Moreau Lumber Co. v. Johnson , 29 N.D. 113 ( 1914 )

Goss, J.

This is an action to foreclose a mechanics’ lien for $625.18, interest and costs. The material was sold to a homestead entryman, and used in the construction of a dwelling house and granary upon his unproven government homestead entry in Hettinger county. Final proof has not been made. The last item of material was furnished July 27, 1910. The statutory ninety-day period for filing lien as against subsequent purchasers and encumbrancers without notice expired October 25, 1910. Prior thereto, and on October 19, defendant filed in the district court of the United States for the district of North Dakota his petition in voluntary bankruptcy, and was forthwith ad■judged a bankrupt. Nine days later, and on October 28, and ninety-three days after the last item of materials had been furnished, plaintiff filed its mechanics’ lien statement. Subsequently defendant was granted a discharge in bankruptcy in the usual form. The answer admits the sale and the debt owing plaintiff when the petition in bankruptcy was filed, but pleads that the “debt was duly listed and scheduled in said petition, and that the same was discharged by the discharge in bankruptcy.” Such alleged defense was upheld as sufficient, and plaintiff appeals.

Admittedly the adjudication in bankruptcy, and likewise the discharge, would not have affected this lien had it been perfected. A mechanics’ lien comes within “the exception clause (D) of § 70, bankruptcy act, which provides that ‘liens given or accepted in good faith, and not in contemplation of or in fraud upon this act, and for a present consideration, which have been recorded according to -law, if record thereof is necessary in order to impart notice, shall not be affected by this act.’ ” Remington, Bankr. § 1155. To the same effect, see Collier on Bankruptcy, page 944. Against bankruptcy proceedings, as well as any purchaser or encumbrancer under the express and explicit terms of § 6820, Comp. Laws 1913, plaintiff had ninety days, or up to and including October 25, 1910, within which to file its lien statement. It had years if necessary, within which to file such statement of lien as against this defendant, the purchaser of the materials and owner of the buildings. “The filing of it within ninety days after the materials are furnished makes the lien effective as against everyone acquiring rights [during said period] in the land or building. If filed after said ninety days the lien is still preserved intact except as to those in good faith acquiring rights to the property after the ninety days and before the lien is filed.” As stated in Robertson Lumber Co. v. State Bank, 14 N. D. 511, at page 515, 105 N. W. 719; Wisconsin Trust Co. v. Robinson & C. Co. (C. C. A. 8th C.) 15 C. C. A. 668, 32 U. S. App. 435, 68 Fed. 778, and recited in Robinson Lumber Co. v. State Bank, the language of the statute is plain, and “no argument or exposition can make the purpose or effect of the provision of the statute clearer than their own words.” “The statute expressly declares that ‘a failure to ■.file the same within the time aforesaid shall not defeat the lien except against purchasers or encumbrancers in good faith without notice, whose rights accrued after tbe ninety days and before any claim for the lien is filed.’ ” See also First Nat. Bank v. Warner, 17 N. D. 76, pages 82, 83, 114 N. W. 1085, 17 Ann. Cas. 213, on the final clause of-this § 6820, Comp. Laws 1913, enforcing literally the concluding proviso of this statute, reading, “or against the .owner except the amount paid to the contractor after the exjnration of the ninety days and before the filing of the same.” It is only after the expiration of the ninety-day period that rights can attach superior to the right of plaintiff to its inchoate lien upon delivery of material. Plaintiff had a right to a lien, which in itself was a property right, and which even the subsequent repeal of the statute could neither defeat nor impair. Craig v. Herzman, 9 N. D. 140, 81 N. W. 288. Hence, when defendant’s petition in bankruptcy was filed, assuming that a trustee was appointed and took charge of the property, — an assumption beyond the pleadings or the stipulation of facts, — and assuming, again, that such trustee would not stand in the shoes of the plaintiff, but be in the position of a good faith creditor (a question of law assumed and not decided), nevertheless, such trustee’s assumed rights would even then attach during the ninety-day period, and therefore be subordinate to the property right of plaintiff. Under the statute, the rights of the trustee thus accruing before the expiration of the ninety days are excluded from those to whom priority under the lien subsequently filed is saved by the statute. Conversely, by the express terms of the statute it is only those purchasers or encumbrancers in good faith “whose rights accrue after the ninety days and before any claim for a lien is filed,” who can defeat the lien or have priority over it. Such is the construction of the circuit court of appeals of.this district upon this identical statute under exactly these circumstances, in 68 Fed. 778. The statute is so plain as to be susceptible of but one interpretation; viz., to defeat priority of a mechanics’ lien filed after the ninety-day period the property rights of the third party must accrue more than ninety days after the furnishing of the last item of .materials and before the lien is filed. During the ninety-day lien period the statute, together with the buildings or improvements, are alone sufficient to constitute notice that a mechanics’ lien may be claimed during said period and subsequently be perfected according to law. As is said in Remington. on Bankruptcy, § 1155, “a mechanics’ lien arises by operation of law and, according to tbe law of . . . [Missouri], if not all of tbe states, begins with tbe first stone laid, tbe first nail driven, or tbe first load of material dumped on tbe premises. It grows as tbe edifice grows, and expands with tbe development of tbe work. It is there in an inchoate form from tbe beginning.” And “even if tbe bankruptcy of tbe owner occurs before tbe lien affidavit is filed, tbe lien is not affected so long as tbe affidavit is filed at some time within tbe statutory period for filing, although after tbe adjudication of bankruptcy; for tbe filing of tbe affidavit does not create tbe lien, — it simply prolongs it.” Section 1155. See also Collier on Bankruptcy, page 945: “It seems even that such a (mechanics’) lien may be perfected after bankruptcy.”

But there is no proof that a trustee was appointed, or ever assumed authority over tbe property, or asserted any rights to it. Tbe case stands no differently than if there bad never been bankruptcy proceedings taken except as to tbe debt independent of tbe lien, which debt is discharged. Tbe taking of a deficiency judgment over tbe proceeds of tbe sale under mechanics’ lien foreclosure against defendant is thus prevented. Tbe bankruptcy discharges tbe debt, not in a sense that tbe debt is paid or satisfied, but only that it is uncollectable by legal process. It still has life to furnish consideration for tbe lien, or for any valid contract that may thereafter be entered into concerning it. And tbe lien is preserved by force of tbe statute exempting it from being effected. Adam v. McClintock, 21 N. D. 493, 131 N. W. 394; John Leslie Paper Co. v. Wheeler, 23 N. D. 477, 42 L.R.A.(N.S.) 292, 137 N. W. 412; Burcell v. Goldstein, 23 N. D. 257, 136 N. W. 243; Lown v. Casselman, 25 N. D. 44, 141 N. W. 73.

Tbe proceedings in bankruptcy therefore could not impair plaintiff’s right to perfect bis lien; that was property, and paramount as such to any rights obtainable by tbe trustee in bankruptcy, whose rights ■accrued during tbe ninety-day statutory period within which plaintiff might have perpetuated bis lien by filing a lien statement. Tbe burden is upon tbe defendant to establish facts to defeat tbe lien, and be has failed to show that anything affecting it has been done; tbe plaintiff is entitled under § 6824, Comp. Laws 1913, to a lien on these buildings, although upon unproven government land held under homestead entry.

It is therefore ordered that tbe judgment appealed from be reversed, and foreclosure awarded as prayed for in the complaint. No deficiency ¡judgment,.however, will be taken against defendant.