174 Iowa 332 | Iowa | 1916
I. Day and Stone employed one Merten to construct for them a building in Sioux City, known as the Davidson building. They paid him, in the course of. construction, a sum of money, out of which he paid $300 to the appellant, McNeil. Merten was indebted to McNeil for various materials used by Merten in his work as contractor, including material for the Davidson job. He gave no direction as to the application of the $300, and McNeil applied this payment to
The appellant invokes the general rule which governs the application of payments between debtor and creditor. He urges that, under that rule, since the contractor who did the paying owed appellant on several accounts and gave no direction on which of these accounts the payment should be applied, appellant had the right to apply on any account owed by the contractor, and not to apply on the account owed for material furnished for the building of these owners; and that, having so applied, the owners cannot compel a change in application by crediting the account for material furnished for the building of these owners. Appellant adds that it did not know where Merten got the money, that he paid; that he and it acted in good faith; that it may suffer injury if the application made be now disturbed because it “has probably lost its lien right” as to one of the accounts on which part of the $300 was applied; that there is an additional estoppel because the owners knew appellant was furnishing material for which he was not being paid; and that subsequent payments were made to the contractor despite such knowledge; and it insists that, in a loose sense at least, the equitable doctrine applies which prevents one from impressing funds with a trust unless the trust fund has been kept intact, can be traced, and has not been mingled beyond the power to trace.
Appellee responds:
1. That, while this rule does govern payment from debtor to creditor, it may well govern there because, so- long as the payer remains silent, he has nothing to complain of when one debt of his instead of another is extinguished by payments made; that, after all, every dollar paid none the less relieves him of the debt he owes, even though it be one debt rather than another; but that the rule does-not apply where the
2. That appellant was put to inquiry as to where the money paid came from, and had notice where, in justice, it should be applied, because, say they:
(a) When appellant received from the contractor the $300 in the form of a check, it knew the contractor was engaged in the construction of their building, and that estimates and payments were being made to apply on the construction of said building. And the contractor never got material without advising appellant for what job it was.-
(b) While the ledger account with the contractor did not differentiate between jobs, it bore references that enabled the segregation of the jobs by going to the original itemized journal entries.
(e) Appellant knew the owners were having constructed what was styled the Davidson building, and that this was being done when it got the payment in controversy. The books designated jobs by a designating letter or word, and the Davidson job was designated by “D”, and the cheek that made said payment had the notation “No. D 54”.
(d) Appellant knew that one of the owners was a large stockholder and the other the cashier of the bank upon which the check was drawn, and that both owners did all their business with that bank.
(e) Appellant McNeil testifies that he knew that, customarily, contractors were paid on estimates, and supposes he knew that course was being followed as to the Davidson building; that at the time the check was paid he supposed the contractor was getting money at times on the contract for
3. That even if it be true that appellant had no knowledge that the money came from the owners, there is no estoppel to show that such is the fact; that it is not the question whether A knew that he was using the money of B to satisfy his own claims against C, but whether, in fact, the money of A was so used.
4. That there is no mingling of money; that it is proved that the money received from the owners is the money paid over by the contractor; that this is no mingling at all within the equitable rule; that if it be, it is not a mingling of funds with others, but mingling the things that were paid for with the money; and that, in any view, the appellant cannot urge the doctrine of mingling, nor yet an estoppel, upon mingling done by himself, nor injury by loss of lien rights caused by his own voluntary act: in other words, that the owner is not to suffer because the materialman, without the knowledge and consent of the owner, used the money of the owner to pay debts owed to appellant from others, nor because appellant, of his own volition, without the knowledge and consent of the owner, deprived himself of a lien which secured the accounts of others. This defines the dispute.
II. It will clear the controversy if we dispose of citations that are irrelevant, or are not controlling. Some, we deal with fully; others are disposed of in a summary.
In Hughes v. Flint, (Wash.) 112 Pac. 633, the materialman is defeated on the ground that he had notice that he. was applying the money of the owner on accounts for material bought by the contractor for others than Flint, and this, because the materialman kept the contracts separate on his books, and the Flint cheeks contained the endorsement “on contract”; also, because a conflict was resolved in favor of a direction to apply on the Flint job.
On its face, Central Planning Mill & Lumber Company v.
III. There are cases, in effect, that, when the money paid is that of the contractor, the materialman, having made application to some debt of the contractor, cannot be compelled by others to change the application for their benefit. We do not think them controlling. One of them is Brigham v. Dewald, (Ind.) 34 N. E., at 498, which is, in effect, that if* money paid on contract and paid over to, and in the absence of direction is applied by a materialman on the contractor’s general account, this money is in such sense the property of the contractor as that the sum paid will not avail the owner as a credit on material bought of the same materialman later.
The conflict raised by eases like Hanson & Myer v. Manley, 72 Iowa, at 50, and Hansen v. Rounsavell, 74 Ill., at 241, is one in seeming, only. These latter hold merely that if one be surety on a debt and the debtor makes a payment by foreclosure had upon his own property, or pays out of his own funds, but the payment is not large enough: to pay what he owes, secured and unsecured, he and his creditor may work an application, first, upon what is unsecured. In other words, one who becomes surety takes the risk that honest payment of unsecured debts may leave a deficiency which the surety must make good.
IV. The following cases have more or less tendency to sustain the decree: In Crane v. Pacific Heat & Power Co., (Wash.) 78 Pac. 460, it is conceded that, as to moneys which
V. The following cases strongly support appellees: In Young v. Swan, 100 Iowa 323, at 326, 327, citing Stewart v. Woodward, (Vt.) 28 Am. Rep. 488, and Gleaton v. Tyler, (S. C.) 21 S. E. 333, we said:
“The most that can be claimed for appellants is that the wife furnished the husband with money with which to purchase the material for the house; that he purchased it of plaintiffs, paid them the money which she had given him, but did not direct that it be applied upon this particular account; and that plaintiffs applied it on general account. Can he now, in an action to establish and foreclose a mechanic’s lien against the property of the wife, insist that these payments of the wife’s money shall be applied upon the husband’s general account, to the detriment of the wife? We think not. The husband could not directly appropriate this money to his own use against the consent of the wife, and it surely is not the province of a court of equity to misappropriate it.”
Crane Bros. Mfg. Co. v. Keck, (Neb.) 53 N. W. 606, recognizes the general rule as to application. “Yet”, says
In Williams v. Willingham-Tift Lumber Co., (Ga.) 63 S. E. 584, the contractor paid the materialman funds received from an owner, one Reed. Tie paid by his own check without informing, at the time of payment, of the source of the money. "When later he asked application to Reed’s material account, this was refused, with a statement that the money had already been applied to bills of his on other contracts. A lien was denied, and it is said that this is not in conflict with the general rule of the right by the creditor to apply, in the absence of directions; that that is a rule between the creditor and the debtor; but that, where the rights of third persons are involved, the law will make the credit according to principles of justice and equity, will not permit the money of one man to be used in the payment of the debt of another man, or declare a lien on the property of the man who has paid in full for all the material furnished to improve his property, and thus relieve from a lien the property of a man who still owes for the material that was used to improve his property.
YI. The citations thought to give support to the appellant come to this:
1. The general rule governing applications between debtor and creditor apply to open accounts only. First Nat. Bank v. Hollingsworth, 78 Iowa 575, 576-7; Dey v. Anderson, 39 N. J. L. 199, at 205.
2. Where a partnership owed a balance due at the time when one partner died, and such balance was carried forward in the account of the reorganized firm, payments later made
3. If a partnership allows a partner to keep an account in his own name with one who is ignorant of the existence of the partnership, it cannot complain that money paid his creditor by the partner was applied to the items in that individual account, in the order of priority. Allen v. Brown, 39 Iowa 330, at 332; Hanson’s case, 72 Iowa 48, 52.
4. A receipt fraudulently obtained from the material-man will not avail the owner to whom said receipt is exhibited, because he thereupon pays money to the contractor, in the absence of a showing that the owner does not owe the contractor enough to pay the materialman. Schallert-Ganahl Lumber Co. v. Neal, (Cal.) 27 Pac. 743.
5. "Where the contractor pays money received from two owners upon an account for material furnished for their buildings, and the payment is equitably apportioned between the buildings, the fact that it is not shown by the record exactly how the payment was apportioned will not defeat the lien for a balance claimed to be due, where the contractor did not direct what sums should be applied on each building. Smith v. Wilcox, (Ore.) 74 Pac. 708, at 710.
6. The rule will be applied between debtor and creditor where there are no equitable considerations.
7. A contractor and one subcontractor cannot change an" application once made as intended, and thus prejudice the rights of another subcontractor in a fund reserved to pay all. Green Bay Lumber Co. v. Thomas, 106 Iowa 420, 424.
8. The rule will be applied, if it does not appear what is the source of the money that was paid over.
"9. It will be applied where it is not shown that the funds
10. Where it does not appear who furnished the money and a lien is satisfied, it will not be revived by changing the application which satisfied the lien, without the consent of the one against whom such lien existed before the satisfaction. Chicago Lumber Co. v. Woods, 53 Iowa 552.
11. One who contributed nothing to the money paid over is bound by any application which binds the payer. Heim v. Elliott, (Wash.) 119 Pac. 826.
12. Any money paid to the ■ contractor becomes his own property and, therefore, any application binding on him is binding on those who paid him the money. Sheppard v. Steele, 43 N. Y. 52, 60.
13. The rule will be applied unless the creditor knows that he is receiving the money of a third person, or is put on inquiry as to whether this be not so.
14. It will be applied unless it appears that the money paid over can be traced through the debtor to the creditor. Thacker v. Bullock Lumber Company, (Ky.) 131 S. W. 271, 272.
15. It will not be applied where the materialman had notice that he was applying money received by the payer for one account to the extinguishment of another account.
16. The owner is bound to see to it that application is made to his account, or give notice that it should be so made. Jefferson v. Church of St. Matthew, (Minn.) 43 N. W. 74.
2.
VII. Concretely, this is the situation: The owners of a building being constructed by a principal contractor made him a large payment on estimates. Part of this he paid over to a materialman who had unpaid accounts against the contractor for material furnished the building of the one who had furnished this money, and also material that had gone into other jobs. The contractor being silent when he paid, the materialman applied what was paid upon an account for material furnished the contractor for the building of a stranger, and thus “probably” worked a discharge of his lien against this third person. He asks us to find estoppels and to apply certain equitable rules as to mingling of funds, to the end that he may not be disturbed as to what he did without the consent of these owners; that is to say, he contends equity requires, rather than that he shall lose the lien which he released by his own voluntary act, that we shall
“Money of another was paid me, but I ‘mingled’ it by applying it to a debt that others owed me; and I may have lost some of my rights by doing this. Therefore, you must not assert that this money is yours and that you should have credit for it on the debt you owe me. I have the right to usé your money to pay off what someone else owed me, unless you advise me before I do so that you make some claim in this money. ’ ’
In fewer words, an estoppel is built up by a prejudice which was wholly caused by the act of the one urging the estoppel. The claim is not persuasive.
We find nothing in the authorities cited, which holds, and do not believe, that the equitable doctrine of mingling funds has any application here. If there was any “mingling”, it consists of the applying, by the contractor and the materialman, of the money of A upon debts owed by B and C. Equity suggests no difference between what was then done and taking the money of one’s principal and depositing it to the credit of'the agent mixed with his. own, and claiming for.; this, that
In Van Alen v. American Nat. Bank, 52 N. Y. 1, 7, it is held that, if one deposit a sum belonging to another with one belonging to himself, the bank would owe the first sum to that other, though the particular bills that were his cannot be identified. And this doctrine is applied in Crane v. Keck, supra, to save the owner's monéy applied by the-materialman to the debt of another. The two hold that, when money belonging to two is paid over, the obligation to one is not lessened because there is as well one to the other; that in equity the ostensible obligation yields to the actual.
The same principle was affirmed in Whitley v. Foy, 6 Jones Eq. (N. C.) 34. So, also, of Frith v. Cortland, 2 Hem. & Mil. 417, where a person received from the plaintiff certain acceptances to take up paper owing to the plaintiff, and got them cashed and ran away, after mingling the money with his own, and making various changes and transformations. It was' decided that plaintiff was entitled to the money in preference to creditors, Vice-Chancellor Wood saying that “the court attributes the ownership of the trust property to the cestui que trust so long as it can be traced”, and that said mingling and changing had no effect—and see Merrill v. Bank of Norfolk, 19 Pick. (Mass.) 32.
In the case of Overseers of the Poor v. Bank of Va., 2 Gratt. (Va.) 544 (44 Am. Dec. 399), an attorney deposited a check for the amount of a judgment in favor of his "clients to his own credit in a bank where he had a small amount of other money to his credit, and died. On the day of his death, a note fell due belonging to the bank which it claimed to set off, but the court held that the clients were entitled to the money.
In Commissioners v. Springfield, 36 Ohio 643, the county treasurer embezzled money from a mass which'was mixed-' funds and belonged to the county and other corporations of
Dey v. Anderson, supra, seems in a sense to involve the converse of the controversy here. It seems to be a holding that, if the materialman wants to protect himself against having payments applied where he is already well enough secured, and thus lose payments of claims not so well secured, he should not employ running accounts, but treat each building account as a separate debt; and that, if he does maintain a running account only, and the builder makes him a payment without direction, it must be applied on the running account items according to seniority, even though this results in payments upon claims which are well secured, to the exclusion of others •not thus fortified. And its citations—Beckel v. Petticrew, 6 Ohio 247, and Waterman v. Younger, 49 Mo. 413—more clearly than its text, indicate that this is what it decides.'
Williams v. Willingham-Tift Lumber Co., (Ga.) 63 S. E. 584, at 585, sums it up well. It holds that the evidence did not warrant the directed verdict, because it shows that plaintiff had been paid for all the material it furnished the contractor to be used in the improvement of the property of Reed. And it is added that, if the materialman neglects to give the proper credit, the fault was not the owners’, and the loss
Division II.