Title: MILLER v MELANEY
Citation: N/A
Docket Number: 13411
State: Montana
Issuer: Montana Supreme Court
Date: March 2, 1977

No. 13411 IN THE SUPREME COURT OF THE STATE OF MONTANA GEORGE C. MILLER, d/b/a CENTRAL PLUMBING AND HEATING, Plaintiff and Appellant, CHARLES W. MELANEY and MARY GLADYS MELANEY, husband and wife, and DEL HOSTETTER, Defendants and Respondents. Appeal from: District Court of the Eighteenth Judicial District Honorable W. W. Lessley, Judge presiding. Counsel of Record : For Appellant: Bolinger and Wellcome, Bozeman, Montana Page Wellcome argued, Bozeman, Montana For Respondents : Thomas I. Sabo, Bozeman, Montana Landoe, Gary and Planalp, Bozeman, Montana Robert Planalp argued, Bozeman, Montana Submitted: January 10, 1977 Filed: ,,dK 377 M r . Jusrice Gene B. Daly delivered the Opinion of the Court. This appeal involves a subcontractor's attempt t o foreclose a mechanic's l i e n against homeowners and a general contractor. The d i s t r i c t court, Gallatin County, declined t o foreclose t h e mechanic's l i e n and ruled i n favor of a l l defendants. The sub- contractor, George C. Miller, d/b/a Central Plumbing and Heating, appeals. O n June 3 , 1974, the general contractor Del Hostetter entered i n t o a contract with homeowners Charles W. Melaney and Mary Gladys Melaney t o construct an addition t o t h e i r home. The t o t a l contract price f o r the work was $22,600. The contract provided f o r compensation t o the contractor i n periodic payments, upon completion of specific segments of t h e work. The f i n a l payment was due upon completion of t h e addition and the contractor's delivery of l i e n waivers t o the homeowners. Miller accepted a subcontract t o i n s t a l l t h e heating system pursuant t o the general contractor's specifications which included t h e s i z e and location of duct work and furnace. The contract price was $925.00. Homeowners tendered a l l payments under the contract, when due, u n t i l the payment f o r $1,520 which was t o be paid a f t e r t h e i n s t a l l a t i o n of the heating system. Homeowners refused t o make t h i s payment because of alleged insufficiency of the heating system. Following refusal of payment, the contractor withdrew from the job and the subcontractor was denied admission t o the s i t e . The subcontractor has never received payment f o r work per- formed on the addition. Thereafter homeowners contacted an architect who re- designed the heating system by replacing a substantial portion of the existing duct work with a larger diameter duct and insulating the duct system. A supplemental furnace was installed in the garage to heat those portions of the house farthest from the furnace which was initially installed by the subcontractor. Home- owners paid $1,542.60 for these modifications to the heating system. The subcontractor brought an action inpthe district court to foreclose his timely filed mechanic's lien. The district court denied the subcontractor foreclosure on the mechanic's lien and awarded homeowners a personal judgment against the subcontractor on their counterclaim for defective workmanship, holding the gross amount of damages incurred by homeowners exceeded the cost of the subcontractor's work by $757.08. The district court awarded home- owners attorney fees and costs incurred in defending the lien foreclosure action. The district court further held the general contractor was entitled to judgment in his favor, thus denying the subcontractor any recovery from the contractor. These issues are presented for this Court's review: 1 ) Allowing homeowners to recover a personal judgment against the subcontractor, lien claimant, by means of a counter- claim. 2) The judgment in favor of the general contractor thus allowing general contractor to avoid liability to the subcontractor. Issue 1 . The subcontractor contends that a personal judgment can only be based upon the privity of a contractual re- lationship between the homeowner and the subcontractor. Since no contract was executed between homeowners and the subcontractor in the instant case, the subcontractor argues no privity of con- tract was established for purposes of rendering a personal judgment. This Court fails to find merit in this contention. The correcc law is stated at 53 Am Jur 2d, Mechanics' Liens, $391: "In an action by a contractor or other claimant to enforce a mechanic's lien, the owner may avail him- self of all matters allowable by way of cross bill, cross complaint, recoupment, setoff, or counterclaim which arise out of the contract between the owner and the contractor, and which are available against the contractor or other claimant. He may maintain a cross bill, cross complaint, or counterclaim to recover damages sustained by the failure to perform the work according to the contract, or to recover damages connected with the construction, such as for defects or delay, damages for fraud, or damages from a materialman's inducing him to enter into a contract with a bankrupt contractor who did not complete his contract. * * *I' See: Monarch Lumber Co. v. Wallace, 132 Mont. 163, 314 The subcontractor cites the Montana case, Frank J. Trunk & Son, Inc. v. DeHaan, 143 Mont. 442, 391 P.2d 353, and a California case, R. D. Reeder Lathing Co. v. Allen, 57 Cal.Rptr. 841, 425 P.2d 785, to support his position. Trunk, like the instant case, concerned a subcontractor's attempt to foreclose a mechanic's H e n against homeowners who benefited from the subcontractor's work. The district court denied the subcontractor recovery under the mechanic's lien because of invalid filing of the lien. The subcontractor contended the district court should have entered personal judgments against the homeownersand the contractor notwithstanding the invalidity of Court the lien. The district court found, and this/affirmed, that a personal judgment against the homeowners could not arise since such a judgment could only be grounded upon privity of contract between the subcontractor and the homeowners. Absent the sub- contractor's privity of contract with the homeowners, the only basis upon which a judgment against the homeowners could be pre- dicated, i.e., the lien, was lost by failure to perfect it. The c r i t i c a l distinction between Trunk and the instant case is the availability of remedies. I n Trunk the subcontractor was denied a personal judgment against the homeownersbecause h i s remedy was the mechanic's l i e n which he failed to perfect. Had the subcontractor perfected h i s lien, he would have been allowed to recover even though no contract existed between the l i e n claimant and the homeowner. The subcontractor need only establish a con- t r a c t , express or implied, between the homeowner and the prime contractor. The rationale behind t h i s rule i s that by virtue of the contract between the prime contractor and homeowner, an implied agency i s created between the two, giving the contractor the authority t o contract with subcontractors and materialmen for performance and supplying of materials. Glacier State Electric Supply Company v. Hoyt, 152 Mont. 415, 451 P.2d 90. Similarly, the homeowner i s vested with certain remedies when he faces a l i e n foreclosure action brought by a subcontractor, as specifically s e t out heretofore i n 53 Am Jur 2d, Mechanics' Liens, 6391, which includes the remedy of counterclaim here. The purpose of mechanic's lien legislation i s not t o s t r i p the homeowner of recourse for frivolous l i e n foreclostsre actions, but t o allow the l i e n claimant a remedy where no privity of contract exists between the lien claimant and the property owner. In R.D. Reeder Lathing Co. v. Allen, 57 Cal.Rptr."altl, 425 P.2d 785, 788, the California court stated: ""'While the essential purpose of the mechanic's l i e n statutes i s t o protect those who have performed labor o r furnished material towards the improvement of the property of another, * * * inherent i n t h i s concept i s a recogni- tion also of the rights of the owner of the benefited property. It has been stated that the l i e n laws a r e for the protection of property owners a s well a s l i e n claimants. * * *""I Reeder, Like Trunk, involved a subcontractor who sought t o foreclose a mechanic's l i e n t o impress the improved property. The lower court granted the subcontractor's motion f o r summary judgment and decreed t h a t defendant was personally l i a b l e t o the subcontractor f o r t h e value of the labor and materials supplied. The Supreme Court found the provision of the lower court judgment which held the defendant personally l i a b l e t o the p l a i n t i f f was erroneous. A s i n Trunk, the Supreme Court of California. held that i n the absence of a contract between a l i e n claimant and the property owner, the r i g h t t o enforce a mechanic's l i e n against r e a l property does not give r i s e t o personal l i a b i l i t y of t h e owner. The r u l e denying a l i e n claimant a personal judgment against a property owner i n a l i e n foreclosure action, where p r i v i t y of contract i s absent, cannot be conversely applied t o deny a property owner a personal judgment against a l i e n claimant f o r damages a t t r i b u t a b l e t o the l i e n claimant and a r i s i n g out of the contract between the property owner and the prime contractor. Issue 2. The contention the d i s t r i c t court erred when - it concluded t h e general contractor owed nothing t o the subcon- t r a c t o r and was e n t i t l e d t o a judgment i s correct. The record of the proceedings i n the d i s t r i c t court d i s - closes the subcontractor constructed the heating system i n com- pliance with c e r t a i n specifications provided by the general con- t r a c t o r , e.g., the s i z e of the furnace, the location of the furnace and the location of a i r ducts. Inherent i n the d i s t r i c t c o u r t ' s award of damages t o the homeowners i s a determination t h a t the heating system, a s o r i g i n a l l y designed, was inadequate. L i a b i l i t y i n regard t o damages f o r deficiency i n design applied t o the contractor, not the subcontractor. The district court erred when it entered judgment for the general contractor and denied the subcontractor his right to indemnification. The district court must determine the con- tractor's liability for damages based upon the effect of the contractor's deficient design specifications which the subcontractor was compelled to use in performing under the contract. The judgment of the district court is affirmed in part, reversed in part and remanded for modification not inconsistent with this opinion. ustice We Concur: ~ & L e f Justice -