Opinion
No. 71-042 (Supreme Court No. 24341)
Decided May 4, 1971. Rehearing denied May 25, 1971. Certiorari granted September 20, 1971.
Priority dispute between holder of mechanic's lien on oil and gas well and holder of vendor's chattel mortgage on equipment furnished that well. From findings for holder of mechanic's lien, appeal was taken.
Reversed
1. MORTGAGES — Vendor's Chattel Mortgage — Equipment — Oil and Gas Well — Priority — Pre-existing Mechanic's Lien. Since a purchase money security interest is created simultaneously with delivery of title, a vendor's chattel mortgage covering equipment furnished to an oil and gas well has priority over a pre-existing mechanic's lien created under the statute concerning liens on wells and equipment.
2. MECHANICS' LIENS — Holder of Chattel Mortgage — Repossession — Property Covered — No Violation — Mechanic's Lien Statute. Although C.R.S. 1963, 86-5-7, directs that once a mechanic's lien attaches to property the property shall not be removed without the consent of lien claimant, inasmuch as holder of chattel mortgage had priority over holder of mechanic's lien it was error for trial court to rule that this statute was violated by chattel mortgage holder's repossession of the equipment covered by that mortgage.
3. Production Proceeds — Oil and Gas Well — Garnisheed — Unaffected — Defendant's Mechanic's Lien. Oil and gas well production proceeds which were garnisheed by holder of vendor's chattel mortgage on certain well equipment were unaffected by any mechanic's lien right held by defendant, and this is true notwithstanding that these proceeds were attributable to oil produced after the mechanic's lien attached.
Error to the District Court of Larimer County, Honorable Dale E. Shannon, Judge.
Hellerstein and Hellerstein, Stephen A. Hellerstein, Francis J. Manning, Kenneth Breneman, for plaintiff in error.
Rodden, Cooper, Woods Mitchell, C. James Cooper, Jr., for defendant in error.
This case was transferred from the Supreme Court pursuant to statute.
The parties to this appeal were both defendants in an action brought for the foreclosure of mechanics' liens against an oil and gas well and related property. We shall refer to the parties to this appeal by name.
As to the parties before us, the case was tried on stipulated facts. Two questions of law are to be resolved by this appeal. The first is whether a mechanic's lien created under our statute concerning liens on wells and equipment takes priority over a vendor's chattel mortgage covering equipment furnished to an oil and gas well after the effective date of the mechanic's lien. The second is whether such a mechanic's lien can be asserted against the proceeds paid for oil which was severed from the ground and sold after the effective date of the lien.
In the present case, Chambers is the holder of the mechanic's lien in question. The lien has an effective date of November 18, 1964, and is based upon a claim for the cost of equipment furnished to the well after that date and before December 30, 1964. Nation is the holder of a purchase money chattel mortgage relating to equipment consisting of a pumping unit and sucker rods furnished to the oil well in question on December 30, 1964. Nation also holds, pursuant to a writ of garnishment, the crude oil proceeds which Chambers contends are impressed with his mechanic's lien rights.
I.
[1] On the first question, the trial court ruled that the mechanic's lien prevailed against the vendor's chattel security interest. This was error, and we reverse. The mechanic's lien right conferred by C.R.S. 1963, 86-5-1, can reach only the interest "belonging to the party or parties contracting with the lien claimants." In the case of a purchase money security interest, the delivery of title and the creation of the security interest are simultaneous; thus the purchaser never acquires a title which is totally free of the security interest. Robinson v. Wright, 90 Colo. 417, 9 P.2d 618. This being the case, the pre-existing mechanic's lien takes a subordinate priority position insofar as it conflicts with the vendor's purchase money lien. Frank v. Denver Rio Grand Ry. Co., 23 F. 123 (C.C. Colo.).
Contrary to the trial court's findings, the priorities between these parties, as we have set forth above, were not affected by the provisions of C.R.S. 1963, 86-5-3. That section provides, in part, that no chattel mortgage shall be valid as against any person entitled to a mechanic's lien created under the lien laws relating to wells. However, the section further provides that such a mechanic's lien will have no effect upon liens existing and recorded at the time of the inception of the mechanic's lien. Read in its entirety, it is obvious that the statute was intended to invalidate only those chattel mortgages which were in existence, but which were unrecorded at the time of the inception of the mechanic's lien. In a case like that before us, where a purchase money security interest on personalty comes into existence after the inception of the mechanic's lien, the recording or lack of recording of the purchase money security document is immaterial as to a mechanic's lien claimant whose rights were created and defined at a previous time. Beatrice Creamery Co. v. Sylvester, 65 Colo. 569, 179 P. 154; Robinson v. Wright, supra.
[2] In view of the respective priority positions of the security interests belonging to these parties, we also hold that the trial court erred in ruling that Nation violated the provisions of C.R.S. 1963, 86-5-7, by repossessing and removing the personalty in accordance with the terms of his chattel mortgage.
C.R.S. 1963, 86-5-7, directs that once a mechanic's lien attaches to property, the property shall not be removed without the consent of the lien claimant. As we have held, however, the Chambers' mechanic's lien attached only to that interest, if any, which the well owner had in the equipment sold to him by Nation. By the terms of Nation's chattel mortgage agreement, the owner's interest was subject to the condition that Nation should have the right to repossess the equipment in the event of default under that agreement. There is nothing in the facts of this case which precluded Nation's exercise of his right of repossession. No contention is made that repossession of the equipment did inflict or would inflict any material injury to the realty interests relating to the oil well. Such being the case, Nation had the right to retake possession. Beatrice Creamery Co. v. Sylvester, supra; and see F. Storke and D. Sears, Colorado Security Law § 22 and § 24 at p. 95.
II.
The trial court also held that Chambers was entitled to a judgment against Nation for the amount of certain proceeds which Nation garnisheed from the purchaser of oil produced from the well involved here. The garnisheed proceeds were attributable to oil produced after the date the Chambers' mechanic's lien attached, and it was the theory of the trial court that the oil in the ground, being realty, became impressed with the Chambers' lien, and that the cash proceeds paid for that oil were similarly encumbered by the mechanic's lien.
Although the trial court's theory and result are supported by persuasive logic, we cannot sustain them under the law of this jurisdiction. Our examination of authorities reveals that the only jurisdictions which uphold mechanics' lien rights against the proceeds attributable to oil and gas production, whether produced before or after the attachment of the lien, are those in which the lien statutes specifically grant lien rights against such proceeds. See, for example, Sec. 45-1001, Repl. Vol. 3 (Part 2), Rev. C. Mont. 1947. Significantly, the Colorado statute, C.R.S. 1963, 86-5-1, does not expressly grant a mechanic's lien against the proceeds payable for production from a well. Additionally, the statute severely restricts the classes of personalty which may be impressed with the lien it confers. The restriction lies not only against the types of personalty, but also against the classes of person who may assert their liens against personal property. See Terminal Drilling Co. v. Jones, 84 Colo. 279, 269 P. 894.
Insofar as determining the types of property that may be impressed with statutory mechanics' liens, it is a general rule of construction that such statutes cannot be extended to apply to property which does not fall within their provisions. 53 Am.Jur.2d, Mechanics' Liens § 18.
[3] We, therefore, rule that the production proceeds involved in this case which were garnisheed by Nation were unaffected by any mechanic's lien right held by Chambers. Wilkins v. Fecht, 356 S.W.2d 855 (Tex.Civ.App.), and authorities cited therein.
The judgment is reversed, and this cause is remanded for further proceedings in conformity with this opinion.
CHIEF JUDGE SILVERSTEIN and JUDGE ENOCH concur.