Court Opinion

ID: 9849469
Source: CourtListenerOpinion
Date Created: 2023-09-24 04:40:38.064173+00
Date Added: 2024-06-11T09:17:59.310213
License: Public Domain

FOSHEIM, Chief Justice
(dissenting).
The majority opinion holds the supplier must apply payments from the contractor to materials furnished a particular property for the owner’s benefit. This greatly exposes only open-account suppliers and diminishes their protection under the mechanic’s lien statute. See, SDCL ch. 44-9. Thus, open-account suppliers will be required to either: 1) complete all necessary steps delineated in SDCL ch. 44-9 to perfect their mechanic’s liens and inquire for application the source of each payment received from contractors or 2) utilize the procedures outlined in the direct billing statute. See, SDCL 44-9-10. Enforcement of mechanic’s liens does not hinge on such conditions,1 nor is this contemplated by the statutory framework of either SDCL ch. 44-9 or ch. 20-4.
The statutory scheme of SDCL ch. 44-9 as it exists provides two distinct remedies to a supplier against an owner; direct billing under SDCL ch. 44-9-10 and enforcement of a perfected mechanic’s lien. SDCL ch. 44-9 et seq. See Keeley Lumber and Coal Co. v. Dunker, 76 S.D. 281, 77 N.W.2d 689 (1956); St. Croix Lumber Co. v. Mitchell, 6 Dak. 215, 50 N.W. 624 (1889) (notice to owner does not affect validity of lien); McLaughlin Elec. Supply v. Am. Empire Ins., 269 N.W.2d 766 (S.D.1978); see generally, Dugan, Mechanics’ Liens for Improvements on Real Property, 25 S.D.L. Rev. 239 (1980). Such remedies are the only means by which suppliers may collect payment from an owner or an owner’s real property, absent privity between supplier and owner. See, SDCL 44-9-49, negative inference.2 An open-account supplier is not ordinarily in privity with an owner.
Suppliers may also proceed directly against their debtors, usually contractors, in an ordinary civil action. See, McLaughlin, supra at 771. Open-account suppliers may apply payments received from the debtor-contractor according to SDCL 20-4-9.
The majority’s reliance on SDCL ch. 20-4 as controlling is misplaced. SDCL ch. 20-4 applies to performance of obligations between creditors and debtors. This open account was between supplier and contractor. The supplier was the creditor. The contractor, not the owner, was the debtor. The relationship between supplier and owner was remote. A direct debtor-creditor relationship existed between supplier and contractor. SDCL 20-4-9 requires that an open-account creditor apply payments to the oldest obligation first, unless the debt- or indicates otherwise or the creditor elects. The contractor did not indicate his intent that payments be applied to materials furnished for the owner’s benefit. Supplier was fully within his rights as between himself and his debtor when he applied the payment to the oldest obligation first. See SDCL 20-4-9.
The South Dakota cases cited are distinguishable and do not support the majority opinion. In Crescent Electric Supply Co. v. Employers Mut. Cas. Co., 79 S.D. 18, *360107 N.W.2d 252 (1961), the subcontractor-debtor clearly indicated his intent directly to the supplier-creditor to apply payments for a third party’s benefit, (both the subcontractor and the open-account supplier executed a written assignment of all monies due for a specific project and dual endorsed checks were issued in payment.)
F.M. Slagle & Co. v. Bushnell, 70 S.D. 250, 16 N.W.2d 914, 156 A.L.R. 1070 (1944), involved a suit directly between both parties to the open account, (the debtor himself clearly indicated his intent that payments should not be applied to the oldest obligation first by paying small amounts equalling individual purchases.) Id. In this case, the debtor made a lump sum payment ($10,000) and made no indication as to how the payment should be applied.
Hill v. Alliance Bldg. Co., 6 S.D. 160, 60 N.W. 752 (1894), is inapposite; the issues in that case involved the validity and waiver of mechanic’s liens and priority among lien-ors. (I would note, also, the court in Hill favored the lien claimant in holding the lien claimant does not waive the right to enforce his lien by accepting or assigning a promissory note for the amount of his claim.) Id. 60 N.W. at 754.
Union Central Life Ins. Co. v. Co-operative Lumber Co., 51 S.D. 197, 212 N.W. 876 (1927) is contrary to the majority’s proposition. Union Central Life, supra, in fact supports the contention that owners have a responsibility to insure that payments made to contractors are paid to suppliers and materialmen if they expect to escape enforcement of valid liens.3
The majority opinion does violence to South Dakota precedent. It tends to diminish the recognized purpose of the mechanic's lien statute which has been to favor and protect suppliers and laborers. Lytle v. Morgan, 270 N.W.2d 359 (S.D. 1978); Pinkerton v. LeBeau, 3 S.D. 440, 54 N.W. 97 (1893). SDCL ch. 20-4 is effectively strained to further limit an open-account supplier’s remedies against an owner’s property under ch. 44-9. Concurrently, owners are allowed to call upon hindsight and identify or create “circumstances” which a supplier “should have known” compelled him to apply a contractor’s payment for the owner’s benefit. This virtually removes any responsibility for self-protection from an owner and places the burden squarely on the open-account supplier.
The owner in this case did nothing to protect himself.4 The supplier fully per*361fected his rights and should be protected. See, Union Central Life, 212 N.W. at 878; Wickes Comp. v. Frye, 202 Neb. 23, 273 N.W.2d 663 (1979); Dolder v. Griffin, 323 N.W.2d 773 (Minn.1982). It is not enough to say we are deciding this case based on SDCL ch. 20-4, when the effect of the decision is to substantially modify open-account supplier’s rights under SDCL ch. 44-9. If this is to be done, it should be done by the Legislature.

. SDCL 44-9-1 states: "Whoever shall ... furnish ... materials ... shall have a first lien ...”

. SDCL 44-9-49 states:
“[n]o failure to comply with any of the provisions of this chapter (mechanic's and materi-almen's liens) shall affect the right of any person to recover, in an ordinary civil action, from the party with whom he has contracted. (emphasis added).
McLaughlin, supra at 770, citing, Keeley Lumber, supra; See also, Sherman v. Meyer, 312 N.W.2d 373 (S.D.1981) Ringgenberg v. Wilmsmeyer, 253 N.W.2d 197, 203 (S.D.1977) (Zas-trow, L, dissenting).

. Union Central Life stated:
The facts and circumstances shown do not raise any equities in favor of plaintiff (mortgagee) [owner here].... It had notice of the existence of said mortgages [lien] before it made the loan [payment], and it is charged with notice that the building material was being delivered on the premises and the barn was being constructed before it parted with its money to Treeby [owner]. If it was its intention or desire to have existing liens and encumbrances paid with the money advanced by it, it was its duty to see that the money was applied to that purpose. Not having done this, it is in the position of a mere volunteer who advanced its money to Treeby [owner] and left it optional with him as to the use that would be made of it by him. (emphasis added).
51 S.D. at 201, 212 N.W. at 878.

. Supplier points out no less than seven precautions the owner could have taken to avoid liability in this case:
1.Under SDCL 44-9-14, the owner by serving a written request within 15 days after completion of the contract may require any person who may have a lien under the provisions of SDCL ch. 44-9 to furnish him an itemized and verified account of his lien claim, the amount thereof and his name and address. Thus the owner could then see to the payment of the supplier before releasing funds to the contractor.
2. The owner can place the supplier's name on the check when he gives it to the contractor in payment of the contract. This procedure was used in Crescent Electric Supply Co. v. Employers Mut. Cas. Co., 79 S.D. 18, 107 N.W.2d 252 (1961).
3. Before making payment to the contractor, the owner can require that the contractor provide him with a lien waiver from each of his suppliers showing that the supplier had been paid or has agreed to waive his lien rights.
4. The owner in'his contract with the contractor can require the contractor to provide proof of payment of all suppliers before any payment is due by the owner to the contractor. Albright v. Smith, 2 S.D. 577, 51 N.W. 590, 593 (1892).
5. In contracting with the contractor, the owner can require the contractor to provide a *361performance bond or other security assuring the owner that the supplier will be paid and no mechanic's liens will be filed. Albright v. Smith, Id. at 593.
6. In his initial contract, the owner can require that no payment be made to the contractor until more than 120 days after completion of the contract in order to assure himself that no mechanic’s liens will be filed. Albright v. Smith, Id. 51 N.W. at 593.
7. Pursuant to SDCL 20-4-7, the owner as third party creditor of the contractor can direct the contractor to make payment on the supplier’s account and can notify the supplier of such direction.