Commissioners of Public Schools v. Stair , 12 Dickinson 433 ( 1898 )

Pitney, V. C.

The principal contest is between tile defendant Stair and the defendants Middlebrook & Son, The contention of Stair is that the clause in the contract requiring releases and affidavits lias no force or effect, because the statute which gave rise to its necessity was repealed before the contract was made, and that under the law as it stood at that time there could be no person having a lien upon the premises; that the arrangement by which the money was placed in Dr. Reese’s hands for distribution among the creditors who had furnished labor and materials was not at all binding on Stevens, the contractor, and did not invest Dr. Reese with any control whatever of the fund, or give him any right to retain it for the benefit of the unpaid laborers and materialmen, as against Stevens personally, and that he (Stevens) could have sued the complainants or Dr. Reese for the money and compelled its payment, and that neither would have had any defence either at law or in equity.

The contention of Middlebrook & Son, on the other hand, is that the clause in the contract is not disposed of by such argument and cannot be dispensed with, but must be given force, and that the arrangement which was acquiesced in by the contractor, that the payments as they matured should be placed in Dr. Reese’s hands, and that he should have a right to apply them to the payment of persons who had done work and furnished materials, was a binding one on Stevens, and was in effect a payment to Stevens, and furnished the complainants with a complete equitable, if not legal, defence to any claim by Stevens or his assignee, voluntary or involuntary, to demand the same until all such meritorious claims were paid, and that the fund in Dr. Reese’s hands became at once impressed with a trust in favor of the creditors, and was in effect a payment to them.

I am of the opinion that the contention of the counsel of Middlebrook & Son is well founded. The whole contract and the conduct of the parties must be construed in view of the evident policy of the Mechanics’ Lien law, and particularly of that section which forbids the making of advance payments. It is clearly the policy of the act that the money due from the owner to the contractor shall be first applied to the payment of all claims for labor done on, and materials furnished for, the building, before the contractor himself or any. of his general creditors shall reach it.

Then, again, it is to be observed that while it is true that, because the contract was duly filed, nobody except the contractor could have any lien upon the building and curtilage upon which it stands, that proposition does not include the contract price in the hands of the owner, and it has been distinctly declared by the court of errors and appeals, in • the case of Slingerland v. Binns, 11 Dick. Ch. Rep. 413, that the laborers- and materialmen do have an “inchoate lien” upon the contract price in. the hands of the owner, to be wrought out by means-of a notice served under the third section.

The argument of the counsel of the attaching creditor eliminates the clause in question entirely from the contract and renders it an absolute nullity. This result should be avoided and the clause given some force if possible. The rules of construction require that. I think this can be done by construing it as, in effect, an undertaking on the part of Stevens that all labor and material going into the building should be paid out of the contract price. Such a stipulation the complainants, in my judgment, had a right to exact. The matter of sentiment, if you choose to call it that, is to be considered. The commissioners might well desire that nobody who worked on or furnished materials to this building should be able to say that they had not received their pay, and a contract to that effect should be enforced. This is the construction which the parties put upon the clause in question, and they enforced it by a substituted proceeding, to which the contractor did not seriously object, but in which he cheerfully acquiesced, namely, the placing of the payments as they matured on the contract in the hands of their president as an individual, to be by him applied to the payment of the claims in question. This acquiescence by the contractor seems to me to raise an equity in favor of all the laborers and materialmen as against the creditors at large of the contractor.. The fund in his hands became impressed with a trust in favor of the favored class of creditors, and that trust enables the complainants to defend in equity against a simple action at law by -the contractor, except as to such sum of money as may remain after paying all the class of creditors just mentioned, and that defence of course extends to the plaintiff in attachment, who is nothing more than an involuntary assignee of the contractor.

It is to be observed that each one of these parties who claim against Stair might have given his claim, legal as well as equitable, preference by giving the requisite notice under the third section prior to the issuing of his attachment, and it was urged that they lost their right, as against the general creditors, by failing to give such notice. But I think this argument cannot prevail for two reasons. In the first place, the arrangement which I have stated, and which was carried out for the last three regular payments under the contract, presumably was made, known to most of them, and they were measurably justified in supposing, and acting upon the supposition, that no notices were required or any other legal steps taken in order to insure them their payment. They had a right to rely upon the money being impounded in Dr. Reese’s hands for their benefit.. And in the second place, the nature of the trust was such as to dispense with any notice or other legal action on their part under the Lien law and placed all on an equal footing in the matter of distribution.

The result is that the claim of Stair must be reduced to $91.30, with his costs in this court. The claim of Walters is allowed, with his costs in this court. The claim of Middlebrook & Son must be reduced from $342.37 by a credit of $23.42, making it $318.95 (besides costs), for the reason that it appears by their bill of items furnished that they credited Stevens on September 12th with $176.58 only, when they were actually paid $200. No reason is given for not giving the full credit. The total amount of the.bill — $518.95—does not agree with the recollection of Mr. Reiley of the amount of the bill furnished him by Mr. Stevens; but that is easily accounted for by the fair inference to be drawn from the dates of the items that the bill produced by Stevens was partial, and that other items were subsequently furnished which appear in the bill exhibited, which is admitted to be correct. The claim of Thomas, amounting to $46.40, with costs, if any, is also allowed.

In my opinion, for the reasons before stated, there should be no preference among these creditors, but all should stand on an equal footing. If the fund in court is insufficient to pay all, then they will be paid pro rata upon the amount of their several claims, with costs. If the fund is more than sufficient to pay them all, then the remainder will go to the defendant Stair.