Opinion
January 24, 1949.
1. Mechanic's lien — scope and effect of statute.
The mechanic's lien statute, Sec. 353, Code 1942, creates a lien in behalf of the mechanic, not merely the right to secure a lien through legal proceedings; wherefore a deed of trust on the personal property constructed, manufactured or repaired by the mechanic taken at a date subsequent to the accrual of the mechanic's lien is subordinate to that lien where the facts are such as to operate as notice to the grantee in the deed of trust that there would be a prior mechanic's lien on the property.
2. Statutes — mechanic's lien — interpretation.
The mechanic's lien statute which provides that any article constructed . . . shall be liable . . ., means by the use of the term "construct" to include what is put together as the constituent parts of something in their proper place and order, and the lien therefor may be enforced in the same manner as in cases for the purchase money of goods. Sec. 353, Code 1942.
3. Mechanic's lien — protection of in receivership.
When the mechanic has instituted his action to enforce his mechanic's lien within the time allowed by law, and his case has been drawn into a receivership by the holder of a deed of trust on the same property as the complainant in the receivership suit, the priorities of the respective liens must be recognized in the receivership proceedings, and the complainant therein must abide by the equities.
4. Chattel mortgages — assignment after default, effect of.
When a deed of trust has been given to secure a pre-existing indebtedness to the grantee therein who, after default of payment in the debt secured, transferred the security to another, the latter takes the security subject to the same equities which could have been interposed against the original grantee in the deed of trust.
Headnotes as approved by McGehee, C.J.
APPEAL from the chancery court of Lauderdale County, ARTHUR G. BUSBY, Chancellor.
Lyle V. Corey and Cameron Wills, for appellant.
This court will notice that the stipulation of counsel brings the case at bar squarely within the provision of Section 356, Code of 1942. The last sentence on the first page of the stipulation reads as follows: "Said materials and labor were furnished by the said R.N. McElroy in connection with the installation of certain fixed machinery and equipment installed in the manufacturing plant of the Meridian Manufacturing Company preparatory to the commencement of operations in such manufacturing plant, . . ." Compare this language with the first sentence in the statute which reads in part as follows: "Every house, building or structure of any kind, and any fixed machinery, gearing or other fixtures that may or may not be used or connected therewith, . . ." Note also that the stipulation recites that the deed of trust was given "after the installation of the fixed machinery and equipment of the Meridian Manufacturing Company had been completed."
Having thus fixed the applicability of the statute, it seems that nothing would remain in this case but to apply the provisions thereof with reference to purchasers and encumbrances for value. The pertinent provision of the statute reads as follows: "Such lien shall take effect as to purchasers or encumbrances for a valuable consideration without notice thereof, only from the time of commencing suit to enforce the lien, or from the time of filing the contract under which the lien arose, in the office of the clerk of the chancery court; . . ."
Turning again to the stipulation, it appears that the indebtedness to appellant, secured by the deed of trust for the foreclosure of which this suit was instituted, "represents money loaned to the said Simon Rawitz and Meyer S. Edelbaum . . . on or about February 6, 1946, for which a promissory note was executed . . ."
It further appears that the deed of trust held by appellant was given pursuant to the agreement that it would be given, made at the time that the money was advanced.
The next paragraph of the stipulation recites that the payee had no actual knowledge or notice of any indebtedness owing to appellee, and that, at the time the note and deed of trust were assigned to appellant, appellant had no notice of the indebtedness, and consequently no notice of a lien claim by McElroy.
Thus it appears that, on the face of the statute alone, appellee's lien is ineffective as to appellant. It does not matter whether appellant stands in the shoes of the payee of the note and beneficiary of the deed of trust as assignee, or upon his own equity as a subsequent purchaser, since the payee had no notice at the time the note was given, and certainly none at the time the money was advanced, and appellant had no notice at the time he purchased the paper and acquired the rights of the payee by assignment. The court will notice that the stipulation recites that no written contract between the debtor and McElroy was ever executed, and consequently no such contract was ever recorded; and that the assignment from Financial Development Company to appellant occurred prior to the 14th day of February 1947, and that appellee did not begin any action for the collection of the indebtedness until the 1st day of March, 1947.
After quite an extended argument by counsel for both sides in the court below, the proceedings were suspended so that the court might read the full opinion of this court in Hamilton Bros. Co. v. Baxter, 188 Miss. 610, 195 So. 335, from which excerpts had been read by counsel for both parties. After the chancellor had completed the reading of this case, he announced that, in his view, the proceeding was one which could be treated as being for the enforcement of a lien under Code Section 353 for repairs on personal property, even though possession had been lost by the lienor, as provided by Section 355; and that, since these statutes made no provision for the recording of liens, appellee would not be barred from the enforcement thereof, since the property was in the custody of the court to the same extent as if it had been brought in by summons and seizure.
It seems too clear for argument that the learned chancellor was in error in his conclusions as announced above. As pointed out above, the language of the stipulation of counsel brings the case clearly within the provisions of Code Section 356. Whereas Section 356 deals with "fixed machinery", being the subject matter described in the stipulation; Section 353 relates only to "all carriages, buggies, wagons, plows or any article constructed, manufactured or repaired for any person, . . ." Nowhere in the stipulation is there any mention of carriages, buggies, wagons, plows, nor is there anywhere in this record any allegation, admission or intimation that appellee is claiming a lien upon any articles constructed, manufactured or repaired by him. On the contrary, said stipulation recites that "Said materials and labor were furnished by the said R.N. McElroy in connection with the installation of certain fixed machinery and equipment installed in the manufacturing plant of the Meridian Manufacturing Company."
The court will note that the money was advanced to the Meridan Manufacturing Company under a promise by the partners to give security therefor as soon as the machinery and equipment, which was to be pledged as security, could be installed in the Meyer Building. It follows, as a matter of equity, that Financial Development Company acquired an equitable lien upon all of this property as soon as it could be ascertained. The doctrine of equitable liens has been recognized by this court in Harraway v. Planters Agricultural Credit Corp., 178 Miss. 489, 173 So. 448, 450. While the existence of the equitable lien was denied in that case, the doctrine was recognized with citations to 3 Pomeroy's Equity Jurisprudence, Section 1235, and 37 C.J. 315. The text of the latter citation reads as follows: "An equitable lien either arises out of an antecedent and underlying contract which deals with some specific property, or it arises by implication from the conduct and dealings of the parties, a right or charge being completed by equity, in pursuance of the maxim that equity looks upon things agreed to be done as actually performed." To the same effect see 53 C.J.S. 840, and 33 American Jurisprudence 428, Section 19.
The basis for the equitable lien having been laid months prior to the contract by the debtor with appellee, and applying to the specific property here involved as soon as the same was designated or identified as property to be installed in the Meyer Building by the debtor, appellant's lien is prior in time. In 33 American Jurisprudence 436, Section 33, second paragraph, it is stated that: "In the absence of statutory regulation, the common law establishes liens in the order of their acquisition, the first in order of time standing first in order of rank." To the same effect see 53 C.J.S. 856.
Nor was the the chancellor correct in thinking that he could escape these salutary provisions of our law by treating the lien as one on personal property under Section 337. That statute specifically limits the lien of the vendor (manufacturer or repairman) to the property while it remains in the hands of the first purchaser, or of one deriving title or possession through him with notice that the purchase money was unpaid.
It should be noted that, while the lien provided for in Section 356 is of purely statutory origin, that provided for by Section 353 (and extended by Section 355) is a statutory adoption of the common law right of an artisan to retain possession of articles in his possession under a bailment pursuant to which the value of the chattel is enhanced. At common law, the right of the artisan was not a lien in the true sense of the word, but it is made so by our statute; and, while only certain artisans and public servants were entitled to the lien to be established under the common law rights, our statute extends the right to any mechanic who shall have constructed, manufactured or repaired the same, thus enhancing its value. See 6 American Jurisprudence, Bailments, Section 275, et seq.; 8 Corpus Juris Secundum 290, Section 35. It will be noted from the text cited that the possession of the bailee is an indispensable prerequisite to the common law right. While the lien of the statute (Section 353) is extended to cases where the bailee has parted with possession, the nature and character of the lien is not altered. We submit that, where the contract between the owner and the lienor (appellee) was for the installation of machinery in the owner's factory, there was never any bailment of the machinery, no possession by appellee which, by its retention, would deprive the owner of his indicia of title arising from his possession, and no such ability to deal with the property as would enable appellee to receive or obtain the security afforded by the common law to artisans. 6 American Jurisprudence, Bailments, Section 278; 8 Corpus Juris Secundum 293.
Since the foregoing brief was written our attention has been called to the case of Runnels v. Fairchild, 37 So.2d 312, in which we note the query of Mr. Justice Roberds as to equity jurisdiction. Since the jurisdiction of the equity court in this case arises upon an independent ground, we do not understand that this question could be involved in this case. However, we are persuaded to quote the following language from Mr. Justice Roberds' opinion: "But the jurisdiction of a court of equity invoked to enforce a statutory lien rests upon the statute and can extend no further. If a statutory lien fails at law, it must also fail of enforcement in equity."
We also note the case of Patterson v. Universal C.I.T. Credit Corp., 37 So.2d 306, Advance Sheet No. 4, in which Mr. Justice McGehee applies the requirements of our recording statutes in favor of a bona fide purchaser for value, to the complete defeasance of an otherwise effective lien acquired in the utmost good faith. We submit that the resolution of this case requires only the adherence of the court to the recording provisions of Section 356.
B.A. Duncan and Allan McCants, for appellee.
A short while prior to May 17, 1946, the Meridan Manufacturing Company entered into a verbal contract with the appellee, R.N. McElroy, to furnish the necessary labor and materials in the installation of certain property, to-wit: machinery for the manufacture of hats and caps in the building rented by it, known as the Meyer Building, in the City of Meridan, Lauderdale County, Mississippi; and pursuant to said verbal contract the appellee furnished the said labor and materials and installed said machinery, doing all that was necessary to put said machinery in running condition as shown by the itemized statement attached to his answer to the bill of complaint filed against him in the chancery court.
After the completion of the verbal contract by the appellee, as above stated, the Meridan Manufacturing Company used said personal property in its business for approximately eight (8) months before abandoning same. Appellee greatly enhanced the value of this property by his labor and materials, for as the court below stated in his summation of the case, that this machinery was practically worthless until it was installed. We contend that the repairs and installation of this machinery were necessary for its operation, and to prevent deterioration of same; and this court in the case of Billups, et al. v. Becker's Welding Machine Company, 189 So. 526, held the mechanic's lien for labor done and materials furnished subsequent to execution of deed of trust would be paramount to lien of deed of trust where labor done and materials furnished were necessary to permit operation and prevent deterioration of property; therefore we submit that the case at bar is even stronger than the above cited case, because the appellee furnished the labor and materials before the execution of the deed of trust in this case. This court also held in the above cited case that the mechanic's lien does not merely give mechanic right to acquire lien on machinery and equipment for labor done and materials furnished, but creates such lien citing Code 1930-2255.
Appellant in his argument used the term "fixed machinery" thereby leading to the inference that the property covered by the deed of trust was immovable fixtures attached to the building and a part of the realty, but in his deed of trust the property is described as personal property; therefore, he cannot now claim it as part of the realty and for the further reason that he did not own the building in which this machinery and equipment was installed and used.
We would like to call the attention of the court to the case of Mississippi Cottonseed Products Co. v. Planters Manufacturing Co., 132 So. 96, in which this court held that a corporation may not take over all of another corporation's property without assuming its liabilities. By analogy we think this case is close in point to the case at bar as the appellant is attempting to take over the property of the partnership of the Meridian Manufacturing Company without assuming any of its liabilities to other creditors of the partnership, which we say he should not be allowed to do.
We call the attention of this court to the very recent case of Watson v. Broadhead, 33 So.2d 302, which we think is practically on all fours with the case at bar. In that case Boardhead did not own the property, he only had a lien on same by his deed of trust. In this case at bar neither the Financial Development Company, or its assignee, Charles F. Buckwalter, appellant, owned the property, they only had a deed of trust on same as shown by the transcript in this case.
On February 6, 1946, the Financial Development Company advanced the sum of $8300.00 to Rawitz and Edelbaum, doing business as the Meridian Manufacturing Company, and received their promissory note for said amount, together with an agreement in writing that the note would be secured by a deed of trust on "after acquired property in the nature of machinery and equipment to be acquired by the makers and used in its manufacturing business on the second floor of the Meyer Building" at Meridian, Mississippi.
On June 6, 1946, the deed of trust above mentioned was duly executed and was filed for record on June 10, 1946. In the meantime, on May 17th and June 1st, respectively, the appellee, R.N. McElroy, performed labor and furnished materials in connection with the installation of certain fixed machinery and equipment belonging to Rawitz and Edelbaum and installed in the Meyer Building, and also furnished numerous articles of personal property such as fluorescent light fixtures, lamps, plugs, hooks, tube couplings, bushings, bolts, fuses, wiring, etc., in connection with the installation of such machinery. The debt therefor amounted to the sum of $242.48, exclusive of the tax, and only $73.36 thereof was for the labor, and a list of which materials is referred to in an agreed statement of facts on which this case was tried.
The deed of trust covered property, such as machines, typewriters, filing cabinets, desks, etc., in addition to the materials furnished by the appellee, and which were not constructed, altered, or repaired by him.
The question at issue in the case is whether or not the trial court was correct in holding that the mechanic and material-man's lien of the appellee had priority over the lien of the deed of trust.
We think that the question was carrectly decided in the affirmative as to all the labor performed and the materials and supplies furnished by the mechanic and installed by him; and no point is made no the failure of the trial court to separate these items from other property covered by the deed of trust when the chancellor ordered the deed of trust to be foreclosed and that this mechanic's claim of approximately $264.00 be first deducted from the proceeds of such sale.
Under the cases of Weiss, Dreyfous Seiferth v. Natchez Investment Co., 166 Miss. 253, 140 So. 736, and Billups v. Becker's Welding Machine Co., 186 Miss. 41, 189 So. 526, it was held, in effect, that (Hn 1) our mechanic's lien statute, Section 2255, Code 1930, Section 353, Code 1942, does not merely give a mechanic the right to acquire through a legal proceeding a lien for labor done and materials furnished, but creates such a lien.
Therefore, the deed of trust was taken after the mechanic had acquired his lien and the Financial Development Company necessarily anticipated at the time it advanced the $8300.00 and took the note that it would be necessary that labor should be performed and materials furnished in order to create the security on which it intended to take its deed of trust. Moreover, in the agreed statement of facts it is recited that the labor and materials were necessary to complete the installation of the fixed machinery and equipment on which the deed of trust was later taken, so as to prepare such manufacturing plant for operation.
It is also stipulated in the record that at the time of the execution of the deed of trust, the Financial Development Company had no actual knowledge of the existence of the indebtedness then owing to the mechanic; and that the appellant, Buckwalter, had no actual knowledge or notice of the existence of the indebtedness to the mechanic at the time he purchased the note and deed of trust from the original holder after default had been made in the payment of the indebtedness that was evidenced by the same.
However, it does not appear that the Financial Development Company, which was charged under the law with notice at the time it took the deed of trust that the statute had created a lien in favor of the mechanic, made any effort to ascertain whether or not the charges for such labor and materials had been paid. The property was then still in the possession of the owners, Rawitz and Edelbaum, and the lien existed in favor of the mechanic against the property in their hands; and if Section 353, Code 1942, is the applicable statute, the mechanic had the right to file his suit to enforce the lien if the debt to him should not be paid within thirty days from the time it was due, that is to say, thirty days from June 1, 1946, whereas the deed of trust was taken on June 6, 1946, as hereinbefore stated.
(Hn 2) Section 353, Code of 1942, provides that ". . . any article constructed, manufactured or repaired for any person, and at his instance, shall be liable for the price of the labor and material employed in the constructing, manufacturing, or repairing the same; . . ." In Webster's Dictionary "construct" is defined as follows: "To put together the constituent parts (of something) in their proper place and order; . . ." The lien given a mechanic under this section may be enforced in the same manner as in cases of liens for purchase money of goods, and we are therefore of the opinion that the case of Weiss, Dreyfous Seiferth v. Natchez Investment Co., supra, clearly decides the question involved in the present suit. Compare Broom Son v. S.S. Dale Sons, 109 Miss. 52, 67 So. 659, L.R.A. 1915 D, 1146, and Hamilton Bros. Co., Inc., v. Baxter, 188 Miss. 610, 195 So. 335.
(Hn 3) A suit was filed in the County Court by the mechanic to enforce his lien within the time allowed by law, but the suit was abated upon motion of the appellant Buckwalter, after the latter had filed the present suit in the Chancery Court for the appointment of a receiver, for the adjudication of the priorities of the respective liens, and for other relief. Having brought the suit in equity, the complainant must abide by the equities of the case, resulting from the fact that the mechanic's lien had been created in his favor without notice of the existence of the note and the agreement therein to subsequently give a deed of trust on the property.
(Hn 4) Moreover, the deed of trust was given to secure a pre-existing indebtedness, and the lien thereof was purchased from the Financial Development Company by the appellant, Buckwalter, after default had been made in the payment of the indebtedness to such company. Hence the note and deed of trust were received by the appellant subject to the same equities that the mechanic would have been able to interpose against the Financial Development Company; and we think that all the equities are with the mechanic.
The decree of the trial court must therefore be affirmed.
Affirmed.