Opinion
June, 1914.
Eidlitz Hulse (D-Cady Herrick and William W. Robison, of counsel), for plaintiff.
Frank L. Polk, corporation counsel (John L. O'Brien, of counsel), for defendant City of New York.
George P. Heimberger (Selig A. Edelman, of counsel), for defendant New York State Construction Co.
Franklin H. Mills, for defendant Coal and Iron National Bank.
Strasbourger, Eschwege Schallek (Max L. Schallek and Samuel Strasbourger, of counsel), for defendants Sax, Creighton and Thompsons' Sons.
Sutro Wright (Boardman Wright, of counsel), for defendant Electric Construction and Supply Co.
Wilber, Norman Kahn (Mark W. Norman and Louis L. Kahn, of counsel), for defendant Vulcan Rail and Construction Co.
Moen Dwight (William Bell Waite, of counsel), for defendant Neptune B. Smythe.
Holt, Warner Gaillard (William D. Gaillard, of counsel), for defendant Joseph Johnson's Sons.
The plaintiff herein has performed work for the defendant New York State Construction Company under a contract for a public improvement. On or about April 8, 1913, the plaintiff filed a notice of lien for the moneys to become due under its contract, but it allowed this lien to lapse on July eighth. Thereafter it filed the notice of the lien which it now seeks to foreclose. In the meanwhile several other lienors had filed notices of lien, and the defendants Alfred R. Sax and Coal and Iron National Bank had filed several assignments of money to become due under the contract made by the city with the State Construction Company. These liens and assignments are prior to the principal lien of the plaintiff, and the main issues litigated concern the validity of these liens and especially of these assignments. These assignments now all belong to Alfred R. Sax, and, with the exception of the assignment to the Coal and Iron Bank, were given to Sax or to his bookkeeper, Creighton, to secure Sax for moneys advanced at the time of the taking of the assignments, or shortly prior thereto, or for indorsements of notes. The assignments to the Coal and Iron Bank were taken by the bank at Sax's suggestion to secure a prior indebtedness guaranteed by Sax and which Sax subsequently paid. While possibly the fact that they were given to secure an indebtedness to the bank instead of to Sax might make these assignments valid, even if the assignments made to secure direct indebtedness to Sax were fraudulent in law, yet, as I believe that even the direct assignments to Sax are valid, I have not considered it necessary to consider this question. It appears that at the time when the State Construction Company took the contract with the city it realized that it would require the sum of about $10,000, and the defendant Sax agreed to advance such sum. He testifies that at that time the president of the company stated: "If it comes out all right, I will give you 33 1/3 per cent. of the profits." The president testifies that he said: "If the job panned out all right and I made money, I would give him one-third of the profits." Sax also agreed at the time that he would become an indemnitor on the company's bond, but to protect himself on his indemnity he arranged that the bank account should be kept as a joint account, subject to his counter-signature. No formal agreement that Sax should have any share of the profits was ever entered into and no resolution to that effect was ever entered on the minutes of the corporation. It is urged that the promise of an interest in the profits constituted Sax a partner in the venture. A copartnership contract made by a corporation is, of course, ultra vires, and certainly there is no implied power in the president to bind the corporation to such a promise. Nevertheless, where such a contract, even though invalid as between the parties, is actually carried out, it may be that the relationship would cause a liability as to third parties exactly as if there had been a valid partnership. I do not, however, in this case find that the relationship of partners, even as to third parties, ever existed. It is well established that a right to share in the profits is the "most important element" to be considered in determining whether a contract between two parties constitutes them partners: "But that element is not exclusive and controlling * * * when one is only interested in the profits as compensation for services rendered or money advanced he is not a partner." Larzelere v. Taber, 119 A.D. 81. In this case I think that Sax clearly had no proprietary interest either in the venture or the expected profits. He was neither required nor entitled to direct the work in any way except that he had a right to countersign the checks to prevent a diversion of the funds. His right to share in the business was limited to a share in the profits only if and when such profits might be realized, and then depended rather on a moral than a legal obligation to pay such profits as compensation for moneys advanced. He was never held out as a partner and took no active part in the work. He never intended to assume any liability toward creditors; he was not a joint owner of the contract, and I do not think that under these circumstances the law imposes upon him such a liability. The plaintiff further claims that the assignments are invalid as constituting an unlawful preference made to an officer or stockholder after insolvency. While the evidence of insolvency is somewhat unsatisfactory, I think it is sufficient to sustain such a finding, but I cannot find that Sax was either an officer or stockholder. He was certainly neither an officer nor a stockholder of record, but one of his employees was an officer and stockholder, and it is claimed that this employee was only Sax's dummy. The only direct evidence that this employee, Knolle, was Sax's dummy is the testimony of plaintiff's contracting manager that Sax stated to him, "I have my man in there drawing a salary. I think I might just as well get part of it as anybody else." Sax denies this statement, and, in view of the fact that the only reason why Knolle should be the dummy for Sax would be to conceal Sax's interest, I think it is very improbable that he should have volunteered such a statement to the principal creditor of the corporation. I have, therefore, reached the conclusion that the witness's memory is at fault in regard to the exact words of the conversation. The other evidence on this point is purely circumstantial, and I am asked to draw an inference that Knolle is Sax's dummy from the fact that Knolle was in Sax's general employment; that he obtained his stock on extremely favorable terms; that he indorsed the certificate of stock in blank; that the certificate was brought to court by Saxe at Knolle's alleged request, and that Knolle's explanation of these matters is not convincing. Knolle expressly and emphatically alleges that he was the actual owner of the stock, and after careful consideration I have found that the circumstantial evidence is too slight to outweigh his direct testimony and explanation. The plaintiff further claims that these assignments are void in so far as they were given to secure prior indebtedness. It seems now well established that a contractor has a right under the Lien Law to assign moneys to become due under a contract to a creditor, and that, if such creditor files the assignment properly, he obtains a preference over subsequent lienors. Bates v. Salt Springs Nat. Bank, 157 N.Y. 322. The statute does not require that the assignment must be given for a present consideration, provided it is given for a valid consideration; nor is such an assignment vitiated by the fact that it is given with intent to prefer a particular creditor; in fact the very purpose of giving the assignment is usually to create a preference. The plaintiff relies for authority upon the cases of John P. Kane Co. v. Kinney, 174 N.Y. 69, and American Mortgage Co. v. Merrick Construction Co., 120 A.D. 150; affd., 190 N.Y. 526, but these cases hold only that a general assignment for the benefit of subcontractors does not take precedence over subsequent liens. These cases, I think, rest upon the principle that the general assignee or the trustee represents only the assignor and his creditors and that the assignor cannot by voluntary act deprive any individual creditor, against his will, of the right by superior diligence to obtain a preference. These cases do not, however, decide that the contractor cannot, by assignment, place an individual creditor in a position where, under the statute, he can obtain a preference over other creditors. It follows that the assignments made by the contractor are superior to the plaintiff's lien filed thereafter. The plaintiff also urges that some of the liens claimed by the defendants are invalid. The first objection raised is a technical objection that the notice of the lien filed by the Vulcan Rail and Construction Company fails to state when the amount claimed became due, as required by the statute. I am unable to agree with the contention of the lienor that this appears by fair inference from the statement contained in the notice of lien that the work was performed on June twentieth. It is true that the rule is well recognized that where a contract is silent as to the time of payment the payment is due when the work is completed, but I know of no inference that can be fairly drawn that a building contract not incorporated in the notice of lien is silent on this point. Though absolutely no harm is done to any party by the failure of the notice of lien to contain such a statement, yet, since the statute requires the statement, the notice would seem to be invalid. Mahley v. German Bank, 174 N.Y. 499; Bradley Son v. Huber Co., 146 A.D. 630. The plaintiff further claims that the liens of the defendants, James Thompson Sons and Joseph Johnson's Sons, are invalid because they fail to state the residence of the lienors and because they contain items which are not the subject of a mechanic's lien. Both these liens are filed by copartnerships and both contain the business address of the copartnership. It seems to me that the provision contained in section 12 of the Lien Law that "if the lienor is a partnership or a corporation the notice shall state the business address of such partnership or corporation" is intended to be in substitution for and not in addition to the previous clause requiring a statement of the residence of the lienor. A corporation certainly is an entity having no residence other than its principal place of business, and, though a partnership is not strictly speaking an entity apart from its members, I think that for the purposes of the Lien Law it may be so regarded. In arriving at this construction I do not now attempt to pass upon the requirements of the statute regarding private liens (Lien Law, § 9), which differ from section 12 of the Lien Law in the possibly material point that the requirement that the business address be stated is joined to the requirement that the residence of the lienor be stated by the word "and," and is part of the same sentence. The question, however, whether these notices of lien refer to labor and materials which are the proper subject of a lien is one of more difficulty. Thompson Sons claim a lien for lumber furnished for forms, boarding and furring to hold the concrete until it hardened. After the lumber had been used for this purpose it was broken up and removed by Italians as firewood. The question, therefore, is presented whether this lumber constitutes materials or only an instrumentality used in the construction. The only case that I have been able to find in which this question was seriously considered is that of Barker Stewart Lumber Co. v. Marathon Paper Mills Co., 146 Wis. 12. In that case it was held that lumber used for the construction of a cofferdam and which was in effect destroyed by such use is the lawful subject of a mechanic's lien. While the Court of Appeals of our state, in Shultz v. Quereau Co., 210 N.Y. 257, 261, quoted with approval some of the language of the opinion in the Wisconsin case, it refused to express any opinion concerning the actual decision, and the question must, therefore, be considered an open one in this state. It is true that in the case of Builders Material Co. v. Johnson, 158 Ill. App. 411, cited with approval in Troy Public Works Co. v. City of Yonkers, 207 N.Y. 81, the question presented was somewhat similar, and the court found that lumber used for making forms for concrete, of which the interior walls were constructed, was not the subject of a mechanic's lien, but the opinion of the court fails to show whether the forms were used for the making of the blocks outside of the building or were part of the construction removed after the walls had set in place, nor is there any statement that the lumber was thereafter valueless. The Court of Appeals, in the case of Troy Public Works Co. v. City of Yonkers, supra, at p. 85, quotes the case only as holding that "where the wooden moulds for concrete blocks were returned to the owner after the completion of the work" they are not the subject of a lien. In the case of Schaghticoke Powder Co. v. G. J. Railway Co., 183 N.Y. 306, the court held that dynamite used in excavating ground was "materials" within the meaning of the law. In that case the opinion of the court, per Werner, J., states that "lumber may be used in the construction of a building for the purpose of scaffolding. However, it does not thereby literally enter into the composition of the building nor, so to speak, become a part of it. But, in my opinion, both it and the water (used for mortar) have been used in the construction of the building and mason work within the meaning of the Lien Law and the purposes for which it was enacted." If this dictum represents the law, then a fortiori lumber directly applied to the concrete in the building and thereby rendered worthless is also used in the construction of the building. The true rule is pointed out in the case of Shultz v. Quereau Co., supra. The test seems to be whether the materials entered directly into the construction or were only used as an instrumentality of the construction. In this case the lumber itself was actually applied to the structure and became a temporary part thereof, and while such a part it became worthless, and in that sense lost its identity as lumber. Under these circumstances, it, in my opinion, should be considered as materials used in the construction and not a tool or appliance used for the construction. The lien of Joseph Johnson's Sons is for labor and materials. The materials are concededly the subject of a lawful lien within the statute, but the plaintiff contends that the so-called labor is not the proper subject of a lien within the rule as laid down in the cases of Troy Public Works Co. v. City of Yonkers, supra, and Schultz v. Quereau Co., supra, This lien itemizes the labor and shows that a considerable portion thereof is for hire of teams and horses, hire of hoisting machine, with horse and driver, and ferriage to the place of work. It is quite true that if the lienor had merely furnished these instrumentalities to the contractor, he could not file a lien for their hire, for they would not constitute materials within the meaning of the statute, and the mere hiring of instrumentalities does not constitute labor. It appears, however, that in this case each wagon and the hoisting machine were furnished with a horse and a man and the lienor actually performed the labor of hoisting and trucking. He is entitled to a lien for the value of the labor so performed, and this value is merely increased by the instrumentalities used in this labor. I find that the plaintiff's principal lien is subordinate to the liens and assignments of the defendants named, except the lien claimed by the defendant Vulcan Rail and Construction Company, and I also find that the counterclaim of the defendant State Construction Company should be dismissed.
Ordered accordingly.