First National Bank v. Lyon-Gray Lumber Co.

The various controversies between the parties hereto relate to a contract, of date February 18, 1914, whereby J.T. Finn, a contractor, became bound to construct a building, at Paris, for the First National Bank of Paris, furnishing necessary material and labor, for which the Bank agreed to pay $122,493.04, including additions and extras.

The Ingram Millwork Company furnished the contractor certain material for the building and duly served the Bank with notice of the items furnished, and of the amounts due and unpaid therefor, but failed to file an itemized account of its claim in the office of the county clerk of Lamar County.

On the foregoing facts, the Court of Civil Appeals reversed that portion of the judgment of the District Court which awarded to the Ingram Mill Work Company a personal judgment, for the amount of its claim, against the Bank, with foreclosure of mechanic's lien on the Bank's building and the lots whereon it is situated.

In our opinion, the action of the Court of Civil Appeals was correct. Such action was in accordance with the decision in Berry v. McAdams, 93 Tex. 434, 55 S.W. 1112, wherein McAdams furnished material to contractor Berry, which he wrought into a house on lots, of which Housewright, Swayze Co., were the beneficial owners, in accordance with a contract between Berry and Housewright, Swayze Co. Verbal notice was given by McAdams to Housewright, Swayze Co. of the material furnished and of the account therefor, before Housewright, Swayze Co. had settled with Berry, but McAdams failed to give any written notice, as required by statute, until Berry had received all the compensation to which he was entitled under the contract. The substance of the questions certified by the Court of Civil Appeals was did McAdams have a lien, created by the Constitution, which could be enforced, against the owners and their property, notwithstanding the failure, by McAdams, to comply with the statutes? The Supreme Court answered: "The validity of McAdams' lien against the property of Housewright, Swayze Co. depends upon his compliance with the requirements of the statutes enacted in pursuance of the Constitution of this State. . . . . Assuming, . . . for the purpose of this case, that the Constitution does give a lien in favor of the class of persons to which the appellee belongs, it, at the same time, requires of the Legislature to enact laws for the enforcement of such liens, which has been done, and we hold that the laws above referred to are within the powers of the Legislature over the subject, and that a failure by the appellee to comply with their requirements defeats his lien claimed under the Constitution. In other words, it is a reasonable and just regulation for the efficient enforcement of the lien of the materialman which he must comply with in order to avail himself of the benefits of the provisions of the Constitution. There being valid laws upon the subject, the question what would be appellee's rights if there were no such statute cannot arise."93 Tex. 435, 437.

Articles 5623, 5635 and 5637 clearly express the legislative intent to make the filing of an itemized account, as well as written notice, a prerequisite to the enforcement of a debt, incurred by a contractor or sub-contractor with a materialman, as against the owner or his property. Because the Ingram Millwork Company did not file any account or claim whatsoever in the county clerk's office, as required by this valid provision of the statutes, it failed to establish the right to enforce its claim against the Bank or its building and lots.

It would defeat the purpose expressed by the words of the law to say that the liability of the owner, or a lien on his property, might be enforced, without the filing of the required itemized account.

The statutes are dealing with the owner's personal liability and a lien on the owner's property, when the filing of accounts is prescribed, and not with the mere enforcement of liens as against subsequent purchasers or lien-holders, and we do not approve of the expressions in the opinions of the Courts of Civil Appeals, in Beilharz v. Illingsworth, 62 Texas Civ. App. 647[62 Tex. Civ. App. 647], 132 S.W. 109, Texas Builders' Supply Co. v. Beaumont Const. Co., 150 S.W. 772, and Seeling v. Alamo Iron Works, 173 S.W. 522, to the effect that only subsequent purchasers may prevent the enforcement of a lien by reason of the failure of a materialman to file the required itemized account in the office of the county clerk.

Nichols v. Dixon, 99 Tex. 263, 89 S.W. 765; Bullard v. Norton, 107 Tex. 576, 182 S.W. 668, and Texas Glass Paint Co. v. Crowdus, 108 Tex. 351, 193 S.W. 1072, recognize compliance with the statutes to be indispensable to establish the right of the materialman to enforce his account for material furnished the contractor, as against the owner or his property.

The Lyon-Gray Lumber Company recovered a personal judgment against the Bank for the full amount of its debt for material furnished the contractor, with foreclosure of lien on the Bank's building and lots, and the Court of Civil Appeals declined to disturb the judgment in favor of the Lumber Company.

The items of material furnished the Bank at various dates from March 1, 1914, to Nov. 9, 1914, amounted in price to $12,433.98, besides interest. As the items were delivered, written notices were given to the Bank by the Lumber Company, and, on January 28, 1915, an itemized and verified account of its claim was duly filed by the Lumber Company in the office of the county clerk of Lamar County. The Bank paid the contractor, on estimates of the architect on work in performance of the building contract, from March 28, 1914 to December 30, 1914, the sum of $97,785.13.

It is not denied that the Bank paid the contractor amounts far in excess of the Lumber Company's claim, after being properly served with written notice, nor that the Lumber Company complied with every statutory requirement for fixing a materialman's lien. But, it is contended by the Bank and the surety on a bond given by the contractor to secure the performance of his contract that since the contractor abandoned his contract, on February 9, 1915, and the Bank had to complete the building at a cost of over $14,000 in excess of the contract price, the Lumber Company was not entitled to either a personal judgment or foreclosure of lien.

This contention cannot be sustained. To sustain same would mean for us to announce a rule, which would necessarily result in either licensing the contractor to himself retain monies in defiance of those having a declared better right to them, or at least to prefer parties, regardless of their compliance with what the statutes prescribe as essential conditions of preference. As applied to the facts of this case, should we sustain the Bank's and the surety's contention, and even assume that all of the monies paid the contractor went for labor and material for the building, though such assumption is not supported by the record, then we would uphold the preference of those who had taken no steps to get priority over, or even equality with, a claimant, who had done all things required by law to gain priority.

The decree, as to the Lumber Company, simply enforces the statutes, as they have heretofore been uniformly construed. Fullenwider v. Longmoor, 73 Tex. 484, 11 S.W. 500; Nichols v. Dixon, 99 Tex. 268, 89 S.W. 65; Lonergan v. San Antonio Trust Co.,101 Tex. 63, 129 Am. St., 803, 22 L.R.A., (N.S.), 364,104 S.W. 1061, 106 S.W. 876.

After Dulaney Sons and Christopher Simpson Iron Works gave notice to the Bank of claims for material furnished by them to the contractor for the building, the amount paid by the Bank to the contractor was $1177.50, and the District Court and Court of Civil Appeals limited their recoveries to the sum of $1177.50, which was distributed between Dulaney Sons and Christopher Simpson Iron Works, who complain that their claims ought to have been paid in full, by reason of the notice given by the Lyon-Gray Lumber Company enuring to their benefit.

We consider this complaint without merit. The rights of complainants depend upon their compliance with statutory requirements, unaided by the diligence of the Lyon-Gray Lumber Company.

In Dudley v. Jones, 77 Tex. 70, the Court said: "The owners of the property were not liable to the sub-contractor for any amount paid to the contractor before being served with notice of the sub-contractor's claim. By establishing his claim as a mechanic's lien, the sub-contractor's right related back to the date of his notice to the owners and became a lien upon the property for any amount then due or subsequently accruing in favor of the contractors, not exceeding the sub-contractor's demand, there being no other mechanic's lien against the property." What the Court said in Dudley v. Jones, with respect to the owner's liability to a sub-contractor not exceeding the amount due the contractor at the date of notice of the sub-contractor's claim, or subsequently, is equally true of the owner's liability for material furnished a contractor.

As to Dulaney Sons and Christopher Simpson Iron Works, all payments made by the Bank, prior to the service of their notices, were lawful, and hence could not be the basis of liability or lien in their behalf.

The Texas Glass Paint Company, Atlanta Terra Cotta Company, Gilbert Manufacturing Company, and Electric Appliance Company assign that it was error to deny them any recovery herein for the following reasons:

First: That each of them has an unpaid account for material furnished Finn not as contractor but as agent for the Bank.

Second: That each of them has a lien on the Bank's building and lots for material furnished the contractor, regardless of the state of accounts between the owner and contractor when each gave notice of its claim to the owner; and, that each of them is entitled to participate in the distribution of the fund impounded by the notices of the Lyon-Gray Lumber Company and others, although no monies would have been impounded by notices given as late as the dates of their own notices.

Third: That the Bank became personally liable for the debt of each of them and its property became subject to a lien for the amount thereof, because the Bank paid out over twelve thousand dollars under the building contract, after service of written notice of the claim of each of them.

The building contract provided that the sum promised the contractor should be paid in installments as follows: 80 per cent. of all labor and materials incorporated in the building, upon estimates of the architect, on the first and fifteenth days of each month, and 20 per cent. after the contract was completely finished, on certificate of the architect that the work had been properly done, and on sufficient evidence that the premises were free of liens and claims chargeable to the contractor. The contract also authorized the owner to complete the building, on its abandonment by the contractor, furnishing all necessary labor and material, in which event the contractor should receive no further payment until the work was finished, at which time he should receive no more than the excess of the unpaid balance over the expense of completion of the work.

After the Bank had paid the contractor $97,785.13, on architect's estimates, the contractor, his surety and the Bank agreed, on or about Nov. 15, 1914, that the Bank might make payments for labor and material, out of the 20 per cent. reserved, and the Bank made such payments to the aggregate amount of $18,637.27, and some $12,000 of this sum was disbursed after the Bank was served with notices of the accounts of the Texas Glass Paint Company and associate claimants, who furnished material to the contractor, after Nov. 15, 1914, and who duly filed itemized, verified claims in the office of the county clerk.

A single paragraph of the contract is so worded as to support the claim that Finn acted as the Bank's agent in the purchase of these materials, but the contract as a whole does not reasonably admit of such an interpretation.

It follows from conclusions already announced that no lien can be enforced on the Bank's property by these claimants, in the absence of compliance with the statutory requirements, and that their rights against the owner or his property, must be determined in the light of the owner's obligations at the date of service by these claimants of their written notices, and not at the date of service of notice by other creditors.

The case of Lonergan v. Trust Co., 101 Tex. 80, 129 Am. St., 83, 22 L.R.A. (N.S.), 364, 104 S.W. 1001, 106 S.W. 876, is decisive against the contention that the Bank became personally liable, or that its property became charged with a lien, by reason of the payments for material out of the 20 per cent. reserve fund, unless such liability or lien can be predicated on the fact that such payments were made before and not after the contractor's abandonment of the contract. For Lonergan's case is conclusive that the 20 per cent. reserve fund could not be considered, in determining the liability of the owner or the acquisition of a lien, where it was required to complete the building; for, in that event, the contractor never could become entitled to any part thereof.

We do not think that any different effect should be given to the use made of the reserve fund, under the modification of the building contract, than if said fund had been entirely used to complete the building, after Finn's abandonment of the contract. The effect of the modification of the contract, before the rights of these claimants accrued, was simply to require the owner to furnish part of the required labor and material, and to diminish by the cost of same the amount due the contractor. In no event did Finn ever become entitled to receive, nor did he receive, any payment from the owner, after notices were given of these claimants' debts, and that is enough to require that they be denied the relief sought by them.

The Otis Elevator Company sought to enforce a lien upon two passenger elevators, which it sold contractor Finn, under a contract, whereby payment of the purchase price of $7000 was secured by a reservation of title in the Company. Jno. T. Finn installed the elevators in the building constructed by him for the Bank, having attached them to the building so as to become a part of the realty on February 9, 1915, and the elevators had been included in the estimates of material and labor which had gone into the building, on which payments of eighty per cent. had been made by the Bank, prior to said date. The contract of sale was not recorded until March 31, 1915, and then the Bank had its first knowledge of any reservation of title by the Elevator Company.

Our statute gave to the reservation of title to the elevators the effect of a chattel mortgage lien, which was void as to the Bank, because it was not registered until subsequent to February 9, 1915, and, by that date, the Bank had plainly become abona-fide subsequent purchaser. Bowen v. Wagon Works, 91 Tex. 390 [91 Tex. 390], 391, 43 S.W. 872. The reservation of ownership being void as to the Bank, its title to the elevators could not be affected nor divested through an enforcement of the lien created by such reservation, and hence there was no error in refusing to enforce such lien against the Bank.

We have not thought it necessary to discuss all the assignments of the numerous plaintiffs in error, but think none well taken, and hence the judgment of the Court of Civil Appeals is affirmed.

Affirmed.