United Savings Ass'n of Texas v. Jim Carpenter Co.

Present: All the Justices
UNITED SAVINGS ASSOCIATION
OF TEXAS, F.S.B., ET AL.
OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR.
v. Record No. 951470 September 13, 1996
JIM CARPENTER COMPANY
FROM THE CIRCUIT COURT OF STAFFORD COUNTY
James W. Haley, Jr., Judge
TART LUMBER COMPANY, INC.
v. Record No. 952238
DREWER DEVELOPMENT CORPORATION, ET AL.
FROM THE CIRCUIT COURT OF LOUDOUN COUNTY
Thomas D. Horne, Judge
ADDINGTON-BEAMAN LUMBER COMPANY, INC.
v. Record No. 960615
ROBERSON BUILDERS, INC., ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF CHESAPEAKE
Russell I. Townsend, Jr., Judge
In these appeals we consider the applicability of mechanic's
liens to materials furnished for specific construction projects
under pre-existing, non-binding credit agreements between
1
contractors and materialmen. In each instance, the contractor
or its successor-in-interest asserts that the materials were
furnished under "open accounts," 2 thus each delivery of materials
1
In addition to the original contractors and materialmen,
each suit involved subsequent purchasers of the subject
properties and their lenders. For the purposes of this opinion,
we will limit our discussion to the relevant transactions between
the original parties, since these transactions formed the basis
for the mechanic's liens at issue.
2
Parties on both sides of these disputes use the term "open
account" to refer to the relationship between the materialmen and
the contractors, though apparently subscribing to different
constituted a separate contract. The materialmen assert that the
materials and deliveries are identifiable to specific projects
under "running accounts," 3 thus constituting a single continuing
contract for each parcel. For the reasons which follow, and
under the specific facts of these cases, we agree with the
materialmen.
I.
BACKGROUND
A. United Savings Association of Texas v.
Jim Carpenter Company
In 1983, Kenneth and Keith Ross (Ross Brothers), operating
as joint proprietors, completed an application for credit with
Jim Carpenter Company (Carpenter) in contemplation of purchasing
building materials. In the application Carpenter agreed to
extend credit, and Ross Brothers guaranteed payment on any credit
extended. Ross Brothers subsequently incorporated, but otherwise
continued to function as before.
interpretations of that relationship. The term "open account"
can be applied generally to any unsecured line of credit.
Black's Law Dictionary 1090 (6th ed. 1991). For the purposes of
this opinion, we will use the term "open account" to refer to a
revolving line of credit based upon a credit application, but for
which there is no obligation on either party to buy or sell
materials for specific projects.
3
The term "running account," like "open account," has broad
application to various forms of revolving credit. Black's Law
Dictionary 1333 (6th ed. 1991). As used generally in our
opinions, however, the term has a more limited meaning when
applied to the relationship between materialmen and contractors
where materials identifiable to specific projects are supplied
under a continuing contract. See, e.g., Southern Materials Co.
v. Marks, 196 Va. 295, 297, 83 S.E.2d 353, 355 (1954).
Accordingly, we have selected this term to distinguish the
materialmen's assertions concerning their relationships with the
contractors from the "open account" relationship described by the
contractors.
In 1989, Ross Brothers began construction of houses on two
parcels in the Blake Farm subdivision of Stafford County. Ross
Brothers ordered materials from Carpenter using separate purchase
order job sheets for each parcel. Carpenter furnished the
materials with invoices, assigning separate account numbers to
each parcel, and submitted regular statements of the accounts to
Ross Brothers. Deliveries were made to each parcel beginning on
February 12, 1990 and ending on July 26, 1990. Ross Brothers
paid for only one delivery. The two completed homes were sold in
June and July of 1990.
On August 21, 1990, Carpenter filed memoranda of mechanic's
liens on each parcel which it subsequently sought to enforce by
amended chancery actions filed August 12, 1994. The two chancery
suits were consolidated and referred to a commissioner in
chancery, who concluded the mechanic's liens were proper. The
defendants filed exceptions to the commissioner's report,
including the contention that the liens, or portions thereof,
would be barred by the 90 day limitation of Code § 43-4 if each
delivery were viewed as a separate contract. The chancellor
sustained the commissioner's findings and awarded judgment to
Carpenter. We awarded an appeal to the defendants who are
principally represented by United Savings Association of Texas,
F.S.B., a mortgage lien holder on one of the properties.
B. Tart Lumber Company, Inc. v. Drewer
Development Corporation
Tart Lumber Company, Inc. (Tart) entered into a credit
agreement with Drewer Development Corporation (Drewer) to furnish
Drewer with materials for building projects. Between August 8,
1990 and November 27, 1990, Tart provided Drewer with building
materials for a number of residential construction projects in
Loudoun and Fairfax Counties on land owned by Drewer.
For various aspects of each project, Drewer would submit a
list of requirements or "takeoff." Generally, each takeoff would
list all the materials for a house or townhouse. Tart would then
furnish Drewer with a thirty-day firm offer on the materials it
could supply. Tart did not supply complete house packages, and
the record does not establish how Drewer obtained those materials
which Tart could not furnish. When Drewer accepted Tart's offer,
the materials were furnished along with an invoice referencing
the specific project on which the materials were to be used. On
occasion, Drewer would submit "fill-in" requests for additional
materials which Tart would supply. Tart provided Drewer with
regular statements combining charges under invoices for all
materials furnished during a given time period.
Beginning in the summer 1990, Drewer experienced financial
difficulties and ceased payment on its account with Tart. In
response, on December 12, 1990, Tart filed memoranda of
mechanic's liens on twelve properties, organizing in each
memorandum all the invoices for a specific parcel.
On June 27, 1991, Tart filed a bill of complaint to enforce
the liens. Although Drewer did not file an answer, the secured
parties and trustees who financed the construction filed timely
pleadings to contest the liens. The cases were consolidated and
referred to a commissioner in chancery. The commissioner found
that each delivery of materials was a separate contract, and,
thus, he concluded that materials delivered more than ninety days
before the memoranda were filed were not subject to mechanic's
liens. The chancellor upheld the commissioner's findings. We
awarded Tart an appeal.
C. Addington-Beaman Lumber Company, Inc. v.
Roberson Builders, Inc.
On August 16, 1990, Roberson Builders, Inc. (Roberson)
completed an application for credit with Addington-Beaman Lumber
Company, Inc. (Addington-Beaman). Addington-Beaman furnished
Roberson with building materials for the construction of houses
on three parcels owned by Roberson in two subdivisions in the
City of Chesapeake. Each invoice referenced the original
customer number assigned to Roberson's credit application, but
was segregated by parcel.
Although it does not appear from the record that Addington-
Beaman sent Roberson periodic statements, invoices for each
parcel were separately totaled by Addington-Beaman's accounting
staff and the statements were bundled together by parcel with the
adding machine tape showing the total amount due for that parcel.
In one instance, an Addington-Beaman employee made a notation on
one set of invoices that settlement of the contract for the sale
of the home built on that parcel was expected shortly, at which
time, presumptively, the invoices for the materials furnished for
that project would be paid. Roberson did not pay for any of
these materials before or after it conveyed the properties to
home buyers.
For Lot 24, the deliveries were made from September 9, 1990
to October 25, 1990. For Lot 122, they were made from September
6, 1990 to October 31, 1990. For Lot 227, they were made from
September 18, 1990 to November 13, 1990. Addington-Beaman filed
memoranda of mechanic's liens for Lot 24 and Lot 122 on January
29, 1991 and on Lot 227 on February 28, 1991.
After Addington-Beaman filed bills of complaint to enforce
its mechanic's liens, all three matters were referred to a
commissioner in chancery. The commissioner found for Addington-
Beaman. The chancellor reversed the commissioner's findings,
ruling that each delivery was a separate contract required to
meet the time requirements of Code § 43-4, even if filed under a
combined lien. Thus, the chancellor ruled that only those
deliveries which fell within the statutory time requirement were
subject to the liens and judgment was awarded only for the
amounts on those invoices which fell within that time period. We
awarded Addington-Beaman an appeal.
II.
OPERATION OF MECHANIC'S LIENS UNDER CONTINUING
CONTRACTS AND OPEN ACCOUNTS
The central issue of each of these appeals is whether the
materials were furnished by materialmen under specific continuing
contracts or merely by marketplace suppliers under general open
accounts. See Staples v. Adams, Payne & Gleaves, Inc., 215 F.
322, 327-28 (4th Cir. 1914). We have previously stated the
standard for operation of mechanic's liens under these differing
forms of contract:
"If the materials were furnished under a single
contract, and were in fulfillment thereof, the items of
the account would be continuous, and the material man
would have ninety days from the date of the last item
within which to file his account and perfect his
lien. . . . On the other hand, if the several items of
the account, or a portion of them, are furnished under
separate contracts, then the lien should have been
filed ninety days from the date of the last item under
each independent contract."
First National Bank of Richmond v. William R. Trigg Co., 106 Va.
327, 339-40, 56 S.E. 158, 161 (1907)(quoting Central Trust
Company v. Chicago, K. & T Ry. Co., 54 F. 598, 599 (1893)).
However, it appears that the specific issue of
distinguishing between deliveries of construction materials under
running accounts amounting to a single continuing contract and
deliveries under open accounts amounting to separate contracts is
a matter of first impression in Virginia, although not uncommon
4
to the law of mechanic's liens generally. See, e.g.,
Annotation, When contract, transaction, or account deemed
"continuing" one as regards time for filing mechanics' lien, 97
4
In Sergeant v. Derby, 87 Va. 206, 12 S.E. 402 (1890), we
held that a single contract for a specific amount for
construction materials for two separate houses provided a
sufficient foundation for a mechanic's lien on both houses.
There, we were not required to determine whether multiple
deliveries of materials identified to a specific construction
project constitute individual separate contracts. Also, in
Addington-Beaman Lumber Co. v. Lincoln Savings and Loan Assoc.
241 Va. 436, 403 S.E.2d 688 (1991)(hereinafter referenced as
Lincoln to avoid confusion with the present appeal involving
Addington-Beaman), a case involving an open account for
construction materials, we held that where there is a series of
individual but related transactions identified to specific lots
benefited by the materials, the materialman is required to
apportion the costs of the materials in the memoranda of
mechanic's liens to specific lots. Neither of these cases
addresses the specific issue of the present appeals by
distinguishing a running account amounting to a single continuing
contract from a general open account amounting to multiple
contracts.
A.L.R. 780 (1935). We begin our analysis by reviewing the
settled law of mechanic's liens in Virginia.
Mechanic's liens are authorized by Code § 43-3(A), which
provides:
All persons performing labor or furnishing materials of
the value of fifty dollars or more, for the
construction, removal, repair or improvement of any
building or structure permanently annexed to the
freehold . . . shall have a lien, if perfected as
hereinafter provided, upon such building or
structure . . . .
Code § 43-4 establishes the criteria for the filing of a
memorandum to perfect the mechanic's lien:
A . . . lien claimant . . . in order to perfect the
lien given by § 43-3 . . . shall file a memorandum of
lien at any time after the work is commenced or
material furnished, but not later than ninety days from
the last day of the month in which he last performs
labor or furnishes material, and in no event later than
ninety days from the time such building, structure, or
railroad is completed, or the work thereon otherwise
terminated.
Mechanic's liens were created to provide the "security of a
lien to those who, by their labor and materials, have enhanced
the value of [a] 'building or structure' . . . ." Lincoln, 241
Va. at 439, 403 S.E.2d at 689. Although a mechanic's lien "must
have its foundation in a contract," Rosser v. Cole, 237 Va. 572,
576, 379 S.E.2d 323, 325 (1989), the contract need not be in
writing. Pario v. Bethell, 75 Va. 825, 829 (1881).
Nor is there any requirement that the contract at its
inception state with specificity the nature of the work to be
done and/or the materials to be furnished. Rather, where the
work or materials are furnished as part of a continuing contract
related to a single property, a single contract adequate to
underpin a mechanic's lien will be found to exist. Thus, in
Osborne v. Big Stone Gap Colliery Co., 96 Va. 58, 30 S.E. 446(1898), we stated that "[i]t is true that a number of items were
furnished more than ninety days before the account was filed
. . . but it was a running account, and, where nothing to the
contrary appears, is to be considered as falling due at the date
of its last item." Id. at 66, 30 S.E. at 449 (emphasis added).
Determining whether a particular claim is founded upon an
account constituting a single continuing contract or upon
separate and independent contracts is a question of fact, but one
which turns upon a substantive, rather than technical, view of
the situation. See Chicago Lumber Company of Omaha v. Horner,
317 N.W.2d 87, 90 (Neb. 1982). In making this determination, the
trier of fact should consider the factors surrounding the
dealings of the parties including their agreement and its
purpose, the object of the work done or the materials furnished,
the time when the work was done or materials were furnished, and
other circumstances which suggest the nature of the parties'
intentions.
Unlike the labor of a subcontractor, which can be readily
identified with a specific project, the utilitarian nature of
construction materials places upon the materialman a greater
burden in establishing his right to a lien on a particular
project. Accordingly, applying the analysis used in Osborne and
a non-technical view of the situation, where the course of
dealing between the parties shows that each understood that the
materials were being supplied for a particular project, rather
than merely for general use by the contractor, and nothing in the
record suggests that a mere open account was intended, a
continuing contract will be found. With these principles in
mind, we turn now to the specific cases in these appeals.
III.
NATURE OF THE SPECIFIC ACCOUNTS
In each of the present cases, the parties focus a great deal
of attention on the initial applications for lines of credit.
However, as is shown by each record, these documents are not, and
do not purport to be, contracts. The credit applications did not
obligate either the contractor seeking credit or the materialman
offering credit to purchase or furnish, respectively, any given
materials at any given time. In short, while these documents may
be evidence of the intentions of the parties with respect to the
subsequent contracts represented by the accounts in question,
they do not represent the sole basis of the formation of those
contracts.
A. United Savings Association of Texas v.
Jim Carpenter Company
In Carpenter, the contract is evidenced by the purchase
orders, invoices, and account statements. The materials
furnished to each parcel were invoiced and billed under an
account number unique for each parcel. This method of record-
keeping clearly reflects an implied, if not express, unitary
agreement of the parties for furnishing materials for specific
construction projects under a continuing contract. Considering
the substance of this course of dealing, we believe that the
separate orders and deliveries were part of an ongoing, unitary
transaction. Nothing in the record indicates that Ross Brothers
sought competitive bids or otherwise sought the materials from
other suppliers. Accordingly, we hold that the chancellor
correctly ruled that the materials were furnished under a single,
unitary contract for each parcel.
B. Tart Lumber Company, Inc. v. Drewer
Development Corporation
In Tart, Drewer's takeoffs clearly constituted requests for
bids, which, once accepted, created a contract for materials for
that construction project covered by each takeoff. Here, the
materials furnished under each request were part of a single
construction project, as is shown by the fact that each invoice
referenced a specific parcel. Moreover, Tart's salesman
testified that in most cases the materials were delivered in bulk
shipments to the individual parcels and that he regularly
travelled to the job sites "because we were dealing in such large
quantities, I wanted to make sure . . . the deliveries were
dropped in the correct locations."
The salesman testified that materials were supplied under
"fill-in" orders only where "either the takeoff was incorrect or
some of the material [had been] broken." Moreover, when a fill-
in was requested, it does not appear that any competitive process
was used. Rather, Drewer simply contacted Tart and requested
that the materials be supplied. Tart then supplied the fill-in
materials under an invoice referencing the specific parcel. 5
5
In certain instances, Tart supplied material to Drewer
without referencing specific parcels, and these materials were
billed as part of the combined statements sent to Drewer.
However, Tart excluded the charges for these materials when
Thus, once Drewer accepted Tart's bid on a takeoff, the
deliveries under that account, including those materials supplied
as fill-ins, became part of a single, continuous contract related
to a specific construction project.
The fact that Tart combined invoices for multiple parcels in
unitary billing statements does not preclude a finding that the
materials were delivered to the individual parcels under separate
continuing contracts. Nothing in the record suggests that the
combined statements were used for any purpose other than the
convenience of the parties. Moreover, when it filed its
memoranda of mechanic's liens, Tart was able to segregate the
charges for the materials furnished for each parcel, in a manner
similar to a permissible apportioning of an account between
related properties under a single contract. See Lincoln, 241 Va.
at 439-40, 403 S.E.2d at 689-90. Accordingly, we hold that the
chancellor erred in ruling that each delivery of materials
constituted a separate contract.
C. Addington-Beaman Lumber Company, Inc. v.
Roberson Builders, Inc.
Finally, in Addington-Beaman, the record shows that each
order and each delivery of materials was segregated by parcel.
The record further shows that Addington-Beaman anticipated
satisfaction of the invoices for a given parcel in conjunction
with the settlement on the sale of the home constructed on that
parcel. As with the other two cases, the substance of the
relationship between the parties establishes that the materials
filing its liens.
were furnished under separate, but continuing contracts for each
parcel. We find nothing in the record to support the contrary
conclusion that the parties viewed the relationship as a mere
open account. Accordingly, we hold that the chancellor erred in
treating the individual deliveries of materials as separate
contracts.
IV.
CONCLUSION
In United Savings Association of Texas v. Jim Carpenter Co.,
the chancellor correctly found that the mechanic's liens were
filed within ninety days from the last delivery of materials
under continuing contracts for each parcel. Accordingly, we will
affirm that judgment.
In both Tart Lumber Co. v. Drewer Development Corp. and
Addington-Beaman Lumber Co. v. Roberson Builders, Inc., the trial
courts erroneously found that the accounts did not constitute
running accounts amounting to continuing contracts, and hence
incorrectly ruled on the time limitation for the filing of liens.
Accordingly, we will reverse the judgment of the trial courts in
those two cases, and remand the cases for a determination of the
amount of the liens as filed under continuing contracts for each
parcel.
Record No. 951470 --Affirmed.
Record No. 952238 --Reversed and remanded.
Record No. 960615 --Reversed and remanded.
JUSTICE COMPTON concurs in result.