ROBERTSON, Presiding Judge.
This is an appeal by Miles Homes of Indiana, Inc. (Miles Homes) from a judgment foreclosing the mechanic's lien of Harrah Plumbing and Heating Service Co., Inc. (Harrah) on real property to which Miles Homes holds title and in which John W. and Margaret Lee (Lees) hold an interest as conditional land contract purchasers.
We reverse and remand.
Miles Homes provided materials to build a "shell house", (i.e., a house without electricity, plumbing and interior finishing) to the Lees. Miles Homes took a mortgage on the real estate upon which the house was built as security for the note executed by the Lees for the materials. The amount of the note was $7,814.00. This was on August 13, 1971. The Lees fell behind in their payments and the Lees, in exchange for the cancellation of the note held by Miles Homes, conveyed the property to Miles Homes by warranty deed on April 12, 1974. The amount of consideration stated in the deed was the amount then owed — $8,779.93. The deed contained the term: "It is the intention of the grantee that the interest conveyed herein will remain separate and distinct from the separate mortgagee's interest previously acquired." At the same time, an installment or conditional land contract was entered into whereby Miles Homes agreed to sell the real estate for $8,300.00 at the rate of $78.69 a month until March 15, 1975, when the remaining unpaid balance would be due. The Miles Homes official testified the contract was entered into to give Lees time to refinance or find another mortgage.
The contract contained a term that no improvements could be made upon the property without written agreement of the vendor. However, on cross-examination, an official from Miles Homes admitted that the Lees were free to, and expected to, make such improvements as to make the house modern and habitable. The Lees did not make payments on time and were in possession at trial. The Lees made 16 payments after the contract was to be paid off in full. On August 5, 1975, a contract was entered into between the Lees whereby
The trial court, without intervention of a jury, found that the mechanic's lien was properly perfected, that Harrah had priority over any claim of Miles Homes and that the real estate should be sold in foreclosure with the claims of Harrah paid first, then the Miles claim with the Lees to receive any excess.
Miles Homes and the Lees appealed. The Lees' appeal was dismissed for various deficiencies on the motion of Miles Homes. Miles Homes has presented a plethora of errors on appeal; however, because of our decision we need address only two groupings of them. The first is whether Miles Homes has priority over Harrah based on its alleged first mortgage; and second, whether it is possible for Harrah to acquire a mechanic's lien against the interest of Miles Homes based on a contract entered into with the contract purchasers, the Lees.
We first discuss whether the mortgage of Miles Homes remained unmerged when it took title to the property. We note that Miles Homes expressly intended to keep the mortgage alive, however:
G. Osborne, Handbook on the Law of Mortgages, § 274, (2d Ed. 1970).
There is authority for the proposition that the lien will be revived so as to prevent junior lienors from gaining a windfall priority by a merger. Id. § 275. In the situation at hand, if Harrah had attained its lien after the Miles Homes mortgage, but before the transfer of deed in lieu of foreclosure, to allow Harrah priority over Miles Homes would be a windfall, since Miles Homes could have obtained foreclosure and, assuming its debt equalled the value of the real estate, cut off any junior lien of Harrah's. The cases cited by Miles Homes follow this pattern.
However, to allow Miles Homes to "revive" the mortgage in the situation at hand would be equally a windfall for Miles Homes. There is no intervening lienor here, rather there is a lienor subsequent to taking title. Thus, the same consideration of "windfall priority" is not a factor here, and we reject any "revival" here.
As to the second general category of error alleged, the trial court made two findings concerning the part Miles Homes took in the plumbing contract. Finding number three states that Harrah furnished work, labor and materials at the special instance and request of the Lees "with the full knowledge and consent of Miles Homes... ." Finding number thirteen states that Miles Homes only implicitly knew, consented and authorized any work and furnishing of materials to the house.
Our examination of the record shows that the second finding is undoubtedly the one shown by the evidence. There was no testimony of actual knowledge, authorization or consent by Miles Homes, but rather there was implicit consent, knowledge and authorization based on the fact that Miles Homes was aware the house was incomplete and that work and materials would have to be provided by someone to finish the house. We, thus, reject finding number three as clearly erroneous and accept the latter finding.
As noted by Potter v. Cline, (1974) 161 Ind.App. 349, 316 N.E.2d 422, there is "loose and imprecise language" existing in the long line of cases that suggest that the mechanic cannot place a lien on any interest of the real estate when the conditional vendee or lessee enters in the contract without active consent of the titleowner. Such a view is incorrect, it is only the titleowner's interest that cannot be reached; the interest of the lessee or, as here, conditional vendee can be so reached.
The statute and the cases clearly show that the interest of a contract purchaser or conditional vendee is subject to a lienable interest. Potter, supra; Kendall Lumber & Coal Co., Inc. v. Roman, (1950) 120 Ind.App. 368, 375, 91 N.E.2d 187, 190; Ind. Code 32-8-3-2 ("The entire land upon which any such ... improvement is situated ... shall be subject to lien to the extent, of all the right, title and interest owned herein by the owner thereof ...") See Mid America Homes, Inc. v. Horn, (1979) Ind., 396 N.E.2d 879 (analysis of term "owner"). Thus, in the case at hand, although Harrah does not have a possible lien against Miles Homes, it does against the Lees, on their interest as contract purchasers.
We must now consider, however, the effect of the third-party action by Miles Homes against the Lees on the possible mechanic's lien of Harrah on the Lees' interest. Miles Homes, because of the default of the Lees on the contract, prayed for forfeiture of the contract, or in the alternative, foreclosure of their "first" mortgage. We have already determined that Miles Homes has no mortgage interest here, as there is no debt owed. In examining the record, we can find no reason why the Lees' interest cannot be forfeited under the rule of Skendzel v. Marshall, (1973) 261 Ind. 226, 301 N.E.2d 641, which examines whether a forfeiture would act as a penalty. Here, the Lees have paid no principal towards the contract, and owed more at the time of trial than they did when the contract began. They presented no evidence at trial that they have any equity in the house.
Miles Homes was entitled, then, to a forfeiture of the installment land sale contract and we must examine the effect of such a forfeiture on the possible lien of Harrah's on the Lees' interest. The slim authority we can find states that the lien is extinguished with the forfeiture.
A Michigan case that is factually similar to the one at hand states:
Eastern Construction Co. v. Cole, (1974) 52 Mich.App. 346, 351-52, 217 N.W.2d 108, 111; See also O'Hara Plumbing Co., Inc. v. Roschynialski, (1973) 190 Neb. 246, 207 N.W.2d 380; 53 Am.Jur. 2d, Mechanic Liens, § 129 (1970).
We cannot interpret this section to encompass Harrah, who did not erect a building and where the statute does not speak to contract purchaser's interests.
As the trial characterized it, we also are not impressed by Miles Homes's "legal tinker toy game" here; however, it is a legislative decision just how to protect the interests of a mechanic in this situation.
Judgment reversed, and remanded with instructions to enter judgment not inconsistent with this opinion.
NEAL, J., concurs.
YOUNG, J., (sitting by designation) dissents with opinion.
YOUNG, Judge, dissenting.
Whether Miles consented to the work, labor and materials of Harrah being furnished to the Lee "shell" house so as to subject Miles' interest in the real estate to a mechanic's lien is a factual issue that has been determined by the trial court in favor of Harrah. I would not disturb that finding on appeal. A mechanic's lien may not attach to a titleholder's interest unless materials are furnished at the authority and direction of the titleholder and something more than inactive consent on the part of the owner is necessary in order that a lien may be acquired against the owner. Better Homes Co. v. Hildebrand Hardware Co., (1929) 202 Ind. 6, 171 N.E. 321.
The rule itself is somewhat anomalous. It initially seems to require, as a precondition to the valid attachment of a mechanic's lien, the express authority and direction of the titleholder, but then modifies that rigidity by permitting consent by the titleholder to obviate the initial requirement. Indeed, in Better Homes itself, the Court found the requisite "active and instrumental" conduct on the part of the titleholder to permit a mechanic's lien to attach even though the work was not performed at the express direction or authority of the titleholder.
Later cases indicate "active and instrumental" conduct by the titleholder is tantamount to "authority and direction." Here, Miles' conduct in anticipating the plumbing would be installed, its knowledge that the contract purchaser might become obligated to materialmen and laborers, its sale of a shell house which without plumbing, heat or electricity would not be habitable, the importance it attached to the house's completion in order to increase its security, all indicate active and instrumental conduct sufficient to allow the lien to attach. American Islam Society v. Bob Ulrich Decorating, (1956) 126 Ind.App. 266, 132 N.E.2d 620, 622. All of this was found as fact by the trial court and the majority should not re-examine the evidence to conclude otherwise. The finding of the trial court that the plumbing work was done with "full knowledge and consent" of Miles, and that it "impliedly authorized" the contract purchaser to finish construction on the residence, and that Miles "impliedly authorized" and knew there would be materials, supplies and labor performed on the real estate by persons other than the Lees is amply supported by the evidence.
It is evident from the testimony that
(1) Miles anticipated that other materials would be bought by the Lees;
(2) A buyer of a Miles home might become obligated to electricians, plumbers or lumber companies;
(3) Miles did not consider it a default of its mortgage note and contract if the buyer bought things necessary to finish the house;
(4) The buyer would install plumbing;
(5) It was important to Miles that the house be completed in order to increase its security;
(6) To sit without plumbing would not make their security or the salability of the home any better;
(7) In a normal situation Miles anticipated that plumbing would be installed.
The trial court's factual determination is well taken and the legal conclusion that Miles gave authority and direction follows.
I would affirm the trial court.