WOOD LUMBER COMPANY v. Deep Well Colony Estates Incorporated, a California Corporation, Defendant and Respondent.

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District Court of Appeal, Fourth District, California.

E. K. WOOD LUMBER COMPANY, a California Corporation, Plaintiff and Appellant, v. Robert C. HIGGINS et al., Defendants, Deep Well Colony Estates Incorporated, a California Corporation, Defendant and Respondent.

Civ. 6255.

Decided: December 22, 1959

Brown & Brown, Howard B. Brown and Gerald S. Barton, Los Angeles, for appellant. Vincent C. Hickson and Holbrook, Tarr & O'Neill, Los Angeles, for defendant and respondent Deep Well Colony Estates Inc.

The plaintiff lumber company brought this action to enforce personal liability of the defendant Higgins for building materials sold to him in the amount of $9,487.06 and, by a second cause of action, to foreclose a mechanic's lien upon property owned by the defendant Deep Well Colony Estates Inc. in the amount of $7,196.19. Later, in an amended complaint, plaintiff set forth a promissory note executed by Higgins, in the amount of his account. It developed that during the latter part of 1955 and the early part of 1956 defendant Higgins, a building contractor, had become indebted to the plaintiff and that after an audit of accounts a promissory note was executed by him. Of the amount so owed, it was established that there was unpaid a balance of $5,220.83 for materials which went into construction of a building on property owned by the defendant corporation. It was held by the trial court that, as a result of the receipt of the promissory note and the retention thereof, and by bringing action thereon, the plaintiff had waived its right to enforce a mechanic's lien against the property. Judgment was therefore rendered against defendant Higgins upon the promissory note and in favor of the defendant corporation. From this judgment denying plaintiff relief by way of the foreclosure of lien the plaintiff appeals.

The facts involved insofar as they are essential to a determination of the issues on this appeal are without serious controversy. The real estate in question was originally owned by the defendant corporation and in 1955 Mr. Higgins undertook to buy it. He constructed a residence upon the property which was completed in May, 1956. During the course of the construction, the property was conveyed back to the defendant corporation.

About the time of the completion of the building, an audit of accounts was taken in which it developed that the defendant Higgins was indebted to the plaintiff for building materials in the amount of $9,487.06. He was unable to meet this obligation. He was desirous that no lien be enforced against the property in question, which he had conveyed to the defendant corporation. Accordingly, he entered into negotiations with the plaintiff and its representatives to obtain extended credit and to avoid the filing of a mechanic's lien. He was the equitable owner of a residential property in Palm Springs which was subject to a first trust deed. He proposed to give to the plaintiff a promissory note for the amount of his indebtedness, to be secured by a second trust deed upon the residence property. Mr. Higgins and the comptroller of the plaintiff company, Mr. Charles B. Howe, accordingly inspected the residence property and Mr. Howe advised the plaintiff that in his opinion the note secured by trust deed would be acceptable.

It developed, however, that Mr. Higgins had not perfected his record title to the property. On May 10, 1956, he consulted an attorney at law and there was prepared the promissory note in question which by its terms was payable one year from date or upon the sale of the defendant's house. On the same date, the note was forwarded to the plaintiff company, together with the following letter:

‘E. K. Wood Lumber Company

‘P.O. Box 3158 Terminal Annex

‘Los Angeles 54, California

‘Attention: Mr. Charles Howe

‘Re: Robert C. Higgins

‘Gentlemen: I am enclosing a promissory note in the payment of $9,487.06, with interest at the rate of 5%, payable on or before one year from its date or on sale of Mr. Higgins' home whichever occurs first. At the present time, the title of the house is not in Mr. or Mrs. Higgins' name, and they are endeavoring to sell the same. This may result within the next month or later in the year.

‘Mr. Higgins has told me that from his current job he expects to make a partial payment on the note as soon as he can, and in the event of good fortune, to pay the note prior to the sale of his house. Should the sale of his house be delayed and Mr. Higgins obtains title to the house, I am sure that he would have no objection to a second deed of trust; however, considering the lack of title, I think the enclosed note is the best from to evidence his obligation.

‘Very truly yours,

‘Merrill Brown’

On the same day that this document was mailed to the plaintiff, notice of completion was filed. Nothing further appears to have been said by any of the parties involved until the recording of mechanic's lien by the plaintiff. Thereafter, Mr. Higgins called the representative of the plaintiff and made some objection to the recording of the lien, stating that he had understood that no lien would be filed. He was informed that the plaintiff would not accept the unsecured promissory note in satisfaction of its account and had no intention of waiving its lien. Insofar as the record shows, there was no further conversation between the parties. There appears in the record a suggestion that there was some subsequent correspondence but for some reason that was never placed in evidence. The trial court held that the right to enforce a mechanic's lien had been waived for the reason that the promissory note constituted a ‘payment’ of the indebtedness.

It is a general rule that the execution and acceptance of a promissory note does not constitute payment of a pre-existing indebtedness in the absence of an agreement to that effect. It follows therefrom that the giving of a promissory note in the amount of the unpaid account for building materials does not constitute a waiver of the right to enforce a mechanic's lien unless there be such an agreement. In so holding, the court stated in National Lumber Co. v. Whalley, 162 Cal. 224, 121 P. 729, 730, as follows:

‘It is contended that this note was given and received in full satisfaction of the claims of plaintiff, and thus constitutes a payment releasing the defendant. Whether a note, or even a check, is received in absolute payment of a debt, or merely as a recognition of the debt with an understanding as to time and terms of payment, are questions which, as between the parties, are determined by their agreement, and, in the absence of an agreement to this effect, the acceptance is not a payment of the debt.’

The law is well established in California that the taking of a promissory note does not waive the right to enforce a mechanic's lien in the absence of such agreement by the parties. Sibley Grading & Teaming Co. v. Crary, 4 Cal.2d 375, 49 P.2d 823; Bank of Italy v. MacGill, 93 Cal.App. 228, 269 P. 566; Durfee v. Seale, 139 Cal. 603, 607, 73 p. 435.

It is apparent, therefore, that there is involved a question of fact under the law as established whether there was such payment of the obligation as amounted to a waiver of the right to assert a lien. The trial court based its opinion upon the use of the word ‘payment’ in the letter of May 10 and upon the retention of that note. When the note became due by its terms, an amended complaint was filed, setting forth a cause of action upon the note.

A careful examination of the record reveals no substantial evidence to support the findings in this regard. Although the letter uses the word ‘payment’, the entire context of the letter must be studied. The defendant Higgins had offered to give a note secured by a trust deed. In the letter, plaintiff is informed that Mr. Higgins was unable to give such security but expresses the thought that in case he acquired the requisite title: ‘I am sure that he would have no objection to a second deed of trust’. The letter ends with the statement: ‘I think the enclosed note is the best form to evidence his obligation’. There is nothing in the letter to indicate that it was the intention of the writer that this note was to be in lieu of all other rights of the plaintiff. There is no language to put the plaintiff on election. There is nothing to suggest the idea that if the note was retained it would constitute a waiver. The fact is that the amount of Mr. Higgins' obligation had already been determined. The promissory note served no purpose except to evidence the amount of indebtedness already agreed upon. The delivery of the note to the plaintiff was of no value to the plaintiff for the reason that the only thing it could accomplish would be to postpone the due date. The record reveals no assertion by any of the interested parties to the effect that there had been any election by the plaintiff until after the amended complaint was filed.

The respondent contends, however, that by suing upon the promissory note and reducing the same to judgment, the Lumber Company thereby waived its lien. Reliance is placed upon California National Supply Company v. Porter, 83 Cal.App. 758, 762, 257 P. 161. In that case, however, the promissory note given to the lien claimant had been reduced to judgment prior to the commencement of the action to foreclose the mechanic's lien. Among other things, the court said:

‘When the judgment on the promissory note was secured, plaintiff's cause of action on the claim here sued upon was at once abated. There was but one obligation. Assuming that the giving of the note did not constitute payment, it did not create a new obligation, but only a new and different evidence of the one which theretofore existed. It might have proceeded to foreclose its lien, or it had a right to sue upon the note, but it could not do both.’ 83 Cal.App. at page 762, 257 P. at page 162.

In the case at bar, the note was tendered to and retained by the plaintiff, but was not due when this action was commenced. In the original complaint, plaintiff set up the account due from defendant Higgins and sought judgment against him and asserted its mechanic's lien, as is customarily done. After the note became due, it was set up by an amended complaint. It being evidence of the existing indebtedness, such pleading was proper. No waiver of lien was involved. See Leibowitz v. Berry, 114 Cal.App. 5, 299 P. 779.

In this connection, it is interesting to note that prior to the trial of the action, Mr. Higgins had acquired title to the property upon which he proposed to give a trust deed. He gave no such trust deed and sold the same without making payment on his account.

Under the circumstances, findings that plaintiff agreed to accept the note as payment and had waived its right to assert a lien are supported by no substantial evidence. The plaintiff was therefore entitled to foreclose its mechanic's lien.

The judgment appealed from is reversed.

MONROE, Justice pro tem.

GRIFFIN, P. J., and MUSSELL, J., concur.