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Superior Lumber Company v. National Bank of Commerce.
Hart, C. J., (after stating the facts). The chancellor' was wrong in holding that the bank had a superior lien to that of plaintiff as to the $900, evidenced by a note of April 9, 1927. This money was advanced by the bank after the lien of the plaintiff had accrued for the materials furnished by it and used in the improvement of the premises on which the bank had a mortgage.
The mortgage did not contain a clause making it obligatory upon the bank to make this advance of $900, and it had notice of the lien of plaintiff at the time the $900 was furnished. It was entirely optional with the bank whether or not it should make it.
Mortgages to secure future advances are valid; but, where it is entirely optional with the mortgagee whether to make future advances or not, advances made after notice of a subsequent incumbrance, such as a lien for materials furnished, are inferior to the materialman’s lien.
In other words, the general rule is that, if the amount for which the mortgage shall stand is wholly optional with the mortgagee, he cannot, after notice that a subsequent lien has attached, deplete the value of the equity to the disparagement of .its lienors by advances which, if refused, would not.have been in force.
Heintze v. Bentley, 34 N. J. Eq. 562; Gray v. McClellan, 214 Mass. 92, 100 N. E. 1093; Finlayson v. Crooks, 47 Minn. 74, 49 N. W. 398, 645; Germania Building & Loan Assn. v. B. Fraenkell Realty Co., 82 N. J. Eq. 49, 88 Atl. 305; W. P. Fuller & Co. v. McClue, 48 Cal. App. 185, 191 Pac. 1027, and cases cited; Savings & Loan Society v. Burnett, 106 Cal. 514, 39 Pac. 922; 27 Cyc. 239, 240; 40 C. J., p. 302, § 393 (bb); 41.
C. J., p. 527, par. 468 (4); and Davis v. Carlisle (Circuit Court of Appeals, Eighth Circuit), 142 Fed. 106, and cases cited. The record shows that the bank had notice of the materialman’s 'lien of plaintiff at the time it furnished the $900 evidenced by the note of April 9, 1927.
It is insisted, however, that the bank should have a superior lien for $450, because that amount was furnished .by it to McCall for the purpose of paying off materialmen’s liens against the mortgaged property, land was used by him for that purpose. The lien for materials is purely a creature of the statute, and, while it is assignable under our statute, the right to prosecute a mechanic’s lien is not assignable. Such liens must be perfected before they can be transferred or assigned.
Before the bank could claim any right to the lien of the materialmen by advancing money to. pay off their claims, it would have to prove that these liens had been established ’in the manner required by statute. Young Men’s Building Assn. v. Ware, 158 Ark. 137, 249 S. W. 545.
The result of our views is that the decree of the chancery court was wrong, and will be reversed, with directions to enter a decree in favor of the Superior Lumber Company, holding that it’ has a paramount lien on the house and lot in question to that of the mortgage lien of the bank for the $900 note of April 9, 1927, 'and for further proceeding’s in accordance with the principles of equity and not inconsistent with this opinion.