Middlebrook-Anderson Co. v. Southwest Savings and Loan Association

Middlebrook-Anderson Company (Middlebrook) (plaintiff) sold property to developers who financed part of the price with a purchase-money deed of trust that both sides intended to be subordinate to a future construction loan; rather than sign a formal subordination agreement, the parties simply arranged for the construction-loan agreement to be recorded first. Southwest Savings and Loan Association (Southwest) (defendant) issued that construction loan based on representations the funds would be used only for construction, but Southwest permitted the developers to spend $300,000 of it on nonconstruction purposes, after which the developers ran out of money and stopped work; Middlebrook sued to have its lien priority restored, and the trial court dismissed for failure to state a claim.