Irwin v. Murphey

• Decision Date: 23 October 1956
• Docket Number: No. 6098,6098
• Citation: 302 P.2d 534,81 Ariz. 148
• Parties: A. O. IRWIN, Appellant, v. John W. MURPHEY and Helen G. Murphey, Appellees.
• Court: Arizona Supreme Court

Page 534

302 P.2d 534

81 Ariz. 148

A. O. IRWIN, Appellant, v. John W. MURPHEY and Helen G. Murphey, Appellees.

No. 6098.

Supreme Court of Arizona.

Oct. 23, 1956.

Robert D. Stauffer, Tucson, for appellant.

Boyle, Bilby, Thompson & Shoenhair, William A. Scanland and Wilbert E. Dolph, Jr., Tucson, for appellees.

PHELPS, Justice.

Appellant A. O. Irwin appeals from the judgment foreclosing a mortgage in which (1) his claim for the value of services and materials alleged to support said claim as a third-party beneficiary against the mortgagor Murphey, was rejected by the trial court, and in which (2) his claim of an alleged mechanic's lien against the mortgagor Luke was declared invalid.

On April 1, 1953, the defendants, Fred G. Luke and Victoria Luke, husband and wife, executed and delivered to John W. Murphey and Helen G. Murphey, husband and wife, defendants-appellees herein, a note in the face amount of $13,600, with interest at the rate of eight per cent per annum. As part of the same transaction the Lukes executed and delivered to the Murpheys a mortgage as security for the said note, mortgaging Lot 325, Catalina Foothills Addition, Pima County, Arizona, which was duly recorded on April 14, 1953. This mortgage and note were executed by the Lukes and delivered for the purpose of constructing a dwelling on said lot and, pursuant to the terms of an agreement reading as follows:

'Agreement

'This building loan agreement, made this 1st day of April, 1953, by and between John W. Murphey, party of the first part, and Fred G. Luke and Victoria M. Luke, his wife, parties of the second part, Witnesseth:

'The party of the first part hereby agrees to loan, for the purpose of constructing a dwelling house on Lot 325 of Catalina Foothills Estates No. 3, Pima County, Arizona, the sum of Thirteen Thousand Six Hundred Dollars ($13,600.00), to the parties of the second part; the said sum to be paid out according to the following schedule:

'The sum of $3,600.00 to be applied to the balance of the purchase price of the above mentioned lot;

'Ten percent (10%) of $10,000.00 when foundations of said dwelling are completed;

'Fifteen percent (15%) of $10,000.00 when the walls are up;

'Twenty percent (20%) of $10,000.00 when the house is framed and roofed and the windows are in place;

'Twenty percent (20%) of $10,000.00 when the plastering and sheetrock is completed;

'Thirty five percent (35%) of $10,000.00 when the house is completed and the loan agent (Leo B. Keith) has been paid his commission of $300.00.

'The above listed payments are to be made only upon certification by the Architect for this job, Mr. Jos. Th. Joesler, and provided the note and mortgage securing the said loan are not in default.

'Witness our hands the day and year first above written.

'(s) John W. Murphey

'(s) Fred G. Luke

'(s) Victoria M. Luke.'

Shortly after April 14, 1953, construction was started on the mortgaged property. Murphey then paid out certain sums which he claims were made according to a payment schedule in the above agreement.

The mortgage note her involved provided for interest at eight per cent annually, payable monthly. The Lukes failed to make any interest payment whatever on the note. Consequently, Murphey brought this action to foreclose his mortgage, and to determine the rights of party defendants claiming mechanics' liens on the mortgaged property. Appellant Irwin among others, in his capacity a one of the alleged lien claimants, answered and filed a counterclaim against Murphey. Only Irwin appealed.

Irwin testified that on or about June 20 he was given a written order, signed by Fred Luke, directing Murphey to pay $1,498.95 out of the funds mentioned in the above construction agreement for the masonry work which he had completed at that time. He contends that his agent presented the order to one Rosemary Scruggs, secretary to Murphey, at a time when there were sufficient monies in the fund to cover the masonry work. He testified, however, that he was then told that there was only $95 left in the fund allocated under the construction agreement for work done by him. Irwin further testified that prior to that time he personally talked with Murphey regarding the financial stability of the Lukes. He asserts that he was misled by Murphey into entering into an agreement with the Lukes to construct the walls of the building by Murphey's failure to disclose to him that under his contract with Luke, Murphey was compelled to pay the sums mentioned in the agreement with Luke, upon receiving a certification from the architect that the work prescribed therein had been completed regardless of whether said amount had been used in the construction of that particular dwelling.

It is stipulated by counsel that Irwin has filed no notice of claim of lien in the County Recorder's office.

The specific findings of fact and conclusions of law made by the trial court at the request of counsel are:

That the Lukes executed the note and mortgage in question and that they entered into an agreement for the manner and method of the payment of the proceeds of the note, and that $8,139.70 was paid out by Murphey; that the dwelling house construction had been completely abandoned in August, 1953 (which of course is indirectly a holding that the dwelling was not completed) and that although some materialmen had filed liens, appellant Irwin had failed to file a claim of lien for the unpaid labor and material which were furnished by him for the masonry construction of the proposed dwelling house.

In its conclusions of law the trial court determined (1) that the plaintiffs Murphey had a valid claim of $8,139.70, plus eight per cent interest, plus attorney's and other fees against the Lukes, (2) that Irwin had a valid claim against the Lukes for $1,498.95 with interest, and (3) that Irwin had never perfected a laborer's and materialman's lien against the dwelling here in question, and that the claims of lien of other materialmen, although valid, were inferior and subordinate to plaintiffs' mortgage lien.

A judgment of foreclosure was ordered by the trial court directing that a special execution issue, and that the Pima County sheriff sell the secured real property to satisfy the plaintiffs' mortgage lien first, and second, all valid mechanics' liens in their order of priority. It is from this judgment that Irwin has appealed. Four principal questions are presented to us:

(1) Is appellant under the facts and circumstances of this case a third party creditor beneficiary?

(2) Was Murphey guilty of fraud as alleged in the counterclaim and was there proof that he was guilty as charged?

(3) Has Irwin a valid materialman's and laborer's lien against the building and premises upon which he performed work and labor?

(4) Did the court err in refusing to make findings of fact and conclusions of law requested by appellant, material to the determination of the issues in this case?

First, appellant Irwin asserts that he is a creditor beneficiary of the Luke-Murphey agreement executed April 1, 1953, above set forth haec verba. For authority on this question appellant cites the Restatement of the Law of Contracts, Sec. 133(1), and subsequent sections which deal with the rights of a creditor beneficiary. Section 133(1) provides as follows:

'(1) Where performance of a promise in a contract will benefit a person other than the promisee, that person is * * * (a) donee beneficiary, * * *;

'(b) a creditor beneficiary if no purpose to make a gift appears from the terms of the promise in view of the accompanying circumstances and performance of the promise will satisfy an actual or supposed or asserted duty of the promises to the beneficiary, * * *;

'(c) an incidental beneficiary if neither the facts stated in clause (a) nor those stated in clause (b) exist.'

Appellant's argument is basically that he has performed construction work on a building owned by the promisee Luke and is entitled to recover from promisor Murphey under the terms of the contract between Murphey and Luke because performance of the promise by Murphey will satisfy an actual duty of the promisee Luke to the appellant.

This court has consistently held that it will generally follow the Restatement of Law unless a different rule has been pronounced by the court in prior decisions or by legislative enactment. Waddell v. White, 56 Ariz. 525, 109 P.2d 843; Ingalls v. Neidlinger, 70 Ariz. 40, 216 P.2d 387; Bristor v. Cheatham, 75 Ariz. 227, 255 P.2d 173; Rodriquez v. Terry, 79 Ariz. 348, 290 P.2d 248.

The Restatement makes it clear that there are three types of beneficiaries: (1) donee, (2) creditor, and (3) incidental. The Restatement was formally adopted and promulgated in 1962 and enunciates the rule that one for whose benefit a contract is made, although not a party to the agreement and not furnishing the consideration therefor, may maintain an action thereon against the promisor.

The Restatement appears to ignore the 'intent' theory in creditor-beneficiary situations.

This court does not follow the liberal view of the Restatement relating to the third-party creditor beneficiaries but has adopted the rule that the intent must be indicated in the contract itself. We dealt with the question in Treadway v. Western Cotton Oil & Ginning Co., 40 Ariz. 125, 10 P.2d 371, and recovery under the third-party creditor-beneficiary doctrine was denied because the agreement was held not made for the third person's benefit in that the alleged benefit was not...