LAW under CONSTRUCTION is back to its regularly scheduled programming. Some interesting cases have been decided over the last few months, including a recent decision from the Indiana Court of Appeals on mechanic’s lien priority. You may recall a similar post here.
In City Savings Bank n/k/a LaPorte Savings Bank v. Eby Construction, LLC, a construction company sought to foreclose a mechanic’s lien related to costs and materials it provided during the construction of buildings and other facilities on some commercial real estate. The bank had previously loaned money to the owner of the property to fund the construction, loans which were secured by mortgages on the real estate. The construction company asserted that its mechanic’s lien had priority over the liens held by the bank.
The trial court held that although Indiana statutory and case law provides that the mortgages should have priority over the later-recorded mechanic’s lien, the mechanic’s lien has priority over the mortgages pursuant to principles of equity and on public policy grounds. Thus, the court ruled in favor of the construction company.
On appeal, the decision of the trial court was reversed. The Court of Appeals first noted that it has previously held “[w]ith regard to commercial property, where the funds from the loan secured by the mortgage are for the specific project that gave rise to the mechanic’s lien, the mortgage lien has priority over the mechanic’s lien recorded after the mortgage.” Citing Harold McComb & Son v. JP Morgan Chase Bank, 892 N.E.2d 1255 (Ind. Ct. App. 2008). Since it was undisputed that the mortgages were recorded before the mechanic’s lien, the Court of Appeals held that the mortgages were superior.
The court went on to say “[t]he trial court, although attempting to use its equitable powers to achieve what it believed to be a more fair and balanced result, failed to appreciate the importance of the doctrine ‘equity follows the law.’ While equity has the power, where necessary, to pierce rigid statutory rules to prevent injustice, where substantial justice can be accomplished by following the law, and the parties’ actions are clearly governed by rules of law, equity follows the law. Because there is nothing in the designated evidentiary material to indicate that substantial justice cannot be accomplished by following the law, and the parties‟ actions are clearly governed by our priority statutes, equity must follow the law.”
The full text is available here.