No. 13411
IN THE SUPREME COURT OF THE STATE OF MONTANA
GEORGE C. MILLER, d/b/a
CENTRAL PLUMBING AND HEATING,
Plaintiff and Appellant,
CHARLES W. MELANEY and MARY
GLADYS MELANEY, husband and wife,
and DEL HOSTETTER,
Defendants and Respondents.
Appeal from: District Court of the Eighteenth Judicial
District
Honorable W. W. Lessley, Judge presiding.
Counsel of Record :
For Appellant:
Bolinger and Wellcome, Bozeman, Montana
Page Wellcome argued, Bozeman, Montana
For Respondents :
Thomas I. Sabo, Bozeman, Montana
Landoe, Gary and Planalp, Bozeman, Montana
Robert Planalp argued, Bozeman, Montana
Submitted: January 10, 1977
Filed: ,,dK
377
M r . J u s r i c e Gene B . Daly d e l i v e r e d t h e Opinion of t h e Court.
This appeal involves a subcontractor's attempt t o foreclose
a mechanic's l i e n a g a i n s t homeowners and a g e n e r a l c o n t r a c t o r .
The d i s t r i c t c o u r t , G a l l a t i n County, d e c l i n e d t o f o r e c l o s e t h e
mechanic's l i e n and r u l e d i n f a v o r of a l l d e f e n d a n t s . The sub-
c o n t r a c t o r , George C. M i l l e r , d/b/a C e n t r a l Plumbing and H e a t i n g ,
appeals.
On June 3 , 1974, t h e g e n e r a l c o n t r a c t o r Del H o s t e t t e r
e n t e r e d i n t o a c o n t r a c t w i t h homeowners C h a r l e s W. Melaney and
Mary Gladys Melaney t o c o n s t r u c t an a d d i t i o n t o t h e i r home. The
t o t a l c o n t r a c t p r i c e f o r t h e work was $22,600. The c o n t r a c t
provided f o r compensation t o t h e c o n t r a c t o r i n p e r i o d i c payments,
upon completion of s p e c i f i c segments of t h e work. The f i n a l
payment was due upon completion of t h e a d d i t i o n and t h e c o n t r a c t o r ' s
d e l i v e r y of l i e n w a i v e r s t o t h e homeowners.
M i l l e r a c c e p t e d a s u b c o n t r a c t t o i n s t a l l t h e h e a t i n g system
p u r s u a n t t o t h e g e n e r a l c o n t r a c t o r ' s s p e c i f i c a t i o n s which i n c l u d e d
t h e s i z e and l o c a t i o n o f d u c t work and f u r n a c e . The c o n t r a c t
p r i c e was $925.00.
Homeowners t e n d e r e d a l l payments under t h e c o n t r a c t , when
due, u n t i l t h e payment f o r $1,520 which was t o be p a i d a f t e r t h e
i n s t a l l a t i o n of t h e h e a t i n g system. Homeowners r e f u s e d t o make
t h i s payment because of a l l e g e d i n s u f f i c i e n c y of t h e h e a t i n g
system. Following r e f u s a l of payment, t h e c o n t r a c t o r withdrew
from t h e job and t h e s u b c o n t r a c t o r was denied admission t o t h e
site. The s u b c o n t r a c t o r h a s never r e c e i v e d payment f o r work p e r -
formed on t h e a d d i t i o n .
Thereafter homeowners contacted an architect who re-
designed the heating system by replacing a substantial portion
of the existing duct work with a larger diameter duct and insulating
the duct system. A supplemental furnace was installed in the
garage to heat those portions of the house farthest from the
furnace which was initially installed by the subcontractor. Home-
owners paid $1,542.60 for these modifications to the heating system.
The subcontractor brought an action inpthe district court
to foreclose his timely filed mechanic's lien. The district
court denied the subcontractor foreclosure on the mechanic's lien
and awarded homeowners a personal judgment against the subcontractor
on their counterclaim for defective workmanship, holding the gross
amount of damages incurred by homeowners exceeded the cost of the
subcontractor's work by $757.08. The district court awarded home-
owners attorney fees and costs incurred in defending the lien
foreclosure action. The district court further held the general
contractor was entitled to judgment in his favor, thus denying
the subcontractor any recovery from the contractor.
These issues are presented for this Court's review:
1) Allowing homeowners to recover a personal judgment
against the subcontractor, lien claimant, by means of a counter-
claim.
2) The judgment in favor of the general contractor thus
allowing general contractor to avoid liability to the subcontractor.
Issue 1. The subcontractor contends that a personal
judgment can only be based upon the privity of a contractual re-
lationship between the homeowner and the subcontractor. Since no
contract was executed between homeowners and the subcontractor
in the instant case, the subcontractor argues no privity of con-
tract was established for purposes of rendering a personal judgment.
This Court fails to find merit in this contention. The
correcc law is stated at 53 Am Jur 2d, Mechanics' Liens, $391:
"In an action by a contractor or other claimant to
enforce a mechanic's lien, the owner may avail him-
self of all matters allowable by way of cross bill,
cross complaint, recoupment, setoff, or counterclaim
which arise out of the contract between the owner
and the contractor, and which are available against
the contractor or other claimant. He may maintain a
cross bill, cross complaint, or counterclaim to recover
damages sustained by the failure to perform the work
according to the contract, or to recover damages
connected with the construction, such as for defects
or delay, damages for fraud, or damages from a
materialman's inducing him to enter into a contract
with a bankrupt contractor who did not complete his
contract. ** *I'
See: Monarch Lumber Co. v. Wallace, 132 Mont. 163, 314
The subcontractor cites the Montana case, Frank J. Trunk
& Son, Inc. v. DeHaan, 143 Mont. 442, 391 P.2d 353, and a
California case, R. D. Reeder Lathing Co. v. Allen, 57 Cal.Rptr.
841, 425 P.2d 785, to support his position.
Trunk, like the instant case, concerned a subcontractor's
attempt to foreclose a mechanic's H e n against homeowners who
benefited from the subcontractor's work. The district court
denied the subcontractor recovery under the mechanic's lien
because of invalid filing of the lien. The subcontractor contended
the district court should have entered personal judgments against
the homeownersand the contractor notwithstanding the invalidity of
Court
the lien. The district court found, and this/affirmed, that a
personal judgment against the homeowners could not arise since
such a judgment could only be grounded upon privity of contract
between the subcontractor and the homeowners. Absent the sub-
contractor's privity of contract with the homeowners, the only
basis upon which a judgment against the homeowners could be pre-
dicated, i.e., the lien, was lost by failure to perfect it.
The c r i t i c a l d i s t i n c t i o n between Trunk and t h e i n s t a n t
case i s t h e a v a i l a b i l i t y of remedies. I n Trunk t h e subcontractor
was denied a personal judgment a g a i n s t t h e homeownersbecause h i s
remedy was t h e mechanic's l i e n which he f a i l e d t o p e r f e c t . Had
t h e subcontractor perfected h i s l i e n , he would have been allowed
t o recover even though no c o n t r a c t e x i s t e d between t h e l i e n claimant
and t h e homeowner. The subcontractor need only e s t a b l i s h a con-
t r a c t , express o r implied, between t h e homeowner and t h e prime
contractor. The r a t i o n a l e behind t h i s r u l e i s t h a t by v i r t u e of
t h e c o n t r a c t between t h e prime c o n t r a c t o r and homeowner, an implied
agency i s c r e a t e d between t h e two, giving t h e c o n t r a c t o r t h e
a u t h o r i t y t o c o n t r a c t with subcontractors and materialmen f o r
performance and supplying of m a t e r i a l s . Glacier S t a t e Electric
Supply Company v. Hoyt, 152 Mont. 415, 451 P.2d 90.
S i m i l a r l y , t h e homeowner i s vested with c e r t a i n remedies
when he f a c e s a l i e n f o r e c l o s u r e a c t i o n brought by a subcontractor,
a s s p e c i f i c a l l y s e t out h e r e t o f o r e i n 53 Am J u r 2d, Mechanics'
Liens, 6391, which includes t h e remedy of counterclaim here. The
purpose of mechanic's l i e n l e g i s l a t i o n i s n o t t o s t r i p t h e homeowner
of recourse f o r f r i v o l o u s l i e n foreclostsre a c t i o n s , but t o allow
t h e l i e n claimant a remedy where no p r i v i t y of c o n t r a c t e x i s t s
between t h e l i e n claimant and t h e property owner.
I n R.D. Reeder Lathing Co. v. Allen, 57 Cal.Rptr."altl, 425
P.2d 785, 788, t h e C a l i f o r n i a c o u r t s t a t e d :
""'While t h e e s s e n t i a l purpose of t h e mechanic's l i e n
s t a t u t e s i s t o p r o t e c t those who have performed labor o r
furnished m a t e r i a l towards t h e improvement of t h e property
of another, *** inherent i n t h i s concept i s a recogni-
t i o n a l s o of t h e r i g h t s of t h e owner of t h e b e n e f i t e d
property. I t has been s t a t e d t h a t t h e l i e n laws a r e f o r
t h e p r o t e c t i o n of property owners a s w e l l a s l i e n claimants.
** *""I
Reeder, Like Trunk, involved a s u b c o n t r a c t o r who sought
t o f o r e c l o s e a mechanic's l i e n t o impress t h e improved p r o p e r t y .
The lower c o u r t g r a n t e d t h e s u b c o n t r a c t o r ' s motion f o r summary
judgment and decreed t h a t defendant was p e r s o n a l l y l i a b l e t o t h e
s u b c o n t r a c t o r f o r t h e v a l u e of t h e l a b o r and m a t e r i a l s s u p p l i e d .
The Supreme Court found t h e p r o v i s i o n of t h e lower c o u r t judgment
which h e l d t h e defendant p e r s o n a l l y l i a b l e t o t h e p l a i n t i f f was
erroneous. A s i n Trunk, t h e Supreme Court of C a l i f o r n i a . h e l d
t h a t i n t h e absence of a c o n t r a c t between a l i e n claimant and t h e
property owner, t h e r i g h t t o e n f o r c e a mechanic's l i e n a g a i n s t
r e a l p r o p e r t y does n o t g i v e r i s e t o p e r s o n a l l i a b i l i t y of t h e owner.
The r u l e denying a l i e n claimant a p e r s o n a l judgment a g a i n s t
a property owner i n a l i e n f o r e c l o s u r e a c t i o n , where p r i v i t y of
c o n t r a c t i s a b s e n t , cannot be conversely a p p l i e d t o deny a p r o p e r t y
owner a p e r s o n a l judgment a g a i n s t a l i e n c l a i m a n t f o r damages
a t t r i b u t a b l e t o t h e l i e n c l a i m a n t and a r i s i n g o u t of t h e c o n t r a c t
between t h e p r o p e r t y owner and t h e prime c o n t r a c t o r .
- s u e 2.
Is The c o n t e n t i o n t h e d i s t r i c t c o u r t e r r e d when
it concluded t h e g e n e r a l c o n t r a c t o r owed nothing t o t h e subcon-
t r a c t o r and was e n t i t l e d t o a judgment i s c o r r e c t .
The record of t h e proceedings i n t h e d i s t r i c t c o u r t d i s -
c l o s e s t h e s u b c o n t r a c t o r c o n s t r u c t e d t h e h e a t i n g system i n com-
p l i a n c e w i t h c e r t a i n s p e c i f i c a t i o n s provided by t h e g e n e r a l con-
t r a c t o r , e.g., the s i z e of t h e f u r n a c e , t h e l o c a t i o n of t h e f u r n a c e
and t h e l o c a t i o n of a i r d u c t s . Inherent i n the d i s t r i c t c o u r t ' s
award of damages t o t h e homeowners i s a d e t e r m i n a t i o n t h a t t h e
h e a t i n g system, a s o r i g i n a l l y designed, was inadequate. Liability
i n regard t o damages f o r d e f i c i e n c y i n d e s i g n a p p l i e d t o t h e
contractor, not the subcontractor.
The district court erred when it entered judgment for
the general contractor and denied the subcontractor his right
to indemnification. The district court must determine the con-
tractor's liability for damages based upon the effect of the
contractor's deficient design specifications which the subcontractor
was compelled to use in performing under the contract.
The judgment of the district court is affirmed in part,
reversed in part and remanded for modification not inconsistent
with this opinion.
ustice
We Concur:
~&Lef
Justice
-