Summary
In Bowen v. Kicklighter, 124 Ga. App. 82, 85 (183 S.E.2d 10), this court held, "since the enactment of Ga. L. 1958, p. 655 (Code Ann. § 67-1316) the `open end' provision in the deed operates only as to indebtedness between the original parties to the deed; a transferee cannot, for prior indebtedness owing to him, or for additional advances to the maker have the benefit of the security under the deed, beyond those provided in Code Ann. § 67-1317."
Summary of this case from McCullough v. Ga. R. Bank c. Co.Opinion
46146.
SUBMITTED APRIL 6, 1971.
DECIDED JUNE 21, 1971.
Materialman's lien. Evans Superior Court. Before Judge Caswell.
Harry R. DeLoach, Cowart Cowart, Carroll L. Cowart, for appellant.
Dubberly Dubberly, Bruce D. Dubberly, B. Daniel Dubberly, Jr., for appellees.
1. A security deed, outstanding and recorded before materials for construction on the property are supplied, is superior in rank to the materialman's claim for lien, duly recorded and foreclosed.
2. (a) A transferee of a security deed steps into the shoes of the grantee, and is entitled to the same rights, privileges and rank held by the grantor as to the amount of the indebtedness owing to the grantee and secured by the deed at the time of the transfer.
(b) An "open end" provision in a security deed operates only as between the original parties. A transferee of the deed obtains no security thereunder as to advances made by him or as to indebtedness theretofore owning to him by the grantor.
3. (a) That a security deed is outstanding on the property improved does not prevent a foreclosure of his lien by one who has furnished materials for improvement of the land, but the judgment of foreclosure cannot be enforced by levy and sale until and unless the security deed has been satisfied.
(b) Full payment by the owner to the contractor of the contract construction price will afford the owner a perfect defense to an action by a supplier of materials for improvement of the property to foreclose his lien if the contractor has disbursed the funds to holders of valid claims for labor and materials used in making the improvement at a time when no claim for lien had been filed or recorded.
(c) As against one who holds a valid claim for materials supplied or labor furnished, the burden of showing that the funds were properly disbursed is on the owner.
SUBMITTED APRIL 6, 1971 — DECIDED JUNE 21, 1971.
Mrs. Della M. Kicklighter owned a lot on which she desired to have a house constructed and contracted August 20, 1968, with Holmes W. Hodges to build it for the sum of $17,921. On August 31, 1968, she borrowed $3,000 from Tippens Bank Trust Company and executed to it an "open end" security deed, which was duly recorded. Hodges proceeded with the construction work and various progress payments were made to him totaling $15,189.65, the last being made December 20, 1968. Hodges did not complete the house, but abandoned the job and Mrs. Kicklighter made further payments to various parties for labor and materials necessary for completing the job totaling $1,734.60, and making a total of $16,924.25 paid out in getting the house completed.
Bowen-Rogers Hardware Company furnished materials to Hodges during the course of his work on the job, and which were used thereon, of the value of $3,096.50, for which it has received no payment, either from Hodges or from Mrs. Kicklighter. Within the statutory three-month period Bowen-Rogers filed its claim of lien and had it recorded, and within twelve months sued Hodges and obtained judgment for the amount of its claim. Execution was issued on the judgment against Hodges and delivered to the sheriff for collection, but he returned it with an entry of nulla bona. Thereupon Bowen-Rogers filed an action to foreclose its lien against the property.
Mrs. Kicklighter defended, pleading the payments made to the contractor and to other for completion of the job, and tendered into court the balance of the construction contract price, plus an additional $400 which Hodges admitted that he had used from the payments made to him in the payment of a personal obligation. (He testified that the entire remainder of the payments which Mrs. Kicklighter had made to him were expended to people who had furnished labor and materials). She asserted that it had been necessary that she obtain a loan from Tippens Bank Trust Company to get the money for building the house, that advances made by the bank to her were secured by a security deed which was prior in rank to the claim of plaintiff, and that the deed had been transferred to B. D. Dubberly, who is now the holder thereof, and that plaintiff is not entitled to foreclose its lien unless and until the prior claim of Dubberly is satisfied.
Plaintiff moved to have Dubberly made a third-party defendant, summons was served upon him, and he came in and answered, setting up his claim as transferee of the security deed.
The indebtedness secured by the security deed is evidenced by a promissory note for $15,700 from Mrs. Kicklighter to the bank, dated June 4, 1970. The note matured September 4, 1970, and shows on its face that it is a renewal of a previous note.
In his answer Mr. Dubberly asserts that he paid to the bank the sum of $15,700 when he took a transfer of the note and deed, and that on the same date Mrs. Kicklighter executed to him her note for the same amount, due in six months, and that she has since executed to him an additional note for $1,000 and that she has made certain payments since.
All parties moved for summary judgment, and from a grant of defendant's motions and a dismissal of the proceeding plaintiff appeals.
1. There is no doubt that the security deed held by the bank and the indebtedness incurred to the bank thereunder was superior in rank to the claim of the plaintiff. Indeed, plaintiff admits in its pleadings and in affidavits that it knew of the deed when the materials were sent out to the Kicklighter job. Consequently, as between the bank and plaintiff the bank would prevail. Bennett Lumber Co. v. Martin, 132 Ga. 491 ( 64 S.E. 484); Marbut-Williams Lbr. Co. v. Dixie Electric Co., 166 Ga. 42 ( 142 S.E. 270).
2. (a, b) A transferee of the security deed and the indebtedness secured thereby steps into the shoes of the grantee therein, and is generally entitled to the same rights and priorities under the deed. However, since the enactment of Ga. L. 1958, p. 655 ( Code Ann. § 67-1316) the "open end" provision in the deed operates only as to indebtedness between the original parties to the deed; a transferee cannot, for prior indebtedness owing to him, or for additional advances to the maker have the benefit of the security under the deed, beyond those provided in Code Ann. § 67-1317. Milikin v. Murphy, 214 Ga. 130 (1) ( 103 S.E.2d 549). Plaintiff asserts that it is or would be willing to pay to Mr. Dubberly the amount which he paid to the bank, but that he will not accept it. No lawful tender is alleged or shown. If tender were properly made he would be bound to accept it, cancel the security deed and allow plaintiff to proceed under its foreclosure. Indeed, plaintiff is entitled to obtain a judgment foreclosing its lien, but cannot enforce it by levy and sale until the security deed is satisfied. Code § 39-201; Shumate v. McLendon, 120 Ga. 396 (9) ( 48 S.E. 10); Burkhalter v. Durden, 122 Ga. 427 ( 50 S.E. 144); Cf. Code Ann. § 109A-9-506.
3. (a, b, c) While it is necessary for a materialman to obtain a judgment prior to or concurrently with the foreclosure ( West Lumber Co. v. Aderhold, 90 Ga. App. 255, 256 ( 82 S.E.2d 670)) against the contractor before he is in position to foreclose his lien against the property, unless the contractor has absconded or has been adjudicated a bankrupt, the amount of the judgment against the contractor is not necessarily the measure of the amount for which he may be entitled to foreclose his lien.
On a trial of the lien foreclosure we apprehend that Mrs. Kicklighter will have ample opportunity to show what payments she made under the construction contract with Hodges, and how the money was disbursed by him, and that the plaintiff will likewise have ample opportunity to question or to disprove the claimed payments, and that the jury will be able to determine with certainty the amount for which plaintiff is entitled to foreclose its lien. See Short Paulk Supply Co. v. Dykes, 120 Ga. App. 639 ( 171 S.E.2d 782).
Moreover, Mrs. Kicklighter admits that she owes a balance under her contract with Hodges, and in any event plaintiff is entitled to foreclose its lien in an amount up to the extent of that balance, increased by any sums from the payments made to the contractor which were not properly applied.
The judgment sustaining defendant's motions for summary judgment and dismissing the foreclosure proceeding is reversed, with direction that the matter proceed in a manner not inconsistent herewith.
Judgment reversed. Hall, P. J., and Whitman, J., concur.