Sandquist & Snow, Inc. v. Kellogg

101 Fla. 568 | Fla. | 1931

Lead Opinion

P. H. Kellogg owner of a certain mortgage by assignment which covered a certain lot in Coral Gables filed his bill to foreclose same and therein made Sandquist and Snow, Inc., among others, a party defendant, and alleged that Sandquist and Snow, Inc., has or claims to have some interest in the premises but that such interest is inferior and subordinate to the mortgage of P. H. Kellogg, complainant.

Sandquist and Snow, Inc. filed its answer, and later filed its cross-bill, making P. H. Kellogg and others defendants upon whom process was duly served, and therein alleged that it is a contractor and builder and that pursuant to a contract entered into with Sid L. Herz, the owner of the lot, the defendant constructed a building thereon; that during the course of the said construction, of which complainant had actual or constructive notice, the said mortgage was placed upon said property; that on March 20, 1926, defendant filed its notice of lien for labor performed and materials furnished and that on January 20, 1927, filed a bill to foreclose its lien; that on August 4, 1927, an order was entered decreeing a lien in favor of defendant upon said property prior in dignity to the other defendants "named in said suit", that thereupon the property was sold to satisfy said lien and that defendant Sandquist and Snow, Inc., was purchaser at the sale and is now the owner of the fee simple title under a master's deed and in possession of said property.

The cross-bill prays that the court determine the priority of the lien and claim of defendant Sandquist and Snow, Inc., over the mortgage of Kellogg and the other defendants, and that Kellogg be required either to pay defendant's lien and claim as theretofore decreed or be foreclosed of any right, title or equity of redemption which he may have in and to said property. To this cross-bill P. H. Kellogg complainant filed a demurrer which in substance sets up that the former suit foreclosing defendant's lien failed to make Kellogg the holder of the mortgage of record a party defendant within 12 months from the date of the filing of the notice of lien and that Sandquist Snow, Inc., is consequently precluded from having the priority of its lien determined as against the said mortgage in a subsequent suit brought more than 12 months after the lien attached.

This demurrer was sustained, in an order and reasons given therefor in a carefully written opinion of the chancellor which constitutes a portion of the transcript.

The cause is here for review upon appeal based upon the said order sustaining the demurrer, which constitutes the only assignment of error.

The pleadings allege, and appears to be admitted, that on March 4, 1926, the original owner of the lot in question, Sid L. Herz, joined by his wife, executed a mortgage to Lula May Baker (Single) securing two notes of $4375.00 each payable in one and two years from date with interest and the same was filed for record on March 9, 1926, and the said mortgage was duly assigned to P. H. Kellogg complainant and the assignment also filed for record on March 9, 1926; that on September 1, 1925, Sandquist Snow, Inc. entered into a construction contract with said Herz, the owner of the lot, and that on September 3, 1925, began furnishing material and performing labor in the construction of said building and did so continuously until March 20, 1926; that on last said date, it filed for record its notice of lien on the said property for labor and material, and on January 20, 1927, duly filed its bill in chancery to foreclose its lien naming Sid L. Herz and wife and others as defendants (not including P. H. Kellogg); that on August 4, 1927, an order was entered decreeing a lien in favor of Sandquist Snow, Inc. in the amount of $9981.11 also decreeing the priority of said lien to the claims of all other defendants "named in said suit;" that the property was bid in by Sandquist Snow Inc., and such sale confirmed September 14, 1927, on which master's deed was issued November 4, 1927, and duly recorded August 29, 1928; that Sandquist Snow, Inc., is now in possession of said property under said deed.

It appears that at the time said mortgage was given and so recorded and assigned on March 9, 1926, and for considerable time prior thereto, Sandquist Snow, Inc., was actively engaged in the performing of labor and furnishing of material in the construction of said building located on said property. It further appears that at the time the lien foreclosure was brought, on January 20, 1927, there was of record the mortgage and the assignment to Kellogg. The assignee of the mortgage, P. H. Kellogg, was not made a party defendant to said lien foreclosure suit.

The question presented here for determination is whether or not a contractor in bringing foreclosure of his lien, by failing to make an assignee of a subordinate mortgage of record a party defendant, where the suit results in a final decree and master's deed, thereby loses his right to enforce the "priority" of his lien as against such mortgage in a subsequent mortgage foreclosure suit, by filing a cross-bill making the mortgagee a defendant when it was filed more than a year after the expiration of the statutory 12 months. Or, stated in another way; Does the failure of a lien claimant to make a subordinate mortgagee a party defendant to his suit to enforce the lien within 12 months from the date of the filing of the notice of lien preclude said lien claimant from having the priority of his lien over the mortgage of the junior mortgagee determined in the mortgage foreclosure suit, filed more than 12 months after the filing of the notice of lien?

It develops from the briefs of the respective parties, also the expressed views of the chancellor rendering the decree, that there arose a difference of opinion as to the proper construction to be placed upon a decision of this Court in the former case of Booker Co. v. Leon H. Watson, Inc., which was first reported in 119 So. 104, and later in 123 So. 837 and96 Fla. 671. The opinion as contained in 119 Southern Reporter differs in one particular to that reported in 123 Southern and 96 Florida, in that the second paragraph in the second column page 107 of the 119 Southern Reporter appears deleted from the latter volumes and perhaps due to its being more or less obiter dicta.

The only essential difference in the facts in the instant case and that of the above-cited case of Booker Co. v. Leon H. Watson Inc., is that in the latter case, the assignee of the mortgage was by amendment made a party defendant in the original lien foreclosure suit after the expiration of the 12 months but before such suit was consummated, while in the instant case the lien foreclosure suit had been concluded and a master's deed issued thereon and recorded and lien claimant is now seeking to establish the "priority" of its lien over the mortgage held by Kellogg through its cross-bill filed in the mortgage foreclosure suit more than 12 months after the statutory lien attached.

If the statutes required the "priority" of a mechanic's lien to be adjudicated in the lien foreclosure suit as a prerequisite to establish such lien's "priority" over any otherlien of record, within the 12 months' period, the point raised by the demurrer of Kellogg would necessarily be well taken; but the statute does not require the priority of every lien to be established in the same lien foreclosure suit.

The mere failure of a lien claimant to make an assignee of a mortgage placed upon the property after the construction had already begun and in progress, a party defendant within 12 months from the date the lien attached, does not necessarily preclude said lien claimant from having the "priority" of its lien determined in a subsequent suit which raises that question, though the latter suit be brought more than 12 months after the lien attached. Or expressed in another way: Under our statutes, the failure in a lien foreclosure suit to make a subordinate mortgagee a party defendant within the statutory 12 months does not thereby effect a loss of the "priority" of such lien as against such mortgagee.

This Court in the cited case of Booker Co. v. Leon H. Watson, supra, said:

"The fact, however, that an adverse lienholder, the same being the assignee of a mortgage, which mortgage was made and executed during the progress of the construction out of which the materialman's lien arose, was not, until after the expiration of twelve months from the time of furnishing the material, made a party to a suit brought within the statutory period to enforce the materialman's lien, is immaterial. The only question between the owner and holder of the mortgage under the circumstances above stated and him who claims the materialman's lien is the question of priorities of lien into which the question of the right of the materialman to enforce his lien does not necessarily enter.

"If the holder of a mortgage, which mortgage was made and executed by the owner during the progress of construction of a building out of which arose a materialman's lien in favor of a third party, be made a party to the suit brought by the materialman within the statutory period of limitation, it is no defense to the materialman's lien that the mortgage holder was made a party to the suit by amendment after the expiration of the time within which the original suit is required by statute to be instituted."

If a mechanic's lien once attaches under the statute it may be enforced any time within one year by bringing a suit for that purpose and pursuing same to final judgment and such lien when thus pursued to conclusion does not necessarily lose its priority over a junior mortgage lien by the mere fact that such subsequent lienor was not made a party defendant to the lien foreclosure suit within the statutory period of 12 months.

The statute (Section 5380, Compiled General Laws of Florida, 1927) provides that the lien is acquired as against a purchaser or creditor with notice, by a person in privity with the ownerby the performance of the labor or the furnishing of thematerial, and that notice of such lien is constructively given to any and all purchasers or creditors whose title, interest, or lien in and to the property is created or arises while the construction of such property is inprogress, by the actual going on or progress of suchconstruction. People's Bank of Jacksonville, v. Virginia Bridge Iron Co., 94 Fla. 494, 113 So. 680; Booker Co. v. Leon H. Watson, Inc., supra.

As in the last cited case, the pleadings show in the instant case that the mortgage lien was acquired and assigned to Kellogg while the construction of the building was in progress and therefore the mortgagee and assignee took the mortgage with notice of the constructor's lien, and P. H. Kellogg, the assignee of the mortgage, could acquire no lien of greater dignity by taking the assignment of the mortgage than that which was acquired by the original mortgagee. See People's Bank of Jacksonville v. Virginia Bridge and Iron Co., supra; Guaranty Title Trust Co. v. Thompson, 93 Fla. 983,113 So. 117.

The chancellor in deciding the point raised by Kellogg's demurrer to the cross-bill among other matters says:

"Our statute provides that 'suit to enforce lien' must be brought within 12 months and it is the decision of this court that to enforce includes the act of determining priority, and that the statute is for the benefit of all those against whom the material man may wish to assert his right as to whom the material man (actually or constructively) knows have adverse claims."

The case of Quinn Plumbing Co., Inc. v. New Miami Shores Corp. ___ Fla. ___, 129 So. 690, appears applicable here. It is there held that:

"Where a senior mortgage has been foreclosed, and a junior incumbrancer was not made a party, the decree is binding as to those who were joined as parties, but does not affect the rights of the junior mortgagee who was omitted. The rights of such omitted person are neither enlarged nor diminished by the defective foreclosure."

"A subsequent mortgagee is not in the absence of statute a necessary party, although he may be joined, and if not joined his rights, whatever they may be, are not affected. By statute, however, subsequent mortgagees may be required to be joined, and under a statute requiring all parties claiming of record any right, title, interest, or equity whose title or interests are to be charged with, or affected by, the lien to be made parties, a subsequent mortgagee is a necessary party where his rights are in any manner to be affected." 40 C. J. 404.

The statutes of this State do not require a subsequent or prior mortgagee to be made parties defendant in a mechanic's lien foreclosure suit. The statute unquestionably contemplates that in a suit to "enforce" mechanic's liens that all junior lienors whether mechanics or mortgagees shall be made parties defendant so the "priority" of each without reference to the other may be established in one suit, but where for some reason a junior mortgagee or lienor is not made a party defendant then such adjudication may remain open to be determined in any proper subsequent suit.

"Determination of priority between a mechanics' lien and a mortgage or like incumbrance may be had in a suit brought to enforce the lien or in an equitable suit brought expressly for the purpose of obtaining such determination. In a suit of the latter character, the bill or petition must allege such facts as show priority under the rules obtaining in the particular jurisdiction." 40 C. J. 305, Sec. 398. See also page 288, Sec. 369.

While the foreclosure of a mechanics' lien upon property covered by a subordinate mortgage of record may be brought any time within the 12 months' statutory period without making such mortgagee or his assignee a party defendant, yet if such mortgagee is not made a party to such suit and the mortgage becomes due and subject to foreclosure and a bill is filed in which it is sought to have said mortgage declared a prior lien, there is no law in this State prohibiting the holder of such mechanic's lien judgment setting up in a cross-bill facts showing the establishment of its lien and that it is prior in dignity to that of the mortgage.

The general rule is that

"Unless one who holds a mortgage on the premises to be foreclosed under a mechanic's lien is made a party to the foreclosure action his rights under the mortgage will not be affected by the decree of foreclosure." Ann. Cas. 1918B, 19; 2 Jones on Liens (3rd Ed.) Sec. 1579; Boisot on Mechanic's Liens, Sec. 328; Phillips on Mechanic's Liens, Sec. 399.

A mortgagee's rights remain the same as when the mechanic's lien attached as to whether or not such mortgage lien is prior in dignity, as the continuance of a mechanic's lien, like its creation, depends entirely upon statutory provisions. When once brought into existence, it is without limit as to duration and there is no principle which operates to destroy it, except such as is provided by statute, or is adopted in analogy to its provisions. Phillips on Mechanic's Liens (3rd Ed.) Sec. 266.

The general rule is that if the proceedings to enforce a mechanic's lien is one at law, or in the nature of a proceeding at law, it is not necessary or proper even to make subsequent encumbrancers parties defendant upon the theory that they are in privity with the owner and are estopped by any judgment which is conclusive upon him; but if the action is an equitable one (as in the instant case) all parties in interest, such as a junior mortgagee or encumbrancer, should be made parties, otherwise the foreclosure will not affect their rights. Jones on Liens (3rd Ed.) Secs. 1570 and 1571.

In the recent case of Bowery v. Babbitt, 99 Fla. 1151,128 So. 801, this Court held that the mechanic's lien expired, and ceased to exist, after twelve months unless suit was brought to enforce it within that time. That was a suit to "enforce" a mechanic's lien against the owner. See also Weaver-Loughridge Co. v. Hobson, 128 So. 642. The case now before us is not a suit to "enforce" the mechanic's lien as against the owner. The mechanic's lien here involved was within the time prescribed by statute enforced as against the owner to a final judgment and sale, and the purpose of the defendant's answer in the nature of a cross-bill, here under consideration, is not to "enforce" the defendant's mechanic's lien, but is to secure a determination of the priorities between that lien and the mortgage lien here sought to be foreclosed. The question of priorities between lienholders may be disposed of in the original suit brought to enforce either lien against the property, or where the original suit to enforce the lien has been seasonably instituted and litigated and the adverse lienholder is not made a party to such suit, the question of priorities may be litigated and adjudicated in a subsequent suit brought for that purpose, even though one of the liens in question is a mechanic's lien, and the suit in which the determination of priorities is sought is instituted more than twelve months from the date the mechanic's lien was acquired.

The chancellor committed error in his order sustaining the demurrer of the complainant to defendant's cross-bill. Therefore the said order is reversed.

---

Addendum

A petition for rehearing having been filed in this cause and duly considered, and the foregoing opinion prepared under Chapter 14553, Acts of 1929, adopted by the Court as its opinion, it is considered, ordered and decreed by the Court that the former decision of the Court in this cause, reversing the order of the court below, should be and the same is hereby affirmed.

BUFORD, C.J., AND WHITFIELD, ELLIS, TERRELL, BROWN AND DAVIS, J.J., concur.

---

Addendum

The record in this cause having been considered by the Court, and the foregoing opinion prepared under Chapter 14553, Acts of 1929, adopted by the Court as its opinion, it is considered, ordered, and decreed by the Court that the order of the court below should be, and the same is hereby reversed.

STRUM, C.J., AND WHITFIELD, ELLIS, TERRELL, BROWN AND BUFORD, J.J., concur.

ON REHEARING. Opinion filed July 11, 1931. 1. A failure to make a subsequent mortgagee a party defendant to a prior statutory lien foreclosure suit within twelve months from the accrual of the lien does not thereby cause a judgment lien obtained thereunder to become inferior to the mortgage lien, and its priority may be set up in a cross-bill filed in the subsequent mortgage foreclosure suit which was filed more than one year after the statutory lien accrued.

2. Unless one holding a subsequent mortgage on the premises upon which a mechanic's lien is being foreclosed is made a party his rights as a subsequent mortgagee will not be enlarged, diminished or affected or will remain the same as before suit was filed.

3. A subsequent mortgagee or incumbrancer may assert any rights as against a former mechanic's lien in a subsequent suit to foreclose his mortgage which he may have maintained or asserted in a former suit to enforce a prior statutory lien on the same property; but such subsequent mortgagee would not be permitted to assert the mere failure to make him a party to the former lien foreclosure suit gave him the right in the absence of fraud to question the priority of the statutory lien judgment obtained pursuant to statutory requirements.

4. "Enforcement" of a statutory lien means that the provisions of the lien enforcement statute are invoked and put in operation which may continue until final adjudication of the rights of all parties legally involved, and once the priority of the lien legally attaches and is pursued to judgment its enforcement as to a subsequent encumbrance becomes merely a matter of asserting the former judgment.

5. A judgment obtained upon all issues duly raised pursuant to statutory lien enforcement suit as to the property owner and all parties duly served as defendants in res judicata, but a subsequent encumbrancer who was not made a party may assert any rights he may have in a subsequent suit not legally adjudicated in the lien enforcement suit that would have been a legal defense to the validity to all or any portion of the mechanic's lien suit.

6. No doctrine is better settled in this State than that fraud, deceit or collusion is always a ground for equitable interference when properly instituted in courts of chancery.

Appeal from Circuit Court, Dade County; Paul D. Barns, Judge.

Former opinion reversing lower court is affirmed.

Paul C. Taylor and Carroll W. Fussell, for Appellant;

Burdine, Terry Fleming and Charles M. Moon, for Appellee.

Stapp, Gourley, Vining Ward, as Amicus Curiae on the Rehearing.

---

Addendum

The petition for rehearing is based upon a decision of this Court rendered in this cause February 13, 1931 (133 So. 65) to which attention is directed for a substantial statement of the issues presented for review.

The transcript of the record shows that to appellee's bill to foreclose his subsequent mortgage, the appellant, a judgment lienor, filed its cross-bill in which it is prayed that the said mortgage be decreed to be inferior and subject to the lien of appellant, also that appellee be decreed to pay to appellant its said lien in the amount as decreed in the former lien foreclosure suit and that in default of such payment the Court decree that said defendants be forever barred and foreclosure of all right or equity of redemption in said premises, etc.

In appellant's lien foreclosure suit, Kellogg, who held a subsequent mortgage, was not made a party defendant; and the cross-bill was filed by appellant for the purpose of having the priority of its lien maintained in the subsequent mortgage foreclosure suit, also to accord appellee right to redeem, or be foreclosed of appellant's equity of redemption.

The demurrer filed by appellee to the cross-bill in substance raised one issue; viz, as to whether the failure of Sandquist Snow, Inc. (appellant here) to make Kellogg, a subsequent mortgagee a party to the lien enforcement suit within the time required by statute thereby caused said lien to become inferior to that of appellees. In deciding the point presented, we held that

"Where a suit to enforce a mechanic's lien is brought within the statutory period and the lien is enforced against the property, the failure to make a subordinate mortgagee a party defendant to such suit does not preclude the lien claimant from having the priority of the lien over the mortgage determined in a subsequent suit to foreclose the mortgage, though the latter suit is filed more than twelve months after notice of lien was filed."

It is noted that the petition of appellee for rehearing asserts that the real "case" before the court was the enforcement of a lien against one whom it had not already been "enforced"; viz, Kellogg, the holder of the subsequent mortgage.

Or, expressed in another way, it is contended by appellee on rehearing that the 12 months limitation on the right of the mechanic lienor to enforce its lien has reference not only to the owner but a subsequent mortgagee who was not made a party to the lien foreclosure suit and against whom no "enforcement" was sought within twelve months.

The petition for rehearing was granted only for the purpose of resubmitting the following question: Does the failure of a mechanic leinor to join a subsequent mortgagee with the owner as defendant in a suit, brought to enforce the mechanic's lien, have such legal effect as would prevent such mortgagee, in a subsequent suit to determine priorities of liens, asserting any defenses he might have interposed had he been joined as a party defendant in the suit to foreclose such mechanic's lien in the first instance?

The above point may have been involved in the demurrer to the cross-bill by implication, therefore the rehearing was granted in order to interpret or clarify the term "enforcement" as applicable to the issues in the instant suit.

The better rule seems to be that unless one holding a subsequent mortgage upon the premises upon which a mechanic's lien is being foreclosed is made a party to the lien foreclosure suit his rights as such mortgagee will not be enlarged, diminished, or affected by the decree; his right remains the same as before the suit. 40 C. J. 404, Sec. 554; Quinn Plumbing Co. v. New Miami Shores Corp., ___ Fla. ___,129 So. 690.

While appellee's status as a subsequent incumbrancer may remain the same as it was before the entry of the lien foreclosure decree he may assert any rights or defenses in the subsequent suit which he may have legally asserted had he been made a defendant in the lien foreclosure suit. However, he would not be permitted to assert that the failure of the mechanic's lienor to make him a party defendant in the former lien foreclosure suit gave him the right to question thepriority of the lien judgment held by lienor, in the absence of fraud. See Birmingham Bldg. Loan Ass'n v. May Thomas Hdw. Co., 99 Ala. 276, 13 So. 612; Jackson v. Farley, 212 Ala. 594,103 So. 882.

The demurrer of appellee to the cross-bill as a matter of law admits the existence of the mechanic's lien and "its priority;" but claims that the statute of limitations bars its (mechanic's lien) "enforcement" against all in whose favor the statute has run which would include appellee.

The "enforcement" of a lien means merely that the provisions of our lien laws are invoked and put in operation, and the process of enforcement may continue, even in subsequent suits, until final adjudication of the rights of all parties legally involved. The priority of the lien being once adjudicated its enforcement as to subsequent incumbrances becomes merely a matter of effectively maintaining the former judgment. 40 C. J. 305, Sec. 398.

In the case of Booker and Co. v. Watson, 96 Fla. 671,123 So. 837, it was held that the fact that a subsequent mortgagee was not until after the expiration of 12 months made a party to the suit which was brought within the statutory period to enforce the mechanic's lien, is immaterial; for, the validity of the lien having been established, the only question remaining as between the owner mortgagee and him who claims a lien is the question of priorities; and we have held that such priorities may be established in a subsequent suit. 133 So. 65; 40 C. J. 305.

"Where a mechanic's lien is prior to a mortgage, the lien is not affected by a foreclosure and sale under the mortgage." 2 Jones on Liens (3d Ed.) Sec. 1582.

"A subsequent mortgagee or other incumbrancer should be made a party defendant; otherwise the sale will not affect his rights, but he will still have the right to redeem." 2 Jones on Liens (3d Ed.) Sec. 1579.

In our former opinion (133 So. 65) we approved the principle that a subsequent mortgagee is not in the absence of statute a necessary party, although he may be joined, and if not joined his rights, whatever they may be, are not affected; that under a statute requiring all parties claiming of record any right, title, interest, or equity in the property, to be made parties, a subsequent mortgagee is a necessary party where his rights are in any manner to be affected.

We have no state statute requiring subsequent incumbrancers to be made parties to a prior lien foreclosure suit.

Our conclusion is that the judgment as to the property owner and all parties who were made defendants and duly served with process in the lien foreclosure suit is res judicata; but as to appellee who was not made a party, he may assert any rights not adjudicated by the lien foreclosure as to him, that may have constituted a legitimate defense to the validity of all or any portion of the mechanic's lien.

Appellee argued at the rehearing that the opinion heretofore rendered in this cause (133 So. 65) would open the door to fraud and collusion between a lienor and the owner of the property.

There is no doctrine better settled in this state than that fraud, deceit or collusion are always a ground for equitable interference and should any subsequent incumbrancer decide to assert and prove the existence of any collusion or fraud between the lienor and the owner, the decision in this case would furnish no authority to preclude a subsequent mortgagee invoking the aid of our courts of chancery.

As the record stands the order of the trial court sustaining appellants demurrer to the cross-bill which sets up appellant's superior lien has been held erroneous by this Court. On this rehearing we find no reason to change our former decision on the issues resubmitted.

The former opinion is affirmed.