Case ID: ohio-st_55/html/0332-01.html
Source: Caselaw Access Project
Author: {"author": "Burket, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Standard Oil Company v. Sowden, Assignee, et al.
    
      Mechanic's lien — Notes to contractors for balance — Notes sold to indorsee— While indorsee holds notes lien taken by \contractors on structure — Lien valid.
    
    Upon completion oí a structure, three notes were taken by the contractors from the owner for the balance due, which notes were indorsed and sold to a bank, and within four months after the completion of the structure, and while the bank was the owner and holder of the notes, the contractors made and filed with the county recorder an affidavit in due form for perfecting a mechanic’s liento secure the indebtedness for erecting the structure. Held, that such lien is valid.
    (Decided December 1, 1896.)
    Error to the Circuit Court of Cuyahoga county.
    The Merchant’s Oil Company, a corporation, in the year 1891, employed Kennedy, DePorrest, Parsons & Company, a copartnership, to construct certain tanks in the refinery of the Oil company, and upon completion of the tanks, not having ready cash to. make payment, gave its three promissory notes for the amount due, at sixty, seventy-five and ninety days, which notes were accepted by the partnership, not as payment of the debt, but to give further time to the Oil company, and to enable the partnership to raise money by discounting the notes. The notes were at once indorsed by the partnership and sold to a bank, and while the bank was the owner -and holder of the notes, and within four months after the completion of the tank, the partnership filed with the recorder of the county an affidavit containing an itemized statement of the amount and value of erecting the tanks, with a description of the promissory notes, in all respects as required by section 3185, Revised Statutes.
    When the notes became due the Oil company failed to pay them, and the partnership took them up, and thereafter continued to be the owner and holder thereof, but no affidavit for the purpose of perfecting a mechanic’s lien was filed after it took up the notes, nor before it discounted them to the bank. -
    In the month of January, 1892, after said tanks had been completed, and before said notes had been made, and before any attempt had been made to perfect a mechanic’s lien, the Oil company executed and delivered a real estate mortgage to the Standard Oil company upon the premises upon which the tanks had been erected, and the Merchant’s Oil company having made an assignment to Mr. Sowden, defendant in error, who sold the premises under orders' from the probate court, a contest arose as to the distribution of the proceeds of sale.
    The probate court held the mechanic’s lien taken by the partnership valid, and superior to the lien of the mortgage of the plaintiff in error, and the partnership having produced the notes in the probate court, and offered to .surrender them, that court ordered its lien to be first paid out of the proceeds of the sale.
    Upon appeal to the court of common pleas, the case was submitted upon an agreed statement of facts, and the court held the mechanic’s lien invalid, and awarded the money to the Standard Oil company, ffpon its mortgage.
    The circuit court, on error held the mechanic’s lien valid, and awarded the money to the partnership. Thereupon the Standard Oil company filed its petition in error in this court, seeking to have the judgment of the circuit court reversed, and that of the common pleas affirmed.
    Henderson, KUne & Tolies, for plaintiff in error.
    The sole question presented for determination here is, could Kennedy, DeForest, Parsons & Co.obtain a lien at a time when they were not the owners of these notes and it was not even certain that they would ever be liable thereon ? Or was it necessary for them, in order to obtain the protection of the mechanic’s lien law, to be the owners of the notes given for the work done by them . at the time of filing the affidavit required by the statute?
    We concede that the mere acceptance of a note for work done ’ or material furnished by a con-: tractor to the owner is not in this state a waiver of his right to obtain a mechanic’s lien. We believe this was so even before the amendment of the statute, but under section 3185, as it. now stands, which expressly provides for setting out a description of any promissory note given for such labor or material, of course the right to take the note without, waiving the right to the lien cannot be questioned.
    We may concede also, for the purpose of this case, for that question is not here, that the mere negotiation of a note so taken is not a waiver of the right to a lien, but that if a note having been so taken and negotiated is afterward reacquired by the contractor within the statutory period of four months from the time of performing his labor or furnishing his material, he may yet, under the statute, file his affidavit and obtain his lien.
    
      It is true that in this state a note given for an indebtedness is not a payment of that indebtedness, unless there is an express agreement to the effect that the note is to be received in payment. There was no such agreement in this case. A note so given, however, is a conditional payment of the indebtedness for which it is given. By the giving and acceptance of the note the debt is can-celled conditionally and has no existence or vitality until the -dishonor of the note giveu for it. No action can be maintained upon it until the note is matured, nor afterwards, unless the note having been dishonored, is surrendered for cancellation or in' some other way accounted for. 2 Daniel on Negotiable Instruments, 272, section 1272. • ■
    This, it seems to us, as above urged, to be the true theory of the effect of taking a promissory note for another indebtedness, viz.: that it is a conditional payment, cancelling the other indebtedness during the currency of the note, v hich indebtedness may, however, revive upon its dishonor. It seems to us, therefore, clear that when the payee transfers his note during its currency, he has no claim left in his hands, nor is he a creditor, nor can he become one until he again becomes the owner of the note. It may happen that the endorsee of the note will fail by proper demand and notice to fix his liability as endorser thereon, and in such case it is clear that the original debt never revives, but remains merged in the note. In such a ease the ruling of the court below would permit one who was not a creditor of the owner of property, and who never thereafter became a creditor, to place upon the records a lien against his property. This certainly was not contemplated by the act. Palmer v. Uncas Mining Co., 70 California, 614.
    The court seems to treat the reacquirement by the miner of the order before the expiration of his time for filing his claim of lien as essential to the right to file süch claim, and in that particular holds what we here contend for, that the ownership bjr the material man of 'the claim or debt against the land owner is essential to his perfecting his lien.
    Although it is everywhere held that the mere right to perfect a lien is not assignable, of course there is no reason why a perfected lien is not as transferable as any other security and should follow the note evidencing the indebtedness secured by it into whatever hands it may come. Morton, Assignee, v. Austin, 12 Cushing, 389.
    We believe the reason this question has not reached courts of last resort is, that wherever it is disclosed to counsel engaged in the preparation of a mechanic’s lien that notes have been taken and have been sold, the safe course for the material man is to repossess himself of the notes in order to perfect his lien, and that this has been the constant practice, so that this question has not presented itself.
    
      Burke <& Ingersoll, for defendants in error.
    It is contended by the attorneys for the Standard Oil Co., that inasmuch as Kennedy, DeForest, Parsons & Co., on February 3d, 1892, took the notes in question covering the entire amount of their claim and endorsed the same to the bank on that date, they therefore parted with all claim which they had against the Merchant’s Oil Co., and had nothing due then on which they could base a claim, on the 12th day of March, 1892, the notes then being in the hands of the bank, they were wanting entirely for a base on which to rest their claim filed in the recorder’s office. Upon the first point we claim:
    It certainly was not within the meaning of the statute above cited, section 3185, that the receiving of the notes . by the mechanic who claimed his lien should deprive him of right to perfect his lien.
    (a) The language of that statute is as follows: Besides other 'things contained, or to be contained in an itemized statement of account which is to be sworn to and filed with the recorder, it is said, “And a description of any promissory note or notes given for such labor or material or any part thereof.” It seems to us nonsense to contend that the law should require a statement of such notes in every sworn account for a lien, and yet mean to deprive of the right to a lien if notes had been taken.
    The only effect of taking such promissory note was not to discharge the original account, not to merge the original account in a note in absence of an agreement that the note should be taken as a payment, but merely to furnish evidence of the agreed amount of the account, and to furnish it in such shape that the mechanic would be able to obtain money upon this evidence of account when he was asked to accommodate the owner of the premises and the maker of a note, giving bim further time.
    (b) We contend in behalf of Kennedy, DeForest, Parsons & Co. that the doctrine is clearlv established in Ohio, that the taking of a note given by a debtor to his creditor covering the amount of an account due from him to his creditor when it remains unpaid at maturity, does not operate as payment of the original account, unless at the time the note was given there was a distinct, expressed agreement, that it should be accepted by the fereditor in payment of the account. Merrick v. Boury & Sons, 4 Ohio St., 60; Leach v. Church, Admr, 15 Ohio St., 172.
    (c) We contend that with this fact admitting that there was no agreement to receive the notes in question in payment of the account for labor and materials which had been furnished by Kennedy, DePorest, Parsons, & Co., when the notes were so taken and held by them, such notes were merely evidence of the indebtedness, that the account to which the lien was attached by virtue of the statute, was an individual chose in action itself, and continued such during the time the notes existed, and when the notes remained unpaid and were taken up by the indorsers, Kennedy, DeForest, Parsons & Co., the right to sue upon the original account still remained with them and was all the while remaining with them, except that it was suspended during the time said notes were in force prior to their maturity and dishonor, and therefore, their right on the 12th day of March, 1892, to take out a lien, was in no sense discharged or waived, but they had that right at that time. Bank v. Schlott, 59 Iowa, 316; Miller v. Moore, 1 E. D. Smith, (N. Y.), 739; Blake v. Pitcher & Wilson, 46 Md., 453; Morrison v. Laura, 40 Mo., 260; Edwards v. Derrickson, 28 N. J. L., 39; L. B. & Co. v. Jones, 79 Ala., 156.
    These are the principal cases, which, after considerable investigation, we have found to sustain the contention upon our part, and we submit that they certainly are within the philosophy and reason of this rule which was designed for the protection of mechanics ; and if the same be interpreted, as wé claim, it seems to us that it secures only what equitably belongs to the mechanic; and certainly it is not in the mouth of the debtor, or anyone who stands in his shoes, as a subsequent mortgagee, to now come in and expect to deprive us of our right as lien holders, because we saw fit, when the debt was due, to accommodate the debtor to take his notes, rather than urge and insist upon his payment in money, when it was due. Van Stone v. Manf ’g. Co., 142 U. S., 128.
   Burket, J.

It is urged by plaintiff in error that the mechanic’s lien is void, for the reason that the affidavit upon which it is based, was filed while the bank was the holder and owner of the notes, and while the' partnership was not the creditor of the owner of the premises and while the owner owed the money to the bank, and not to the partnership. It was strongly urged in oral argument that the partnership could not truthfully say under oath while the notes were outstanding, that any amount was due or payable to it for building the tanks.

' In Brooks v. Finney, 39 Ohio St., 57, where promissory notes had been taken in payment, of the amount due, it was held that no mechanic’s lien could thereafter be taken for such amount. Shortly thereafter the general assembly amended section 3185 so as to authorize the taking of such liens, in cases where promissory notes had been given for the amount due.

The general assembly has shown a, purpose-to go as far as it can, within the limits of the constitution, to protect mechanics, laborers and furnishers of materials in the collection of the amounts due them, and the statutes are so worded as to sweep away all technicalities in the remedy. Section 3185 provides that the mechanic, laborer or furnisher shall file “an affidavit containing an itemized statement of the amount and value of such labor, machinery or material * * * with all credits and off-sets thereon, a copy of the contract, if it is in writing, a statement of the amount and times of payment to be made thereunder, and a description of the premises, ’ ’ etc. Having made and filed such affidavit with the county recorder and caused it to be recorded, 'the-same shall “operate as a lien from the date of the first item,” etc.

It will be noticed that this statute requires no statement of the amount due or owing to the mechanic, laborer or furnisher, nor does it require a statement as to who owns the promissory notes. The lien is taken to secure the indebtedness, and the indebtedness, whether in the form of account or. note, will remain secured by the lien until payment, and when payment shall be made, the lien must be released, and upon refusal the same may be compelled by action. In the taking of the lien, it makes no difference who holds or owns the notes. When the owner of the property comes to make payment, he may be put to some little inconvenience in ascertaining the parties entitled to receive the same, and in obtaining a valid release of the lien, but such inconvenience is only an incident of the transaction, like garnishee process, and does not affect the property rights of the owner of the structure, and only diverts the money owing by him from one person to another. A like inconvenience arises when a note secured by mortgage is transferred without assigning the mortgage. In such, case payment must be made to the holder, while the release of the mortgage must be obtained from the mortgagee.

The mechanic’s lien law has been amended from time to time, and each amendment evinces a purpose on the part of the general assembly to more effectually secure the mechanics, laborers and furnishers of materials, in the collection of the moneys earned by them. The object of the statute is to tie up the money owed by the owner of the structure, and make it a security for the indebtedness to, the mechanics, laborers and furnishers, and those holding under them, their, rights to the fund to be determined by the ordinary rules of law and equity; but the owner of the structure, and other lien-holders, cannot take advantage of the manner in which the indebtedness is held by others, to defeat the lien. If notes are accepted as payment, such payment as effectively discharges the indebt- • edness as a payment in ’cash, but as long as the indebtedness for erecting the structure exists unpaid, it may be secured by the taking out of a mechanic’s lien.

As the notes in question were not accepted as payment, it follows that, the partnership had the right to perfect its mechanic’s lien for the security of the. indebtedness, while the notes were owned and held by the bank, and the lien having been taken in time, and being in due form, should be upheld.

It follows that the circuit court did not err in awarding the money to the partnership. This conclusion is reached by a construction of our statute, but the following cases from other states also throw some light upon the subject.

Palmer v. Uncas Mining Co., 70 Cal., 614; Bank v. Schloth, 59 Iowa, 316; Graham & Co. v. Holt, 4 B. Monroe, 61; Edwards v. Derrickson, 28 N. J. L., 39; Sweet v. James, 2 Rhode Island, 270; Steamboat Charlotte v. Hammond, 9 Mo., 59; Scott v. Ward, 4 (Greene’s) Iowa, 112; Hawley v. Warde, 4 (Greene’s) Iowa, 36, and Phillips on Mechanic’s Liens, section 278.

To the same effect is Building Association v. Kelsey, 11 Weekly Law Bulletin, 38.

Judgment Affirmed. ■