gate City Building And Loan Association,
75 N.M. 596,
408 P.2d 753 (1965).
{8} In Heller the dispute
involved priority between two mortgagees. Pursuant to the terms of the first
mortgage, the mortgagee advanced money for taxes, insurance premiums and
repairs for the property. The mortgage made these advances discretionary with
the mortgagee. The advances exceeded the fixed sum of the mortgage and resulted
in extending its maturity date. Although the first mortgagee was aware of the
subsequent lien, there was no attempt to obtain consent for the advances. A
default occurred in the second mortgage and foreclosure proceedings were
instituted. The only issue concerned the priority of advances made by the first
mortgagee. As to the specific sum stated in the first mortgage, the second
mortgagee conceded priority. Several criteria were set forth by the court in
determining priorities for mortgages intended to secure future advances.
{9} The court finally stated
at 600, 408 P.2d at 755:
"There is an overwhelming agreement among the courts in
this country that a first mortgagee making future advances, which are optional
and not obligatory under the first mortgage, with actual knowledge of an
intervening lien, cannot obtain priority for subsequent advances over the
intervening lien."
{10} Since advances for
taxes, insurance premiums and repairs were wholly discretionary with the
mortgagee, the court awarded priority to the second mortgagee to the extent of
these optional advances.
{11} Heller, although
obviously distinguishable on the facts, is the only New Mexico case which even
lays down the general principle which we have quoted. Cases from other
jurisdictions dealing with the fact situation which confronts us here vary
radically as to both result and rationale. Study of an annotation at 80
A.L.R.2d 179 entitled "Priority between mechanics' liens and advances made
under previously executed mortgage" indicates to us that the general rule
stated in Heller has gained wide acceptance in our present fact situation. The
annotator at 80 A.L.R.2d 191 states:
"One factor given much weight by many courts seeking to
determine whether advances made after the giving of a mortgage shall receive
priority over intervening mechanics' liens is whether the mortgagee or
beneficiary under a deed of trust is under an obligation, pursuant to the terms
of his agreement with the mortgagor, to advance the sum or sums called for by
the instrument. Thus, many courts have recognized that where the making of the
advances is obligatory upon the mortgagee or beneficiary, the lien of a
mortgage or trust deed receives priority over mechanics' liens when the
mortgage or deed has been recorded before the mechanic's lien attaches, despite
the fact that advances are actually given subsequently to this time."
{12} The underlying reasoning
of the general statement from Heller and the more specific one from the
annotation commends itself to us. We adopt it here and turn to its application
to the facts of this case. This requires a decision as to whether the advances
were discretionary or obligatory. Appellant contends, and appellees deny that
they were obligatory. Appellant concedes that advances over the face amount of
the note take precedence only from the time made.
{13} We have quoted the key
conclusion of law made by the court. A conclusion of law must find support in
the findings of fact. Goldie v. Yaker,
78 N.M. 485,
432 P.2d 841 (1967). We
discern no finding of fact which supports conclusion II. The court found the
mortgage to exist and it incorporates the note. These documents are included in
the stipulated facts. The findings make reference to Mr. Wilson's deposition,
in effect adopting and giving full credence to it, specifying it as the source
of the dates and amounts of appellant's
{*564}
advances and admitting it into evidence.
{14} The mortgage is labeled
"construction loan mortgage" and the note is captioned
"construction real estate mortgage note." It is for a term of only
two hundred seventy days and contains references to construction work on the
encumbered premises. It requires "any money advanced under this
construction loan" to be used for construction of improvements on the real
estate. The note concludes with a statement that if it becomes immediately due
and payable (as a result of an event of default) the appellant "will be
under no obligation to advance any additional portion of this note and shall
incur no liability" for refusing to do so. The inference to be drawn from
this final clause of the note is that if there were no events of default, the
mortgagee was obligated to continue making advances under the note.
{15} Certainly there is
nothing here to indicate that advances are optional and all the inferences are
to the contrary. It is difficult to imagine how or why the parties to the note
and mortgage would have embarked on the venture or why the $29,500.00 note was
given in the form that it was if appellant had no obligation to make advances.
We are concerned solely with the intention of the parties to the note and
mortgage. Maxwell Lumber Co. et al. v. Connelly et al.,
34 N.M. 562,
287 P. 64
(1930).
{16} Mr. Wilson's deposition
is clear and straightforward to the effect that the arrangement with Mr.
Daniels was that advancements would be made pursuant to a certain schedule
during the course of construction. This is undisputed. Having been adopted in
the findings of fact we feel free to consider it.
{17} Where evidence consists
of documents and stipulated facts, this court is in as good a position as was
the trial court to determine the facts and we are not bound by the trial
court's findings. State Ex Rel. State Highway Commission v. Trujillo,
82 N.M.
694,
487 P.2d 122 (1971); Atlantic Refining Company v. Beach,
78 N.M. 634,
436
P.2d 107 (1968). Conclusion II is unsupported by any finding. If it was, such
finding would be unsupported by substantial evidence and contrary to the
undisputed evidence.
{18} We hold that
notwithstanding the paucity of the documentation, advances under the note were
obligatory.
{19} Finally appellees point
to a provision in the mortgage to the effect that if "any lien or claim of
lien arises or is assessed, imposed or filed against the real estate"
appellant will not be under obligation to advance additional funds on the note.
They say that although the liens were not filed until after the advances with
which we are concerned, nevertheless when filed they become effective from the
date the lien claimant's work commenced or first materials were furnished and
that any advancements made subsequent to the last mentioned date would not have
priority over the lien claimant.
{20} No findings or
conclusions were requested or made which would support this theory. Again the
query is as to the intention of the parties to the note and mortgage. We would
think it virtually irrational for them to have intended that the priority of
sums advanced for construction would be defeated in this fashion. In any case,
under the rule we have cited from State Ex Rel. State Highway Commission v.
Trujillo, supra, and Atlantic Refining Company v. Beach, supra, we are not
persuaded that such was their intention.
{21} The judgment of the
trial court is reversed. The case is remanded to the District Court of
Bernalillo County with directions to proceed in accordance with the views we
have expressed. The appellant's claim should be given priority over those of
the lien claimants for the face amount of the note plus costs, expenses and
attorneys' fees as specified in the note and mortgage. The judgment should also
fix and determine the priority of the
{*565}
lien claimants and advances of the appellant over and above the face amount
of the mortgage.
John B. McManus Jr., C.J., Joe L. Martinez, J.