Atkinson v. Colorado Title & Trust Co.

Garrigues, J. (After stating the facts as above.) 1. The main principle involved, is whether the bonds sold by Pease are binding obligations of the Building Company. It is claimed by the mechanics’ lien claimants that they art not, and that the bond holders should recover nothing, because Pease, as their agent, paid the money to a third party without authority; therefore the judgment and decree are erroneous, leaving the mechanics’ liens superior liens on the property. The Steel Company contends it is entitled to a personal judgment against both Atkinson and the Building Company, and to a lien superior to the trust deed, and prior to those of the other lien claimants. Pease was engaged in the business of buying and selling bonds and securities at Colorado Springs, and the Building Company employed him to sell the bonds on a commission. He was at the time also the agent of clients residing in the East for whom he bought and sold securities, and to whom he sold these bonds. The president and secretary of the company were duly authorized to make, execute and deliver the bonds, and they were its lawful obligations. The Building Company continued to carry on the objects, purposes and negotiations undertaken by the Creamery Company, the plan being, before the organization of the Building Company, — 534 — to take $4,500.00 out of the treasury of the Creamery Company, and pay for the lots on which to erect the new building. These plans were changed by promoting a Building Company, organized by the same persons to accomplish the same object, both acting through the same agencies, and in many respects it was difficult to distinguish between them. The Creamery Company had already purchased, or agreed to purchase, the lots for $4,500.00, and had them deeded to one Spurgeon, who paid the purchase price, and held the title for the Creamery Company. ' December 30, 1910, when it became necessary to close up the transaction, and transfer the title of the lots to the Building Company, so that the trust deed to be given to secure the payment of the bonds could be recorded, the Creamery Company had no funds in its treasury; it was $60,000.00 in debt and could not pay Spurgeon, or take over the title. Pease the same day sold five of the bonds, and held the money ready to turn over to the Building Company. The Creamery Company through the duality of its officers with the Building Company, obtained possession of the money from him, and used it in paying for the lots it had sold and agreed to deed to the Building Company. The transaction, though technically speaking not a loan, was treated as such, or rather as money advanced by the Building Company to the Creamery Company. The officers of the Building Company directed Pease in settling for the bonds, to make the check payable to the Creamery Company, and it was at once deposited to the checking account of that company, placed to the credit of the Building Company and immediately the same persons as officers of the Creamery Company gave a check against the fund in payment for the lots, the deed was made direct to the Building Company, recorded, and immediately thereafter the trust deed was placed on record. The ’Creamery Company went into bankruptcy, and the Building Company filed a claim for this account, which it had allowed as money advanced to the ■Creamery Company. — 535 — 2. The bonds were payable to bearer, were negotiable by delivery, were delivered to Pease, and he sold and delivered them to his clients. It matters not what the relations between Pease and the bond buyers were in his transactions with them. In accounting to the Building Company for the bonds, and the fund realized from their sale, he was the agent of the Building Company. The bond buyers paid full value to the person whom the company entrusted with the possession and sale of the bonds, and the purchasers were under no obligation to look to the application of the proceeds. Pease accounted to the president and secretary of the Building Company, and made the checks payable as they directed. Because the officers of the two companies were the same, and manipulated the transaction in such a manner that the money was used in payment for the lots, when it should have been turned into the treasury of the Building Company is no concern of the bond holders. 10 Cyc. 1167-1176 ; P. & S. Co. v. Thompson, 103 Ill. 187 ; Martin v. Mfg. Co., 122 N. Y. 165, 25 N. E. 303 ; Hotchkiss v. National Banks, 21 Wall. 354, 22 L. Ed. 645 ; Philadelphia Co. v. Lewis, 33 Pa. St. 33, 75 Am. Dec. 574 ; Railway Co. v. Sprague, 103 U. S. 756, 26 L. Ed. 574 ; Pittsburg Co. v. Lynde, 55 O. St. 23, 44 N. E. 596. The court committed no error in holding that the mortgage was a valid and subsisting lien upon the land and premises in controversy. 3. Was’ the Steel Company entitled to a judgment against the Building Company for the consignment of steel furnished to be used in the construction of the building under the contract with the Creamery Company, and to a mechanic’s lien? When the Building Company took over the lots and entered upon the construction of the building, it succeeded the Creamery Company in the steel contract, and under the circumstances, the court should have made no distinction between them, but should have treated the steel contract the same as though it had originally been made with the — 536 — Building Company. The court erred in holding that the Steel Company should take nothing. It was entitled to a judgment against the Building Company, and to a mechanic’s lien. 4. Was the Steel Company entitled to a mechanic’s lien for all the steel actually furnished under the contract, to be used, although not actually placed in the building? The steel was furnished to be used in the construction of this building and because it was not finished, and all the material used, makes no difference. The statute gives a lien to the material man furnishing material to be used in the construction of a specified building, and we are of the opinion the Steel Company was entitled to a judgment against the Building Company, and to a mechanic’s lien for the steel furnished upon contract to be used in the construction of the building, although it was not finished and the steel not all actually used. Rice v. Cassells, 48 Colo. 73, 108 Pac. 1001 ; Salzer Co. v. Lindenmeier, 54 Colo. 491, 131 Pac. 442 ; Small v. Foley, 8 Colo. App. 435, 147 Pac. 64 ; Tabor Co. v. International Co., 19 Colo. App. 108, 75 Pac. 150. 5. Did the court err in holding that the mortgage was a prior lien to the mechanics’ liens on both the land*and improvement, and was the mortgage a prior lien upon the land to the mechanics’ liens? These two questions will be considered together. The mortgage was duly made and recorded prior to the signing of the contract, or the commencement of the work upon the improvement. The statute in such a case (Secs. 3-6 Mechanics’ Lien Act, 1899) makes the mechanic’s lien a prior lien upon the improvement, while an existing mortgage remains a prior lien upon the land. Text book statements to the contrary, which only apply in the absence of a statute, are not controlling. This improvement was made, and came into the possession of the Building Company, subject to the right under this statute to file mechanics’ liens, and the land passed under the provisions of the mortgage when — 537 — it was given, subject to the right to file mechanics’ liens, which, when filed, the statute made superior liens to the mortgage, on the improvement. The only exception or modification to this rule to which our attention has been directed, is Joralmon v. McPhee, 31 Colo. 26, 71 Pac. 419, where we held that to the extent the money advanced under the prior mortgage was actually applied in making the improvement, the mortgage was a first lien on the improvement. So we are of the opinion the court was right in deciding that the mortgage was a first lien on the land; but erred in holding that the mechanics’ liens were not prior liens on the improvement. 6. Section 4027 R. S., ’08, provides that when the lien is for work done or material furnished “for any entire structure” the lien shall attach to such building, in preference to any prior mortgage upon the land, and any person enforcing such lien may have the building sold under execution, and the purchaser at the sale may remove the improvement. It is argued that inasmuch as nothing was done except to make the excavation and put in the cement basement walls, that the work done and material furnished were not for an entire structure; that is, it was not entire, because it was not completed, therefore, the statute authorizing the sale and removal of the improvement does not apply. Was this work done and material furnished for an entire structure? The phrase, “for an entire structure,” is not used to designate a completed from an uncompleted building; but to distinguish new structures not before existing, from betterments, repairs, improvements, and the like on previously constructed or existing improvements. Church v. Smithea, 4 Colo. App. 175, 35 Pac. 267. The labor in this case was done and the material furnished for an entire structure. Because it was not completed did not change the purpose for which they were furnished. There was a suspension of labor for 30 days, and in such case the statute provides, for the purposes of the mechanic’s lien act, — 538 — it shall, whether or not actually completed, be regarded as completed. 7. Under the provisions of the statute (Sec. 8, L. ’99) the Steel Company belongs to the class designated as material men, and its claim is made second class, while the other lien claimants are designated as principal contractors, and in ranking order their lien claims are third class; therefore, the Steel Company’s lien for material is prior in rank to the liens of the other lien claimants. 8. The statute provides that any person enforcing a mechanic’s lien on an improvement in a case like this, may have the improvement sold under execution and that the purchaser may remove the same. The improvement here consisted of the basement walls and foundations, and we will take judicial notice they could not be removed and retain any. value. In enforcing the lien on the improvement under these circumstances, the mechanic’s lien law does not contemplate a course that will destroy the value of the improvement, and here' the only way the improvement can be effectively reached to satisfy the lien against it is to sell the entire property as a whole, and pursue some equitable course with the fund fealized from the sale which will afford the greatest protection to the rights of all the parties. Whether the improvement as it exists on the property at the time of sale will increase the fund realized, or add nothing to the value of the property at that time, is a question of fact. We therefore direct the lower court to enter a proper decree in conformity with the views herein expressed, and order a sale of the property as a whole on foreclosure. If the fund realized is sufficient to discharge all the liens, and cost of their foreclosure, no further action will be necessary; but, if such a fund' is not realized, and in fact the improvement contributes some amount on the sale, then an equitable rule of apportionment should be adopted, by which the amount that the value of the land, clear of the- improvement, contributed to the fund, should go towards the discharge of — 539 — the mortgage, and the amount that the value of the improvement added to the fund should go towards the discharge of the mechanics’ liens. We think the court in such an event should hear evidence and ascertain the value of the lots at the time of the sale, with the improvement, and clear of the improvement; that is, with and without the improvement, and to the extent that the value of the lots furnished the fund derived from the sale of the property as a whole, such proportion of the fund should be applied in discharging the mortgage and cost of its foreclosure. The sum remaining, if any, will represent the amount contributed, on the sale, to the fund by the value of the improvement on the property and should be applied in- discharging the mechanics’ liens and the cost of their foreclosure in the order of their priority. 9. The evidence regarding the question of a right to a personal judgment in favor of the Steel Company against Atkinson, for the steel furnished under its steel contract with the Creamery Company, was conflicting and we will not interfere with the judgment of the lower court upon this finding. Reversed and remanded with directions. Reversed. Gabbert, C. J., and Scott, J., concur.