The Elder Mercantile Company v. The Ottawa Investment Company

• Decision Date: 12 May 1917
• Docket Number: 21,091
• Citation: 100 Kan. 597,165 P. 279
• Court: Kansas Supreme Court
• Parties: THE ELDER MERCANTILE COMPANY, Appellee, v. THE OTTAWA INVESTMENT COMPANY et al. THE DOBSON INVESTMENT COMPANY, THE STATE BANK OF OTTAWA and F. C. DOBSON, Appellants, S. D. PEACOCK and HOWARD W. PEACOCK, Partners as PEACOCK & SON, et al., Appellees.

165 P. 279

100 Kan. 597

THE ELDER MERCANTILE COMPANY, Appellee, v. THE OTTAWA INVESTMENT COMPANY et al.

THE DOBSON INVESTMENT COMPANY, THE STATE BANK OF OTTAWA and F. C. DOBSON, Appellants, S. D. PEACOCK and HOWARD W. PEACOCK, Partners as PEACOCK & SON, et al., Appellees.

No. 21,091

Supreme Court of Kansas

May 12, 1917

Decided January, 1917.

Appeal from Franklin district court; CHARLES A. SMART, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. CONTRACT--Construction of Building--Suspension of Work by Owner--Not an Abandonment. When the owner or real estate begins the construction of a building thereon, and for want of funds to continue its construction or for other reason suspends the work, but with an intention and desire to complete it as soon as possible, and later contracts with a building firm for such completion which is begun, held, that as to such owner such suspension does not constitute an abandonment of the work.

2. BUILDING CONTRACT--Suspension of Work--Mechanics' Liens. When the materialmen are not advised and do not know of such intention and desire to complete the building, they may treat the work as abandoned and file liens.

3. BUILDING CONTRACT -- Suspension of Work -- New Contractor -- Materialmen's Liens. When, after so treating it and so filing their liens, they contract with a building firm which contracts with the owner to complete the building, and agree with such firm, with the knowledge and cooperation of the owner, to furnish labor and material to complete the building, their former liens being recognized by such firm and owner, then upon abandonment of the work by such firm such materialmen may have liens for all the labor and material furnished.

4. SAME--Mechanics' Liens--Rights of Materialmen. When in such contract to furnish labor and material for the completion of the building the materialmen agree not to file liens on the assumption that a certain bond will be given by such firm as required by its contract with the owner, they are not required to take notice of the failure to give such bond, but on ascertaining such failure may file their liens their waiver so to do being contingent on the fulfillment of the contract to give such bond.

5. SAME--Priority of Liens. The company which began the construction of the building agreed with the firm which contracted for its completion to pay therefor certain bonds which were to be a first lien on the property, and agreed to see that an existing mortgage thereon should be released. When the materialmen contracted with reference to the completion of the building they knew of this provision. The owner and the holders of the first bonds were aware and had visual knowledge of the work of completion and that the materialmen were putting their labor and material into the building, but failed to have such first mortgage released. Held, that the trial court did not err in giving the holders of such first lien a second lien, the building firm the third, and the materialmen concurrent first liens for their respective claims.

6. SAME--Mechanics' Liens--Rights of Subcontractors. While a subcontractor must take notice of the contract between his principal and the owner of the property, he is not bound by all of its terms, neither is he bound to know of its nonfulfillment.

7. SAME--Mechanics' Liens--Rights are Statutory. While mechanics' liens and the rights thereunder are statutory, their foreclosure and adjustment are not governed exclusively by the rigid rules of law, but to them are also applied the familiar principles of equity.

8. SAME--Materialmen's Liens--Amount of Recovery. A claim for material which adds to its actual cost a profit of twenty per cent thereof is not, in the absence of proof, to be deemed unfair or unreasonable.

9. SAME. A profit of twenty per cent on that portion of the material not furnished because of abandonment of the work by the contractor, can not legally be allowed the subcontractor.

Wilbur S. Jenks, of Ottawa, A. E. Crane, Oscar Raines, R. F. Hayden, all of Topeka, and Robert S. Heizer, of Osage City, for the appellants.

F. M. Harris, J. L. Shelden, W. B. Pleasant, Ralph E. Page, Curtis M. Oakes, all of Ottawa, and Charles Carroll, of Louisville, Ky., for the appellees.

OPINION

WEST, J.:

Of the numerous defendants the Dobson Investment Company, State Bank of Ottawa and F. C. Dobson appeal from certain judgments in favor of a number of materialmen in litigation arising out of the construction of a building on ground formerly owned by the bank. The assignments of error chiefly relied on have reference to the priority of liens and to the amount of judgment rendered in favor of the Elder Mercantile Company. The parties and issues were so numerous that the court made thirty-eight findings of fact and nineteen conclusions of law.

The State Bank of Ottawa owned a certain lot. The Ottawa Investment Company was organized with substantially the same membership as that of the bank, with a capital stock of $ 10,000, the lot being purchased for $ 7500 in money and constituting the assets of the investment company. The latter company, desiring to build on the lot, had plans made and executed a trust deed to secure the payment of $ 50,000, which deed was placed of record. The work began, and before any money was secured the State Bank paid the bills as they came in for the labor and material going into the building. The investment company deposited $ 10,000 of the bonds as security for the advances, borrowed $ 5000 from a Kansas City bank; the company and its president, C. F. Dobson, indorsed the note individually and caused the company to deposit $ 5000 of the bonds with the Kansas City bank, and the money so borrowed was placed in the State Bank to cover an overdraft. Soon the overdraft grew to $ 10,000, and the note for $ 5000 having become due, it was paid by Dobson, who took it up and also the $ 5000 bonds, the investment company consenting that he should hold these as security, and later, by agreement with Dobson, the bank and the investment company, the bank became the owner of the $ 10,000 bonds which had been deposited with it and Dobson became owner of the $ 5000 bonds held by him as security, and the indebtedness of the investment company to Dobson and the bank was canceled. On June 1, 1914, the work on the building ceased. The materialmen had made agreements with the investment company to furnish material, and liens therefor were filed. Late in September the investment company contracted with Peacock & Son, with the consent of Dobson and the State Bank, to complete the building according to the original plans unless thereafter modified. In payment the investment company was to issue bonds in the sum of $ 65,000, secured by a first-mortgage lien on the real estate, building and contents, and issue its preferred stock to the amount of $ 35,000. The contract contained a stipulation that all bonds of the existing issue then outstanding and the mortgage securing the same should be canceled. Dobson was to accept in lieu of his $ 5000 of the old bonds a promissory note of the investment company for that amount. The investment company was to secure the consent and agreement of the State Bank to accept $ 10,000 of the new bonds for $ 10,000 of the old bonds held by it. The obligation of the contractors to proceed with the construction of the building was conditioned upon the retirement and cancellation of the other bonds and upon the contractors' being able to make satisfactory settlement of the obligations and debts of the investment company. The contract contained a warranty that the title was clear save the mortgage for the $ 50,000 bond issue, only $ 17,500 of which was outstanding. The contract also contained this provision:

"All materials now in said building or on the ground or in the street or otherwise furnished or delivered to said company for the purpose of constructing or erecting said building shall be and become the property of said contractors as part of the consideration of this contract and said company agrees to put said contractors in possession of the said building for the purpose of said construction and in possession of the said property and warrants the title of said property to said contractors subject to the aforesaid claims."

Shortly after the signing of this contract it was suggested that the investment company did not have legal authority to issue the bonds and stock provided for, and thereupon, at the suggestion of the Peacock firm, the Dobson Investment Company was organized out of the same personnel as had constituted the Ottawa Investment Company, capitalized at $ 65,000. At this time Dobson was vice president of the bank, and Finley, a member of the Dobson company and the investment company, was its cashier. The bank had been consolidated with another, and in February, 1915, was transacting business across the street from the incompleted building involved herein, and the bank officials at all times knew that Peacock & Son were proceeding with its completion, and Dobson and Finley and the bank knew that Peacock & Son had not furnished the surety bond for the faithful handling of the stock and bonds and for the completion of the building mentioned in the contract between them and the investment company. The Dobson Investment Company issued a trust deed upon the real estate in question, signed by Dobson as president and Finley as secretary, which trust deed recited that it was a first lien upon the real estate. It was executed June 25, 1915, and recorded August 18 following. The assets of the investment company were transferred to the Dobson company in April, 1915. October 31, 1914, the Elder Mercantile Company contracted with Peacock & Son for the completion of the heating,...