NATIONAL LUMBER CO. v. ADVANCE DEVELOPMENT No. 86-202.
732 S.W.2d 840 (1987)
293 Ark. 1
NATIONAL LUMBER COMPANY, Appellant, v. ADVANCE DEVELOPMENT CORP., Vermont Place Properties, et al., Appellees.
Supreme Court of Arkansas.
July 13, 1987.
Thompson, Paddock & Llewellyn by: Richard L. Spearman, Fort Smith, for appellant.
Harper, Young, Smith & Maurras by; Robert Y. Cohen, II, Phillip Taylor, Jones, Gilbreath, Jackson & Moll by: Charles R. Garner, Jr., Fort Smith, Morril Harriman, Van Buren, Gean, Gean & Gean by: Lawrence W. Fitting, Fort Smith, for appellees.
HOLT, Chief Justice.
This appeal concerns a real estate development in Fort Smith known as Vermont Place Properties, the liability of general partners in a limited partnership, and priorities among mortgagees, mechanics and materialmen involved in the project.
Pat McGowan, Val Somers, and Brent Roberson were general partners in Vermont Place, a limited partnership, formed on January 20, 1984, for the purpose of developing a tract of land in Fort Smith by constructing duplexes on it to be either sold or rented. The partnership mortgaged the property for construction purposes. McGowan's separate company, Advance Development Corp., (Advance) was in charge of developing the project, including contracting with the materialmen and mechanics, hereinafter referred to as "suppliers." On September 3, 1984, Somers and Roberson discovered that McGowan had not been paying the suppliers nor making interest payments on the mortgages. Five
The chancellor held in pertinent part as follows:
National argues that the trial court's holding limiting the personal liability of Somers and Roberson is contrary to Arkansas law which makes partners individually liable for partnership debts. We agree.
The following provisions under the Uniform Partnership Act apply to this situation:
Applying the provisions of the Uniform Partnership Act to the case at bar, when the partners of Vermont Place charged McGowan and his company, Advance, with the responsibility of developing Vermont Place, they effectively made
2. CONSTRUCTION MORTGAGE LIENS.
On July 9, 1984, the partners mortgaged tracts 7 and 8 of Vermont Properties to Citizens Bank and Trust Co., of Van Buren. The trial court held that Citizens Bank had a valid construction mortgage in the total amount of $290,868 plus contract interest and that the construction mortgage liens were prior to the labor and material liens of the suppliers because the mortgages were recorded prior to the commencement of the construction of the improvements on each project site; the mortgages contained a purpose clause expressing that the funds were to be used for construction purposes only; and the lenders were unequivocally obligated to make future advances to the borrower for construction purposes.
Arkansas Stat.Ann. § 51-605 (Repl.1971) provides:
This court has explained that in order to establish the priority of a construction mortgage over a materialman's lien, "(a) the construction mortgage must be executed before the commencement of the building ...; (b) the mortgagee must be bound to advance the money for the construction...; and (c) that fact must be stated in the mortgage...." Planters Lumber Co. v. Jack Collier East Co., 234 Ark. 1091,
National and the other suppliers claim that the mortgages given by Citizens Bank did not meet the requirements of a
The mortgages, in pertinent part, provide:
The parties rely on Lyman Lamb Co. v. Union Bank of Benton, 237 Ark. 629,
The $2,500 was paid to Welch on the day the note was executed. Construction began and Welch then executed another note for $2,500 to Union Bank and received that money. Welch executed four other notes to the bank for a total of $14,500. This court found that the mortgage was not a prior lien as to subsequent advances because the bank was not obligated to pay the additional amounts. We held:
The language of the Citizens Bank mortgage makes it distinguishable from the situation in Lyman. Inasmuch as these mortgages stated that the debt consists of the "aggregate sum" as evidenced by one promissory note, rather than the amount of the first installment only, as was the case in Lyman, Citizens Bank was "unequivocally obligated" to advance the rest of the money making up the aggregate sum for construction purposes. The chancellor did not err in finding the Citizens Bank construction mortgages valid.
In a related argument, the suppliers and National argue that their liens are not inferior to the construction mortgages of Citizens Bank and First America Bank because construction had begun at the site before the mortgages were filed in violation of condition (a) as stated in Planter's Lumber Co., supra.
The chancellor specifically found that the mortgages were filed prior to the commencement of construction of the improvements on each project site and that the lien holders did not meet their burden of proving that there was any construction of improvements prior to the recording of the mortgages. The chancellor also found that the work that was claimed to have been done prior to recording the mortgages constituted only site preparation and did not constitute construction so as to defeat the priority of the construction mortgages.
This finding of fact by the chancellor is upheld unless it is shown to be clearly erroneous. Ark.R.Civ.P. 52(a).
In Mark's Sheet Metal v. Republic Mtg. Co.,
Conflicting evidence was offered as to the type of work begun prior to the filing of the mortgages. National claims that a sewer line was dug and footings were poured before the mortgages were filed. Contrary evidence was offered that a licensed surveyor staked out the lots and put up flags to insure that nothing was started on the lots prior to the filing. In addition, bank officials testified they inspected the lots prior to filing the mortgages for the purpose of determining whether construction had begun. Pictures from their inspections were included in the record and reveal no construction. We have long held that the determination of the credibility of witnesses is best left to the trial court before whom they are testifying. We cannot say the chancellor's finding that construction had not yet begun was clearly erroneous.
3. CATHERINE BURFORD'S PROPERTY.
The partnership conveyed a portion of Vermont Place containing a residence to Catherine L. Burford on April 30, and August 8, 1984. In an amended decree, the chancellor held that the property owned by Burford is deleted from the 3.48 acres known as Vermont Place and is not subject to the liens.
National argues that since Burford's property was part of Vermont Place as platted and filed on February 6, 1984, the liens attached to her property when construction commenced.
Burford contends that she was not even a party to the case which is presently before this court, but rather was a named defendant in a matter which was consolidated for trial with this case. The case in which Burford was a defendant was brought by J & J Plumbing to extinguish an access or driveway easement in favor of Burford across Tract 8. No other party named Burford as a defendant nor sought any relief against her. Burford correctly points out that there is no proof in the abstract that she received any notice that National was claiming a lien on her property. National also has not demonstrated in its abstract that it has met its burden of proving it supplied any materials for use on the Burford property, that it contracted with her, or that the materials it did supply inured to the benefit of Burford. Ragsdell v. Gazaway Lumber Co.,
4. LABORER'S AND MATERIALMEN'S LIENS.
The chancellor found that valid liens were held by several suppliers of labor and materials, including Eugene Renfro, Dubois Electric, and D & L Tile Co. In so holding, the chancellor stated: "All the liens were timely filed or it would be inequitable or unfair to hold that any lien was not timely filed under the facts and circumstances of this case."
National contends that these three liens were not valid because they were not perfected in a timely manner.
Arkansas Stat.Ann. § 51-613 provides:
Filing a lawsuit against the necessary parties within the 120 day period will also perfect the lien. Burks v. Sims, 230 Ark. 170,
National claims that the date of Duboise Electric's last invoice is September 1, 1984, and the company filed a lawsuit on December 10, 1984. The complaint misdescribed the property on which the lien was sought and was dismissed. The lawsuit was refiled on June 27, 1985. Since a proper description is necessary for perfecting a lien, Speights v. Ark. Savings & Loan Ass'n, 239 Ark. 587,
National states that D & L Tile's claim is defective in that that company last performed work on July 17, 1984, and the lien notice was filed on November 16, 1984, some 123 days later. We agree with both arguments. National made a similar contention against Renfro, but withdrew the challenge in its reply brief and now acknowledges that Renfro's lien was properly filed 118 days after last performing work at Vermont Place.
This court has held that our lien statutes are strictly construed since they provide an extraordinary remedy. Dews v. Halliburton Industries, Inc.,
1. STATUTORY NOTICE FOR LIEN CLAIMANTS.
Cross-appellants in this matter are Jack Dempsey and Jan Taylor, d/b/a J & J Plumbing Co., Renfro, Dick Rogers and Ken Prock, d/b/a Prock & Rogers, and Vermont Place Properties.
Arkansas Stat.Ann. § 51-608.1 (Supp. 1985) provides that no lien may be acquired unless the owner or his authorized agent has received the statutory notice set out in Ark.Stat.Ann. § 51-608.3 prior to the furnishing of such material. Arkansas Stat. Ann. § 51-608.5 provides that this notice requirement does not apply if the transaction is a direct sale to the property owner. A direct sale is defined in the statute as one where "the owner or his authorized agent personally orders such materials from the lien claimant." The trial court held that McGowan, Advance, and Vermont Place had so merged their affairs as to be one and the same person, so that the statutory lien notice provided for in § 51-608.1 was not required. The court found that by selling the materials to and performing the labor for McGowan and Advance, the lien holders were dealing directly with the owner of the property within the meaning of § 51-608.5. On appeal we decide whether that determination that the statutory exception to the notice requirement applied was clearly erroneous.
We have explained that this court considers whether the material was "charged to, shipped to, and received by" the property owner and whether an invoice and monthly statement were sent to the owner. Duncan v. Davis & Earnest, Inc.,
Vermont Properties next argues that the doctrine of estoppel applies to prevent National and another lien holder, Fondren Construction Co., from asserting their liens because both knew, before construction began, that Advance could not pay its bills as they became due, and both entered into an agreement with Advance to apply currently collected funds to past due debts. In support of this argument, Vermont points out that both companies had worked with Advance for several years and knew that their account was always behind. Vermont Place claims that payments for work done for Vermont Place were charged to Advance's oldest balance with each company.
3. CREDIT FOR CAPITAL CONTRIBUTION.
Vermont Place contends that the trial court erred when it did not give Somers and Roberson credit for the $30,000 they put into Vermont Place to complete construction of the duplexes, and for holding them jointly and severally liable for the total capital contributions.
The additional capital put into Vermont Place was for additional construction and did not satisfy the existing claims of the suppliers. Inasmuch as we are holding Somers and Roberson jointly and severally liable for all of the debts incurred, we find no merit in this argument.
Vermont states that National is seeking $41,717.01 for unpaid interest, and that during November and December, 1984, interest on Advance's account with National was computed at the rate of 14 per cent per annum. At that time, according to the testimony of a banking official, the maximum lawful rate of interest was 13½ per cent for November and 13 per cent for December. Vermont Place maintains that National's claim for unpaid interest is void as usurious. There was no mention of interest in the credit application Advance filled out, nor was it mentioned in National's complaint. Rather, National kept ledgers showing the amount owing on the account on a monthly basis. The testimony at the trial on this issue, reveals that the matter has already been resolved. During the testimony of Charles Towry, a representative for National, he explained that interest was figured during November and December, 1984, at 14 per cent. The following then occurred:
The trial court, in effect, permitted the parties to amend the pleadings during the trial to conform to the evidence as provided in Ark.R.Civ.P. 15(b). In his decree, the chancellor awarded National the principal
5. MORTGAGES AS NOTICE.
Arkansas Stat.Ann. § 19-2829(c) (Repl.1980) provides:
Pursuant to this statute, the City of Fort Smith enacted an ordinance requiring any subdivision of land to be platted and approved by the planning commission. The plat of Vermont Place, filed February 6, 1984, is platted as one lot. The partners then subdivided the property and obtained separate mortgages on each tract. The materialmen argue there was no authority to divide the one lot into two or more lots or parcels and consequently the mortgages were not acceptable for recording and did not serve as notice to the materialmen. Therefore, the materialmen claim, their liens have priority over all mortgages.
The chancellor rejected this argument, holding:
We agree with the chancellor. Not only did the parties obtain separate mortgages on each tract using a metes and bounds description, but separate building permits were issued by the city on the different tracts, many of the suppliers bid on each tract individually as a separate contract, and the lien claimants asserted their liens by filing suit specifying claims against individual tracts. In American Investment Co. v. Gleason, 181 Ark. 739, 28 S.W.2d 70 (1930), we explained that a mortgage cannot be void for uncertainty if it is possible to ascertain from the description what property is intended to be conveyed. Since the mortgages describe the land sufficiently, they served as adequate notice to the materialmen and they retain their priority over the liens.
Furthermore, since the land was properly divided, the lien holder's argument that because the land was platted as one tract, any work performed on any part of the property served as a lien on the whole 3.48 acres, must fail. The liens and the mortgages apply only to the tracts they describe or upon which the work was performed or the supplies furnished.
6. NEGLIGENCE OR CONSTRUCTIVE FRAUD.
This final argument by the suppliers is that, by permitting McGowan to misuse the funds, the other partners were negligent and a fraud was committed on the suppliers to the extent that Somers and Roberson should be jointly and severally liable for everything
7. MOTION FOR COSTS.
Vermont Place has filed a motion for costs of preparing their supplemental abstract, pursuant to Sup.Ct.R. 9(e)(1). In their motion they seek costs of $332.24 and attorney's fees of $1,565.00. They state that the following items were omitted from National's abstract: testimony concerning the receipt of the statutory lien notice; the complaint and other pleadings of the other lien holders; the order of consolidation; the notices of appeal and cross-appeal; the exhibits and testimony relating to Advance as a separate corporate entity; and the itemized statements of account of the other lien holders.
In its response, National maintains that its abstract was sufficient to enable the court to understand the issues it raised in its appeal. Since National did not challenge the chancellor's holding that Vermont Place and Advance and the three partners had so merged their affairs as to be one entity, it argues it did not need to abstract the testimony about receipt of the statutory notice or the exhibits and testimony relating to Advance as a separate corporate entity. National also contends it abstracted a sufficient amount of the record to establish its claim that certain liens were invalid as not timely filed, and that the other matters claimed to have been omitted were surplusage.
We agree. We do not find National's abstract to have been so deficient as to justify an award of costs to Vermont Place. See Arkansas State Hwy. Comm'n v. Taylor, 238 Ark. 278,
Reversed in part; affirmed in part.
HICKMAN, PURTLE, and HAYS, JJ., concur in part; dissent in part.
HICKMAN, Justice, concurring in part, dissenting in part.
I agree with the decision except for the claim of National Lumber Company. National Lumber Company engaged in a practice not uncommon in the building business: it financed the contractor in this case on several jobs and applied any payments, not designated, to the oldest account. In short, it was financing the contractor and protecting itself to the detriment of other materialmen. A materialman that accepts payments from a contractor ought to be duty bound to ascertain the source of the payment before applying it to an account. I would deny its lien on the basis of estoppel and unclean hands. While there was no evidence of a "secret agreement," the practice amounts to a fraud. A materialman can retire old, stale debts and keep its latest account ripe for a materialman's lien.
PURTLE and DUDLEY, JJ., join.
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