
    Thomas Hagan, Resp’t, v The American Baptist Home Mission Society, Erasmus D. Garnsey and William S. Warren, App’lts.
    
      (New York Common Pleas, General Term,
    
    
      Filed February 7, 1887.)
    
    1. Mechanics’ lien—When lien not acquired.
    A party furnishing materials or doing work relying upon the lien given by statute for security, must examine the contract with the owner, for it is only to the extent of what is due or to become due upon this contract that his lien can attach If he furnishes the material, or does the work for a sub-contractor, in like reliance, he should not only examine the contract with the owner, but also that of the sub contractor, for if the sub-con tractor fails to perform his contract so that nothing becomes payable thereon, or is paid in full according to its terms, in case of performance, there can be no lien.
    8. Same—Contract with sub-contractor—Effect of settlement between CONTRACTOR AND SUB-CONTRACTOR AS TO LIEN
    A mechanic having entered into a contract with a sub-contractor, after the original agreement between the sub contractor and the principal contractor has been modified, cannot file and enforce a lien for his work, when there has been a settlement and payment in good faith between the contractor and the sub contractor, of all that is due to the latter, according to the terms of the modified contract
    8, Same—When lien cannot be maintained
    The defendant society on 7th February. 1885, entered into a contract with defendant Garnsey, by which the latter agreed to complete six uniin ished buildings, for the sum of $16,000, to be paid in installments as the work progressed. One day before this contract was made, the defendant - Warren entered into a contract with defendant Garnsey, to do the plumbing and gas fitting work, and to furnish and set the ranges in the mission houses for the sum of $4,200 in all On March 5th, Warren ; nd Garnsey entered into a contract, by which the latter agreed to do certain work and furnish materials for the completion of a house belonging to the wife of Warren for the sum of $1,600, to be paid for *'in suitable installments of, or proportionable amount of plumbing work, etc., to be done by Warren on the mission houses under the contract of February 11,1885. On April 1, 1885, Warren and plaintiff entered into a contract, by which plaintiff agreed to furnish and set the ranges in the six mission houses for $540. Plaintiff fully performed his contract April 15, 1885, and then there became due him the sum of $540, from defendant Warren. The contracts. between Warren and Garnsey were fully completed April 18.1885, and then there became due between Warren and Garnsey, the sum of $4,200 less the payment in cash made to Warren before that time; and less the work, labor and materials supplied by Garnsey to Warren under the second contract. On that day Garnsey and Warren made a settlement, and a receipt in full was taken from Warren by Garnsey. Twelve days after this settlement and final payments, and fifteen days after the plaintiff had finally completed his work on the mission houses, he filed a notice of claim of lien for the amount due under his contract with Warren for the ranges, and subsequently commenced this action to foreclose it. At the time of tiling notice of lien, there was due or to become due from mission society to Garnsey, a sum much larger than the amount claimed by plaintiff. Held, that the two contracts between Garnsey and Warren were not entirely separate and distinct from each other; the second contract became a part of the first, and that they had a right at any time after the completion of both contracts to make a settlement and payment in good faith of the amounts due under them, and having done so before the plaintiff filed his lien, and there being nothing due from Garnsey to Warren when_plaintiff filed his notice of claim there was nothing to which plaintiff’s claim could attach. Larremoke, J., dissenting.
    4. Same—Extra allowance.
    The mechanics’ lien act does not authorize the granting of an extra allowance.
    Appeal from an order made at special term confirming a referee’s report, and the judgment entered thereon.
    The facts are sufficiently stated in the opinion.
   Bookstaver, J.

This is a proceeding to foreclose a mechanic’s lien on premises belonging to the defendant’s society, situate on the east side of Lexington avenue, between One hundred and seventh and One hundred and eighth streets, and on the southerly side of One hundred and eighth street, east of Lexington avenue.

The defendant society is a domestic corporation, having its place of business in the city of New York.

On the 7th of February, 1885, this society entered into a contract with the defendant Erasmus D. Garnsey, by which the latter agreed to complete six unfinished buildings on the above mentioned premises for the sum of $16,000, to be paid in installments, as the work progresses, $200, however, to be retained for ten days after the buildings were entirely finished.

One day before this contract was made, the defendant William S. Warren proposed to Garnsey to do the plumbing and gas-fitting work, and to furnish and set the ranges in the six Mission Society houses, for the sum of $700 for each house, or for $4,200 in all. This proposal was accepted, in writing, by Garnsey, on the 11th of February, 1885.

On the 5th of March, 1885, Warren and Garnsey entered into a written contract, by which the latter agreed to do certain work and furnish material for the completion of the house belonging to the wife of Warren, and entirely distinct from the six houses before mentioned, being known as 177 East One hundred and seventh street, for the sum of $1,600, to be paid for “in suitable installments of, or proportionable amount of plumbing work,” etc., to be done by Warren on the six Mission Society houses, under the contract of the 11th of February, 1885.

Afterwards and on the first day of April, 1885, Warren and the plaintiff Hagan entered into a verbal contract, by which Hagan agreed to furnish and set the ranges in the six Mission Society houses, called for by the contract of the 11th of February, 1885, for $90 each, or $540 in all.

> The plaintiff fully performed his contract to set the ranges, about the 15th day of April, 1885, and there then became due to the plaintiff, the sum of $540 from the defendant Warren.

Both of the contracts between Warren and Garnsey, were fully completed on or before the 18th day of said April, and there then became due said Warren from Garnsey, the sum of $4,200, less the payments in cash, made to Warren, before that time; and less the work, labor and material supplied by Garnsey to Warren, under the second contract, if that should be deducted from the total amount ¿greed to be paid under the first contract.

On that day, Garnsey and Warren made a settlement and adjustment of their accounts, under these contracts, and it was found that Garnsey had theretofore paid to Warren on account of the first contract $2,448.52. That Garnsey had fully performed the work-and furnished the materials called for, under the second contract, amounting to $1,600, which was then credited on Warren’s contract for the work on the Mission Society houses, and that was due from Garnsey to Warren, the sum of $151.48, which was then and there paid, making the total payments, including the amount allowed for material and work, under the second Garnsey and Warren contract, $4,200; the full amount to be paid by Garnsey to Warren, under the contract of February 11, 1885.

When this settlement was made, a receipt in full was taken from Warren by Garnsey.

Twelve days after this settlement and final payment, and fifteen days after the plaintiff had finally completed his work on the Mission Society houses, he filed a notice of a claim of a lien, for the amount due under his contract with Warren, for the ranges; and subsequently commenced an action to foreclose it.

At the time of filing the notice of lien, there was due or to become due from the Mission Society to Garnsey, a sum much larger than the amount claimed by plaintiff.

All of the foregoing facts are found by the referee, or stated in his opinion, and are clearly established by the' evidence.

The referee held that the contractor Garnsey and the sub-contractor Warren could not defeat the hen of a workman by setting off against the contract first entered into between them, the second contract, for- the completion of the building known as 177 East One hundred and seventh street, and disallowed the item of $1,600 for the work done, and materials furnished on that building, and this seems to have been the only question litigated before him. But upon this appeal, the plaintiff, in addition to supporting the ruling of the referee, claimed that the settlement between Garnsey and Warren was collusive and fraudulent as against him; and it is proper that this question should be first disposed of.

The referee has not found, nor was he. requested, by the plaintiff, to find that there was any collusion or fraud, in the settlement.

We have examined the evidence, and perhaps Warren has so given his testimony, that an inference of collusion might be drawn therefrom, if it were implicitly relied upon. But the defendant Garnsey directly contradicts the testimony of Warren on this subject, and we think is corroborated by the facts in the case, while Warren is not.

Mr. Warren testifies that before the receipts were exchanged between him and Garnsey, the latter told him his contract with the Home Mission Society was such that if any hen was placed on the buildings he could not get his money, and if Hagan should put a lien on the buildings, as he had spoken of doing, he could not get that payment; ■and that the best way out was to exchange receipts, which would stop Hagan from putting on the lien, and, in that way, he could get the money, and would give it to him, so that he could pay Hagan the amount due him for his ranges.

It is apparent that this version of the matter cannot be correct, for, at that time, Garnsey paid Warren the full amount due him, under contract of February 11, 1885, less the $1,600 for work and material under the second contract. This included the $540 due from Warren to Hogan, under the contract between them, and in no other way could the I full amount have been made up, and Warren does not ¡claim he has not been paid the full amount due him under the contracts.

The settlement was made after all the work under both contracts had been done, and in strict conformity with the terms of these contracts, and, as we think, in entire good faith, and without collusion.

The only question remaining is, whether or not the learned referee was right in disallowing,the item of $1,600 for the work done by Garnsey on the house, 177 East One hundred and seventh street.

He held that this was in the nature of a set-off, and that-the amount due Garnsey on the contract could not be applied in the discharge of Garnsey’s obligation, under the contract with Warren, for the work on the Mission Society houses, and regarded the two contracts between Garnsey and Warren as entirely separate and independent building-contracts.

It is conceded that a general indebtedness cannot be set off as against a mechanic by parties standing between him and the owner. Hoyt v. Miner, 7 Hill, 525; Develin v. Mack, 2 Daly, 94; Bullock v. Horn, 5 West. Rep., 198. And that if the two contracts between Garnsey and Warren are entirely separate and independent of each other, the claim one of the parties might have against the other, arising out of one contract, would be a general indebtedness, as far as the rights of laborers and material men would be concerned, under the other contract.

But are these two contracts entirely separate and independent of each other? The first contract -was made between Garnsey and Warren, by the acceptance of the former, on the 11th of February, 1885, of a proposal made by the latter, before that time. To this acceptance Garnsey says: “About payments, I will arrange to give you according as the work shall proceed, satisfactory installments.” The second contract between the same parties was entered into on the 5th of March, 1885, by the acceptance of Warren, of a proposition, therefore made by Garnsey, to do certain work on the house 177 East 107th street for the sum of $1,600 “to be paid for, in suitable installments of, or proportionate amount of plumbing work, etc., to be performed by Warren, on the Mission Society •houses.

This provision, as to payment in work contained in the second contract, by its very terms refers, to the first contract; and we think, therefore, that the two contracts must be read together; or at least, that the second contract must be regarded as having added thereto, or inserted therein, that part payment was to be made in work and material upon another building, and the remainder to be paid in cash, especially as the provision for payments contained in the acceptance of the first contract was indefinite and left for future arrangement.

The last of these contracts was made nearly a month before the contract between the plaintiff and Warren, and the referee has so found; although, in his opinion, he seems to have lost sight of this fact; and states that the plaintiff’s contract was made before the second contract between Garnsey and Warren, and constructs his argument and draws his conclusions on this error of fact.

It is not necessary for us to determine whether or not a. building contract can be modified after sub-contracts have-been made under it with mechanics, as that question does not arise in this case.

The question, in this case, is whether a mechanic having entered into a contract with a sub-contractor, after Ihe original agreement between the sub-contractor and the principal contractor has been modified, can file and enforce a lien for his work when there has been a settlement and payment in good faith between the contractor and subcontractor, of all that is due the latter, according to the terms of the modified contract.

From the evidence, we infer that the plaintiff neither saw nor asked to see either of the contracts between Garnsey and Warren. Nor is it certain, from the evidence, what Warren told him about the contracts he had with Garnsey, although he says he thinks he explained the contract to the plaintiff.

A party furnishing materials, or doing work relying upon the lien given by statute for security, must examine the contract with the owner, for it is only to the extent of what is due or to become due upon this contract, that his lien can attach. If he furnishes the material, or does the work for a sub-contractor in like reliance, he should not only examine the contract with the owner, but also that of the sub-contractor; for if the sub-contractor fails to perform his contract so that nothing becomes payable thereon, or is paid in full, according to its terms, in case of performance, there can be no lien within the principle of Carman v. McIncrow, 13 N. Y., 70; Lumbard v. Syracuse B. and N. Y. R. R. Co., 55 id., 491; Cranes. Genin, 60 id., 127.

Had he made this examination the first contract would have shown that the terms of payment were indefinites which would have led to further inquiry, and this would have revealed the execution of the second contract by which he would have discovered that part payment of the first contract was to be made in labor and material furnished on another building. Indeed, it was the duty of Warren, when inquired of by the plaintiff, to have informed him of the terms of both contracts, for, at that time, the one modified the other as we have before shown.

This being the case, Garnsey and Warren had the right, at any time after the completion of both contracts, to make a settlement and payment, in good faith, of the amounts due under them. This they did on the 18th of April, 1885, twelve days before plaintiff filed his lien. He acquired a, • specific lien, if ever, when he filed his notice and not before. "Up to that time he was a general creditor, with no greater equities than other general creditors. Payne v. Wilson, 74 N. Y, 355.

When he did file his notice of lien, it could only attach to the extent of what was due or to become due to the subcontractor upon his contract. Lombard v. B. and N. Y. R. R. (supra).

The plaintiff could not claim more, nor was he entitled to more than a subrogation to the rights of Warren; and as there was nothing due from Garnsey to Warren when he filed his notice of claim on the 30th day of April, 1885, there was nothing to which plaintiff’s claim"could attach.

The right to the enforcement of the lien may be defeated by the payment in good faith before the notice is filed. Carroll v. Caughlin, 7 Abb. (N. S.), 72; Schneider v. Hobein, 41 How., 232.

The foundation of a lien is an indebtedness existing upon a contract by the person sought to be charged, and as no such indebtedness from Warren to Garnsey existed at the time of filing the notice, there was no basis for the claim of the plaintiff to rest upon. Muldoon v. Pitt, 54 N. Y., 269; Meyers v. Bennett, 7 Daly, 471; Gibson v. Lenane, 94 N. Y., 183. We are, therefore, of the opinion that the plaintiff acquired no lien which he could enforce against either of the appellants herein, unless it can be established that it is unlawful as against material men and laborers for a subcontractor to make a contract by which he agrees to receive payment in anything but money.

That such a contract between the owner and principal contractor is not unlawful is clear, for § 1819 of the consolidation act, under which these proceedings were begun, contemplates the making of just such contracts, and Dowdney v. McCullom (59 N. Y., 367), we think, establishes the validity of such a contract between the principal contractor and a sub-contractor, and we can see no difference in principle between these cases and the one under consideration, and we think the original contract between Garnsey and Warren, as modified by the agreement of March 5, was entirely legal and valid, as against the plaintiff.

But it is argued that if we affirm the validity of such a contract, as against material men and laborers, we would thereby deprive material men and laborers of their lien upon any of the buildings erected under such contracts.

We fail to see the force of this argument, for, if payments were to be made in money instead of work and material, and such payments were actually made before the material men filed their notice of lien, such notice would attach nothing, just as in this case.

If, on the other hand, Garnsey had made default in doing the work, or furnishing the material, which he was to do, in part payment of Warren’s work, then, to the extent of the value of such work and materials not furnished, the plaintiff’s lien would have attached, and could have been enforced.

These proceedings were equitable in their nature, and the statutes on which they are founded are to be construed liberally, in order to carry out their intent, but not at the expense of justice.

If the defendant, the Mission Society, were compelled to pay plaintiff’s claim, it would be entitled to deduct the amount so paid from the total sum to be paid Garnsey for the entire work upon its houses, for in no event could it be required to pay more than the contract price agreed to be given him.

This would work injustice to Garnsey, for he performed, in good faith, his contract with Warren, by supplying work and material on the house, 177 East One hundred and seventh street, under an agreement which provided that the value of such work and material should be allowed as a payment on the contract, for the work on the Mission Society’s houses, to be done by Warren, and if the plaintiff could now compel Garnsey to pay him for the material and work furnished by him, under his contract with Warren, Garnsey would have to pay for the same work twice; once in material and work, and the second time in money.

We do not think the law was intended to work such an injustice.

The judgment and order appealed from should be reversed, and a new trial ordered, with costs to the appellants of this appeal.

Having arrived at this conclusion, it is unnecessary to notice the question of the extra allowance granted upon the confirmation of the report, further than to say that this court has decided that the mechanics’ lien act does not authorize the granting of extra allowances. Ruth v. Jones, N. Y. Mo. Law Bul., til.

Allen, J., concurs.

Larremore, C. J.

There seems to be no dispute that the indebtedness to the plaintiff was incurred for labor and materials, which entered into the construction of the houses described in the complaint. But his-claim is sought to be defeated upon the ground that Garnsey and Warren having a contract in relation to property other than that described in the complaint, had balanced their accounts, passed mutual receipts and that there was nothing due from the original contractor, upon which plaintiff’s lien could attach.

The plaintiff contracted with reference to the statute, which was intended to give him a specific lien upon the property in question. Against such a lien a general indebtedness cannot be offset as against a mechanic. If this were not so, any contractor and sub contractor could defeat the lien of a workman by setting up an independent contract between themselves for the erection of a building upon other premises.

The defendant corporation, on February 7, 1885, contracted with the defendant Garnsey to complete the unfinished buildings upon premises owned by it. In February, 1885, the contractor sublet a portion of the work for the agreed sum of forty two hundred dollars. The plaintiff furnished work and materials for the sub-contractor for the six houses embraced in the contract, and for which he has not been paid.

The main question presented is: whether a contractor and sub-contractor can, upon other independent building contracts, so adjust their claims and balance their accounts as to deprive the material men of their liens.

It seems to me that this was not the intention of the statute, intended for the protection of parties who furnish materials and render services in the erection of buildings. Hoyt v. Minor, 7 Hill, 525.

It seems to be well settled that the lien of a person for an indebtedness, incurred m reliance upon statutory security, should not be defeated except by payments made agreeably to the terms of the contract. Crane v. Genin, 60 N. Y., 127; Payne v. Wilson, 74 id., 348; Gibson v. Lenane, 94 id., 187. _

_ It is true that a lienor can recover only the amount due him from the person against whom he brings his action, but we cannot assent to the proposition that a general debt can be offset against the mechanic between the parties who stand between him and the owner.

The findings of fact and conclusions of law by the referee were authorized by the evidence, and the judgment appealed from should be affirmed with costs.  