Standard Sanitary Mfg. Co. v. Aird , 221 Ala. 520 ( 1930 )

It is clear that if the owner had paid the original contractor for the structure before steps were taken to fasten a lien upon any unpaid balance due by him, he would be protected as against the attempted creation of liens by materialmen thereafter made. But so long as there remains any portion of this amount unpaid, such a lien may be created upon it by complying with the statute. Section 8840, Code. When so created, it takes precedence over liens of a different nature which accrued on the fund subsequent to the beginning of the structure. The foregoing principles are stated in the case of Le Grand v. Hubbard, 216 Ala. 164, 112 So. 826.

The important question, therefore, is whether there is a payment effected when the original contractor gives an order on the owner for amounts due by him for material and labor, or for any other purpose as to that matter, and the owner unconditionally accepts such order. Whether there is a payment in that connection seems to depend upon whether thereby a novation was effected. The general rule is that such transaction does not constitute a payment or discharge of the original debt in the absence of an agreement to that end. 48 Corpus Juris 621.

But when there is such an agreement it effects a novation, and the original debt is to that extent fully paid, though the new promise may never be. To constitute a novation which accomplishes this result, there must be an agreement that it shall extinguish the old contract or obligation to that extent. Hopkins v. Jordan, 201 Ala. 184, 77 So. 710; Tuscaloosa Lumber Co. v. Tropical Paint Oil Co., 211 Ala. 258, 100 So. 236, citing many cases; 46 Corpus Juris, 616.

The mere acceptance of an order or the making of a promise to pay the new creditor does not, without more, effect that result, because the presumption of law is that it is taken conditionally as a payment only when it is actually paid. Tuscaloosa Lumber Co. v. Tropical Paint Oil Co., supra.

But it is said that this would work an injustice to the owner who has bound himself by accepting an order from his contractor and thereby bound himself to pay the debt to that extent, and this he must do, though he may later be required to equalize and adjust that amount with materialmen or others who give the notice later, and thereby fix their liens, and of this right the owner may be ignorant when he accepts the order.

The answer to that is twofold: First, he knows, presumptively, that to effect a payment to that extent, there must be an agreement that his acceptance shall be so treated. Therefore he need not accept the order payable in the future without an agreement that it shall be treated as a payment of that amount to his contractor. A second reason is that if he is served with notice of a lien by such a materialman or another, before he pays the order, that fact furnishes a pro tanto defense against the payment of his acceptance unless it be a negotiable instrument in the hands of a holder in due course other than the payee. For it is only treated as collateral, unless acceptance as a payment is agreed upon, and the acceptor would only be liable to this payee to the extent that such liability is affected by other liens of equal or superior priority. If he executes a negotiable instrument, he knows at the time that it may extend his liability in the hands of a holder in due course, and he thereby assumes the risk. Likewise, if he pays the amount of his acceptance, when there has been no agreement that its execution extinguishes his debt to that extent, and the payment is made after notice served on him by other lienors, who thereby fix a lien on the fund in his hands as of the date of the beginning of the structure, he likewise does so at his own risk.

In this case the order in favor of Breeding by the contractor recites that receipt of the amount specified is thereby acknowledged as a payment on the debt due the contractor by the owner. Its recitals show a novated contract and the amount was credited on the account. It was therefore a payment of that amount and to that extent there was no balance.

The order in favor of Barnett Lumber Company was given before the materials were furnished, and were then furnished upon the strength of the agreement by the owner to pay the amount to this materialman. This was doubtless intended to, and did, accomplish the same result as if the materialman had given notice before furnishing the material, and the owner had failed to notify the materialman that he would not be responsible for the price, all as provided in section 8832, Code. The result of the arrangement was to constitute Barnett Lumber Company an original contractor. The notice therefore required by section 8840 to be given by all persons other than original contractors was not required by Barnett Lumber Company, to the extent of the specified amount. Wahouma Drug Co. v. Kirkpatrick, 187 Ala. 318,65 So. 825; Trammell v. Hudmon, 78 Ala. 222; Redd v. Todd,209 Ala. 56, 95 So. 276.

It is settled that the owner can use any amount unpaid by him to his original contractor in furnishing labor and material to complete the job in event such original contractor shall fail to do so. In such event the lien of other laborers and materialmen who had furnished their labor and supplies to the contractor are subordinated to this right of the owner to complete the job by the use of such balance. Cranford Merc. Co. v. Wells, 195 Ala. 251, 70 So. 666; Butler v. Hawk, ante, p. 347, 128 So. 451.

To deny the owner the right to pay or obligate himself to pay for material necessary to be used in completing the job, when this was necessary to carry on the work, would deprive the owner of the fruits of his contract with one who may not be financially able to complete it. The effect of this arrangement therefore was to withdraw the amount specified in the agreement from the status of unpaid balance due the contractor by the owner, upon which materialmen and laborers could fasten a lien by the notice provided in section 8840, Code.

The accepted order recites that the owner shall pay Barnett Lumber Company monthly 60 per cent. of each monthly bill for material delivered in the previous month, to an amount of approximately $5,000, more or less. The entire sum of the monthly bills aggregated $6,596.22. There seems to be no controversy as to the amount furnished under this arrangement. Too, it was all furnished before appellants gave their notice under section 8840.

It appears therefore that an amount equal to 60 per cent. of the bils for material, aggregating, to wit, $6,596.22, which is, to wit, $3,957.73, should not be treated as an unpaid balance, and is not subject to the liens which come into being by giving the notice under section 8840, Code, by persons other than original contractors.

And as under the terms of the agreement the full amount of $6,596.22 was not agreed to be paid by the owner, but only 60 per cent. of it, the full amount, we think, should not have been decreed as withdrawn from such unpaid balance, but only the sum of $3,957.73.

This result, as we understand the facts, allows an amount for distribution to the persons giving notice under section 8840, and the cause should be reversed and remanded for further proceedings.

We therefore concur in the reversal and remandment of the cause.

ANDERSON, C. J., GARDNER, THOMAS, BOULDIN, and BROWN, JJ., concur in the foregoing.