Court Opinion

ID: 3547953
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:00:32.464356+00
Date Added: 2024-06-11T14:06:30.835024
License: Public Domain

Even though this court has held respondent to have no equitable lien upon the retained percentage, arising from the fact that it was a job creditor, it does not necessarily follow that respondent has no equitable lien upon said fund by reason of the fact that the restraining order issued by the trial court caused said fund to be sequestered and placed in custodia legis for the protection of all job creditors. Smith v. Halton, 8 S.W.2d 439; Pennington v. Fourth National Bank of Cincinnati,243 U.S. 269, 61 L.Ed. 713; Kelly v. Bausman (Wash.), 168 P. 181; Bragg v. Gaynor, 85 Wis. 468, 21 L.R.A. 161; Murray v. Murray,115 Cal. 266, 37 L.R.A. 626.
From the foregoing authorities it will be seen that the restraining order caused the retained percentage in the hands of the state controller to be as definitely earmarked and impressed with a lien of equitable garnishment as if the same had been attached in an action at law. We respectfully suggest, therefore, that the effect of the restraining order issued by the trial court should be determined upon this appeal, in view of sec. 107 U.S.C.A., title 11. *Page 255 
When the injunction was issued, its effect was to create a lien in favor of the job creditors on the balance of the fund in the hands of the state, just as effective and binding as an attachment or garnishment between individuals concerning a debt due, and this lien attached to the fund on the date of the injunction. The bankruptcy of the contractor, which occurred nearly six months after the lien was acquired, did not affect the validity of the lien.
We respectfully submit that the provisions of the highway act should be construed together, and when so construed, the provision where the act requires "as additional protection," a bond should be given for labor, material, and supplies used in the construction of a highway, it should be so construed so that a job creditor, as to the balance of the fund, has and can resort to any remedy, either legal or equitable, which he may have against the fund. The statutory requirement of a bond to protect them is not inconsistent with such equitable rights. United States Fidelity and Guaranty Co. v. Sweeney, 80 F.2d 235.
In the case at bar, Drumm, not only in his bond but in his contract with the State of Nevada, agreed to pay the job creditors. Hence, the State of Nevada owed an equitable duty to see that this respondent and the other job creditors were paid. Jones v. Carpenter (Fla.), 106 So. 127, 43 A.L.R. 1409.
In this state we have no precedent either for or against such equitable lien, and we respectfully urge that the decision of the supreme court of the United States in Martin v. National Surety Co. et al., Law Ed. Advance Opinions, vol. 81, No. 11, p. 521, should control in this case.
 OPINION
We granted a rehearing in the above-entitled case as *Page 256 
to all of the respondents except the Standard Oil Company and the Petrol Corporation. 62 P.2d 698.
There is no complaint of the facts as stated in our former opinion, which was based upon the theory that the intention of the parties should control and that they were bound by the intention and spirit of the legislative enactments pursuant to which the contract between the highway department and Drumm, as well as the undertaking, were executed. Believing then that such was a sound basis on which to work out the matter, we did not deem it necessary to state or consider the general rules usually invoked to determine whether or not an equitable lien exists. In fact, neither counsel invoked fundamentals, but relied upon decisions.
At this time we feel that it would be wise to state the general principles which a court must apply to determine if an equitable lien accrues, though there is no controversy as to them. These rules are clearly and concisely stated in 3 Pom. Eq. Jur. (4th ed.) at sections 1234 to 1238, inclusive.
1-4. As is made clear by the author named, an equitable lien may arise out of either an express or an implied contract. If it arises out of an express contract, the intention to create a lien must clearly appear. See, also, 37 C.J. 315-320. Lord Hardwicke, in Deacon v. Smith, 3 Atk. 323, reviewed the previous English authorities, and said: "In all these cases the courts have gone upon the intention of the parties." If it arises out of an implied contract, the attendant circumstances must clearly
indicate an intention of the parties to create a lien on specific property. A mere moral obligation alone is not sufficient to support an equitable lien. Professor Pomeroy said: "When equity has jurisdiction to enforce rights and obligations growing out of an executory contract, this equitable theory of remedies cannot be carried out, unless the notion is admitted that the contract creates some right or interest in or over specific property, which the decree of the court can lay hold of, and by means of which the equitable relief can be made *Page 257 
efficient. The doctrine of `equitable liens' supplies this necessary element; and it was introduced for the sole purpose of furnishing a ground for the specific remedies which equity confers, operating upon particular identified property, instead of the general pecuniary recoveries granted by courts of law. It follows, therefore, that in a large class of executory contracts, express and implied, which the law regards as creating no property right, nor interest analogous to property, but only a mere personal right and obligation, equity recognizes, inaddition to the personal obligation, a peculiar right over the thing concerning which the contract deals, which it calls a `lien,' and which, though not property, is analogous to property, and by means of which the plaintiff is enabled to follow the identical thing, and to enforce the defendant's obligation by a remedy which operates directly upon that thing. The theory of equitable liens has its ultimate foundation, therefore, in contracts, express or implied, which either deal with or in some manner relate to specific property, such as a tract of land, particular chattels or securities, a certain fund, and the like. It is necessary to divest one's self of the purely legal notion concerning the effect of such contracts, and to recognize the fact that equity regards them as creating a charge upon or hypothecation of the specific thing, by means of which the personal obligation arising from the agreement may be more effectively enforced than by a mere pecuniary recovery at law." 3 Pom. Eq. Jur. (4th ed.), sec. 1234.
Whatever else may be said in this case the very basis of any right to a lien — if any exists — is the contract between the highway department, Drumm, and respective claimants, and the undertaking, subject, of course, to the statutory provisions pertaining to the letting of such contracts, to which we called attention in our former opinion.
Many authorities are cited in support of the contention that an equitable lien exists in favor of the respondents, some involving questions of the federal bankruptcy *Page 258 
law (11 U.S.C.A. sec. 1 et seq.). As we view this case, there is just one question involved, namely: Did respondents acquire an equitable lien pursuant to the general principles of equity?
5, 6. To our mind there is absolutely no circumstance in this case warranting the holding that an equitable lien accrued in favor of respondents. In fact, if the well-known general rules of equity pertaining to equitable liens — the very ones invoked by respondents and conceded to be correct by appellant — should control, no act that the parties did or could do subsequent to the furnishing of the labor or material, as the case may be, could create an equitable lien. In this connection it may be said that no circumstance, fact, or act is relied upon by any of the creditors who applied for a rehearing that is peculiar to himself. Nor are the court proceedings instituted by the bonding company, referred to in the former opinion, of consequence, for they could not create a lien, where equity gave none. All that a court can do in any situation is to adjudge that the contract, express or implied, proprio vigore, creates a lien.
In Pennsylvania Oil P.R. Co. v. Willrock P. Co., 267 N.Y. 427,196 N.E. 385, it is said that to find (note the word "find") an equitable lien it is necessary that an intention to create such a charge clearly appear from the language and the attendant circumstances.
In James v. Alderton Dock Yards, 256 N.Y. 298, 176 N.E. 401,403, which was an action to recover a commission for selling certain property pursuant to contract, and to have an equitable lien established, the court said: "Nothing in his contract for services gives him such a lien. Viewing the testimony in the most favorable light, all the plaintiff had from the corporation was a promise to pay him well for his services in negotiating a sale of the defendant's property to the dock company. There is no suggestion that he was to be paid out of any specific property or that the mortgage or any other funds were to be assigned to him or subjected to *Page 259 
a lien for his commissions. His agreement is no different than that of any other broker or agent for commissions. His work and labor created a debt due him from the defendant, and to collect this debt his action at law was adequate. No elements in his arrangements with the defendant bring his claim within the rule which permits the courts to enforce payment by fixing a lien upon specific property."
In Carmichael v. Arms, 51 Ind. App. 689, 100 N.E. 302, 304, the court said: "In order that a lien may be created by contract, express or implied, it is generally necessary that the language of the contract or the attendant circumstances should clearly indicate an intention of the parties to create a lien upon the specific property."
In the same case the court quotes approvingly from Lyster's Appeal, 54 Mich. 325, 20 N.W. 83, as follows: "Courts cannot create liens. They can only declare and enforce them when they exist, either in law or equity."
The supreme court of Tennessee is in accord with this quotation, as appears from Stansell v. Roach, 147 Tenn. 183,246 S.W. 520, 526, 29 A.L.R. 143, which was a case in which Stansell sought to have an equitable lien declared in preference to other creditors. The suit grew out of a contract to perform certain services. The value of the services was fixed and the services were performed as agreed. We quote at length from the opinion:
"We do not understand that an equitable lien can be based alone upon moral obligations, but it must find a basis in established equitable principles. While it is quite true, as stated by Chancellor Cooper in Brown v. Bigley, 3 Tenn. Ch. 618, the inclination of the courts of this country, and of none more so than those of this state, has been to enlarge the doctrine of equitable liens and charges, with a view to the attainment of the ends of justice, without much respect for the technical restrictions of the common law. Nevertheless, *Page 260 
we must find as a basis therefor some recognized principle. The only theory of equity advanced is that the services of Stansell produced the fund, and that under his contract he looked to the fund alone for compensation, and not to any obligation of his principal in person. We think neither of these propositions is maintainable. In the first place, Stansell did not produce the fund. It came by virtue of an appropriation by Congress. It may be quite true — and we think it is — that Stansell rendered valuable services but for which Congress would not have been moved to act. Still it cannot be said that the fund was procured by an individual in such a sense as to give him any equitable right to any portion thereof. In the next place, the evidence does not show that Stansell looked to the fund alone for his compensation, nor, indeed, that he was to have any part of the fund. His contract was, in the event Congress made the appropriation, he was to be paid, for his services in connection with bringing it to the attention of Congress, his expenses and 10 per cent, of the amount of the appropriation. He was not to receive a part of the appropriation itself. It is true whether he received anything depended upon the appropriation being made, but this is only a means for arriving at the amount which he was to be paid. The witnesses who testify with respect to the contract use this language: `We all agreed we would pay Mr. Stansell 10 per cent. of the amount which he succeeded in getting the government to pay, and in addition each pay his proportionate part of the expenses incurred by him.'
"If the contract be construed so as to mean that the appropriation itself should be set apart for Stansell's services, it would come dangerously near violating the statute prohibiting the transfer of claims against the United States. The lien cannot be based upon an express executory agreement whereby an intention is indicated to make some particular property or fund security for a debt, for the reason there was no such *Page 261 
express contract. Neither is it necessarily implied from the terms of the agreement. The rule of law seems to be that an agreement of that sort must be either expressed or necessarily implied without any reliance upon the person responsible or the owner of the claim of which the fund was the result. Walker v. Brown, 165 U.S. 654, 17 S.Ct. 453, 41 L.Ed. 865. An equitable lien does not necessarily involve a right which is the basis of a possessory action in the thing itself, but it must be a right over the thing itself. Pom. (4th ed.) § 165. It does not follow simply because the agent renders a valuable service enabling his principal to obtain his own.
"It is contended by Stansell's counsel that he stands in the same situation as an attorney at law. Conceding this to be true, his right to the lien does not follow. An attorney may be entitled to assert a lien upon a judgment which he has represented his client in obtaining, but a principal basis for allowing a lien to an attorney at law is that it is deemed both natural and wise that the lawyer be secured in the fruits of his professional labor, since the proper administration of justice is essential to the well-being of the public, which cannot be secured without an intelligent and prosperous bar. Brown v. Bigley, supra. Usually where the services of an attorney have been recognized as an equitable lien, the services have been performed in connection with court proceedings, and judgment has been obtained in favor of his client. An attorney for a defendant, however great the value of his services, and however much property he may have enabled his client to save, has no lien on his client's property by virtue of equitable principles."
In Connecticut Co. v. New York, etc., R. Co., 94 Conn. 13,107 A. 646, 653, the court quotes approvingly from 1 Jones on Liens (3d ed.), sec. 28, as follows: "In courts of equity the term `lien' is used as synonymous with a charge or incumbrance upon a thing where there is *Page 262 
neither jus in re nor ad rem nor possession of the thing. The term is applied as well to charges arising by express engagement of the owner of the property and to a duty or intention implied on his part to make the property answerable for a specific debt or engagement."
In the same case the court quotes approvingly from Westall v. Wood, 212 Mass. 540, 544, 99 N.E. 325, as follows: "If the arrangement between the parties, interpreted in the light of the conditions in which they were placed, indicates a contemporaneous intention to adjust their rights upon a basis which can be established only by resort to the equitable principle of lien or pledge, then, in the absence of an intervening adversary interest, such an intent will be executed in chancery."
Mr. Justice White, in Fourth Street National Bank v. Yardley,165 U.S. 634, 17 S.Ct. 439, 442, 41 L.Ed. 855, dwelt at length on the necessity of the existence of an intent to create an equitable lien. He quoted from an opinion by Lord Hatherly in Thomson v. Simpson, L.R., 5 Ch. 659, as follows: "`It is extravagant to say that a man who has an agent employed to pay bills creates a charge on the funds in the agent's hands by the mere drawing of a bill. It is necessary to make out a contract to charge specific funds which were with the agent, or which were on their road thither; for, if there was only a personal contract, that would give nothing but a right of action.' In the same case, Lord Justice James observed (page 662) that `when it is attempted to make out, in addition to the written contract contained in a bill of exchange, a collateral parol agreement, it is most important to have clear and satisfactory evidence as to the exact words used.'"
These cases lay down what seems to be the safe and sound rule which should guide us in determining whether or not an equitable lien attached upon the furnishing of supplies and labor to Drumm in the performing of the work on the contract in question.
7. In the first place, there must be a specific fund *Page 263 
against which a lien can vest. This question is not discussed and we do not decide if there is a specific fund, but simply observe that so far as the facts show the balance due Drumm was to be paid out of the general funds from which such claims are paid, and it is questionable if a balance due and payable to Drumm from such a fund is a "specific fund." This point has never been discussed, so far as we know, and we merely mention it in passing.
We come now to the question of whether or not there is anything in the statute, contract, and undertaking clearly indicating an intention to create an equitable lien. In our former opinion, 57 Nev. 242, 62 P.2d 698, we reached the conclusion that there was not. That we might feel kindly disposed in favor of respondents is not enough. We must lay down a rule for future guidance of the courts, as well as litigants, and we must, so far as possible, adhere to well-established principles.
8. The contract between the department and Drumm, which includes the statute and the undertaking, is an express contract; hence, according to all authorities, it must clearly appear that there was an intention to create a lien in favor of the materialmen and laborers. What is there clearly indicating such an intention? We strove eagerly to find such intention when our former opinion was written. We have laboriously sought to find something upon which we could base such a conclusion now, but without avail.
Nowhere do counsel for respondents direct our attention to any language in the statute, contract, or undertaking which in our minds indicates clearly, dimly, or at all, that it was the intention of any of the parties that an equitable lien should attach to any money which might become due Drumm pursuant to his contract.
Paraphrasing the language used in James v. Alderton Dock Yards, supra, which expresses the idea in all of the cases: Viewing the testimony in the most favorable light, all that respondents had from Drumm was an *Page 264 
implied promise to pay them for their services and supplies. There is no suggestion that they were to be paid out of anyspecific fund. Their agreement is no different than that of any other laborer or merchant who provides labor or supplies on an implied contract.
In the instant case there is not even a contention that it was the intention of Drumm and claimants that claimants were to be paid by Drumm out of the money received pursuant to his highway contract. No circumstance in the dealings between Drumm and claimants is pointed to as indicating the slightest intention to create a lien in favor of any of them.
Respondents contend, of course, that the provision in the statute supplies the intention necessary. What is there thatclearly indicates such intention? And it must clearly appear before we can so hold. Our attention is directed to the provisions relative to the retention by the department and the provision of the bond to the effect that one-third of such bond be conditioned as an additional protection for labor, etc.
As to the retained percentage, the statute expressly points out the course to be pursued by claimants; that is, that they file their claim within a given time, and after that period expires that the retent shall be paid to the contractor. Can we override the express provision of the statute particularly in view of the amendment of 1925 (Stats. 1925, c. 132), and Stats. 1931, c. 210, alluded to in our former opinion? If we can, we are not only a judicial but also a legislative body.
9, 10. Coming to the provision as to the bond, its sole purpose must have been to provide security to Drumm's creditors, in addition to its financial and moral worth. This must be true, because no lien can attach to a highway or other property of the state or a subdivision thereof. Neither the state nor the department is under legal or moral obligation to pay claimants, nor is it so contended or intimated; hence it must be clear that our conclusion is the only interpretation to be placed upon those words. *Page 265 
In response to an inquiry by the court during the oral argument, counsel stated that the case of Philadelphia Nat. Bank v. McKinlay, 63 App. D.C. 296, 72 F.2d 89, holds to the contrary, but we fail to find anything in that decision to sustain the contention. We will advert to that case later on.
Counsel for respondents rely chiefly upon federal decisions to sustain their contention, and all of those cases hark back to the case of Henningsen v. United States F.  G. Co., 208 U.S. 404,28 S.Ct. 389, 52 L.Ed. 547; and, as strange as it may seem, that was not a case in which the question of the right to an equitable lien was involved, but whether a surety which was compelled to and did make payments due from a defaulting contractor could be subrogated to the rights of the contractor in preference to a bank which loaned money to the contractor to use "as he saw fit, either in the performance of his building contract or in anyother way," as the court points out.
The next case strongly relied upon is that of Belknap Hardware Mfg. Co. v. Ohio River C. Co. (C.C.A.), 271 F. 144, 147. The court deals with the question of subrogation, and the right of laborers and materialmen, analogous, as it says, to a lien. It then observes: "Mechanic's lien statutes evidence a general recognition of the thought that those who contribute the labor and material going into a structure should have a claim against it for what they have furnished in preference to other creditors of the builder, though the equitable distinction, between those materialmen who are unpaid today and the banker who furnished the money which was used to pay those who furnished material yesterday, seems rather arbitrary. It is commonly held that this lien or priority is wholly statutory, and we are not aware of any case (unless those hereafter discussed) where, without the aid of any contract or statute, this vague equity of materialmen and laborers has been thought sufficient to put the owner of the property under *Page 266 
obligation to see that they were paid before he settled with the contractor."
Does the acknowledgment of a "vague equity of materialmen and laborers" measure up to the well-recognized rule that it mustclearly appear that it was the intention of the parties and the legislature to create an equitable lien? We think not. The word "vague" indicates great doubt of an equitable claim. Furthermore, in that very case the court said: "Obviously, the retained fund is devoted to the payment for such labor and material as may be necessary to finish the work after the contractor defaults." Such a view could not influence us in the case in hand, for the reason that the contractor did finish the contract.
11. It then dwells upon "what may have been the congressional intent" in requiring a bond, and holds that the laborers and materialmen were subrogated. To entitle one to a lien, it is not sufficient that it "may have been the legislative intent to create an equitable lien." Such intent must clearly
appear.
The case of United States Fidelity  Guaranty Co. (the Surety) v. Sweeney (C.C.A.), 80 F.2d 235, is one in which the surety took from the contractor subrogation agreements and indemnity contracts, by which the contractor agreed to assign to the surety all the deferred payments and percentages and any and all moneys and properties that may be due and payable to the contractor at the time of the default or thereafter, for the construction of highways. When it became evident that the contractor was in default for some of the labor and materials used under the contracts, it was agreed that all retained percentage and deferred payments on the contract should be deposited to the joint account of the construction company and the surety. It was further agreed that as a check upon payments all accrued bills on the contractor should be paid by check of the contractor drawn against this deposit and countersigned by the surety, which was *Page 267 
done until December 10, 1932, on which date an involuntary petition in bankruptcy was filed against the contractor and it was adjudged a bankrupt.
Prior to the bankruptcy the contractor completed its contract. The money involved in that case is the balance on deposit at the time of the filing of the petition in bankruptcy. This is a controversy between the surety and the trustee in bankruptcy. The court held that the surety was bound by contract to pay the claims for labor and material, and upon paying these claims was entitled to be subrogated. Such is not the situation here.
12. It is true that the court in that case made a broad statement to the effect that the laborers and materialmen were entitled to an equitable lien, as did the court in the Belknap Case, basing their conclusion, apparently, upon the decision in the Henningsen Case, supra, where the facts and the opinion showed that the court was simply dealing with the question of subrogation, which involves different principles of law from what are involved in determining if an equitable lien exists. Why the federal courts should have seized upon the Henningsen Case to justify the sustaining of a claim of an equitable lien, when the question was not involved and none of the principles of an equitable lien were discussed, is beyond our understanding, for, as said in Falconer v. Stevenson, 184 Wn. 438, 51 P.2d 618,619: "The doctrine of equitable lien has its prescribed boundaries as well as that of subrogation; it is not a limitless remedy to be applied according to the measure of the conscience of the particular chancellor any more than, as an illustrious law writer said, to the measure of his foot."
The case of Philadelphia Nat. Bank v. McKinlay,63 App. D.C. 296, 72 F.2d 89, 91, above referred to, seems to accept the general contention of respondents, but it is evident that the court gave the question scant consideration, for it says that "we do not need to invoke that doctrine here," for reasons given. *Page 268 
As to the federal decisions, it is admitted that there is considerable confusion. Judge Sanborn, in Martin v. National Surety Co. (C.C.A.), 85 F.2d 135, 140, observed: "There is unquestionably authority for the proposition that laborers and materialmen have no rights superior to those of general creditors of a contractor in anything due the contractor except perhaps retained percentages. * * * Much of the confusion comes from the fact that, in deciding the case of Henningsen v. United States Fidelity  Guaranty Co., 208 U.S. 404, 28 S.Ct. 389,52 L.Ed. 547, the supreme court did not make it clear whether the surety, who had paid labor and material claims and whose rights were held to be superior to those of a general creditor holding an assignment from the contractor, was subrogated to the rights of laborers and materialmen or subrogated to the rights of the contractor as of the time the bond was written, and whether, if the surety was subrogated to the rights of laborers and materialmen, such rights extended beyond retained percentages and included all deferred payments due upon the completion of the contract. It is to be hoped that in a proper case the supreme court will take occasion to clarify the situation, so that it may be definitely known what equitable rights laborers and materialmen have in addition to their rights under a public contractor's bond, and whether such rights, if any, are limited to retained percentages or apply to progress payments as well."
13. Counsel contend that an equitable lien may be declared under the broad principles of equity; that is, that equity regards as done that which ought to be done. The rule applicable to this theory is qualified by Professor Pomeroy in the following language: "In order, however, that a lien may arise in pursuance of this doctrine, the agreement must deal with some particular property, either by identifying it, or by so describing it that it can be identified, and must indicate *Page 269 
with sufficient clearness an intent that the property so described, or rendered capable of identification, is to be held, given or transferred as security for the obligation." Pomeroy's Eq. Jur. (4th ed.), sec. 1235.
As we have pointed out, there is no clear intention manifested that a lien should exist.
14. After a careful consideration of the principles which control in determining whether or not an equitable lien exists, and applying them to the facts of this case, we are of the opinion that it does not appear that there was any intention to create an equitable lien as contended. Had there been such an intention, it could have been expressed in the statute or contract in a few words.
It is ordered that the judgment appealed from be reversed.