Layrite Products Co. v. Lux

• Decision Date: 14 July 1966
• Docket Number: No. 9746,9746
• Citation: 91 Idaho 110,416 P.2d 501
• Parties: LAYRITE PRODUCTS COMPANY, Plaintiff-Appellant, v. Joe LUX and Alphonsie Lux, husband and wife, Defendants-Respondents.
• Court: Idaho Supreme Court

Page 501

416 P.2d 501

91 Idaho 110

LAYRITE PRODUCTS COMPANY, Plaintiff-Appellant, v. Joe LUX and Alphonsie Lux, husband and wife, Defendants-Respondents.

No. 9746.

Supreme Court of Idaho.

July 14, 1966.

Robert C. Strom, Craigmont, Lawrence W. Thayer, of Brown & Thayer, Spokane, Wash., for appellant.

Clements & Clements, Lewiston, for respondents.

SPEAR, Justice.

This is a lien foreclosure action wherein a materialman furnished material used by a contractor in the construction of a home. Layrite Products Company, the plaintiff-appellant herein, a Washington corporation engaged in the business of the manufacture and sale of building materials, is the materialman. The contractor is Arsenault Masonry, Inc., also a Washington corporation. Joe Lux and Alphonsie Lux, husband and wife, the defendants-respondents herein, are the homeowners. Layrite sold building materials to Arsenault which were used in respondents' house. The Luxes paid Arsenault in full for the work it completed but never received credit with Layrite for the materials purchased and used for the construction of their home.

The district court found that Layrite dealt with Arsenault on a general open running account without regard to the use of its materials in the construction of any particular building or project and concluded Layrite could not therefore now assert a lien on respondents' property and residence merely because building materials sold to Arsenault were subsequently used in respondents' home. Judgment thereupon was entered for the respondents. From that judgment, Layrite appeals to the supreme court.

This is the second appeal filed in this case. Earlier, the supreme court, in Layrite Products Co. v. Lux, 86 Idaho 477, 388 P.2d 105, reversed the trial court's holding the lien invalid for the reasons that the claim of lien did not name the wife as an owner of the community property and that the legal description of the property was inserted in the claim of lien after verification and remanded the cause for further proceedings from which this present appeal is prosecuted.

Respondents entered into a contract with Arsenault in the spring of 1959 whereby it was agreed that Arsenault would perform masonry and construction work on respondents' residence. The building materials used in the Luxes' home were purchased by Arsenault from appellant, Layrite, between June 26, 1959 and September 24, 1959. The materials purchased had a reasonable market value, the district court found, of $3,019.19. Delivery was made to Arsenault at Layrite's plant at Spokane.

Arsenault had been a regular customer of Layrite for more than ten years prior to the spring of 1959 and had purchased building materials both for its own inventory and stock and for use in its various construction projects. Its account with appellant was substantial and totaled some $60,000.00 to $100,000.00 worth of such materials per year. Materials sold to Arsenault during the period over which the materials used in respondents' home were purchased totaled in excess of $20,000.00. Arsenault was sold building materials on an open running account basis. Its open account with Layrite amounted to approximately $32,000.00 at the end of September, 1959.

Appellant, Layrite, generally admitted that in its dealings with Arsenault materials were sold on an open running account and on general credit without reference to particular projects for which such materials might be used. This, it is stated, is the normal manner of sale by any materialman. However appellant contends that the materials sold and later used in respondents' home were sold with reference to the particular job. Invoices issued upon delivery of the materials were introduced into evidence. Each it is maintained plainly states the house job number or job designation and shows conclusively that Layrite sold the building materials with the specific knowledge that such materials were to be used in respondents' home and upon the security of the building for which the materials were purchased. The district court, however, found that the job number or job designation had been given Layrite by Arsenault and that such identification was entirely for the use and convenience of Arsenault in billing customers; and that Layrite relied solely on the general credit of Arsenault and did not seek the additional security of the residence for which the materials had in fact been purchased.

Arsenault found itself in serious financial difficulty about the end of August of 1959, which made it necessary to assign all its accounts receivable to the Seattle First National Bank in Spokane. All sums thereafter received by Arsenault from any account were turned over to the bank and deposited by the bank into a 'bank control-collateral account,' from which account only the bank itself could make withdrawals. The bank continued to advance money to Arsenault in order that Arsenault could meet payroll and other expenses incurred in the operation of its business and received therefor from Arsenault demand notes covering the amounts advanced and secured by the blanket assignment of accounts receivable. The record shows that from time to time as the Arsenault receivables were deposited with the bank, the bank would make withdrawals from its special control account and the sums so withdrawn were applied to the oldest Arsenault notes held by the bank.

Appellant became concerned about the financial condition of Arsenault and its ability to meet payments on its long standing account with appellant, and a meeting with Arsenault and a representative of the bank was arranged in September, 1959. Appellant agreed to further extend credit to Arsenault on a general running open account basis since it appears Arsenault was insistent that no liens be filed against the properties of its customers. Appellant in turn it was agreed would receive $7,000.00 for the period August 31, 1959 through September 31, 1959 from collections made on accounts receivable, totaling $55,000.00, which amount it was projected would represent the collectable receivables for that period. Appellant subsequently received the $7,000.00 which it applied to its open account-outstanding balance some $32,000.00, with Arsenault. There was no attempt to credit that payment or any portion thereof to any particular job of Arsenault.

The record makes evident it was necessary that the bank have the assurance from Layrite that it would not file any liens and would continue to furnish Arsenault materials for as long as this arrangement remained in effect. The bank believed that Arsenault would recover from its present financial difficulty if permitted to remain operative and felt it best for all concerned that Arsenault continue business. Given that assurance the bank loaned Arsenault on its demand notes $68,496.00 for operational expenses between August 31, 1959 and October 15, 1959, though payments received from the assigned receivables for this period totaled only $57,586.80.

Respondents paid Arsenault in full for labor performed and materials furnished. The total amount paid was $17,000.00, which sum was deposited in the bank's control-collateral account and respondents received no credit from appellant for the amount paid Arsenault. The Luxes never, as might have been done, instructed Arsenault to apply the payment made against the account with appellant but merely trusted Arsenault to do so. The payment was instead, as noted, deposited in the special control account. Withdrawals from this account the bank applied against the oldest Arsenault demand notes.

Though in fact the $7,000.00 paid Layrite on the Arsenault open account was a new loan from the bank, there existed obviously a correlation between the collection of funds into the collateral account and the subsequent debt reduction on the outstanding Arsenault account. The $17,000.00 payment made by respondents constituted a portion of the $55,000.00 receivables collected and out of which appellant received the $7,000.00.

After October 8, 1959 Layrite felt it could no longer continue its arrangement with the bank since the receivables were not coming in as projected. Appellant then took further steps to secure itself as far as its own receivables were concerned and late in October or early November 1959 appellant broke down its general ledger account with Arsenault. In order to determine to which projects items appearing on the general ledger account with Arsenault should be allocated Layrite required the assistance of Arsenault's manager. Layrite filed its lien on November 18, 1959. The district court found that this was the first lien appellant had ever filed against property of customers of Arsenault during all the years that appellant had done business with Arsenault.

Appellant principally alleges that: (1) the court erred in holding that appellant had no lien because it sold on an open running account and on the general credit of the contractor; (2) the court erred in holding that appellant did not sell any material for use in respondents' house; (3) the court erred in holding that appellant had received payment for the materials sold for respondents' house. On appeal the argument is first advanced that materials need not have been furnished by a materialman expressly for the particular building on which the lien is asserted, but that a materialman selling materials on open account and on the general credit of the purchaser does not thereby, without more, lose his right to a lien on the structure in which the building materials are used. In the alternative it is argued that in any event the building materials used in respondents' house were furnished specifically for use in that particular structure and that the invoices which appellant introduced in evidence show this was in fact the case. Finally appellant, in considerable detail, attempts to conclusively prove that payment for the materials used was not received by the appellant....