Valley Lumber Co. v. Struck , 146 Cal. 266 ( 1905 )

I concur in the judgment of reversal, but I cannot agree to the grounds upon which it is based in the majority opinion.

It has not been and will not be contended by any one that, as between the owner and the contractor, the provision in the contract with respect to acceptance by the architect could not be waived, nor that the owner could not, if he chose, make the payment when the building was completed, or at any time previous thereto, so far as he himself was concerned. In a building contract, as in any other contract, the owner may, so far as his rights are concerned, waive any condition therein regardless of whether it is for his benefit or not. The point that the condition is for his benefit is entirely immaterial. In the case at bar $545 of the contract price was made payable thirty-five days after completion. This delay was no doubt in part intended to be and was for the benefit of the owner. Yet it will not be claimed that the owner could waive this condition giving him further time, and, by paying this installment on completion, cut off the right of the lien claimants to compel him to pay it again. Nor does the statute declare, as the main opinion seems to tacitly assume, that it is only payments made prior to the times mentioned in the statute itself which cannot be prematurely made without subjecting the owner to liability to pay it again. The statute does not fix the time of any payment except the final installment, and it does not make the time there fixed the test of liability. The contract must furnish the test. The provision is, that no lien shall be defeated or diminished by a payment made before it becomes due "under the terms and conditions of thecontract." And it applies as forcibly to any intermediate payment provided in the contract as to the final payment fixed by the statute. Here the contract does not make the payment due on completion. A subsequent event must occur before it matures; the architect must accept it as complete. Under the majority opinion the owner is given power to deviate from the recorded contract — a power of which he is expressly deprived by the statute itself. The statute declares that any payment "made prior to the time when the same is due under the terms and conditions of the contract" shall as to such liens "be deemed as if not made, and shall be applicable to such liens," — that is, to all liens except that of the contractor. (Code Civ. Proc., sec. 1184) There is no exception in favor of conditions beneficial to the owner, nor any permission to him to waive conditions fixing the time of payment, and thereby evade the penalty. He is rigidly held to the exact conditions stated in the contract, and he can no more declare a payment due in advance of its maturity without the consent and to the injury of persons entitled to liens than could the contractor without his consent. The effect of the statute, so far as it applies in favor of the holder of a lien, is, that he is substituted to the rights of the owner so far as the terms of the contract are concerned, and that it is the lienholder and not the owner who has the power to waive an express condition of the contract, and thereby defeat, diminish, or impair his lien. The payment made two days before the architect accepted the building cannot be justified on the theory that the owner had the right to waive the condition. It can be justified, if at all, only upon the theory that the architect's certificate was a trivial matter, and that the actual completion of the building was a substantial performance by the contractor and would entitle him to recover without the acceptance by the architect. Generally the law is satisfied with a substantial performance. (7 Am. Eng. Ency. of Law, 2d ed., p. 145; Harlan v. Stufflebeem, 87 Cal. 511.) But the majority opinion is not founded on this principle, and I express no opinion on the question whether, in view of the strong language of the statute, the rule applies to contracts of this character where the rights of third persons are affected.

In the former consideration of this case by the court in Bank the judgment was affirmed on the authority of Sweeney v. Meyer,124 Cal. 512. In that case it was held that where a premature payment was made the owner was liable to be again called upon to pay it to the lienholders, although their liens were filed after the payments were made and they had not given any notice under the subsequent clauses of section 1184, requiring the owner to withhold a sufficient amount of the contract price to pay their claims. So long as this decision is not overruled by this court I cannot perceive any theory upon which a judgment of affirmance can stand. In my opinion, however, the following portion of the dissenting opinion of the chief justice, filed upon the former hearing in Bank in this case, states the correct construction of the statute upon this subject: —

"By the Mechanics' Lien Law the owner and contractor are authorized to stipulate for the payment of three-fourths of the contract price of a building by installments to become due, at their option, at or before its completion, but no notice of lien can be recorded until after completion, and consequently no lien can be acquired upon the building by merely recording notice for any greater portion of the contract price than the twenty-five per cent, which must be made payable not less than thirty-five days after completion, unless the owner and contractor voluntarily agree that a larger proportion may be retained until after the time when the lien notices may be recorded. But the law also provides for personal and actual notice to the owner by a laborer or materialman of his claim at or at any time after the time it accrues, irrespective of the completion of the building, and this notice operates as a garnishment to intercept the payment of any installment of the contract price not then due by the terms of the contract, compelling the owner to withhold a sufficient sum to answer such claim and costs. Upon due service of such notice, the owner becomes liable to the extent of all money to become due upon the contract, and in the event that a notice of lien is afterwards duly recorded by the claimant, his building is subjected to a lien as security for the just amount of the claim, and that notwithstanding he may have made a premature payment upon the contract price before the receipt of notice. But this is as far as the statute goes. It does not make the premature payment of an intermediate installment of the contract price invalid as to all materialmen, laborers, etc., but only when the effect of allowing its validity would be to defeat,diminish, or discharge a lien, in favor of persons other than the contractor. So that, if it is an essential condition prerequisite to the creation of a lien upon the building for any portion of a particular installment of the contract price, written notice of the claim should be served upon the owner before payment is due, and if no such notice is served, a premature payment of such installment does not defeat, diminish, or discharge the lien — there is no lien to defeat or impair — and the failure of the security is due, not to the fault of the owner, but to the default of the claimant who has omitted to take the step made essential by the statute for the acquisition of a lien. His lien has not been discharged or defeated or diminished by the premature payment, because it has never come into existence. If a payment is due on the 19th, and a materialman desires, for his better security, to have it withheld by the owner, he must give notice of his claim before the 19th, or the owner may make payment with perfect assurance that he will not have to pay again on account of the materialman's claim, as the latter well knows. But if he with this knowledge omits to give the notice [the present case], what right then has he to complain that payment was made on the 17th? He is no worse off than he would have been if it had not been made till the 19th. His notice of lien subsequently filed attaches to the last payment due thirty-five days after completion of the building, but according to the intent, no less than the language of the statute, it does not attach to any previous installment not garnished by actual notice before it fell due.

"The decision in Sweeney v. Meyer resulted, in my opinion, from the assumption that the provisions of the statute as to notice to the owner and invalidity of premature payments are separate and independent. They are, indeed, separate, as every clause of every statute is necessarily separate from other clauses, but that they are independent I cannot admit. They are related parts of one general scheme, designed to be complete and harmonious, operating for the benefit of laborers, mechanics, and materialmen, without injustice to owners of property. Upon each class a duty is imposed, and the performance of this duty is the condition of enjoying the rights conferred. To intercept a payment and secure a lien, notice of the claim must be served before payment is due. To give the amplest opportunity for service of notice, the owner must make no payment until it is due according to the terms of his recorded contract. If he makes a premature payment he does it at the risk of having to pay twice, but he incurs this liability only in case of a timely notice. If no notice is given there is no lien, and to hold the payment valid harms no one."

Any other construction than that given by the chief justice would make the statute in question a highly penal statute. Courts are very averse to giving statutes a construction which will result in the imposition of a penalty not justly deserved. The construction given will afford a reasonable remedy to all prospective lien claimants who desire to reach the fund in the hands of the owner, and at the same time will protect the owner from being subjected to a second payment of the same installment. I am of the opinion that Sweeney v. Meyer should be overruled, and that the provision of section 1184 of the Code of Civil Procedure with respect to premature payments should be held to be applicable only in cases where the lien claimant has given a notice to the owner to withhold the money due from the contractor, and such notice has been served prior to the time when the payment is made, or to cases where the lien is filed in the recorder's office before the premature payment has been made.

Beatty, C.J., concurred.