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shall have a contractor's lien upon the railroad for work done and material furnished and claims purchased," implies simply a lien by contract. A contractor's lien, per se, is one that arises by operation of law, independently of the express terms of any contract. It springs out of the obligation to pay for the stipulated labor and the promised materials, when furnished, provided the contractor shall give the notice required by statute. McMurray v. Brown, 91 U. S. 266. This, at most, is an agreement for a lien by contract. No lien dependent upon a contract for a lien would be effectual as against mortgages, or the liens of contractors or subcontractors created by the lien statute. We agree with the holding of the circuit court that the relations which existed between the Richmond & Irvine Construction Company and the railroad company was not that of contractor and owner, but of subcontractor and owner.
2. The nineteenth assignment of error filed by the construction company presents a question concerning the application of a payment of part of the contract price in railroad bonds, made by the contract company to the construction company. The rule in regard to partial payments made by the contract company to its subcontractors, and the effect of such payments upon the lien of such subcontractors, is fully stated and explained in the opinion filed upon the questions involved by the appeal of the Central Trust Company, and need not be here repeated. That rule was applied to all payments made to subcontractors, except only the construction company. The learned district judge who heard this case in the circuit court deemed the contract between the contract company and the construction company so peculiar as to justify a departure from the general rule adopted with reference to partial payments made to other subcontractors by the contract company. The peculiarity of that contract consisted, not only in the great variety of things which the construction company undertook to do, but in the odd way in which the price was to be fixed which was to be paid for all its undertakings. The construction company was a corporation organized for the express purpose of helping the contract company out of its difficulties. It obligated itself to do all that the contract company had contracted to do, and had not done, on that part of the road between Richmond and Irvine, Ky. This involved the acquirement of rights of way, grading, track laying, bridge and depot building, the furnishing of all necessary materials, including steel rails, etc. The contract company had, as more fully appears in the principal opinion, obligated itself to pay the interest upon the bonds of the railroad company during construction, and for one year thereafter. It owed a great deal of money to subcontractors for work finished and materials furnished. Its obligation to pay matured coupons, and to pay subcontractors having liens, had to be provided for, and so the construction company undertook to buy and hold matured coupons not exceeding $12,000 in par value, and to purchase and hold for its benefit subcontractors' lien claims to be designated by the contract company. The total capital stock of the construction company was fixed at $200,000. Of this capital it undertook to use $140,000 in expenditures on the work of construction. The expendi
tures upon this account, it was provided, should include "the actual cost and expenditures" on account of labor done, materials furnished, and rights of way acquired, "including the salaries of said construction company's officers and agents." The remainder of its capital, estimated at $40,000, was to be expended in the purchase of matured coupons and lien claims. Thus it was contemplated that the construction company should actually expend $200,000 for the benefit of the contract company in the completion of a considerable part of the work undertaken by that company for the railroad company. How was it to be compensated for this use of its capital? What price was the contract company to pay for all the undertakings included in this rather unusual contract? This is answered by the contract. The concluding covenant is in these words:
"And said contract company agrees to pay the said construction company for said work, materials, and such claims as may be so purchased, the sum of $400,000, to be paid as follows: In the new 5 per cent. first mortgage bonds of said railroad company, the sum of $200,000 as soon as the bonds are printed and ready for delivery, and the sum of $200,000 in money due and payable at the expiration of thirty days after the track of said railroad is laid and completed as aforesaid from Richmond, Ky., to the Kentucky river, opposite Irvine, Ky., but should said sum not be paid at maturity, the same shall bear no interest until January 1, 1892."
Subsequently a modification of the contract was agreed upon, as
"The agreement attached hereto between the undersigned, bearing date January -, 1891, was made with the expectation and understanding that the paid-up capital stock of the Richmond & Irvine Construction Company should equal the sum of $200,000 in money which was to be expended in the prosecution of the work of constructing the R., N., I. & B. R. R. and the purchase of the lien claims mentioned in said contract. Now, this writing witnesseth, that if the said paid-up capital stock should fall short of the said $200,000, then the Richmond & Irvine Construction Company shall only be paid under said contract an amount of bonds equal to said paid-up capital stock, and a like amount in money. In testimony whereof, we have hereunto subscribed our names this, the 7th day of February, 1891."
The capital expended did in fact fall short of that anticipated, and the bond payment made by the contract company was correspondingly reduced. This agreement comes at last to this: that in place of agreeing, in the first instance, upon a definite price to be paid for what the construction company agreed to do and expend, the parties to that contract agreed that the price to be paid should be the actual amount of the cash expenditures plus the value of an equal amount of securities, which, as shown by the master's report, were worth 40 per cent. of their value. This arrangement settled definitely the profit allowed the construction company upon its entire outlay, provided the whole of the price should be paid or collectible. The contract may have been a hard bargain, as between the contracting corporations, and this view, in part, may account for the exceptional rule enforced in regard to the application of the partial payment so as to reduce the amount of its lienable claim, as well as the amount of its pro rata enforceable against the property of the railroad company. On the other hand, it is to be remembered, in mitigation, that this profit was more apparent than real. The market value of the
bonds rapidly depreciated after their delivery, and, when these suits were instituted, had declined to perhaps 15 per cent. of their par value. There was no probability of the payment of the cash part of the contract price, except through the enforcement of the statutory lien. The cost, delay, and uncertain result of a suit enforcing such a lien, as well as the uncertain and speculative value of the payment in bonds, were proper matters to be taken into consideration in fixing the gross price to be paid for all the construction company undertook to do and expend. The contract was one which did not affect the legal liability of the railroad company, nor did it subject its property to any larger lien than was already fastened upon it. It had an indirect effect due to the fact that the railroad company had already paid the contract company more than its ratable share in the original contract price, and so it indirectly affected the holders of the mortgage bonds, and of subcontractors' lien claims. But this indirect effect would result from any unwise subcontract made by the principal contractor. In the absence of intentional fraud, such indirect consequences are not matters of which the parties affected can complain. What the court was called upon to do was to ascertain the contract price due from the principal contractor to each subcontractor, eliminate from that so much of the price as was for work or expenditures nonlienable under the statute, and then ascertain the pro rata of the original contract price properly earned by each subcontractor. The mere hardness of the bargain between the prin cipal contractor and its subcontractors, not amounting to a fraud upon other lienors or the railroad company, should have no effect in determining the pro rata of each subcontractor in the original contract price. The first direction in the decree, for an apportionment of the bond payment ratably between so much of the claim of the construction company as was entitled to the benefit of the statutory lien and that which was nonlienable, seems to be justified by the terms of the contract, and is therefore affirmed. In substance, that agreement was, that for each one dollar of money expended, the contract company would pay one dollar in money and one dollar in bonds. The bond payment must be treated as having been made ratably upon the lienable and nonlienable expenditures. But so much of the decree as directed that that part of the bond payment applicable to its lienable claim should be again prorated between that part of its lienable claim as was in excess of, and so much of it as was within its pro rata share of, the original contract price, was erroneous. We see no reason for applying that payment in any other manner than was adopted with reference to other subcontractors' liens.
3. The same appellant assigns as error that the court disallowed interest on its pro rata, except from the date of decree. We think this was error. The agreement between the contract company and the construction company provided that the actual cost of work and labor and expenditures for material, etc., made by the construction company for the contract company should be "payable at the expiration of thirty days after the track of said railroad is laid and completed as aforesaid from Richmond, Ky., to the Kentucky river, opposite Irvine, Ky.; and, should said sum not be paid at maturity, the
same shall bear no interest until January 1, 1892." We think this is an express contract for payment upon the completion of the work, and an implied promise to pay interest from and after January 1, 1892. Redfield v. Iron Co., 110 U. S. 176, 3 Sup. Ct. 570. Under this contract this appellant should have been allowed interest, in accordance with the terms of the contract, after January 1, 1892.
4. The contract between the construction company and the contract company provided for the doing of many things, and the expenditures of money on many accounts, which the circuit court held were not lienable matters. All these expenditures made by the construction company, and which were excluded from the lienable claim of that company, were made matters of exception to the report of the special master, and the ruling of the court thereon has been assigned as error. We are of opinion that the court's ruling was correct, with respect to each and all of these matters thus excluded from the lienable claim. Money paid for purchase of rights of way is neither work nor material, within the meaning of the lien act. Neither is money expended in the payment of the salaries of the president of the construction company and its other general officers, although properly chargeable to the contract company, as between it and the construction company. Nor were the expenses of the construction company for stationery, and like office material, lienable claims. The construction company paid $2,346.29 to a trust company to secure its guaranty upon a contract made by the construction company for the purchase of steel rails. Appellant insists that this expenditure constitutes a part of the actual cost of the steel rails which it had contracted to furnish for the completion of the road. We think that that expenditure was one resulting alone from its own want of sufficient cash capital, or its own insufficient credit, and that no such expenditure was within the meaning or spirit of the contract between it and the contract company. If its own capital or credit had been sufficient, no such expense need have been incurred; and the contract makes no provision, directly or indirectly, for compensating the construction company for expenses directly due to its own insufficient capital or credit. The construc tion company paid out some $10,000 for legal expenses incurred in purchasing or condemning rights of way. The court held such expenditures were not lienable. There was no error in this, for two reasons: First, because the furnishing of rights of way is not the furnishing of "materials," within the lien act; second, legal service rendered by counsel is not "labor," within the meaning of the lien statute.
5. Each of the appellants has filed numerous assignments of error touching the improper exclusion of items of expenditure which it is now insisted should have been included in ascertaining the total original contract price entitled to the statutory lien, and to be prorated among all who contributed to the proper work of construction. It is sufficient to say that we have given careful attention to the various assignments and the evidence relating to them upon which this class of objections to the decree have been presented to this court, and we find that none of the assignv.68F.no.1-8
ments of error to the manner in which the original contract price was ascertained are well taken. The deduction from the gross contract price of a sum regarded as necessary on the evidence for the completion of the railroad seems to us to be well supported by the weight of proof. Error has been assigned because of an alleged erroneous deduction from the gross contract price on account of the agreement of the contract company to pay the interest upon the bonds of the railroad company during construction, and two installments after completion, of the road. We are of opinion that the ruling of the circuit court upon this point was correct. It was very essential to the contract company that the interest upon the bonds should be provided for during construction, and for such a period thereafter as it was reasonable to presume that the earnings of the road would be insufficient to pay. As the prospective owner of the bonds to be issued, it was directly interested in the maintenance of the credit of the railroad company. And so much of the contract as obligated the contract company to maintain the credit of the railroad company seems to have been based upon this obvious proposition. This agreement was not, in our judgment, at all dependent upon the operation of the road as completed by the Louisville Southern Railroad Company. It was an absolute contract to pay accruing interest for the time indicated, and formed a considerable element in the determination of the contract price. The interest unpaid was properly deducted from the contract price, and all the assignments of error relating thereto are overruled.
6. The decree allowed none of the subcontractors interest except from the date of the final decree. This has been assigned as error. We have already passed upon this matter, so far as the construction company is interested. The disallowance of interest seems to have been based upon the assumption that there was no contract between the contract company and the subcontractors for the payment of interest, and that the allowance of interest upon such claims, in the absence of a local statute, was within the sound discretion of the court. The court seemed also to attach importance to the fact that the litigation which has resulted in delay was not vexatious, but necessary for the proper marshaling of liens. The question divides itself: First, is interest properly allowable as between the contract company and its subcontractors? Second, is there any reason which should move the conscience of a chancellor to disallow interest because of its indirect effect upon the rights of another class of creditors? In general terms, it may be stated that the contracts between the contract company and its subcontractors provided for payments of a proportionate part of the contract price on monthly estimates as the work progressed, and for payment of all balances due on the completion of the work. There seems never to have been any serious controversy as to these balances due to subcontractors, except in regard to a claim for so-called extra work and materials asserted by appellant Walker. Their claims were not paid because the contract company was unable to pay them, and not because it disputed its liability. As between the contract company and the subcontractors, there can be no serious contention but that interest