Herrman v. Daffin

Decision Date09 May 1957
Docket NumberNo. 7543,7543
PartiesJesse E. HERRMAN and Carrie M. Herrman, partners, doing business as Herrman Lumber Company, Plaintiffs-Appellants, v. R. V. DAFFIN and Isabelle D. Daffin, husband and wife, Defendants-Respondents, and Vernon G. (Jack) Altman and Vernon Gibson, doing business as Altman and Gibson, and Karl W. Blanchard, Trustee, and First State Bank of Joplin, Missouri, a corporation, and Joplin Cement Company, a corporation, Defendants.
CourtMissouri Court of Appeals

Ray E. Watson, Watson & Tudor, Joplin, for plaintiffs-appellants.

Karl W. Blanchard, Herbert Van Fleet, Seiler, Blanchard & Van Fleet, Joplin, for defendants-respondents.

RUARK, Judge.

This case arises out of the fact that an owner (Daffin) paid his contractors (Altman and Gibson Construction Company) the balance on construction price of a residence. The contractors in turn paid a portion of the money to their materialmen (Herrman Lumber Company, a partnership), who applied such payment to other, and older, indebtedness due them from the contractors, thus leaving exposed and unpaid their debt for the materials which went into the Daffin house. Later the materialmen filed suit to foreclose a mechanic's lien on this house.

At a pretrial conference a special jury issue was made up as to whether the payment made by the contractors should have been applied to the debt owed for materials which went into Daffins' house. The jury found the issues in favor of Daffins, and plaintiffs-materialmen have appealed. The first question raised by appellants is 'that defendants did not produce sufficient evidence to justify the court in submitting that question to the jury,' and that plaintiffs' motions aimed at such question should have been sustained.

The general rule in regard to application of payments is that the debtor has the right to specify the account to which the payment will be applied. If the debtor fails to so specify, the creditor may make the application; and if neither debtor nor creditor exercises his prerogative, then the law will make the application as right and justice requires, usually to the credit of the oldest unsecured account. 1 This general rule is applicable to payments made by a contractor to a materialman, but it is subject to the qualification that if the materialman creditor knows or is chargeable with knowledge of the source of such payment, then (the majority rule is) it becomes the duty of the materialman to make the application in such manner and to such items as will give credit to and protect the rights of the person so supplying the funds. 2, 3

We do not find where the Missouri courts have spoken on this question. In Campbell Glass & Paint Co. v. Davis-Page Planing Mill Co., 130 Mo.App. 474, 110 S.W. 24, 25, the statement was made that the creditor was not 'bound to ascertain from what particular contract the contractor realized the money with which he made payments.' That case, however, did not involve knowledge or notice and therefore is not decisive. But the mechanics' lien statutes have an equitable purpose, their aim being to accomplish substantial justice between the parties, 4 and if we are to borrow coals from our neighbor states we choose the majority rule, which applies equitable principles. 5

The inquiry, then, is whether the jury could have reasonably found or inferred from the facts and circumstances that plaintiffs' manager had knowledge of the source of the funds with which the contractors paid him. Whether there was evidence to carry to the jury the question of plaintiffs' knowledge requires a review of (only) the evidence most favorable to establish the affirmative of such question (knowledge), since the verdict was in favor of the defendants-proponents of that question. 6

Knowledge may be proved by circumstantial evidence as well as by direct evidence. 7 But the circumstances must be such that the necessary fact may be inferred therefrom and must reasonably follow, so that the conclusion so reached is not the result of guesswork, conjecture or speculation, 8 and such evidence must 'have a tendency' to exclude every other reasonable conclusion. 9

Another facet of the inquiry is whether or not the jury might reasonably have found that plaintiffs were in possession of such information as would charge them with knowledge of the source of the funds. One way of saying it is that the knowledge of the ultimate fact (in this instance that the source of the money was Daffin) will be imputed to the plaintiffs if they were in possession of such information (sum total knowledge of minor facts) as would have impelled an honest, reasonable and prudent man to inquire about the main fact, if the means of making such inquiry were reasonably available to them and if, had such inquiry been made, it would have produced and made apparent the ultimate fact. 10 In James v. Hutchinson, Mo.App., 211 S.W.2d 507, 510, it is said:

'[N]otice does not usually require proof of positive information brought directly home to the party sought to be charged therewith, but instead, if the means of knowledge are placed in his hands under such circumstances as to have put an ordinarily prudent person on inquiry, he is then to be charged with knowledge of whatever facts a proper inquiry would have disclosed. Meier v. Blume, 80 Mo. 179. 'Whether one actually knows a given fact is often a secret to which he alone has the key, but justice is not so indulgent as to encourage his throwing the key away.' Barrett v. Davis, 104 Mo. 549, 561, 16 S.W. 377, 380.'

The record is voluminous and we do not attempt to set forth any of it except that which we believe is favorable to defendants-owners Daffin, who received the verdict. The partnership of Altman and Gibson Construction Company, which was the contractor in this instance, entered into the house building business about January 1, 1953. It was dissolved about Labor Day, 1954. From the beginning this company had money troubles, with plaintiffs, whom we call 'materialmen,' as well as other creditors. From time to time all its creditors were 'trying to find out when they were going to get some money,' and, according to one of the contractors, the fellow who kept after them the most was 'the fellow that got the money.' Plaintiffs-materialmen had supplied the contracting firm from the outset and such contracting firm bought practically all of its lumber requirements from plaintiffs. Plaintiffs-materialmen's bookkeeping process was that daily purchases and credits made by the contractors were entered on individual tickets and posted upon ledger sheets the following day. The materialmen kept individual ledger sheets for each separate 'job' of these contractors, and such ledger sheets were kept posted to date. Thus the credit status of each of the contractors' separate projects was discernible at a glance. Owner Daffin's contract called for a fixed price, but from time to time changes were made which added to that price. The materialmen carried one ledger sheet which showed the principal charges and a separate ledger sheet showed these 'extras.' According to the ledger sheets, the contractors' purchases of materials for the owners-Daffins' residence commenced on April 13, 1954, and continued with purchases almost every day until the last purchase dated July 12, 1954. The purchases made during the last twenty days were comparateively small. The balance carried forward on this date showed an indebtedness, on the 'regular' sheet, of $4,652.03, and $390.14 on the 'extra' sheet. The materialmen likewise kept 'close tab' on the progress of these contractors and the completion date on the various jobs upon which the contractors were engaged. Occasionally Cummins, who was materialmen's general manager, would call upon the contractors on the job and ask about prospects of payments. The contractors had frequent discussions with Cummins in regard to the account they owed materialmen 'from the time we started business on through.'

'Q. Did he say anything to you, ever in conversation say anything to you about the completion date on your jobs? A. Yes.

'Q. What was the conversation? A. We owed him money. He was naturally interested in getting it.

'Q. Did he tell you that in so many words? A. Yes, sir.'

In addition to these calls by the general manager, his representative, somebody, generally 'made' some of the contractors' jobs every day.

Sometime in June, about a month prior to the completion of the Daffin residence, Cummins, the materialmen's general manager, called upon the contractors at their office. According to the contractor Gibson, 'I believe Mr. Altman invited him out. I am not positive of that, but I believe he did, and we told him we would have some money before long. Just as soon as we completed that job.'

'Q. What do you mean by 'that job'? A. Well, Mr. Daffin, and some other jobs we were still working on.

* * *

* * *

'Q. Now at that time and at any time previous to that, had Mr. Cummins said anything to you about how your were to apply the money you received from these various jobs and paid to him? A. Well, I remember one time that he said we would have to pay these older accounts up to keep him out of trouble with his company. We had owed him ever since we started on 10th Street, because they didn't sell.'

In this June conversation:

'Q. Did you tell Mr. Cummins when those jobs were to be completed you would have money to pay him? A. Yes.'

In July, some four or five days before final completion of the Daffin residence, this contractor had another conversation with Cummins. 'When I went in the office that day, he asked me when we would have some money for him, and about when we was going to finish the Daffin job. I said we should complete it in four or five days as near as I could tell and we would have some money for him.' And again:

'Q. Was anything said about making any payment when you received the Daffin money? A. He said, 'I sure hope so,'...

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