Spokane Sav. & Loan Soc. v. Park Vista Imp. Co.

• Decision Date: 30 December 1930
• Docket Number: 22219.
• Citation: 294 P. 1028,160 Wash. 12
• Court: Washington Supreme Court
• Parties: SPOKANE SAVINGS & LOAN SOC. v. PARK VISTA IMPROVEMENT CO. et al.

294 P. 1028

160 Wash. 12

SPOKANE SAVINGS & LOAN SOC. v. PARK VISTA IMPROVEMENT CO. et al.

No. 22219.

Supreme Court of Washington

December 30, 1930

Department 1.

Appeal from Superior Court, King County; Wm. J. Steinert, Judge.

Action by the Spokane Savings & Loan Society against the Park Vista Improvement Company, A. Dalk & Company, the Montgomery Elevator Company, and others. From a decree, foreclosing mortgages and mechanics' and materialmen's liens, and an order confirming a sheriff's sale of the mortgaged property, defendants A. Dalk & Company and others and Montgomery Elevator Company and others appeal.

Affirmed.

Herr Bayley, Croson & Innis, F. Bartow Fite, Jr., Schwellenbach Merrick & Macfarlane, Bausman, Oldham & Eggerman, Edw. L Rosling, R. J. Meakim, Rummens & Griffin, Groff & Moran, W. Harold Hutchinson, C. A. Schneider, Revelee, Simon & Coles, Arnold Beezer, and Bronson, Jones & Bronson, all of Seattle, for appellants.

Edwin C. Matthias, of Seattle, for respondent.

MILLARD J.

The two appeals, which are consolidated, of certain lien claimants, from decree of July 10, 1929, foreclosing mortgages and mechanics' and materialmen's liens and from an order of October 5, 1929, confirming sheriff's sale of the apartment house property which is the subject-matter of this controversy, are before us upon the findings alone; appellants not having prepared a statement of facts. The Park Vista Improvement Company, the mortgagor of the property, has not appealed. Two of the lien claimants, Truax and Dalk, gave notice of appeal but did not perfect their appeals. They have not filed briefs nor have they appeared in this court by counsel.

In the clerk's transcript are contained the trial court's memorandum decision and a written contract of respondent with two of the appellants respecting the purchase by the former of the liens of the latter.

The court's memorandum decision, as we said in Lee v. Gorman Packing Corporation, 154 Wash. 376, 282 P. 205, 207, '* * * may not in this court be made to take the place of and a substitute for a statement of facts.'

The findings recite that the contract was offered in evidence and that the same was by reference made a part of the findings of fact, therefore the written contract may be considered as it is properly before us. Pinkham Lumber Co. v. Woodland State Bank (Wash.) 286 P. 95.

The only question presented by the appeal from the decree of foreclosure, there being no statement of facts in the record, is whether the findings of fact, summarized as follows, support the decree:

In the latter part of 1927 the Park Vista Improvement Company was planning, but had not yet commenced, the construction of an apartment house on certain land in Seattle. On December 16, 1927, the Spokane Savings & Loan Society made a loan to the improvement company of $150,000 which was secured by a first mortgage upon the apartment house property. In January, 1928, the improvement company entered into a written contract with A. S. Hainsworth, Incorporated, for the construction of the apartment house for $219,000. The loan society was authorized by the improvement company to advance to the contractor as the building progressed a large portion of the loan. Part of the money was advanced by the loan society to pay existing mortgages upon the property, commissions for the loan, taxes, title and recording expenses, and interest for six months on the principal indebtedness. As receipts were presented from time to time to it by the contractor, the loan society advanced funds under the first mortgage until August, 1928, when all of the funds were exhausted As the improvement company was without funds and it was unable to arrange for the payment of the contractor, the construction ceased. On September 1, 1928, the contractor negotiated with the loan society for additional money and took over a majority of the stock of the improvement company. The loan society made a loan to Contractor Hainsworth of $26,500 to be used in completing the apartment house. This loan was secured by a second mortgage on the apartment house property. The proceeds of the loan were distributed as follows:

For commission, $1,500; title and recording expenses, $64.75; to Contractor Hainsworth, $16,435.25. The loan society retained $8,500, which it refused to pay to the contractor for the reason that the loan society had discovered that lienable labor and material bills exceeding $40,000 were outstanding and that most of them were prior to the loan society's second mortgage. The failure of the improvement company to pay the interest due on the two mortgages resulted in the commencement of an action by the loan society for the foreclosure of the mortgages. The improvement company, the contractor, and a number of lien claimants were made parties defendant. A receiver was appointed, liens were established as follows, and decree of foreclosure was entered July 10, 1929:

                            First Class. Receiver's certifi-
                          
                            cates ................................
                          
                            $ 4,129.89
                          
                            Second Class. Loan society's
                          
                            first mortgage .......................
                          
                            169,304.38
                          
                            Third Class. Appellants'
                          
                            labor liens ...........................
                          
                            13,726.93
                          
                            Fourth Class. Appellants'
                          
                            material liens ........................
                          
                            14,040.87
                          
                            Fifth Class. Labor lien of Truax ........
                          
                            2,415.56
                          
                            Sixth Class. Material liens of
                          
                            Truax and Dalk ........................
                          
                            15,997.63
                          
                            Seventh Class. Loan society's sec-
                          
                            ond mortgage ..........................
                          
                            20,694.56
                          
                            Eighth Class. Labor liens of a
                          
                            number of the appellants which
                          
                            were subordinated to the re-
                          
                            spondent's second mortgage on
                          
                            account of fraudulent receipts .........
                          
                            4,587.40
                          
                            Ninth Class. Material liens of a
                          
                            number of the appellants which
                          
                            were subordinated to the re-
                          
                            spondent's second mortgage on
                          
                            account of fraudulent receipts .........
                          
                            5,952.75
                          
                            -----------
                          
                            Total liens against the property ..
                          
                            $250,849.97
                          
                

No labor was performed and no material was furnished until some time subsequent to the date the first mortgage became a lien upon the apartment house property. Under the terms of the contract between Hainsworth and the improvement company, the contractor was to be paid $219,000 for the construction of the building. Of the loan of $150,000 secured by the first mortgage, $128,250 was to be paid by the respondent loan society, the mortgagee. The contractor was given a note of the improvement company for $39,750 (secured by a mortgage in that amount), $25,000 in preferred stock, and the contractor was to arrange for deferred payments by certain notes and conditional sale contracts in the amount of $16,000. That is, the contractor was to pur into the building the amount represented by his preferred stock and the note, or a total of $64,750, less the amount he would make as a profit on the contract. This method of advancing money from the first mortgage funds was adopted by the respondent to protect itself against liens over and above the amount of the first mortgage.

As agreed by the parties, respondent advanced mortgage moneys to the contractor, who furnished to the respondent from time to time statements to which were attached receipts showing payments made by the contractor for labor and materials used in the construction of the apartment house. This method enabled the respondent to cheak and compare its advancements with the expenditures made by the contractor and assured the respondent that the contractor had at all times invested in the building a sum in excess of that advanced by the respondent up to date. A number of the appellant subcontractors gave receipts to the contractor reciting payment of the amounts represented by the receipts, which receipts were fraudulent. The subcontractors had not, in fact, been paid such amounts. These subcontractors knew that the contractor was required to present receipts to the respondent to obtain mortgage funds from the respondent, and they gave fraudulent receipts to the contractor for that purpose. The fraudulent receipts were presented by the contractor to the respondent, and the contractor received from the respondent the amount represented by the receipts as respondent was not aware that the receipts did not represent moneys already invested in the building by the contractor and moneys previously paid by the contractor to the subcontractors. In some instances the contractor did not turn any of the funds received on such fraudulent receipts over to the subcontractors who had given him the receipts; but in other instances he paid to the subcontractors a part of the money received from the respondent on the receipts. The excess of the amount of the fraudulent receipts given by the subcontractors over the amount actually paid by the contractor to the subcontractors was $4,587.40 for labor, and $5,952.75 for material. The liens of those subcontractors, because of their fraud, were subordinated to the respondent's second mortgage, as shown by the above classification of liens.

The appellant Inlaid Floor Company, in which a man named Truax was a...