Mill Creek Lumber & Supply Co. v. First United Bank & Trust Co.
2012 OK CIV APP 53, 278 P.3d 12, 2012 WL 1862767 (2012)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A properly perfected materialmen's lien has priority over a mortgage recorded after materials were first supplied but before the lien was filed, because the lien's effective date relates back to the first day of furnishing materials, providing constructive notice to subsequent lenders and defeating a claim for equitable subrogation.
Facts:
- In September 2007, Donald and Linda Williams executed a construction mortgage in favor of First United Bank and Trust Company (Bank) to build a house, which the Bank recorded on September 28, 2007.
- Between November 13, 2007, and February 15, 2008, Mill Creek Lumber & Supply Company (Mill Creek) furnished construction materials for the house.
- In February 2008, the Williamses refinanced the construction loan with a new mortgage from the Bank.
- In the new mortgage, the Williamses certified that the property was unencumbered except for encumbrances of record.
- On February 28, 2008, the Bank recorded the new mortgage and released the original construction mortgage.
- On March 17, 2008, the Williamses added a second, supplemental mortgage with the Bank, again warranting the property was free of liens.
- On May 15, 2008, Mill Creek, not having been paid, recorded a materialmen's lien on the property.
Procedural Posture:
- Mill Creek Lumber & Supply Company filed a petition in district court against Linda Williams, seeking a personal judgment for unpaid materials and an in rem judgment against the property.
- First United Bank and Trust Company was named as an interested party and responded, arguing its mortgages had priority over Mill Creek's lien.
- Both Mill Creek and the Bank filed cross-motions for summary judgment.
- The district court granted summary judgment for Mill Creek, finding its lien had priority, and overruled the Bank's motion.
- The Bank (appellant) appealed the district court's summary judgment ruling to the Oklahoma Court of Civil Appeals.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a materialmen's lien, perfected after a new mortgage is recorded, have priority over that mortgage if the materials were first furnished before the new mortgage was recorded, thereby giving the mortgagee constructive notice of the potential lien?
Opinions:
Majority - P. Thomas Thornbrugh
Yes. A materialmen's lien has priority over the Bank's mortgages because the lien's priority relates back to the date materials were first furnished, giving the Bank constructive notice. The court rejected the Bank's argument that its mortgage had priority under the Uniform Commercial Code (UCC) by finding that ordinary building materials are not "fixtures" under UCC § 1-9-334(a), so the UCC's priority rules do not apply. The court then rejected the Bank's claim for equitable subrogation, which would have allowed its new mortgage to assume the priority of the original construction mortgage. The doctrine of equitable subrogation is only available to a party who acts in ignorance of an intervening lien. Under Oklahoma's materialmen's lien statute, 42 O.S. § 141, the proper filing of a lien provides constructive notice that retroactively dates back to the day the first materials were supplied. Since Mill Creek began supplying materials in November 2007 and properly filed its lien within the statutory period, the Bank had constructive notice of Mill Creek's lien when it recorded its new mortgages in February and March 2008. Because the Bank was not ignorant of the intervening lien, it was not entitled to equitable subrogation.
Analysis:
This case reinforces the strength of the "relation-back" doctrine in materialmen's lien statutes, confirming that a lien's priority is established from the commencement of work, not from the date of filing. The decision serves as a critical reminder to lenders, particularly in the context of construction loan refinancing, that they cannot rely on a clear title record at the moment of closing. Lenders are charged with constructive knowledge of potential, unfiled materialmen's liens and bear the risk of losing priority if they fail to ensure that all material suppliers have been paid before releasing an original construction mortgage. This places a significant due diligence burden on financial institutions to investigate the payment status of contractors and suppliers before refinancing.
Unlock the full brief for Mill Creek Lumber & Supply Co. v. First United Bank & Trust Co.