
    Martin Behrer and Others, Appellants, v. John McMillan and Others, Impleaded with City and Suburban Homes Company, Respondent.
    First Department,
    July 12, 1906.
    Mechanic’s lien — when owner not liable to sub-contractor for advance payments made to contractor — good faith — when no inchoate lien.
    Section 7 of the Mechanics’ Lien Law, providing that payments to á contractor made prior to the time they became due under the contract, for the purpose of avoiding the provisions of the law, shall be of no effect against the lien of a sub-contractor created before the payment became due, does not require that such advance payments be excluded in determining the sum due the contractor, unless made in bad faith for the purpose of avoiding the provisions of the Lien Law.
    The burden of showing that such advance payments were made in bad faith is on the sub-contractor, and when it is shown that the owner was ignorant of the claims of the sub-contractor when he made the advance payments, such payments should not be deducted in figuring the sum due the contractor to which the sub-contractor’s lien attaches.
    The doctrine that a sub-contractor by doing work acquires an inchoate lien which is perfected by the filing of the lien applies only as against an assignee for the benefit of the creditors of the contractor or his trustee in bankruptcy.
    Appeal by the plaintiffs, Martin Behrer and others, from a judgment of "the Supreme Court in favor of the defendant, the City and Suburban Homes Company, entered in the office of the clerk of the county of New York on the 16th day of April, 1906, upon the decision of the court, rendered after a trial at the New York Special Term, dismissing the complaint upon the merits,
    
      H. Schieffelin Sayers, for the appellant.
    
      Arthur F. Cosby, for the respondent.
   Laughlin, J.:

Tliis is an action to foreclose a mechanic’s lien. The defendant City and Suburban Homes Company is the only respondent.

The respondent company was the owner of premises at the northeasterly corner of Avenue A and Seventy-eighth street, and it was erecting a tenement building thereon. The contract for the plumbing and gasfitting was let to the defendant McMillan, by whom the plaintiffs were employed as sub-contractors. The plaintiffs sold and delivered to McMillan materials and supplies of the value of $12,224.95, which were used in the performance of his contract with the owner, and were paid on account the sum of $6,278.99. Within ninety days after furnishing the material, and on the 18th day of June, 1903, the plaintiffs duly filed a notice of lien for the balance of $5,945.96 owing to them. This action is brought to foreclose that lien. The entire contract price of the work to be performed by McMillan was $26,190, and it is admitted that he performed extra work of the value of $180, making his aggregate claim $26,370.

The contract provided that the respondent should pay McMillan “ in monthly payments as the work progresses, reserving 15 per cent, until final completion and acceptance of the work by Sturgis & Hill Co.,” and that Sturgis & Hill Company, who were the superintendents, should certify in writing “in each case that the contractor is entitled to such payment.” The contract further provided “that at the time of making the last two payments satisfactory proof shall be furnished to the owner that the land and building upon or for which the work is done are free from all liens or claims on account of said work.”

On the 1st day of June, 1903, the superintendents recommended a partial payment to McMillan of $1,275 under the contract; but this was not ¡3aid nor was any payment made on the contract thereafter. At that time, but for the advance payments, which will be considered presently, there would have been a balance of $7,049.15 unpaid on the contract. A few days after the superintendents recommended the payment of $1,275, the contractor abandoned the work and the owner completed it at a cost of $1,498.94. The contract contained the usual provision that in the event of the failure of the contractor to proceed with due diligence, the owner might take possession of the work and complete the same at the expense of the contractor. In these circumstances, if no payment had been made in advance of its being earned under the contract, the owner would have owed the contractor the difference between the said balance of $7,049.15, which would have been unpaid, and $1,498.94, the cost of completion, or $5,730.21, consisting of $3,928.50, the fifteen per cent reserved, $180 for extra work, and $1,621.71, a surplus of work done over the monthly estimates of the superintendents. The owner, however, with a view to expediting the work of McMillan, who was hard pressed for money and seemed to be falling behind in his work which delayed other work, had made further payments from time to time between the monthly payments and before the plaintiffs filed their lien, leaving only $819.34 unpaid at at that time, which was less than the amount necessarily expended by the owner in completing the work.

The plaintiffs were familiar with the provisions of the contract between the owner and McMillan and they relied upon fifteen per cent of the contract being reserved by the owner until final completion. They had discussed the matter with the superintendents who had notice of their claim and promised to protect them and advise them from time to time of the certificates issued for partial payments. The appellants claim that the superintendents were the authorized agents of the owner, as they were supervising the work and no other architect was employed. The plaintiffs, however, Were informed by the superintendents that they had no authority to represent the owner with respect to agreeing that they would be protected in the payments to be made on the contract, and they were advised by the superintendents to communicate directly with the owner on that point, which they failed to do.

The plaintiffs claim that the advance payments wrere made for the purpose of avoiding the provisions of the Mechanics’ Lien Law, and that in determining what amount, if any, was due. and owing by the owner to the contractor at the time the lien was filed or at any time thereafter, such advance payments should be left out of the account. This claim is based on section 7 of the Lien Law (Laws of 1897, chap. 418), wrhich provides as follows: “ Any jiayment by the owner to a contractor upon a contract for the improvement of real property, made prior to the time when, by the terms of the contract, such payment becomes due, for the purpose of avoiding the provisions of this article, shall be of no effect as against the lien of a subcontractor, laborer or material man under such contract, created before such payment actually becomes due.”

The Mechanics’ Lien Law of 1862 (Laws of 18G2, chap. 478, § 1) provided, in substance, that any payment made on a building contract “ by collusion, for the purpose of avoiding the provisions of this act, or in advance of the terms of any contract,” should not be considered as against a lienor in determining tlic amount due and owing on the contract at the time of filing notice of lien.

The Lien Law of 1885 (Laws-of 1885, chap. 342, § 2), so far as material to the present inquiry, provided that if the owner “ shall for the purpose of avoiding the provisions of this act or in advance of the terms of any contract pay by collusion any money or other valuable thing on such contract, or give a mortgage, or make any other lien or incumbrance” upon the property upon which the improvement was made, the same should not, as against a lienor, be considered in determining the liability of the owner. The same provision ivas continued in said section 2, as amended by chapter 673 of the Laws of "1895.

It will be observed that the provisions of the former statute were materially different from the provision of the statute in force at the time this lien was filed. The Mechanics’ Lien Law of 1862, in addition to prohibiting payments by collusion, clearly provided that no payment in advance of the time the same became due under the contract should be allowed as against a lienor, regardless of whether such payment was made by collusion or whether it was intended as an evasion of the Lien Law. (Post v. Campbell, 83 N. Y. 279.) The decisions are conflicting on the question as to whether by the change in phraseology contained in the Mechanics' Lien Law of 1885 the Legislature intended to change the legal effect of the statute in this regard. (Banham v. Roberts, 78 Hun, 246; Hilton Bridge Construction Co. v. N. Y. C. & H. R. R. R. Co., 145 N. Y. 390, holding no change; contra, Smack v. Cathedral of the Incarnation, 31 App. Div. 559 ; Lind v. Braender, 15 Daly, 370.) The present statute, however, does not provide that all payments made in advance shall, as against the lienor, be excluded from the calculation in determining the balance for which the owner is liable, but only when such payments are made “ for the purpose of avoiding the provisions ” of the Mechanics’ Lien Law, which necessarily involves proof of bad faith' or collusion on the part of the owner in making the payments in advance or, what is tantamount thereto, payment with notice, actual or constructive, of the claim of the laborer or materialmen who subsequently file liens. (Miller v. Smith, 20 App. Div. 510; Wolf v. Mendelsohn, 87 N. Y. Supp. 465.)

In the case at bar there is no evidence of bad faith or collusion on the part of the owner or that it knew that the plaintiffs were furnishing any material or supplies for the building. The trial court has found, and the evidence warrants the finding, that the owner was not aware that the plaintiffs had any claim against McMillan and that the advance payments were not made for the purpose of avoiding the provisions of the Lien Law. The president of the owner testified that McMillan was behind with his work and that this delayed other contractors; that McMillan applied to him to make payments in advance of the monthly certificates of the superintendents, and that in making such payments the company did not intend to advance more than the contract price of the work actually performed. The appellants point to the testimony on the part of the president of the owner to the effect that in making these advance payments he was willing to take some risk, and claim that it shows knowledge on his part of the risk of claims of lienors. That, however, is not the fair inference from his testimony. It is quite clear that he did not have in mind that there might be claims of third parties and that he was merely referring to the risk the company ivas taking in [laying McMillan more than he earned and of having the work abandoned before completion.

The appellants also cite the case of Kane Co. v. Kinney (174 N. Y. 69) as authority for the proposition that they acquired an inchoate interest in the premises, which was perfected by filing the lieu. That case is not in point. It was there merely held that as against an assignee for the benefit of creditors of the contractor the assignee stands in the shoes of the assignor and takes the property subject to the right of laborers and materialmen to file liens within the time prescribed by the statute, and the same rule has since been applied as between lienors and a trustee in bankruptcy of the contractor. (Crane Co. v. Pneumatic Signal Co., 94 App. Div. 53; affd., sub nom. Crane Co. v. Smythe, 182 N. Y. 545.)

It follows, therefore, that the judgment should be affirmed, with costs.

O’Brikn, P. J., Patterson, McLaughlin and Clarke, JJ., concurred.

Judgment affirmed, with costs. Order filed. 
      
      Lien Laiv, art. 1.— [Rep.
     