Home Oil Co. v. Helton

| Ark. | Mar 11, 1929

STATEMENT BY THE COURT.

This appeal is from a decree in favor of appellees for the foreclosure of certain mechanics' liens. The only question in controversy is as to the priority of the mechanics' liens over the lien of a mortgage on the property executed by the owner to a person alleged by appellees to be the original contractor, as part payment, or as security for part payment, of the contract price. The mortgage was executed and recorded prior to the time any work was done or materials furnished by appellees.

The facts material to the issue raised by the appeal may be stated in brief form as follows: On the 20th day of June, 1927, a written contract was entered into between the Sloan Oil Company, owned by S. M. Sloan, and doing business in St. Louis, Missouri, and G. C. McGraw of Star City, Arkansas, for the purpose of erecting and operating a distributing station for gasoline products in Star City, Arkansas. The Sloan Oil Company was a wholesale dealer in gasoline and motor oils, and it was intended between the parties that a storage station should be erected for McGraw at Star City for the purpose of distributing said products. We copy from the contract the following:

"In consideration of the above, said party of the second part agrees to purchase from said party of the first part one bulk storage station, complete and ready for operation, for the sum of $7,432, payment to be made as follows: $2,500 cash down, which is the down payment, receipt of which is hereby acknowledged, and four notes of $1,233 each, due six, twelve, eighteen and twenty-four months from the date of this contract, bearing interest at 7 per cent per annum until paid, interest payable semi-annually. And it is therefore mutually understood that the party of second part has executed his notes as above outlined, receipt of which is hereby acknowledged; and it is also further mutually understood that said party of the second part is to execute a real estate mortgage covering the payment of the above notes upon the bulk storage station and ground secured for the erection of same. This mortgage is to be executed as soon as said party of the second part has secured the ground upon which the station referred to is to be erected. The above payments represent the payment in full of the bulk storage station complete and ready for operation, and which further includes the following merchandise, specifications for same as outlined: (Specifications follow). * * * It is also mutually understood that said parties of first part are to pay all freight on merchandise and to pay all labor or material purchased for the erection of the above bulk storage station."

The contract further provides that McGraw is to buy from the Sloan Oil Company all his gasoline and other products which should be used in said storage station, upon consignment, for a period of five years from the date of the contract, upon a marginal basis as specified therein. Other specifications relating to the rights of the parties in regard to the distribution of gas and motor oil are omitted from our statement of facts because they have no bearing on the issues raised by this appeal.

Subsequently, Grover C. McGraw purchased the lots in Star City, Arkansas, on which the storage station was erected. McGraw paid the $2,500 cash when the tanks and other materials were delivered to him at Star City. On July 16, 1927, McGraw executed a mortgage on the lots on which the storage station was to be erected in Star City to the Sloan Oil Company to secure the payment of $4,932, evidenced by four notes in the sum of $1,233 each, dated June 20, 1927, and payable in six, twelve, eighteen and twenty-four months from date, with interest at seven per cent per annum. It was contemplated that his money should be used in the erection of the storage station. The notes were transferred and assigned by Sloan to third persons for the purpose of securing money for that purpose. The notes and the mortgage given to secure the same were sold and transferred by the Sloan Oil Company to the Home Oil Company and the State Bank of Cowden, before maturity, and for a valuable consideration.

Subsequently H. P. Helton and other persons did labor and furnished material in the erection of the storage station in question. The work was done pursuant to contract made by them with the Sloan Oil Company. The amount of their claims and the fact that the liens were filed within the time and in the manner provided by statute are not controverted by the Home Oil Company or the State Bank of Cowden. Hence it is not necessary to abstract the testimony in this respect.

The court found that the holders of the notes secured by the mortgage on the lots on which the storage station was erected were innocent holders in due course, and were entitled to a lien upon the real estate which was inferior only to the mechanics' liens of appellees. A decree was entered in accordance with the findings of the chancellor. Under 6906 of Crawford Moses' Digest, every mechanic, etc., or other person who shall perform any work upon or furnish any material for any building, erection, or improvement upon land, under or by virtue of any contract with the owner thereof or his agent, contractor or subcontractor, upon complying with the provisions of the act shall have a lien upon such building, erection or improvement, and the land on which it is erected. Section 6909 of the Digest provides that the lien for the things aforesaid shall attach to the buildings, erections, or other improvements for which they were furnished or work was done, in preference to any prior lien or mortgage existing upon said land. The section contains a proviso, however, that in all cases where said prior lien or mortgage was given or executed for the purpose of raising money or funds with which to make such erection, improvement or building, then said lien shall be prior to the lien given by the act.

Under this proviso of the section of the statute, counsel for appellants claim that they are entitled to a reversal of the decree because, under the proof, the mortgage was given for the purpose of raising money with which to erect the storage station, and that the Sloan Oil Company, to whom the mortgage was given, could not be termed the contractor, under the statute giving mechanics' liens for labor done or materials furnished as above stated. They contend that the rights of the parties are axed by the written contract of June 20, 1927, a part of which is copied in our statement of facts, and that, under and by virtue of its terms, the Sloan Oil Company could in no sense be termed a contractor within the meaning of our mechanics' lien statute.

On the other hand, counsel for appellees contends that the contract makes the Sloan Oil Company an original contractor for the construction of the storage station mentioned in the contract, and that the findings of fact made by the chancery court so term him.

We are of the opinion that counsel for appellees is correct. The term "contractor," as used in our statute relating to mechanics' lien, refers to one who, under a contract with the owner, agrees for a consideration to furnish the material, labor, and superintendence necessary to the erection of the building or other improvement on the owner's premises. It is true that the contract contemplated that G. C. McGraw should operate a storage station on certain lots to be purchased by him in Star City, Arkansas, and that he should buy all his gasoline and oil products from the Sloan Oil Company, but the contract also provided that the Sloan Oil Company should erect the storage station. The language used in McGraw's agreement to purchase from the Sloan Oil Company is "one bulk storage station, complete and ready for operation, for the sum of $7,432." After stating the manner and the time in which the different payments shall be made, the contract recites that they represent the payment in full for the bulk storage station, complete and ready for operation. It is fairly inferable from the language used that the Sloan Oil Company was to furnish the material and labor necessary for the erection of said bulk storage station and to superintend its erection, in accordance with the plan and specifications agreed upon between the parties.

The lots upon which the storage station was to be erected were to be purchased by McGraw. The lots were purchased by him before the mortgage on them was executed by him to the Sloan Oil Company. Our statute gives subcontractors, laborers and materialmen a lien upon the improvement, and this is based upon the right of the implied agency of the original contractor to find the owner's title. If the owner could give a mortgage to the principal contractor and thereby defeat the rights of subcontractors, laborers and materialmen, then we would have the case of the owner and the principal contractor making a contract which would have the effect of abrogating a statute lawfully enacted by the Legislature. This could not be done.

The word "contractor" as used in the statute means a person engaged in making a contract with the owner for the improvement of certain real estate. The other persons referred to in the statute embrace that class who may furnish material for the improvement of the real estate under a contract with the principal contractor. The statute creates a lien in their favor when certain conditions are complied with by them. Giving the words above referred to the meaning which we have attributed to them, it will be readily seen that, if the Sloan Oil Company is to be treated as a principal contractor, he could make no contract with the owner of the lots upon which the improvement was to be made which would result in defeating the liens given by statute to subcontractors, laborers and materialmen who have performed labor or furnished material for the construction of the improvement.

It does not make any difference that the Home Oil Company and the State Bank of Cowden are innocent purchasers of the notes for value before maturity. They could acquire no greater rights than the Sloan Oil Company, which was the mortgagee. Being innocent purchasers for value of the notes before maturity, the Home Oil Company and the State Bank of Cowden would be entitled to recover judgment against McGraw as the maker of the notes, but this would not give them the right to have a lien on the lots in question prior to the lien given by statute in favor or the subcontractors, laborers and materialmen.

Therefore the decree will be affirmed.