Haskell v. McClintic-Marshall Co.

• Decision Date: 16 April 1923
• Docket Number: 3953.
• Citation: 289 F. 405
• Parties: HASKELL et al. v. McCLINTIC-MARSHALL CO. et al.
• Court: U.S. Court of Appeals — Ninth Circuit

289 F. 405

HASKELL et al. v. McCLINTIC-MARSHALL CO. et al.

No. 3953.

United States Court of Appeals, Ninth Circuit.

April 16, 1923

On Petitions for Rehearing, May 16, 1923.

On Petitions for Rehearing. [Copyrighted Material Omitted]

F. D Oakley, Guy E. Kelly, and Thomas MacMahon, all of Tacoma Wash., for Haskell and Duke.

Elmer M. Hayden, Maurice A. Langhorne and Frederic D. Metzger, all of Tacoma, Wash. (Gordon & Smith, of Pittsburgh, Pa., of counsel), for McClintic-Marshall Co.

Edwin H. Flick and Charles H. Paul, both of Seattle, Wash., for Tacoma Millwork Supply Co.

Jas. W. Reynolds, and Peters & Powell, all of Seattle, Wash., for E. E. Davis & Co.

Charles P. Lund, of Spokane, Wash., and Davis & Neal, and L. R. Bonneville, all of Tacoma, Wash., for Washington Brick, Lime & Sewer Pipe Co.

Stiles & Latcham, of Tacoma, Wash., for Ben Olson Co.

R. S. Holt and Fitch & Arntson, all of Tacoma, Wash., for Far West Clay Co. and others.

Before GILBERT and RUDKIN, Circuit Judges, and DIETRICH, District judge.

RUDKIN Circuit Judge.

The Scandinavian-American Building Company was incorporated under the laws of the state of Washington on the 18th day of November, 1919, for the purpose of constructing a 16-story office building upon three lots in the city of Tacoma. One of the lots was conveyed to the building company by Drury, the Tailor, Incorporated, by warranty deed, dated November 10, 1919, delivered February 9, 1920. The two remaining lots were conveyed to the building company by the Scandinavian-American Bank of Tacoma by warranty deed, dated February 25, 1920. The consideration for the lastmentioned conveyance was $350,000, payable in second mortgage bonds of the building company, to be delivered within four months from and after February 10, 1920. The lots conveyed by the bank were subject to a mortgage in the sum of $70,000 in favor of the Penn Mutual Life Insurance Company. On the 25th day of February, 1921, this mortgage was assigned by the insurance company to one Haskell, special deputy bank commissioner in charge of liquidation of the Scandinavian-American Bank of Tacoma, and is referred to in the record as the $70,000 mortgage. On March 10, 1920, the building company mortgaged all three lots to one Simpson to secure the payment of the sum of $600,000. Simpson was a mere trustee for the building company. This mortgage was later assigned by Simpson to the Scandinavian-American Bank on October 7, 1920, and is referred to in the record as the $600,000 mortgage.

The building company contemplated the execution of a second mortgage to secure second mortgage bonds in the sum of $750,000, $350,000 of which were to be delivered to the bank in payment of the purchase price of the two lots as already stated. The construction cost of the building was to be paid from the proceeds of the $600,000 mortgage, the proceeds of the sale of the balance or remainder of the second mortgage bonds, and the proceeds derived from the sale of the capital stock of the building company. Contracts for labor and materials were let, commencing early in 1920, and the work of construction continued, until suspended by the failure of the Scandinavian-American Bank early in 1921. Numerous lien claims were filed against the property, and McClintic-Marshall Company, one of the lien claimants, commenced a suit to foreclose. A receiver for the building company was later appointed in the foreclosure suit, and other lien claimants were brought in or intervened. A final decree was entered disposing of the different claims and liens, and that decree is now before us for review. Some of the grounds urged for reversal are common to more than one of the parties, but all are believed to be included in the following statement:

First. The receiver for the building company contends that all lien claimants should have been required to present their claims to the receiver, and that foreclosure against the property while in the custody of the receiver should not have been permitted.

Second. Some of the contracts for material and labor contain a general arbitration clause, providing that any dispute growing out of the contracts shall be referred to three arbitrators, one appointed by each of the contracting parties, and the third by the two so chosen, and that a decision of any two shall be final and binding upon the parties. A failure to observe this provision of the contracts is urged in defense of the foreclosure suits.

Third. Some of the contracts for materials contain a provision waiving a lien, and agreeing not to file or claim the same, and this provision is also urged in defense.

Fourth. Some of the lien claimants claimed a lien for material and fixtures specially designed and manufactured for the building, but neither used therein nor delivered at the building for use. The denial of their claims is assigned as error.

Fifth. Some of the lien claimants contend that the building company was a mere agency or instrumentality of the bank, and that they are therefore entitled to a decree against the bank as well as against the building company.

Sixth. The supervisor of banks claimed a vendor's lien for the unpaid purchase price of the two lots conveyed to the building company, and also sought a foreclosure of the $70,000 mortgage and the $600,000 mortgage. The ruling of the court denying a foreclosure as to either the lien or the mortgages is assigned as error.

1. The first contention of the receiver of the building company is not well founded. To begin with, this was not a general receivership, to wind up the affairs of the building company. The receiver was simply directed to take possession of the property of the building company and employ the necessary assistants and caretakers to protect it pending the receivership. He had nothing whatever to do with the administration of the estate, and was little more than a caretaker himself. But, aside from this, the receiver was appointed in the foreclosure suit after its commencement, was made a party defendant, and suits against him were expressly authorized. The mode of establishing the lien claims, whether by suit or by presentation of claims to the receiver, rested entirely within the discretion of the trial court, and that discretion is not subject to review or question here.

2. It was a settled rule of the common law that a general agreement to submit to arbitration did not oust the courts of jurisdiction, and that rule has been consistently adhered to by the federal courts. Hamilton v. Home Ins. Co., 137 U.S. 370, 11 Sup.Ct. 133, 34 L.Ed. 708; Mitchell v. Dougherty, 90 F. 639, 33 C.C.A. 205; 9 Cyc. 511. We have no reference now to contracts making submission to arbitration a condition precedent to suit. Opposing counsel concede the general rule, but maintain that a different rule obtains in Pennsylvania, where one of the contracts was made, and in Washington, where the suit is pending, and that this court should adopt and follow the local rule. But the question is one of general law, upon which the decisions of the Supreme Court are controlling. As said by the court in Mitchell v. Dougherty, supra:

'We have not felt called upon to discuss in detail the several Pennsylvania cases which have been urged upon our attention by the learned counsel for the defendant in error. The question before us is not as to the enforcement of the contract in accordance with the law of the place where it was made, but is as to whether a court of the United States should, because of the parties' agreement in advance to abstain from invoking its jurisdiction, refuse to enforce the contract at all. Upon this question the decisions of the supreme court of the United States are controlling, and they admit of but one conclusion.'

A lien foreclosure suit is no exception to this rule.

3. The court below found that the lien waivers were procured by fraud, and that finding is not questioned here. Counsel insist, however, that in such event only two courses were open to the lien claimants: They must either seek a reformation of their contracts or rescind the contracts and recover on a quantum meruit. They cannot enforce the contracts in part and rescind in part. Under the circumstances of this case we do not think that the lien claimants were driven to either reformation or rescission. The covenant not to file or claim a lien was an independent one, relating to the remedy only, and differs but little from the agreement to submit to arbitration in that respect. The latter is against public policy and void, because it attempts to oust the courts of jurisdiction, and the former, if fraudulently procured, is equally against public policy and void. It has been repeatedly held that a vendor may enforce a lien for the purchase price when a waiver of the lien has been procured by fraud, and that he is not compelled to reform or rescind the contract. The reason for the rule is:

'Fraud vitiates all contracts, and a waiver of a vendor's lien by taking other security is no waiver, when so induced. In equity, an unpaid vendor, who has not waived it, will be entitled to a lien, and no waiver obtained by fraud will be effectual to destroy the lien. ' Franklin v. Walker, 171 Ill. 405, 49 N.E. 556.

In Tobey v. McAllister, 9 Wis. 463, it was contended that a vendor, who had received a part of the purchase price and was attempting to enforce a vendor's lien for the balance, because induced to accept securities of no value through the fraud of the purchasers, was seeking to enforce the contract in part and rescind in part. But the court held that the rule as to rescissions in part had no application to such a case. The court below, therefore, did not err in refusing to give effect to the lien waivers.

4. Does the mere fact that...