SCHIRM CO OF ORANGE COUNTY v. Rollingwood Homes Company, sued herein as Rollingwood Homes, Inc., Defendant-Cross-Complainant and Respondent.* (1961)

This is an action to foreclose a materialman's lien on real property. In a cross-complaint, defendant Rollingwood Homes Company sought to quiet its title as against the lien and to recover damages allegedly resulting from the filing of the lien. In a nonjury trial, the judgment was for defendant upon the complaint, and was for cross-complainant (defendant) upon the cross-complaint. Plaintiff and cross-defendant appeals from the judgment.

Appellant contends that the evidence does not support the finding that it had been fully paid for all materials furnished by it for use on the property.

Defendant Rollingwood Homes Company, as owner, and Walter E. Sant & Sons, as general contractor, entered into a contract whereby the general contractor agreed to construct 127 houses upon said defendant's land. The general contractor and Frank Horpel, as subcontractor, entered into a subcontract whereby Horpel agreed to furnish and install wallboard in the houses. The subcontract provided that 50 per cent of the contract price was payable on completion of hanging the wallboard in each unit (house) and the balance was payable upon completion of each unit. The owner (Rollingwood Homes) had obtained a loan from Pioneer Savings & Loan Association for the purpose of constructing the houses, and the owner had arranged with the loan association to make payments to the contractor and the subcontractors. Between January 2, 1957, and July 1, 1957, plaintiff delivered building material to the owner's land for use by Horpel in performance of the subcontract.

During the performance of the subcontract, the following described method was used in making payments to Horpel and plaintiff. Approximately each week Horpel would submit a statement to the general contractor (Sant) for work completed during the preceding week. The statement would include a ‘first billing’ for work completed on some lots and a ‘second billing’ for work completed on other lots. The information on such statement would then be used by the general contractor, or an employee of the loan association, in preparing a proposed order directing the association to pay a certain amount to Horpel and plaintiff jointly. The order was prepared by writing the information in the blank spaces of a printed form, which form is described generally as follows: The blank order is at the top of the form. Below the order there are many lines forming blank spaces for use in stating the amounts payable for materials and labor on certain designated lots. (This part of the form will be referred to as the ‘schedule.’) On the back of the form there is a blank release of lien rights (for material and labor) to the lots described on the front of the form. After the information had been placed in the blanks of the form, Horpel obtained signatures to the proposed order and proposed release of lien rights. After the signatures had been obtained the order and release were submitted to the loan association. Then the association would issue a check, for the amount of the order, payable to plaintiff and Horpel, jointly. (The order was signed: ‘Rollingwood Homes Co. George R. Sant.’ George R. Sant was a partner in the firm which was the general contractor.)

Between January 25, 1957, and July 1, 1957, Horpel presented to the loan association forms, orders and releases, as described above, which listed (on the schedules) all 127 lots except lots 121 to 127. The release of lien rights and the acknowledgment of full payment on those forms were signed by an officer of plaintiff. The forms with respect to four of the lots which were listed (lots 116 to 120) represented the ‘first billing’ only. Forms for payment of a ‘second billing,’ as to those four lots, were not presented.

Prior to the time plaintiff furnished material for use in performance of the subcontract, Horpel was indebted to plaintiff in the approximate amount of $15,000 on an open book account for building material furnished by plaintiff for use on other property. The building material furnished by plaintiff in performance of the present subcontract was charged to the open account. During the performance of the subcontract, plaintiff made a loan of $1,500 and a loan of $500 to Horpel. Between January 25, 1957, and July 1, 1957, the loan association paid $92,217.51 to Horpel and plaintiff pursuant to orders and releases made on the forms above referred to. The payments (totaling $92,217.51) were made by 24 checks which were payable to Horpel and plaintiff, jointly. The checks were deposited in plaintiff's bank account. Plaintiff paid $46,703.63 of said amount to Horpel, and applied an additional $2,000 in repayment of the loans which plaintiff had made to Horpel. Plaintiff applied $43,493.77 (of said total amount of $92,217.51) on Horpel's open book account. It thus appears that the total amount which plaintiff retained from the total amount of the checks was $45,493.77. The court found that the reasonable value of all the material furnished for use under the subcontract was $41,155.49.

On November 6, 1957, plaintiff filed a ‘mechanic's lien’ claim against lots 116 to 127 for materials furnished. The amount claimed was $3,116—being $328 on each of 7 lots (121 to 127) and $164 on each of 5 lots (116 to 120).

Defendant Rollingwood Homes recorded a bond pursuant to section 1193.2 of the Code of Civil Procedure. (A bond guaranteeing payment of any sum which plaintiff might recover on its lien claim.) On January 24, 1958, plaintiff commenced this action to foreclose the lien. Defendant Rollingwood Homes filed an answer and a cross-complaint. In the answer said defendant alleged that plaintiff had been fully paid for all materials furnished by it for use on the property. By its cross-complaint it sought to recover damages allegedly resulting from the filing of the lien.

With respect to the complaint, the court found that plaintiff had been fully paid, by means of the checks payable to plaintiff and Horpel jointly, for all materials furnished by plaintiff for use on the property. The court concluded that plaintiff was not entitled to foreclose its claim of lien; and that plaintiff was required to apply the funds, derived from the joint checks, in payment of all materials furnished to the tract, ‘before using the funds for any other purpose.’

With respect to the cross-complaint, the court found, as follows: The lien ‘was not filed maliciously.’ The lien clouded the title to lots 116 through 127. Prior to November 6, 1957, defendant Rollingwood Homes had sold, or contracted to sell, each of the lots free and clear of liens, and had indemnified the title company against any lien claims. Said defendant Rollingwood Homes was required to secure, and did secure, a bond which provided a means of payment to plaintiff in the event plaintiff was successful in foreclosing its lien. The premium paid for the bond was $186.96, and the cost of recording the bond was $2.80. Defendant was required to employ an attorney to remove the could of the lien on the property. Plaintiff agreed to pay its attorney the reasonable value of his services, and the reasonable value is $1,400. The filing of the lien did not damage the credit of said defendant. Defendant was damaged in the amounts it was required or agreed to pay, i. e., $186.48 (bond premium), $2.80 (filing bond), and $1,400 (attorney's fee).

The judgment was that plaintiff take nothing by the complaint, and that Rollingwood Homes Company recover (on the cross-complaint) $1,589.28 against plaintiff and cross-defendant.

Appellant contends that the evidence does not support the finding that it had been fully paid for all materials furnished by it for use on the property. Appellant argues that ‘all of the parties' intended that the joint checks were only in payment for the work done on the specific lots listed on the schedules submitted to the loan association; that since a check was issued pursuant to a ‘first billing’ only as to lots 116 to 120, it has not been paid for the materials which would have been payable on a ‘second billing’ on those lots; that since lots 121 to 127 were not listed on any billing, it has not been paid for materials furnished for use on those lots. Appellant argues further that when the checks were issued it did not have a lien on any of the lots on which it now claims a lien (lots 116 to 127, inclusive) and that after it had applied sufficient of the proceeds from the checks to pay for materials used on the lots designated in the schedules, appellant could use the remainder of the check proceeds as it pleased. It was a question of fact as to whether ‘the parties' intended that the joint checks were only in payment for the work done on the lots designated in the schedules. Defendant had obtained a loan from the loan association and had authorized the association to make payments to the general contractor and the subcontractor. Appellant (plaintiff) had knowledge of the arrangements made with the loan association. There was no evidence that defendant had authorized the loan association, or the contractor, or the subcontractor, or appellant to use any of the money derived from the loan, or any money of defendant, for any purpose except payments for work performed and materials furnished for use in constructing the houses on defendant's property. There was evidence that the amount of money appellant retained from the proceeds of the joint checks ($45,493.77) was more than sufficient to pay appellant in full for the materials furnished ($41,155.49). Also, there was evidence that the material was delivered to the property in carload lots and was not delivered for use on specific lots. The last two checks were dated June 21, 1957, and June 28, 1957, and the amounts of those checks were $4,025.60 and $4,164.42. There was evidence that appellant retained $2,000 from the proceeds of the check of June 21 and gave $2,025.60 to Horpel; that appellant retained $2,191 from the proceeds of the check of June 28 and gave $1,973.42 to Horpel. There was also evidence that the total amount charged by appellant for materials furnished after June 21 was $646.41. The amount for which appellant claimed a lien was $3,116. Even if it be assumed that the amount claimed by appellant was the correct amount for materials furnished for the lots on which appellant claims a lien, it appears that $2,469.59 of the amount claimed (i. e., $3,116 less $646.41) was for materials furnished prior to June 21 and that the balance ($646.41) was for materials furnished after that date and prior to June 28 (the date of the last check). It also appears that appellant gave $3,992.02 to Horpel from the proceeds of the two last checks (June 21 and 28) and that the amount given to Horpel was in excess of the amount for which appellant claims a lien. There was further evidence that Horpel was indebted to appellant in the approximate amount of $15,000 prior to the time appellant furnished material for use on defendant Rollingwood's property, and that appellant lent $2,000 to Horpel during the performance of the subcontract by Horpel.

In Westwood Bldg. Materials Co. v. Valdez, 158 Cal.App.2d 107, 322 P.2d 79, plaintiff sought to foreclose a mechanic's lien for materials furnished for use by a subcontractor on the property. During the performance of work by the subcontractor, checks were issued to plaintiff and the subcontractor jointly in an amount in excess of the amount required to pay for the materials furnished by plaintiff. Plaintiff released some of the checks to the subcontractor and applied portions of the proceeds of other checks on the subcontractor's account. In affirming a judgment for defendant it was said, at page 113, 322 P.2d at page 83: ‘[I]f appellant had applied the proceeds of the checks in payment of the materials furnished by it and used in the construction of the buildings upon the property of the respondent, its bill would have been paid in full. If it may reasonably be said, as appellant's argument assumes, that a material dealer, such as the appellant, could be so naive as to fail to understand the purpose and intention of an owner in making checks payable jointly to it and his subcontractor, its customer, appellant was at least under the duty of inquiring of respondent as to his intention with respect to the application of the funds represented by the checks. This appellant admittedly failed to do, and it may not now be heard to say that respondent should bear the loss which it sustained as a result of its own imprudence.’ See also Edwards v. Curry, 152 Cal.App.2d 726, 313 P.2d 613. In the present case, as above shown, the amount of the checks received by appellant and deposited in its account ($92,217.51) was in excess of the amount required to pay for all materials furnished for use on the property ($41,155.49). Appellant applied portions of the proceeds of the joint checks in payment of loans made by appellant to Horpel and applied other portions of the proceeds on Horpel's account for materials furnished prior to any delivery under the subcontract. The evidence was sufficient to support the finding that appellant had been fully paid for all materials furnished by it for use on the property.

Appellant contends that defendant Rollingwood is estopped to claim that appellant had been fully paid. It seems that appellant's position is that Rollingwood was so estopped because Rollingwood approved the manner in which appellant was apportioning the proceeds of the joint checks; and that under such a circumstance ‘the most that the respondent (Rollingwood) could expect,’ or did intend, ‘was that appellant only apply the proceeds in payment of the phase of the work billed.’ Appellant's argument to the effect that Rollingwood had given such approval, is based upon testimony of appellant's manager regarding a conversation he had with George Sant, who was a representative of the general contractor. Appellant asserts that its manager testified ‘that during the month of May, 1957 he told George Sant the manner appellant was dividing up the proceeds of the Joint-Check’; and that Sant replied, ‘You keep the material rolling, and I will keep the vouchers coming.’ The testimony of the manager was that he explained to Sant that he (manager) was getting nervous about the job because ‘we had been advancing Mr. Horpel this money, plus the fact that we were having to give him his labor portion of money prior to receiving the joint check, and I didn't like that procedure’; and that Sant replied, ‘You keep the material rolling, and I will keep the vouchers coming.’ Mr. Sant testified that during the construction of the houses he did not know the disposition of the proceeds of the joint checks. It is apparent that such testimony would not compel a finding that Rollingwood gave such approval. It is to be noted that the alleged conversation was not with a representative of Rollingwood (but was with a representative of the general contractor). Furthermore, there was no evidence that the general contractor had any authority to use any money of defendant Rollingwood for any purpose except to pay for labor performed and materials furnished in connection with the Rollingwood contract. Defendant Rollingwood was not estopped to assert full payment.

Appellant also contends that it was error to include in the damages awarded to defendant Rollingwood the amount of $1,400 for services of said defendant's attorney. There was no contract between appellant and said defendant for the payment of attorney's fees. There is no statutory provision authorizing the awarding of attorney's fees as damages in an action for foreclosure of a mechanic's lien or in an action to quiet title. The court erred in awarding attorney's fees as damages. See Woodward v. Bruner, 104 Cal.App.2d 83, 230 P.2d 861; and Macco Construction Co. v. Fickert, 76 Cal.App.2d 295, 305, 172 P.2d 951. In Macco Construction Co. v. Fickert, it was said, at page 305, 172 P.2d at page 957: ‘There is no basis for the recovery of counsel fees except (1) upon the promise of the defendant to pay the same or (2) by force of a statute. [Citations.] Since neither condition obtains here there is no basis for such award. Many attempts have been made in a wide variety of cases to collect counsel fees without an agreement therefor, but without avail. [Citations.]’ Appellant cites Gudger v. Manton, 21 Cal.2d 537, 134 P.2d 217, and asserts that it ‘states that attorneys fees may be allowed for the removal of a cloud on the title to real property in accordance with the following rules: * * *.’ The case does not support appellant's position. Apparently appellant's reference to such a purported statement therein is erroneous. In the present case the judgment should be modified by deducting from the amount of the judgment the amount of $1,400 which was included as an element of damages.

In view of the above conclusion that the evidence was sufficient to support the finding that plaintiff had been fully paid, it is not necessary to determine the contention of appellant to the effect that a materialman is not required to withhold from the proceeds of joint checks the amounts necessary to pay for all materials which may be required to complete a subcontract.

The judgment is modified by reducing the amount of the judgment from $1,589.28 to $189.28, and as so modified the judgment is affirmed. Each party to bear its own costs.

WOOD, Presiding Justice.

FOURT and LILLIE, JJ., concur.