VCS Inc. v. Countrywide , 349 P.3d 704 ( 2015 )


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  •                 This opinion is subject to revision before final
    publication in the Pacific Reporter
    
    2015 UT 46
    IN THE
    SUPREME COURT OF THE STATE OF UTAH
    VCS, INC., a Utah corporation; and TOM PHELPS,
    Appellants,
    v.
    COUNTRYWIDE HOME LOANS, INC.; AXIOM FINANCIAL, LLC, a Utah
    limited liability company; NATHAN K. SPENCER; NATHAN WILLIAM
    VAN RIJ; SARAH SHIRLEY VAN RIJ; CRAIG BELLISTON; and NATASHA
    BELLISTON,
    Appellees.
    No. 20111092
    Filed April 14, 2015
    Third District, Salt Lake
    The Honorable Sandra N. Peuler
    No. 070917958
    Attorneys:
    David B. Stevenson, Elizabeth A. Knudson, Ogden, for appellants
    Bryce D. Panzer, Bruce M. Franson, Salt Lake City, for appellee
    Countrywide Home Loans, Inc.
    Daniel L. Steele, Grant M. Sumsion, Benjamin K. Lusty,
    Salt Lake City, for appellee Axiom Financial, LLC
    Larry G. Moore, Salt Lake City, for appellees Nathan K. Spencer,
    Nathan William Van Rij, Sarah Shirley Van Rij,
    Craig Belliston, and Natasha Belliston
    CHIEF JUSTICE DURRANT authored the opinion of the Court, in which
    ASSOCIATE CHIEF JUSTICE LEE, JUSTICE PARRISH, JUDGE PEARCE,
    and JUDGE HANSEN joined.
    JUSTICE DURHAM and JUSTICE NEHRING did not participate herein;
    COURT OF APPEALS JUDGE JOHN A. PEARCE and DISTRICT JUDGE ROYAL
    I. HANSEN sat.
    VCS v. COUNTRYWIDE
    Opinion of the Court
    JUSTICE DENO G. HIMONAS became a member of the Court on
    February 13, 2015, after oral argument in this matter, and
    accordingly did not participate.
    CHIEF JUSTICE DURRANT, opinion of the Court:
    Introduction
    ¶1 Appellant VCS, Inc. provided labor and materials to
    improve real property located in the Acord Meadows planned unit
    development in Salt Lake City. The developer, Acord Meadows, LLC
    (Acord), secured funding for the project from two lenders—America
    West Bank (America West) and Utah Funding Commercial, Inc.
    (Utah Funding). America West and Utah Funding each made several
    loans to Acord and secured those loans with trust deeds to the
    development properties. The lenders also entered into several
    subordination agreements among themselves that altered the
    priority arrangement of their trust deeds.
    ¶2 VCS was never paid for its work, so it filed a mechanic‘s lien
    covering several lots of the development. Four of those lots were
    later sold through a foreclosure sale after Acord defaulted on its
    loans from Utah Funding. After the sale, VCS claimed that it was
    entitled to payment of its mechanic‘s lien, despite the foreclosure,
    because its lien had priority over Utah Funding‘s liens. The district
    court disagreed and ruled that VCS‘s mechanic‘s lien was
    extinguished by the foreclosure of Utah Funding‘s liens.
    ¶3 VCS‘s appeal presents us with an issue of first impression in
    Utah—namely, where there are three or more creditors who hold an
    interest in the same collateral, what is the effect of a subordination
    agreement between fewer than all of the creditors? Courts have
    taken two approaches to this issue. Under the majority approach,
    called partial subordination, the parties to the subordination
    agreement simply swap places in the priority chain, leaving the
    nonparty creditor unaffected. In contrast, under the minority
    approach, called complete subordination, the subordinating creditor
    drops to the bottom of the priority chain and the nonparty creditor
    steps into first priority position.
    ¶4 We adopt the partial subordination approach because it
    better reflects the intentions of parties to subordination agreements.
    And in applying that approach to this case, we conclude that VCS‘s
    mechanic‘s lien remained junior to one of Utah Funding‘s liens, so
    the mechanic‘s lien was extinguished once Utah Funding‘s lien was
    foreclosed upon. On this basis we affirm the district court‘s ruling.
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    Opinion of the Court
    Background
    I. Events Leading Up to the Present Dispute
    ¶5 The facts of this case center on fourteen parcels of real
    property located in Salt Lake City in the Acord Meadows planned
    unit development (Acord Meadows PUD). In May 2005, several
    buyers obtained title to lots one through fourteen of the Acord
    Meadows PUD.1 Near the end of 2005, the buyers conveyed the
    properties to Acord Meadows, LLC (Acord). To fund the purchase,
    Acord granted America West a $540,000 trust deed (America West
    Trust Deed 1) and granted Utah Funding a $152,000 trust deed (Utah
    Funding Trust Deed 1).2 Both trust deeds were entered into on
    December 28, 2005, and recorded on December 30, 2005.
    ¶6 Shortly after America West and Utah Funding recorded
    their trust deeds, VCS, Inc. (VCS) performed work on lots one
    through six and lot fourteen.3 It did so under a previously negotiated
    contract between it, Acord, Lind Enterprises, Inc., and L. Kyle Lind.
    VCS was never paid for its work.
    ¶7 In May 2006, Acord granted America West another trust
    deed, this time for $425,000 (America West Trust Deed 2). America
    West recorded the deed on May 25, 2006. In connection with the new
    trust deed, America West required that Utah Funding agree to
    subordinate Utah Funding Trust Deed 1 to America West Trust Deed
    2. The parties executed a subordination agreement, which was
    recorded on July 12, 2006 (Subordination Agreement 1).
    ¶8 Acord sought further funding from America West in
    October 2006. To secure an additional $751,233, Acord and America
    West agreed to modify the amount of America West Trust Deed 1
    from $540,000 to $1,291,233 (Modified America Trust Deed 1). On the
    same day the parties modified the deed, America West executed a
    subordination agreement that made America West Trust Deed 2
    1The May 2005 buyers were Robert Mills, Rick Newton, Bart
    Roser, Victoria Serre, and Lind Enterprises, Inc.
    2 Utah Funding assigned its interest in Utah Funding Trust Deed
    1 to Lind Enterprises, Inc., Ms. Serre, and Huish Group on January 3,
    2006. And soon after that, on January 17, 2006, Huish Group
    assigned its interest to North Star Funding Group, Inc.
    3The parties agree, only for purposes of this appeal, that VCS
    began performing work on January 6, 2006.
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    VCS v. COUNTRYWIDE
    Opinion of the Court
    subordinate to Modified America West Trust Deed 1 (Subordination
    Agreement 2).
    ¶9 Soon after receiving funds from America West, Acord
    sought further funding from Utah Funding. Acord granted Utah
    Funding a $100,000 trust deed (Utah Funding Trust Deed 2).4 Utah
    Funding recorded the deed on November 13, 2006.
    ¶10 As a final source of funding, Acord granted America West
    another trust deed, this time for $200,000, on August 7, 2007
    (America West Trust Deed 3).5 This deed differed from the others in
    that it covered only lots one and two. America West required Utah
    Funding to subordinate both Utah Funding Trust Deed 1 and Utah
    Funding Trust Deed 2 to America West Trust Deed 3 (Subordination
    Agreements 3 and 4).
    ¶11 In September 2007, VCS filed notice of a mechanic‘s lien for
    work it performed on lots three through six for $127,335.91. And two
    months later, in November 2007, it filed notice of a mechanic‘s lien
    for work it performed on lots one and two for $98,000. VCS later
    amended each of those notices, in January 2008, by changing the date
    of the first labor and material to January 6, 2006.6 It also amended the
    4  Utah Funding assigned its interest in Utah Funding Trust
    Deed 2 to Lind Enterprises, Inc., Huish Group, Keith and Verla
    Hamp, and American Pension Services, Inc. admin. for Vicki Serre
    IRA #5957 on November 3, 2006. Later, on June 27, 2007, Huish
    Group assigned part of its interest (including only lots one through
    six) to CCT Investments.
    5 We note that the parties failed to include Utah Funding Trust
    Deed 3 in the record. But its existence was undisputed below and the
    parties agree on its material terms. Moreover, the deed is referenced
    in one of the subordination agreements that is in the record.
    Accordingly, for purposes of this opinion, we assume that the deed
    exists and that its terms are as the parties have represented.
    6 At the time VCS filed its notice of a mechanic‘s lien, and at the
    time this lawsuit commenced, Utah law provided that a construction
    service lien related back to ―the time of the commencement of
    construction service on the ground for the improvement.‖ UTAH
    CODE § 38-1-5(1) (Supp. 2011). Because this was the law in place at
    the time of all relevant events in this case, we assume its application
    in this appeal. See Gressman v. State, 
    2013 UT 63
    , ¶ 13, 
    323 P.3d 998
    (―Under our case law, the parties‘ substantive rights and liabilities
    are determined by the law in place at the time when a cause of action
    4
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    Opinion of the Court
    amount owed on lots one and two to $29,876.98 and the amount
    owed on lots three through six to $175,907.20.
    ¶12 At some point during these events, America West‘s trust
    deeds were reconveyed and released. The parties have provided few
    specifics regarding when the deeds were released.7 But regardless,
    VCS has never challenged the assertion that America West‘s trust
    deeds were reconveyed and released, and even conceded the point
    below. So for purposes of this appeal, we acknowledge the parties‘
    stipulation and assume that all of America West‘s trust deeds were
    reconveyed and released.
    ¶13 Acord later defaulted on both Utah Funding trust deeds.
    The trustee of each of the trust deeds issued a notice of default and
    election to sell for each. Only lots one through four were listed on the
    notices. The trustee held a sale under Utah Funding Trust Deed 2 on
    March 4, 2008. Huish Group, Keith Hamp, and Verla Hamp
    purchased that interest. VCS alleges that co-appellant Tom Phelps
    and several others made a bid for the property, but that the trustee
    refused to accept their bid.
    ¶14 In August 2008, about five months after the sale under Utah
    Funding Trust Deed 2, the trustee held a sale under Utah Funding
    Trust Deed 1. North Star Funding Group, Lind Enterprises, Inc., and
    Ms. Serre purchased that interest. They later conveyed the interest to
    L. Kyle Lind. Mr. Lind then conveyed lots one, three, and four to
    separate buyers. He conveyed lot one to Nathan Spencer. In
    connection with that conveyance, Mr. Spencer executed a trust deed
    in favor of Axiom Financial, LLC. Mr. Lind conveyed lot three to
    Nathan Van Rij and Sarah Van Rij. The Van Rijs executed a note in
    favor of Countrywide Home Loans, Inc. to pay for lot three. And
    finally, Mr. Lind conveyed lot four to Craig Belliston and Natasha
    arises . . . .‖ (internal quotation marks omitted)). Moreover, neither
    party has contested its application.
    7  One of the third-party defendants, Axiom Financial, LLC,
    asserts that America West Trust Deed 2 was released on May 22,
    2007, approximately two months before America West loaned Acord
    funds under America West Trust Deed 3. But other than that
    assertion, there is no further evidence regarding the reconveyances
    of America West‘s trust deeds.
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    VCS v. COUNTRYWIDE
    Opinion of the Court
    Belliston. Each person who purchased from Mr. Lind was named as
    a third-party defendant by VCS and is an appellee in this appeal.8
    II. Procedural History
    ¶15 Near the end of 2007, Acord commenced suit against VCS,
    alleging breach of contract, negligent misrepresentation, fraud, and
    estoppel. VCS answered the complaint and also made claims against
    third-party defendants Lind Enterprises, L. Kyle Lind, and
    Countrywide. VCS later amended its complaint to add Axiom
    Financial, LLC, Nathan Spencer, the Van Rijs, and the Bellistons as
    third-party defendants. VCS claimed, among other things, that its
    mechanic‘s lien had priority over the third-party defendants‘
    interests in the Acord Meadows PUD.
    ¶16 Countrywide filed for summary judgment, which the
    district court granted. In its order the court explained,
    [T]he Court finds that the subordination agreements,
    which were contracts between the lenders identified
    therein and not intended to benefit any other party
    (such as VCS or the other Third-Party Plaintiffs),
    became null and void due to the payment of the
    indebtedness of the lender given priority therein and
    the release and reconveyances of the instruments
    granted priority thereby, and did not affect the priority
    of [Utah Funding Trust Deed 1,] pursuant to which
    Countrywide and its borrowers claim title.
    The court later granted summary judgment in favor of the other
    third-party defendants on the same basis. VCS appealed the district
    court‘s rulings in favor of the third-party defendants. We have
    jurisdiction under Utah Code section 78A-3-102(j).
    Standard of Review
    ¶17 In reviewing a district court‘s grant of summary judgment,
    ―we view the facts and all reasonable inferences drawn therefrom in
    the light most favorable to the nonmoving party.‖9 But we review a
    ―district court‘s legal conclusions and ultimate grant or denial of
    summary judgment‖ for correctness.10
    8 VCS‘s claims against Countrywide have been settled.
    Accordingly, Countrywide is no longer a party to this appeal.
    9 Fericks v. Lucy Ann Soffe Trust, 
    2004 UT 85
    , ¶ 2, 
    100 P.3d 1200
    (internal quotation marks omitted).
    10   Massey v. Griffiths, 
    2007 UT 10
    , ¶ 8, 
    152 P.3d 312
    .
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    Opinion of the Court
    Analysis
    ¶18 VCS asks us to reverse the district court‘s ruling for two
    reasons. First, it argues that the court erred as a matter of contract
    law by concluding that the subordination agreements were ―null and
    void‖ once America West‘s liens were reconveyed and released. And
    second, it argues that, assuming that the subordination agreements
    were not ―null and void,‖ its mechanic‘s lien had priority over Utah
    Funding Trust Deed 1 because that deed lost its original priority
    position as a result of being subject to several subordination
    agreements. The district court did not reach VCS‘s second argument
    because it determined that there was no need to do so once it ruled
    against VCS on the first issue.
    ¶19 We affirm the district court‘s ruling, but do so on an
    alternative basis. Even were we to agree with VCS on the first issue
    (and so disagree with the district court), we would nonetheless
    affirm the district court‘s ruling because VCS‘s mechanic‘s lien was
    junior to Utah Funding Trust Deed 1, and so was extinguished when
    Utah Funding Trust Deed 1 was foreclosed upon.
    ¶20 In reaching that conclusion, we adopt the majority
    approach—termed ―partial subordination‖—to the issue of circular
    lien priorities, which arises where there are at least three creditors
    who hold an interest in the same property and fewer than all of those
    creditors enter into a subordination agreement. We do so because the
    partial subordination approach most accurately reflects the
    intentions of parties who enter into subordination agreements and it
    also prevents nonparty creditors, such as VCS, from obtaining a
    windfall. Applying that approach to this case, we conclude that Utah
    Funding Trust Deed 1 had priority over VCS‘s mechanic‘s lien.
    Because we resolve the case in this manner, we have no need to
    decide whether the district court correctly decided that the
    subordination agreements were ―null and void‖ once America
    West‘s liens were reconveyed and released.
    ¶21 VCS‘s final argument is that Utah Funding (and its
    assignees) received more money from the foreclosure sale than they
    were entitled to. We decline to address the merits of this argument,
    however, because it is unpreserved.
    I. Under the Partial Subordination Approach, Utah Funding Trust
    Deed 1 had Priority Over VCS‘s Mechanic‘s Lien
    ¶22 VCS argues that the subordination agreements entered into
    by Utah Funding rearranged the priority chain and resulted in VCS‘s
    mechanic‘s lien having priority over Utah Funding Trust Deed 1. In
    7
    VCS v. COUNTRYWIDE
    Opinion of the Court
    making this argument, VCS asks us to adopt a minority approach to
    the issue of circular lien priorities called ―complete subordination.‖
    But we decline to do so and instead adopt the majority approach,
    which is called ―partial subordination.‖ Under that approach, Utah
    Funding Trust Deed 1 retained priority over VCS‘s mechanic‘s lien
    even though it was subject to several subordination agreements.
    ¶23 The issue of circular lien priorities is an issue of first
    impression in Utah. Described simply, this issue arises where three
    or more creditors hold an interest in the same collateral and fewer
    than all of the creditors enter into a subordination agreement. The
    resulting question is what effect the subordination agreement has on
    the nonparty creditors.11
    ¶24 Here, the issue arises because America West, Utah Funding,
    and VCS each held an interest in the Acord Meadows PUD. America
    West and Utah Funding entered into four different subordination
    agreements that purported to alter the priority among their
    respective interests. VCS is not a party to any of these agreements.
    The following chart describes the effect of each subordination
    agreement:
    11  We note that this issue appears to arise most often in cases
    involving personal property, not real property. See, e.g., Caterpillar
    Fin. Servs. Corp. v. Peoples Nat’l Bank, N.A., 
    710 F.3d 691
    , 693–94 (7th
    Cir. 2013). But neither party has argued that this distinction matters
    in this case. Moreover, at least one court has concluded that, as to
    this issue, there is no distinction ―to draw between real property and
    personalty.‖ Duraflex Sales & Serv. Corp. v. W.H.E. Mech. Contractors,
    
    110 F.3d 927
    , 936 (2d Cir. 1997). We, too, see no reason why the
    analysis should differ depending on whether real property or
    personal property is at issue.
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    Opinion of the Court
    Agreement                                Effect
    Subordination               Subordinated Utah Funding Trust Deed 1
    Agreement 1                 to America West Trust Deed 2
    Subordination               Subordinated America West Trust Deed 2
    Agreement 2                 to Modified America West Trust Deed 1
    Subordination               Subordinated Utah Funding Trust Deed 1
    Agreement 3                 to America West Trust Deed 3
    Subordination               Subordinated Utah Funding Trust Deed 2
    Agreement 4                 to America West Trust Deed 3
    We are primarily concerned with whether Utah Funding Trust Deed
    1 had priority over VCS‘s mechanic‘s lien because each of the third-
    party defendants obtained title through the foreclosure on Utah
    Funding Trust Deed 1. VCS argues that although its mechanic‘s lien
    was originally junior to Utah Funding Trust Deed 1 because it was
    recorded later, it gained priority over Utah Funding Trust Deed 1 as
    a result of the various subordination agreements outlined above.
    ¶25 The partial subordination approach for addressing circular
    lien priorities holds that the nonparty creditor is unaffected by the
    subordination agreement and ―simply swaps the priorities of the
    parties to the subordination agreement.‖12 The following
    hypothetical illustrates how this approach operates:
    [T]he third lienholder should be able to succeed to that
    part of the interest that was subordinated by the first
    lienholder, so long as the second lienholder is neither
    burdened nor benefitted by the subordination
    agreement. For example, A, B and C have claims
    against the debtor which are entitled to priority in
    alphabetical order. ―A‖ subordinates his claim to ―C.‖
    After foreclosure of the secured interest, the resulting
    fund is insufficient to satisfy all three claims. The
    proper distribution of the fund is as follows.
    1. Set aside from the fund the amount of ―A‖ ‗s
    claim.
    2. Out of the money set aside, pay ―C‖ the
    amount of its claim, pay ―A‖ to the extent of
    any balance remaining after ―C‖ ‗s claim is
    satisfied.
    12   Caterpillar Fin. Servs. Corp., 710 F.3d at 693–94.
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    VCS v. COUNTRYWIDE
    Opinion of the Court
    3. Pay ―B‖ the amount of the fund remaining
    after ―A‖ ‗s claim has been set aside.
    4. If any balance remains in the fund after ―A‖
    ‗s claim has been set aside and ―B‖ ‗s claim
    has been satisfied, distribute the balance to
    ―C‖ and ―A‖.
    Thus, ―C‖, by virtue of the subordination agreement, is
    paid first, but only to the amount of ―A‖ ‗s claim, to
    which ―B‖ was in any event junior. ―B‖ receives what it
    had expected to receive, the fund less ―A‖ ‗s prior
    claim. If ―A‖ ‗s claim is smaller than ―C‖ ‗s, ―C‖ will
    collect the balance of its claim, in its own right, only
    after ―B‖ has been paid in full. ―A‖, the subordinator,
    receives nothing until ―B‖ and ―C‖ have been paid
    except to the extent that its claim, entitled to first
    priority, exceeds the amount of ―C‖ ‗s claim, which,
    under its agreement, is to be first paid.13
    Partial subordination is the approach subscribed to by a majority of
    jurisdictions.14
    ¶26 The complete subordination approach reaches a different
    result under the same hypothetical. Under that approach, C remains
    junior to B even though A agrees to subordinate its interest to C‘s. So
    under the complete subordination approach, B moves into first
    13ITT Diversified Credit Corp. v. First City Capital Corp., 
    737 S.W.2d 803
    , 804 (Tex. 1987) (citing GRANT GILMORE, SECURITY INTERESTS IN
    PERSONAL PROPERTY § 39.1 at 1021 (1965)).
    14 See Caterpillar Fin. Servs. Corp., 710 F.3d at 693–94; Duraflex Sales
    & Serv. Corp., 110 F.3d at 936; Mid-Ohio Chem. Co. v. Petry, 
    140 F. Supp. 2d 828
    , 830–31 (S.D. Ohio 2000); In re Cliff’s Ridge Skiing Corp.,
    
    123 B.R. 753
    , 766–67 (Bankr. W.D. Mich. 1991); In re Price Waterhouse
    Ltd., 
    46 P.3d 408
    , 410–11 (Ariz. 2002); Bratcher v. Buckner, 
    109 Cal. Rptr. 2d 534
    , 542 (Ct. App. 2001); Co-Alliance, LLP v. Monticello Farm
    Serv., Inc., 
    7 N.E.3d 355
    , 359–60 (Ind. Ct. App. 2014); Grise v. White,
    
    247 N.E.2d 385
    , 389–91 (Mass. 1969); ITT Diversified Credit Corp., 737
    S.W.2d at 804. We also note that one of the principal architects of the
    Uniform Commercial Code also advanced the partial subordination
    approach. See GRANT GILMORE, SECURITY INTERESTS IN PERSONAL
    PROPERTY § 39.1 at 1021 (1965).
    10
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    Opinion of the Court
    priority position, then C, then A. A minority of jurisdictions have
    adopted this approach.15
    ¶27 But the cases applying the complete subordination approach
    offer little justification for doing so. One rationale is that the
    complete subordination approach more closely adheres to the
    dictionary definition of ―subordination.‖ As the Alabama Supreme
    Court explained, ―[b]y definition, ‗subordination‘ contemplates a
    reduction in priority. Nothing in the definition contemplates raising a
    lower priority lienholder up to the position of the subordinating
    party.‖16 But this rationale is unpersuasive because the central
    question in cases of circular lien priorities is what the parties
    intended, not what the dictionary definition of ―subordination‖ is in
    a vacuum.17
    ¶28 Another rationale for the complete subordination approach
    is that it prevents the nonparty creditor from being harmed. But this
    rationale is equally unpersuasive because it fails to recognize that the
    partial subordination approach offers nonparty creditors the same
    protection. As the hypothetical above illustrates, under partial
    subordination, C (the creditor gaining priority) only gains priority to
    the extent that A (the creditor who originally had priority) would
    have had priority.18 Explained differently, ―[t]he ‗partial‘ in ‗partial
    15 See, e.g., AmSouth Bank, N.A. v. J & D Fin. Corp., 
    679 So. 2d 695
    ,
    698 (Ala. 1996) (per curiam); Old Stone Mortg. & Realty Trust v. New
    Ga. Plumbing, Inc., 
    236 S.E.2d 592
    , 593 (Ga. 1977); Blickenstaff v. Clegg,
    
    97 P.3d 439
    , 447–48 (Idaho 2004); Ladner v. Hogue Lumber & Supply
    Co., 
    91 So. 2d 545
    , 547 (Miss. 1956).
    16 AmSouth Bank, N.A., 
    679 So. 2d at 698
    ; see also BLACK‘S LAW
    DICTIONARY 1563 (9th ed. 2009) (defining ―subordination‖ as ―[t]he
    act or an instance of moving something (such as a right or claim) to a
    lower rank, class, or position‖).
    17See, e.g., Strohm v. ClearOne Commc’ns, Inc., 
    2013 UT 21
    , ¶ 34, 
    308 P.3d 424
     (―When interpreting a contract, a court first looks to the
    contract‘s four corners to determine the parties‘ intentions, which are
    controlling.‖ (internal quotation marks omitted)).
    18 ITT Diversified Credit Corp., 737 S.W.2d at 804 (explaining that
    the proper distribution of funds is: ―1. Set aside from the fund the
    amount of ―A‖ ‗s claim. 2. Out of the money set aside, pay ―C‖ the
    amount of its claim, pay ―A‖ to the extent of any balance remaining
    after ―C‖ ‗s claim is satisfied.‖ (citing GRANT GILMORE, SECURITY
    INTERESTS IN PERSONAL PROPERTY § 39.1 at 1021 (1965))).
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    VCS v. COUNTRYWIDE
    Opinion of the Court
    subordination‘ denotes the fact that the parties to a subordination
    agreement swap places in the priority ladder only to the extent of the
    smaller of the swapping parties‘ loans.‖19
    ¶29 We decline to adopt the complete subordination approach
    because it conflicts with the well-established rule that the parties‘
    intentions control a contract. As the Seventh Circuit explained,
    complete subordination ―would benefit a nonparty to the
    subordination agreement . . . and why would the parties to the
    subordination agreement, who did not include [the nonparty], want
    to do that?‖20 We have made this same point in several contract-law
    cases involving third-party beneficiaries by observing that the
    ―benefits conferred by contracts are presumed to flow exclusively to
    the parties who sign the contracts. A third party may claim a
    contract benefit only if the parties to the contract clearly express an
    intention to confer a separate and distinct benefit on the third
    party.‖21
    ¶30 The subordination agreements that affected Utah Funding‘s
    trust deeds evidence the intent to alter the priority arrangement of
    interests held by Utah Funding and America West, not VCS. Each of
    the agreements provides as follows: ―[The applicable Utah Funding
    lien] is hereby made second and subordinate to the [applicable
    America West lien].‖ Nothing in that language suggests that the
    parties intended to benefit VCS. Applying complete subordination
    would ―allow an intervening lienholder to obtain a windfall by
    becoming a senior lienholder through no action of [its] own.‖22
    ¶31 In this case, Utah Funding recorded Utah Funding Trust
    Deed 1 before the date VCS began performing work on the Acord
    Meadows PUD, which gave Utah Funding Trust Deed 1 priority.23
    Under the partial subordination approach, that priority arrangement
    was unaffected by the subordination agreements between Utah
    19   Caterpillar Fin. Servs. Corp., 710 F.3d at 694.
    20   Id. at 693.
    21Bybee v. Abdulla, 
    2008 UT 35
    , ¶ 36, 
    189 P.3d 40
     (internal
    quotation marks omitted).
    22   Co-Alliance, LLP, 7 N.E.3d at 359.
    23See Ault v. Holden, 
    2002 UT 33
    , ¶ 31, 
    44 P.3d 781
     (―In Utah,
    between two purchasers of real property, the first to validly record a
    conveyance and take the property without notice of a prior interest
    in the property takes the property over a purchaser who
    subsequently records a deed.‖).
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    Opinion of the Court
    Funding and America West. The subordination agreements affected
    the priority arrangement between America West and Utah Funding
    vis-à-vis each other. Neither party intended to allow VCS‘s
    mechanic‘s lien to jump ahead in the priority chain. For these
    reasons, we conclude that Utah Funding Trust Deed 1 had priority
    over VCS‘s mechanic‘s lien, and foreclosure on that trust deed
    extinguished VCS‘s mechanic‘s lien. On this basis we affirm the
    district court‘s ruling.
    II. VCS Did Not Preserve Its Argument That Utah Funding
    Received More Money From the Foreclosure Sale Than
    It Was Entitled To
    ¶32 VCS next argues that Utah Funding Trust Deed 1‘s priority
    is limited to the original amount of its lien—$152,000. But we decline
    to address the merits of this argument because VCS failed to
    preserve it.24
    ¶33 As a general rule, we ―will not consider an issue unless it
    has been preserved in the court below.‖25 And the question of
    whether a party has preserved an issue below ―turns on whether the
    district court ha[d] an opportunity to rule on [the] issue.‖26
    ¶34 VCS did not argue below that Utah Funding Trust Deed 1‘s
    priority was limited to $152,000.27 Moreover, VCS has not established
    24 Within its argument that Utah Funding (and its assignees)
    received more money than they were entitled to from the foreclosure
    sale, VCS appears to also argue that the modification of America
    West Trust Deed 1 prejudiced VCS‘s rights under its mechanic‘s lien.
    But VCS did not make this argument below and so it, too, is
    unpreserved. Moreover, given the fact that VCS has conceded that
    America West‘s liens were reconveyed and released, it is unclear
    why those liens would even be relevant for purposes of the
    foreclosure sale.
    Baird v. Baird, 
    2014 UT 8
    , ¶ 20, 
    322 P.3d 728
     (internal quotation
    25
    marks omitted).
    26   
    Id.
     (internal quotation marks omitted).
    27  At oral argument, counsel for VCS was pressed for record
    citations that would establish VCS preserved this argument below.
    Counsel cited several pages in the transcript of the hearing held on
    Countrywide‘s motion for summary judgment. But those pages do
    not support VCS‘s position. In that portion of the hearing, counsel
    for VCS referred to several Utah Court of Appeals cases for the
    proposition that Utah courts had expressed ―sympathy‖ for the
    13
    VCS v. COUNTRYWIDE
    Opinion of the Court
    as a factual matter that the foreclosure sale on Utah Funding Trust
    Deed 1 netted proceeds in excess of $152,000, and, in fact, at oral
    argument counsel for VCS stated that the foreclosure sale did not
    ―generate enough to satisfy the $152,000 trust deed.‖ So, on the one
    hand, VCS argues that Utah Funding (and its assignees) received too
    much, but, on the other hand, it acknowledges that the foreclosure
    sale did not generate enough proceeds to satisfy Utah Funding Trust
    Deed 1. VCS‘s inconsistent argument is likely a product of the fact
    that there was no record developed below on the issue.
    ¶35 In short, because VCS never gave the district court an
    opportunity to rule on the issue of whether Utah Funding (and its
    assignees) received more than the value of Utah Funding Trust Deed
    1 ($152,000), the argument is unpreserved.
    Conclusion
    ¶36 We adopt the partial subordination approach to the issue of
    circular lien priorities. Under that approach, Utah Funding Trust
    Deed 1 retained priority over VCS‘s mechanic‘s lien. On that basis,
    we affirm the district court‘s ruling that foreclosure on Utah Funding
    Trust Deed 1 extinguished VCS‘s mechanic‘s lien.
    complete subordination approach. Counsel did not use those cases in
    support of the argument now made on appeal—that Utah Funding
    (and its assignees) received more than they were entitled to from the
    foreclosure sale.
    14