                    IN THE SUPREME COURT OF MISSISSIPPI

                                NO. 2016-CA-00728-SCT

WHITNEY BANK f/k/a HANCOCK BANK, A
MISSISSIPPI STATE CHARTERED BANK d/b/a
HANCOCK BANK

v.

TRIANGLE CONSTRUCTION COMPANY, INC.


DATE OF JUDGMENT:                         04/28/2016
TRIAL JUDGE:                              HON. SANFORD R. STECKLER
TRIAL COURT ATTORNEYS:                    DEREK ANDREW HENDERSON
                                          JEFFREY MONROE WILLIAMS
                                          MACY DERALD HANSON
                                          MICHAEL SHELTON SMITH, II
                                          D. RONALD MUSGROVE
                                          JEFFREY MATTHEW GRAVES
                                          CHAD MICHAEL KNIGHT
                                          JOHN G. CORLEW
                                          JOY LAMBERT PHILLIPS
COURT FROM WHICH APPEALED:                HARRISON COUNTY CHANCERY COURT
ATTORNEY FOR APPELLANT:                   DEREK ANDREW HENDERSON
ATTORNEYS FOR APPELLEE:                   D. RONALD MUSGROVE
                                          MICHAEL SHELTON SMITH, II
                                          MACY DERALD HANSON
NATURE OF THE CASE:                       CIVIL - OTHER
DISPOSITION:                              AFFIRMED - 10/05/2017
MOTION FOR REHEARING FILED:
MANDATE ISSUED:


       EN BANC.

       KING, JUSTICE, FOR THE COURT:

¶1.    In this lien priority case, a property owner defaulted on his obligations, and the

construction lender foreclosed the property. The general contractor had a materialman’s lien
on the property. At the foreclosure sale, the purchase price for the property was significantly

lower than the total amounts owed. The sole issue before the chancery court was which lien

had priority – that of the construction lender, or that of the contractor. The chancery court

found that the contractor’s lien had priority. Because the chancery court did not abuse its

discretion, this Court affirms.

                       FACTS AND PROCEDURAL HISTORY1

¶2.    Knight Properties purchased a piece of property on which it planned to build a

residential development. In February 2007, Hancock Bank issued a line of credit2 to Knight

Properties in the amount of $2.25 million. In gathering information to approve the loan,

Hancock obtained the contract between Knight Properties and Triangle Construction

Company, Inc., entered into on February 12, 2007, for Triangle to be the contractor on the

project. Before approving the loan, Hancock checked Triangle’s contractor’s license to

ensure it possessed a valid one. Hancock and Knight executed a promissory note and a deed

of trust on the property. Later in 2007, Knight conveyed the property to Reunion of Biloxi

Development LLC, a conveyance that was essentially a name change. Reunion assumed

Knight’s debt to Hancock and a new promissory note in the amount of approximately $1.9

million was signed.


       1
        During the time at issue in this case, Chad Knight, the owner of Knight Properties,
transferred ownership of the property to Reunion of Biloxi Development, LLC, which was
also owned by Chad Knight. After the events at issue, the lender, Hancock Bank, changed
to Whitney Bank. This opinion will refer to the entities as Reunion and Hancock, as those
are the names on the documents at issue.
       2
        The promissory note simply describes the loan as a line of credit, and does not
specify that it is a construction loan.

                                              2
¶3.    The first draw on the loan was made on February 19, 2007, in the amount of $966,

872.71, and was used to pay off the balance of the existing purchase loan on the land.

Hancock Bank had financed the original purchase of the property, so it used the line of credit

to pay off the existing balance to itself. The remaining draws occurred sporadically through

May 11, 2009, with Hancock distributing a total of nine draws, in the total amount of

$1,704,660.42. For each distribution, Hancock’s attorney, George Murphy, checked the

chancery court for liens on the property and obtained an owner and/or contractor affidavit

from Chad Knight. The affidavit attested that all subcontractors, materialmen, and other such

laborers had been paid in full any amounts owed. The affidavit also had the contractor waive

any claim to a lien and affirmed that “[t]he owner has no interest or ownership in the

contracting firm or firms and the contractor has no interest in the real property described

above[.]” Chad Knight then signed each affidavit twice for Reunion, as both the owner and

the contractor. Murphy testified that Hancock had not informed him that Triangle was the

contractor, and that information would have changed the way he did things in that he

“certainly” would have had the contractor sign the affidavit. Hancock asserted that the

information that Triangle was the contractor was sent to Murphy at some point via fax.

Hancock also had the site inspected by an engineer to ensure that the progress matched the

requested disbursement amount.

¶4.    On March 31, 2008, Reunion and Triangle entered into a contract for Triangle to be

the contractor on the project.3 It provided that Triangle “agrees to furnish all materials and

       3
       Hancock argues that Reunion was the general contractor and Triangle was a
subcontractor. Ample evidence in the record disputes this, such as the contract between

                                              3
perform all work necessary to complete Reunion Place Subdivision . . . . The scope of work

to achieve completion is further described as Site Improvements, Water Improvements,

Sewer Improvements, Storm Drainage Improvements. The project will be constructed based

on the plans drawn by [the engineer.]” It also provided that all subcontracts were subject to

the approval of both the owner and the engineer. The contract stated that the contractor

would submit an invoice to the owner and the engineer on the twenty-fifth of every month

and that the invoice was payable by the tenth of the following month. It provided that work

on the project would cease if the invoice was not paid in full by the fifteenth of the following

month. Work commenced on the project. Financial problems then arose for Chad Knight.

Some time around October 2008, Triangle pulled off the work site for nonpayment, but it

eventually returned.

¶5.    In December 2008, Henry Knue and Donna Smith, Hancock Bank employees assigned

to the Reunion loan, had a conversation about Triangle. Knue emailed Chad Knight with a

subject line “Draw Pending - Triangle Construction” and stated “Please email or fax invoice

due Triangle construction so that I may accurately instruct attorney for disbursement.” Chad

Knight replied that he was faxing the invoice, “However, I’m not sure what you mean



Reunion and Triangle indicating that Triangle was the general contractor; statements in
emails by Hancock indicating that Triangle was “the” contractor; Chad Knight’s deposition
testimony that Triangle was the general contractor on the project; communications between
Triangle and Reunion regarding Triangle, and not Reunion, paying subcontractors; and
communications between Chad Knight and Hancock indicating that Triangle had the
responsibility to pay subcontractors. The chancery court specifically found that Triangle was
the general contractor on the project, and under an abuse of discretion standard, we cannot
find that the chancery court erred in making this factual finding, given the abundance of
evidence indicating that Triangle was the general contractor.

                                               4
regarding the disbursement instructions to the attorney. The draw needs to be disbursed to

Reunion Development as all draws have been. We will pay our contractors and vendors.”

Knue forwarded this to Smith as an “fyi,” and Smith responded that “All of our attorney

letters that support the disbursement instruct the attorney to disburse any outstanding

invoices, etc. that may be out there. I know he is aware of this.” Knue replied that the fax

he had received from Knight was not a Triangle invoice, but a Reunion invoice. He stated

that he “delivered the check so as not to delay the draw given the urgency in posting before

end of day on Wednesday. Attorney has historically disbursed to them and executing an

affidavit stating no outstanding invoices. Maybe we can address this in Tuesday’s meeting

with them as well?” Smith replied that “I think that is fine . . . . As long as there are no liens

outstanding to Triangle and they are continuing to do the work, then we should be fine. But

be sure that your instructions letter to the attorney states that any outstanding liens are paid

for.”

¶6.     On April 27, 2009, Chad Knight emailed Smith with a draw request, and stated “FYI,

we plan to send payment from this draw and our funds directly to the subcontractor (Warren

Paving), as our last payment to the Triangle construction apparently did not end reach the

sub. We’ve taken steps to protect against this happening again.”4 On April 28, 2009, Carla

Roy from Hancock emailed George Murphy’s paralegal and asked her to update Reunion’s

title in anticipation of a “progress draw.” On May 5, 2009, the paralegal informed Roy that



        4
        Regardless of the veracity of Chad Knight’s statement, he certainly put Hancock on
notice that he had outstanding, unpaid invoices to contractors and/or materialmen. And it
appears that he acknowledged to Hancock Bank that Triangle was the contractor.

                                                5
the update was complete. Roy responded “Great, I will schedule the draw with you as soon

as we have everything in place on our end. Thanks for the update.” Smith, who was copied

on this email chain, then emailed Roy, stating “I have a call into Chad to discuss the draw

amount, no work on the property since the contractor called and stated he pulled off the

property and also the Erosion issues that I inspected this morning!! I will let you know when

I hear from him!!” Smith described her inspection of the property, noting that “the roads like

caving in and it look [sic] delapidated [sic] basically, like nothing had been going on for

several weeks. There was no movement on the property.” Yet Hancock distributed a draw

to Reunion on May 9, 2009. Additionally, during the majority of this time period, Hancock

was aware that Reunion was having financial difficulties. One Hancock document noted that

“[t[here have been some issues with the contractor on the job and payment issues with him

being paid which both sides state are being taken care of however, this has caused the

contractor to pull off the job site for more than 8 weeks now and no work has been complted

[sic].”

¶7.       Triangle filed a construction and materialmen’s lien on the property on December 16,

2009, in the amount of $214,314.18. After Reunion defaulted on the construction loan,

Hancock filed a complaint against Chad Knight, Reunion, and Triangle, among others, and

also moved for foreclosure. The chancery court authorized Hancock to foreclose on the

property. A third party purchased the property at the foreclosure sale for $800,000. Triangle

filed a counterclaim against Hancock for the $214,314.18 it was owed. Hancock filed a

motion for summary judgment as to Triangle, which the chancery court denied.



                                               6
¶8.    After a bench trial on the matter,5 the chancery court found that Triangle’s lien had

priority over Hancock’s claims. The chancery court specifically found that Triangle was the

general contractor on the project and that Hancock failed to use reasonable diligence in

disbursing the construction loan. It thus ruled that Triangle’s lien had priority over

Hancock’s deed of trust, and that Triangle must be paid first out of the foreclosure proceeds.

The chancery court awarded Triangle attorneys’ fees in the amount of $106,350.48 and

awarded Triangle pre- and post-judgment interest at the rate of eight percent. Hancock

appeals, arguing that 1) the chancery court erred in its determination that the loan funds did

not go into the project because the first portion of the loan funds went to pay off an existing

loan on the property; 2) the chancery court erred by determining that Hancock did not use

reasonable diligence in disbursing the loan; 3) the chancery court erred in awarding Triangle

pre- and post-judgment interest at the rate of eight percent; and 4) the chancery court erred

in awarding Triangle attorney’s fees and expenses.

                                        ANALYSIS

1. Standard of Review

¶9.    “Findings of fact made by a chancellor may not be disturbed or set aside on appeal

unless manifestly wrong.” Cotton v. McConnell, 435 So. 2d 683, 685 (Miss. 1983). “This

is so whether the facts found be characterized as ultimate facts or as mere evidentiary facts.”

Id. This Court “must consider the evidence in the light most favorable to the party in whose



       5
       Several of the witnesses to the transactions testified, as well as both sides’ experts,
who testified as to whether Hancock’s actions were against or compliant with banking
standards regarding reasonable diligence.

                                              7
favor the fact findings were made. [This Court] must also give that party the benefit of all

reasonable inferences which may be drawn from the evidence. If when [this Court does] this

[it] find[s] that there is substantial evidence which supports the finding of fact made by the

chancellor, [it] must affirm.” Peoples Bank & Trust Co. and Bank of Miss. v. L & T

Developers, Inc., 434 So. 2d 699, 704-05 (Miss. 1983). Furthermore, this Court must

“assume that the chancellor resolved in favor of appellees all conflicts in the evidence on fact

issues with respect to which the chancellor made no findings of fact.” Id. at 705. Thus, this

Court employs an abuse of discretion standard for review of a chancellor’s decisions.

McNeil v. Hester, 753 So. 2d 1057, 1063 (Miss. 2000). Questions of law, however, are

reviewed de novo. Id.

2. Lien Law

¶10.   “The lien of a deed of trust securing a construction loan has priority over mechanics’

and materialmen’s liens only to the extent that[:] (a) the funds disbursed actually went into

the construction, or (b) to the extent that the construction lender used reasonable diligence

in disbursing the construction loan.” Guaranty Mortg. Co. of Nashville v. Seitz, 367 So. 2d

438, 441 (Miss. 1979). Thus, to the extent Hancock can show that its funds actually went

into the construction or that it used reasonable diligence in disbursing the loan, its lien holds

priority over Triangle’s lien.

3. Whether the funds went into the construction.

¶11.   Hancock argues that because the first disbursement went to pay off itself for the

existing loan on the land, those funds actually went into the construction, because



                                               8
construction is impossible without the land, a so-called “purchase-money” rule within the

construction funds test. The chancellor rejected this argument. Triangle argues that money

advanced to purchase undeveloped land is clearly not money that went into the construction

project.

¶12.   This Court has noted that “‘[a] lender advancing construction funds must use

reasonable diligence to see that these funds are actually used in payment for materials or

other cost of construction. Such a construction mortgagee has preference over materialmen

and laborers only to the extent that its funds actually go into the construction.’” Deposit

Guaranty Nat’l Bank v. E.Q. Smith Plumbing & Heating, Inc., 392 So. 2d 208, 211 (Miss.

1980) (emphasis added) (quoting Wortman & Mann, Inc. v. Frierson Bldg. Supply Co., 184

So. 2d 857 (Miss. 1966)). The intent is clearly that where a construction lender has actually

contributed to the construction, such as materials or labor, (or used reasonable diligence to

ensure that it is actually contributing to the construction), then its lien takes priority over

other parties who have contributed to the construction. See Peoples Bank, 434 So. 2d at 707.

What is less clear is whether the purchase price of property is a cost of construction. We

recognize that some of our cases have, without discussion, separated the purchase money

price and the costs of construction, while others have, without discussion, combined the two.

See Wortmann & Mann, 184 So. 2d at 858 (purchase price of land advanced by construction

lender not included in costs of construction); Deposit Guaranty, 392 So. 2d at 209-10

(purchase price of land included in amount that received priority as a construction loan). The

dissent correctly notes that in Wortmann & Mann, “this language is merely a recapitulation



                                              9
of the testimony given at the trial court level. In its analysis, the opinion does not set forth

how the purchase money should have been treated.” Dis. Op. at ¶ 31. Yet, the dissent

inexplicably treats the same recapitulation of trial testimony in the Deposit Guaranty and

Virden cases as “dispositive” and “on point.” Dis. Op. at ¶ 27. The entirety of the language

in Virden was that the trial court “declared a first lien on these funds in favor of the Bank for

$7,315.76,” that “[o]nly $7,315.76 of the money advanced by the Bank actually went into the

purchase of the lots and the construction of the houses,” and that “only $7,315.76 of its

money actually went into the project.” Virden, 45 So. 2d at 270. In its analysis, the opinion

does not discuss how the purchase money should have been treated, as this particular finding

was not challenged, and the Court merely affirms those findings.          Peoples Bank,

however, provides more clarity and discussion on this issue. L&T Developers, Inc., financed

Bruce Homes, Inc.’s purchase of three tracts of undeveloped land. Peoples Bank, 434 So.

2d at 703. Bruce Homes was a speculative builder and planned to build a residence on each

of the three tracts. Id. After L&T financed the purchase, Bruce Homes obtained three

secured construction loans from two different banks. Id. Materialmen then provided goods

and services to the project. Id. at 704. Bruce Homes then defaulted on all its obligations and

the properties were foreclosed. Id. The liens of L&T, the materialmen, and the construction

lenders were all valid, so the issue was priority among the valid liens. Id. at 714.

¶13.   As to the priority of construction lender versus materialmen, the Court noted the

principle that the equities favor the materialmen. Id. at 705.

              A materialman, a mechanic or other similar parties . . . typically
       furnishes supplies, materials or services which are indispensible to the

                                               10
       successful prosecution of the construction project. That these potential lienors
       render their services and perform their work, generally on credit, is to
       everyone’s benefit, including the construction lender. For as these parties give
       value, the value of the construction lender’s collateral is enhanced.
               If, as here, the materialmen are not paid, quite likely the construction
       lender will be unjustly enriched at their expense. For in this situation, if the
       construction lender were allowed a priority over the materialmen, it would
       have received the enhancement to the value of its collateral while the
       materialmen, without whose services the bank cannot expect the secured
       construction loan transaction to succeed, would as a practical matter be
       without security, and, most likely, with little prospect of getting paid.
               We emphasize the ease with which the construction lender may protect
       itself. Construction lenders may make advances in the form of drafts or checks
       payable directly to materialmen or payable to materialmen and the builder
       jointly. Such a practice, of course, would render the present fiasco impossible.
       Even where such tight controls are not exercised, many construction lenders
       require affidavits to the effect that all materialmen and potential construction
       lienors have been paid. Without doubt in this sort of situation the
       bank/construction lender is in a far better situation than is the materialman to
       protect itself and police the use of the construction loan funds and thereby
       avoid the predicament which has in fact ensued.

Id. The Court then acknowledged that materialmen generally have constructive notice of the

construction lender’s deed of trust, which takes priority, but no “further than its equities

require,” which means that it should not be given priority “except to the extent that the

money secured thereby was actually used in paying for the construction of the building.” Id.

at 707 (quoting First Nat’l Bank of Greenville v. Virden, 45 So. 2d 268 (1950)).

¶14.   The Court then discussed the materialmen’s priority versus the seller who financed

the purchase of the land, and who knew that the undeveloped land was bought with an aim

toward construction. In affirming the trial court’s decision that the materialmen’s liens had

priority over L&T Developers’s (as original landowner/seller and the party providing the

financing for the land purchase) liens, the Court noted that the materialmen



                                             11
       are parties who supplied materials and labor to the improvements on the two
       lots, thereby enhancing the value of these projects. Through sweat and elbow
       grease, these two construction lienors in a very real sense created value which
       previously was not there. The landowner, on the other hand, has made no
       similar contribution. The landowner had the far greater capacity to protect his
       interest, and, further, the landowner profits directly from the success of the
       overall construction project to which the materialmen so materially contribute.

People’s Bank, 434 So. 2d at 714. The Court did not consider the financing of the property

as a version of a “construction loan.” It considered it separately; if the bright-line rule was

that the purchase price of the land to be used for a construction project automatically consists

of “funds going into construction,” L&T in this case would have automatically trumped the

materialmen’s liens, because its loan to purchase the property would have been deemed as

a “cost of construction.” However, People’s Bank clearly contemplates that the purchase

price of the property is not a cost of construction under some circumstances. We decline to

decree a bright-line rule as to whether the purchase money for the land is a cost of

construction. The dissent advocates that we adopt a bright-line legal rule that the purchase

money for the land in a construction loan is automatically a cost of construction. Chancery

courts are courts of equity. We find that the better rule is to allow a chancery court to

examine the facts and equities of each case and determine whether purchase money for the

land can be claimed as a cost of construction that fairly prioritizes a construction lender’s lien

over those of materialmen.6 This result is supported by the caselaw that goes in both

       6
        The dissent claims that this holding will stifle construction loans that include
purchase money for land. Yet, as this Court has already noted, allowing errant construction
lenders to automatically trump materialmen stifles development, as materialmen are less
willing to work on credit, an arrangement that benefits everyone. Allowing a chancery court
to perform its duties by finding facts and balancing equities ensures that the proper lien will
receive priority under the specific facts of each case.

                                               12
directions, because, in each case involving purchase money cited by both this opinion and

the dissent, this Court affirmed the findings of the trial court, either way. Examining the

specific facts of this case under the standard of review, thus assuming that the chancellor

resolved all conflicts in the evidence on fact issues with respect to which the chancellor made

no findings of fact in favor of Triangle and giving Triangle the benefit of all reasonable

inferences, we cannot find reversible error in the failure to credit the $966,000 that Hancock

disbursed to pay itself as a cost of construction. Hancock using a generic “line of credit” to

pay itself the balance of the original loan is even further removed from the actual

construction on the project than L&T Developers’ financing the original land purchase in

Peoples Bank. For this reason, this Court finds that the chancery court did not abuse its

discretion when it found that Hancock’s lien did not have priority over Triangle’s lien.7

4. Whether Hancock exercised reasonable diligence.

¶15.   Hancock argues that it used reasonable diligence in disbursing the construction funds

by obtaining an owner/contractor affidavit, checking the chancery court records for liens, and

inspecting the property before disbursements. To be sure, Hancock dotted the “i’s” and

crossed the “t’s.” Yet, the chancery court rejected this argument because Hancock knew or

should have known that materialmen and contractors were not being paid. Hancock may not

       7
        If a portion of a construction loan for undeveloped land automatically and always
trumps materialmen, it would be antithetical to ever give materialmen priority. To be sure,
the current statute regarding contractor’s liens (which was not in effect at the time Triangle’s
lien was filed) requires that, to maintain priority, a construction mortgagee must obtain either
an affidavit from the owner stating that no work has been done and no materials delivered
to the property, or it must obtain “an affidavit or sworn statement from the contractor, or
owner if there is no contractor, . . . regarding payment for work, materials or services
provided.” Miss. Code Ann. § 85-7-405 (Rev. 2011).

                                              13
cloak its actual knowledge of the issues that were occurring by simply doing the “proper”

paperwork.8

¶16.   First, the affidavits stating that no payments were outstanding were suspect. Chad

Knight signed as both owner and contractor, despite averring that the owner and contractor

had no financial interest in one another in the same affidavit, and despite the evidence

indicating that Chad Knight was not indeed the general contractor,9 a fact that evidence

indicates Hancock knew. Murphy testified that had he known that Triangle was actually the

contractor, he would have done things differently. Chad Knight also informed Hancock at

one point that Triangle had not paid a subcontractor. In December 2008, Hancock employees

had a conversation regarding Triangle’s invoices and a disbursement, indicating that

Hancock may have known of payment problems, especially when giving Triangle the benefit

of all reasonable inferences drawn from the evidence, as this Court’s standard of review

demands. Moreover, before the May disbursement, Triangle informed Hancock that it was

not being paid. Smith inspected the site herself and noted that it appeared as though no work

had been done for awhile and noted that “the” contractor had pulled off the project. Viewing



       8
       Certainly, it would have been more prudent for Triangle to file a lien earlier in this
case. However, that does not change the fact that Hancock had knowledge of the issues of
nonpayment.
       9
        The chancellor noted that “there was not one shred of evidence anywhere that the
owner did any contracting. There was some – there was some indication from Compton that
he shouldn’t, and then there were steps taken to ensure that he didn’t. But for him to say that
he’s the contractor and did zero contracting. It didn’t show that he did anything.” He noted
that “the idea that Mr. – that Chad Knight was the contractor was an absolute fiction from
the get-go, and that should never have been allowed. Therefore, there is no affidavit from
the contractor that the – that the bills were paid.”

                                              14
the evidence in the light most favorable to Triangle, it is not implausible to find that Hancock

knew that Triangle was the contractor, knew that Reunion was having difficulty paying

contractors and subcontractors, and knowingly allowed Chad Knight to falsely sign affidavits

as the contractor. The chancery court did not abuse its discretion in determining that

Hancock did not exercise reasonable diligence in disbursing the construction loan funds and

thus its lien does not receive priority.

5. Whether eight percent interest was appropriate.

¶17.   Hancock argues that an interest rate of one percent over prime would be fair in

“today’s financial world.” Triangle argues that Hancock waived this argument by failing to

make a contemporaneous objection and, in any event, that the award is fair.

¶18.   The statute providing for interest gives the trial judge wide discretion. Miss. Code

Ann. § 75-17-7 (Rev. 2016). The chancellor stated that “[t]here was no dispute expressed

as to the [pre-judgment] interest that I would also award.” Hancock did not object. The

chancellor then awarded post-judgment interest at eight percent and the attorney for Hancock

replied “Thank you, sir.” Hancock did not object to an eight percent interest rate in chancery

court. Therefore, this argument is waived. See City of Jackson v. Jordan, 202 So. 3d 199,

206 (Miss. 2016) (“If a proper contemporaneous objection is not made, an error is waived.”).

6. Whether the chancery court erred in awarding attorney’s fees and expenses in the
amount of $106,350.48.

¶19.   Hancock argues that the chancery court’s award of attorney’s fees is unreasonable.

It argues that the chancery court did not consider the appropriate factors, but that all it

“required as proof was that the former governor lay his bill on the table.” Triangle argues


                                              15
that Hancock waived any objection to the award of attorney’s fees by failing to make a

contemporaneous objection, and in the alternative, argues that the chancery court did not

commit manifest error, as the chancellor went through the appropriate factors and found that

the fees were reasonable and warranted.

¶20.   While Hancock did not object to the reasonableness of the attorney’s fees at the

moment the chancellor made the award, it did vociferously object to the reasonableness of

the fees at the time Triangle placed the attorney’s bill into evidence. Thus, Hancock

preserved this argument for appeal.

¶21.   The chancery court has wide discretion in awarding attorney’s fees. Armstrong v.

Armstrong, 618 So. 2d 1278, 1282 (Miss. 1993). In this case, the chancellor found:

               With respect to the attorney’s fees, they’re higher than what lawyers on
       the Coast get, but we are used to seeing lawyers come in here from other
       places that do get much higher fees.
               I went through the whole first round of casinos failures and junk bonds
       and all that, and all the – everybody that came down here from anywhere else
       – they had a lot of lawyers from New York and they charge a whole lot more
       than you lawyers from Jackson do.
               But I would assume that the – and I would think that the fees are
       consistent with what could be demanded by Governor Musgrove. Obviously,
       by calling him Governor, I know that he was a former Governor of the State
       of Mississippi, and as such, is able to attract good clients and able to get a lot
       of business that maybe someone else wouldn’t.
               And not just because of that, but because he’s done an excellent job of
       presenting all of this, as has Mr. Henderson. I would say that the attorney’s
       fees were fair and reasonable and just and should be awarded.
               Now, with our domestic cases we have here, we go through something
       we call the McKee Factors, which is an explanation of why the attorneys
       should get those fees. And among the things that you – that the Court looks
       at is, what is the normal and reasonable fee for someone of that similar
       experience in that kind of a case, what is reasonable in the community where
       that attorney practices, that attorney’s particular practice experience, and the
       complexity of the case, the amount of time they have to spend, you know,

                                              16
       working on the case.
              And in this one, I looked at – I guess we’re getting close to 200
       exhibits. There were a lot of depositions taken and an awful lot of work done
       to prepare this case so that it could tried [sic] in two days or two and a half
       days, instead of two weeks. And so I think that you all did an excellent job
       with that. And so I think that the attorney’s fees should be awarded, and they
       are granted.

The exhibit that the chancellor examined was a six-page, single-spaced itemization of tasks

completed regarding this case.10 The chancellor considered the appropriate factors and did

not abuse his discretion in awarding attorney’s fees.

                                      CONCLUSION

¶22.   Because the chancellor did not abuse his discretion in determining that Triangle’s lien

took priority over Hancock’s lien, and because Hancock’s loan for the undeveloped land did

not go into construction, this Court affirms the judgment of the chancery court. Moreover,

Hancock waived its argument that the eight percent interest award was error. The chancery

court likewise did not abuse its discretion in its award of attorney’s fees.

¶23. AFFIRMED.

    WALLER, C.J., RANDOPLH AND KITCHENS, P.JJ., COLEMAN AND
BEAM, JJ., CONCUR. CHAMBERLIN, J., DISSENTS WITH SEPARATE
WRITTEN OPINION JOINED BY MAXWELL, J. ISHEE, J., NOT
PARTICIPATING.

       CHAMBERLIN, JUSTICE, DISSENTING:

¶24.   Because I believe that the majority opinion goes against good policy and, more

importantly, almost seventy years of precedent, I dissent.

       10
        The chancellor clearly examined the detailed bill, as he did subtract from the award
the amount that Triangle expended opposing Hancock’s motion for summary judgment,
because he determined that the motion was not unreasonable, even though he did deny it.

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¶25.   As a preliminary matter, our caselaw is clear that the construction lender is entitled

to priority over the materialmen in the amount that went into the construction of the project.

Riley Building Supplies, Inc. v. First Citizens Nat’l Bank, 510 So. 2d 506, 508 (Miss.

1987); Guaranty Mortg. Co. of Nashville v. Seitz, 367 So. 2d 438, 441-442 (Miss. 1979);

First Nat’l Bank of Greenville v. Virden, 45 So. 2d 268 (Miss. 1950). Likewise, to the

extent any additional funds disbursed did not go into the construction project, in order to

maintain priority, the construction lender must show that it used reasonable diligence to see

that the funds were used in construction. Peoples Bank and Trust Co., et al. v. L & T

Developers, Inc., 434 So. 2d 699, 707 (Miss. 1983); Deposit Guaranty Nat’l Bank v. E.Q.

Smith Plumbing & Heating, Inc., 392 So. 2d 208, 212 (Miss. 1980), decision clarified, 396

So. 2d 6 (Miss. 1981); Seitz, 367 So. 2d at 441; see also Boackle, K.F., Mississippi Real

Estate Foreclosure Law § 4:14 (2d ed. 2017); Jeffery Jackson et al., 6 Mississippi Practice

Encyclopedia of Mississippi Law § 51:30 (2017).

¶26.   The main issue is whether the amounts used in the first draw to pay off the existing

purchase loan on the land constituted funds that went into construction. The answer is yes,

as confirmed by cases dating back to 1950. This Court addressed a substantially similar case

in Virden. Virden, 45 So. 2d at 268. In Virden, money was borrowed to purchase lots and

construct a residence. The Court held that “only $7,315.76 of the money advanced by the

Bank actually went into the purchase of the lots and the construction of the houses.” Id. at

270 (emphasis added). The trial judge found that the bank had priority for the $7,315.76, and

this Court affirmed. Id. Further, this Court stated in a footnote that the $7,315.76 actually



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went into the project. Id.

¶27.   The Virden case is on point and dispositive. Further, other cases have addressed the

issue subsequently and confirmed lien priority to include the purchase price of the property.

See Deposit Guaranty, 392 So. 2d at 208 (Holding that the bank had lien priority, which

included the purchase price). However, the majority states that the holdings in Virden and

Deposit Guaranty hold no weight because the treatment of the purchase money is simply a

“recapitulation of trial testimony,” as in Wortmann & Mann, Inc. v. Frierson Building

Supply Co., 184 So. 2d 857 (Miss. 1966). Maj. Op. at ¶ 12. Although the facts are laid out

in the recapitulation of trial testimony, both cases have a holding that speaks on the status of

the purchase money. The Virden Court held that “such mortgagee shall have preference only

to the extent that its funds actually went into the construction.” Virden, 45 So. 2d at 271.

The Court then affirmed the trial court, giving the mortgagee preference for $7,315.76, which

included the price of the land. Id. Similarly, in Deposit Guaranty, the Court reversed the

trial court. This Court held that the bank had priority, and the liens of the materialmen were

extinguished by the foreclosure sale. Deposit Guar. Nat’l Bank, 392 So. 2d at 212. The

liens of the materialmen were extinguished because the bank disbursed $42,732 for purchase

of the lot and construction, and the foreclosure sale realized only $38,000. Id. at 211,

decision clarified, 396 So. 2d at 7. Simply put, there is no Mississippi case that holds

otherwise in similar circumstances, where the lender has made a construction loan that

includes the purchase of the property that is still outstanding.

¶28.   The logic behind these holdings is clear. We want banks to make construction loans.



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The bank, in general, is not going to make a construction loan unless its lien has priority.

Therefore, it includes funds to pay off the existing mortgage as a part of the construction

loan, thus ensuring its priority. In our case, although the bank was the same, Whitney was

able to place its construction loan in a superior position by extinguishing the first mortgage.

To hold otherwise would stifle such loans unless the purchase-money mortgage holder is

willing to subrogate its priority.

¶29.   The majority cites two cases which are held forth as supporting the proposition that

such funds are not funds that went into construction. Alternatively, they state that it is a fact

question subject to an abuse-of-discretion analysis that the chancellor got right in our case.

I disagree on both counts.

¶30.   The majority cites Peoples Bank, 434 So. 2d at 699, to support its position. Peoples

Bank is simply not on point and is too dissimilar to our case to control. Peoples Bank

involved a separate loan for the purchase of the property that was not a part of the

construction loans. Id. at 703. Peoples Bank clearly states that at the time of the

construction loans, “the lien of the purchase money deed of trust held by L & T Developers,

Inc. was prior in right to the liens of each of the three deeds of trust in favor of the

construction lenders.” Id. The main distinguishing feature in Peoples Bank is that, shortly

after the construction loans, the purchase-money mortgage holder signed agreements

subordinating its lien to that of the construction lenders. Id. In other words, the construction

loan liens took priority because the purchase-money mortgage holder agreed to be

subordinated to the construction loan liens. The Court went on to grant the materialmen



                                               20
priority over the construction lenders and then placed the construction lenders behind the

landowner due to breach of a duty owed the landowner. Id. at 713. The priority between the

materialmen and the landowner was not challenged on appeal. Id. at 714. That is simply not

our case.

¶31.   The majority, likewise, submits Wortman, 184 So. 2d 857 in support. It opines that

Wortman is an example of a case in which the purchase price was not included as funds that

went into construction. It appears that the only language that supports this proposition is in

the paragraph that reads:

       The testimony shows that of the total sum advanced by the Loan Company,
       only $12,011.69 was actually used as payment for labor and materials that
       went into the construction of the two residences on lots Nos. 49 and 73. This
       sum does not include the purchase price of the two lots in the sum of $4,300.

Id. at 858. However, this language is merely a recapitulation of the testimony given at the

trial-court level. In its analysis, the opinion does not set forth how the purchase money

should have been treated. Id. at 858-61. Holding in favor of the lender, the Court found that

there was reasonable diligence and a lack of notice by the materialmen. Id. at 860-61. Thus,

the case turned on these two issues, and it never addressed the purchase price of the land and

whether it was considered part of the construction.

¶32.   The majority also deems the issue to be a finding of fact subject to an abuse-of-

discretion standard. The issue of whether funds used to pay off the existing purchase loan

on the land constitutes money going into the construction project is a question of law. That

is not to say that there will not be circumstances where a fact finding is necessary when there

is some question as to the purpose of the loan, whether the money was used to pay off the

                                              21
existing mortgage, diversion of the money, etc. The majority states that this dissent

advocates adoption of “a bright-line legal rule that the purchase money for the land in a

construction loan automatically is a cost of construction.” Maj. Op. at ¶ 14. Where the issue

is a question of law, my dissent merely upholds our precedent on the status of the purchase

money. However, as stated above, where there are circumstances in which fact finding is

necessary, my dissent does not hinder that in any way. In this case, however, the issue is one

of law. All parties agree that the first draw went to pay off the balance of the existing

purchase loan on the land, and no evidence has been submitted that this was anything other

than the intention of the parties. Therefore, as all parties agreed to the status of the first

draw, unlike the Majority states, I dissent to state that this Court should affirm the findings

of the trial court but reverse the application of the law to the facts, as was done in Deposit

Guaranty (and in Wortmann on the issue of reasonable diligence).

¶33.   The amount used to pay off the existing purchase loan on the land constitutes funds

that went into construction. The determination of whether the monies used to pay off the

balance of the existing purchase loan on the land is dispositive in that it consumes the entire

amount obtained at the foreclosure sale. (The payoff was $966, 872.71 and the foreclosure

purchase price was $800,000). Therefore, it is not necessary to get to a reasonable-diligence

analysis.

¶34.   For these reasons, I dissent.

       MAXWELL, J., JOINS THIS OPINION.




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