Filston Farm Co. v. Henderson & Co.

Pearce, J., delivered the opinion of the Court. This is an appeal from a decree of the Circuit Court for Baltimore County as a Court of equity, establishing a mechanics’ lien for the sum of $68,542.62, with interest on $53,542.62 from November 29th, 1904, for the erection ofa certain school building upon a tract of land near Glencoe Station, in Baltimore County, and ordering a sale of said building, together with twelve hundred and ninety three acres of adjacent land belonging to the owner of said building, for the payment of said lien. The case involves a very considerable amount of money. The record is voluminous, covering 1650 printed pages; eminent counsel have appeared on both sides, and numerous questions have been raised, that as to the extent of the mechanics ’lien for the construction of buildings upon farming lands, and to be used for farming purposes being for the first time before us.

The statute being the same in all cases however, the ³⁵⁸ amount involved cannot alter, or control the application of the legal principles to be applied. The bill states that the plaintiff, a corporation under the laws of Pennsylvania, being a contractor and builder, entered into a contract on June ioth, 1904,-with the defendants, Henry D. Perky, and the Filston Farm Company, a corporation under the laws of Maryland, to furnish the materials and labor required for the erection of a large building or two connected buildings, designed for use as a school of agriculture and other pursuits, “to be maintained by and upon tracts of land located in the Tenth District of Baltimore County,”- and that there was then due the plaintiff for such material, work and labor, the sum of $77,307.46. That the said Perky and the Filston Farm Company were, at the beginning of the said work and labor, and the furnishing of said materials, the owners of all the lands intended to be used for said school, including the land actually covered by said building or buildings. That part of said land so owned had been conveyed before said contract to one George C. Weddell of Philadelphia by sundry deeds from parties acting under the direction of said Perky and said Filston Farm Company, but that the purchase money was paid by them, and that said Weddell had no beneficial interest in said lands, and held the same in trust and at the pleasure of said Perky and said Filston Farm Company; and that other parts of said lands- were conveyed by deed of mortgage by said Perky and said Filston Farm Company on October 22nd, 1904, to one Joseph Fels of Philadelphia, to secure an alleged indebtedness therein mentioned.

That on November 4th, 1904, said sum of $77,307.46 being then due and unpaid, the plaintiff filed in the Clerk’s Office of the Circuit Court for Baltimore County “a claim for lien under and in accordance with the provisions of Article 63 of the Code of Public General Laws of Maryland, against the said building, the ground upon which it is erected and the land immediately adjacent thereto, belonging in like manner to the owners of said building or buildings, which is necessary ³⁵⁹ for the ordinary and useful purposes of said b'uilding or buildings and the convenient use of the same for the purpose for which the same was or were designed,” and that said lien claim was filed therewith as Exhibit A. The prayer of the bill was that the land so conveyed to Weddell should be declared to be held in trust for said Perky and for said P'ilston Farm Company, and be so brought within the whole tract of which it was alleged to be a part, and was intended to be devoted to the use and maintenance and convenience of said school building or buildings. The lien claim filed described by metes and bounds a number of tracts of land containing in all about 1700 acres conveyed at different times and by different persons, some to said Perky and said Filston Farm Company and some to said Weddell, by ten distinct conveyances, some of which embraced several distinct tracts or parcels of land. The amount claimed is thus stated: Total price of original contract:— $64,357.00 Amount of extras,— 27,372.46 Credits July 11, 1904, $1,833,44 $91,729.46 Credits Aug. 11, 1904, 12,588.56 14,422.00 $77,307.46 But no copy of the conti act was filed with the bill, nor were its provisions set forth or referred to therein. The defendants Perky and the Filston Farm, filed a joint answer accompanied by a copy of the contract.

The answer denied that the sum claimed, or any other sum whatever, was due under the terms of said contract, and alleged that the P'ilston Farm was at the time of the execution of the contract, and still continued to be, the sole owner of the land upon which said buildings stand and of all the other land immediately adjacent thereto, and necessary for the ordinary and useful purpose thereof; also that one of said other tracts attempted to be included in said lien was used as a residence by Mr. Perky, and the remainder were used for farming and ³⁶⁰ stock raising, a portion being in timber,-and were so intended to be used. It admitted that Weddell had no substantial interest in the property conveyed to him as alleged in the bill, and declared that it was purchased by Perky and wholly paid for by him and had since been conveyed to him by said Weddell, and that they were purchased to be used in connection with other buildings designed to be erected on one of said tracts near the line of the railroad, at a point distant more than one mile from the building erected by the plaintiff. It alleged that the mortgage to Joseph Fels mentioned in the bill was made by the Filston Farm alone, of land, belonging exclusively to it, and that it was made in good faith to secure an actual indebtedness. It alleged that the plaintiff had wholly failed to fulfill the terms of said contract, and charged that the buildings because of bad workmanship and improper materials done and provided by the plaintiff, were defective and unsafe, and could not be used for the purposes for which they were designed; that the plaintiff refused, after due notice by the architect under said contract, to make said work and materials conform to said contract, and stopped all work thereon on October 22nd, 1904, and since then had made no effort to complete the work as required by said contract.

It alleged that the contract provided that payments should be made only on certificates of the architects, and that the architects had certified to the defendants that no money is due to the plaintiff by reason of faulty and unsafe construction, and that all certificates that were given by said architects had been promptly paid. It alleged with reference to the claim for extras that all bills for materials and labor were required to be approved by the architects, before any money should be due and payable therefor, and that no bills for any of such extras have ever been presented to or approved by said architects, and that a large part thereof is defective and improper and has been duly rejected by said architects, but the plaintiff has refused to make the same good. The other defendants, Weddell and Fels, adopt this answer as their own. ³⁶¹ The contract between the parties was the form of building contract approved and adopted by the Institute of Architects and the National Association of Builders, and in general use throughout the country, and it was designed to afford equal protection to builders and owners, and to minimize the hazard of litigation as far as possible. The important provisions of this contract are the following: Article 2 provides that all work is to be done under the direction of the architects named therein, Esenwein and Johnson, in conformity with their drawings and specifications as part of said contract, whose decision, in respect thereto is to be final between the parties.

Art. 3. No alterations to be made in the work except upon written order of the architect; the amount to be paid by the owner or to be allowed by the contractor to be stated in said order, or if not then agreed on, to be determined by arbitration as provided in Art. No. 12. Art. 4. “The contractor shall at all times provide proper facilities for'inspection of the work by the architects, and shall within twenty-four hours after written notice from the architects, remove from the ground and buildings all materials condemned by him, whether worked or unworked, and take down all portions of the work by written notice condemned as unsound or improper, or in anyway failing to conform to the specifications, and shall make good all work damaged or destroyed thereby.” Art. 5. If the contractor at any time refuse or neglect to supply sufficient skilled workmen, or materials of proper quality, or fail to prosecute the work with diligence, or fail in the performance of any agreement, such failure being certified by the architect, the owner, may, after three days written notice to the contractor, provide any such material and labor and deduct the cost from any money due or to become due to the contractor; or, if so determined by the architects, may terminate the employment of the contractor, enter upon the premises, and employ any other person to complete the work.

Art. 6 provides : “It is strictly understood that the build ³⁶² ings must be entirely completed ready for occupancy on the first day of September, 1904. The contractor agrees to pay the owner the sum of one hundred dollars for each day that the work shall remain unfinished after September 1st, 1904. Such payment is not to be as a penalty but as liquidated damages agreed upon by the parties hereto.” Art. 9. Fixes the sum to be paid for work and materials at $64,357, such payment to be made only upon certificates of the architects, and to be made upon the tenth day of each month for the work done in the preceding calendar month, as estimated by the architects, the owner to retain twenty per cent of the estimated value of each payment, until final settlement, and the certificate of the architects is to be final as to this clause of the contract.

This article also provides that “certain additions, as per amended plans and specifications are to be made to the work provided in the original plans and specifications,” the work of said additions to be done on a percentage basis, as provided in said article, and “all bills for material and labor are to be approved by the architects.” “The final payment to be made within sixty days after the completion of the work included in this contract, and all payments shall be due when certificates for the same are issued." Art. 10 provides that no certificate given, or payment made, except the final certificate or final payment, shall be conclusive evidence of the performance of said contract, either wholly or in part, and that no payment shall be construed to be an acceptance of defective work or improper materials. This contract bears date June 10th, 1904, but was not fully executed until several days later, as it was necessáry to send it to Mr. Henderson who was then in St. Louis, for his signature, and the corner stone was laid June 17th, 1904. For several years previous to the execution of this contract Mr. Perky owned and conducted in Worcester, Massachusetts, a school of domestic science for girls or women,’ and in-1904 purchased from the receiver of the Filston Farm Company for $157,000 all the stock of that corporation except a ³⁶³ few shares, intending to transfer said school to Maryland and to erect school buildings upon some part of the land of the Filston Farm Company, and to extend the system of instruction to boys. The Filston Farm Company had conducted a dairy business, and the property purchased by Perky from the receiver included several tracts of land known as the Upper Farm,The Meadow Farm,the Lower Farm and 109 acres of timber land, in all 1,167 acres, and he subsequently purchased from other parties other adjoining lands increasing his holdings to about 1,700 acres.

The building erected by the plaintiff stands upon the tract known as the “Lower Farm” shown by the testimony to contain about 200 acres. Mr. Perky’s plan and purpose was to open the school in Maryland on October 3rd, 1904, and in order to ensure this, he required the contract to provide for its complete execution and fulfillment by September 1st, 1904. The plaintiff’s original bid for this contract was $59,857, but it was so vital to Mr. Perky’s plans that there should be no delay in the completion of the buildings by September 1st, that Mr. Esenwein the architect, inquired of Mr. Swindells, who represented the plaintiff, if he had figured on night work, as Elsenwein thought the building could not be completed by that time without night work. Swindell said he had not done so-, and he at once communicated with plaintiff, and as a result the sum of $4,500 was added to cover the cost of night work, thus raising the bid to $64,357.

Thereupon Mr. Perkey issued and distributed over the country his catalogues providing for the opening of the school to be known as the Oread Institute, on October 1st, 1904, and secured 65 pupils who were to pay $500 a piece per annum, and these engagements he was obliged to cancel, because of the non-completion of the building according to the contract. Mr. Perky testified that he paid $70,000 for the Worcester property, and had spent $55,000 in improving it and that it was absolutely unincumbered until the plaintiff laid an attachment upon it after the litigation in this case began. He also testified that he was president of the Natural Food Company at Niagara, making the cereal known as ³⁶⁴ shredded wheat, and that he held $10,000 of the stock of that company paying regular annual interest of six per cent — and that he had $35,000 invested in a patented enterprise in Worcester, a paper company, the foreign patents for which had been recently sold for $300,000 of which $100,000 was in cash and the balance in stock; also that he had paid for, and then owned 250 head of cattle and other personal property on the farm unincumbered, besides some other stocks. ' It is quite clear therefore, that he was a man of independent means amply able to undertake such an enterprise, and to perform the contract in question on his part. There is evidence that Mr. Perky sometime in September, 1904, was not prepared with the necessary cash to carry out his plans, without realizing upon his property, but he states that if the building had been in conformity with the contract he would have been prepared to raise the necessary cash to pay every installment of the contract as certified, and Mr. Fels, a man of large financial means in Philadelphia, testifies that Mr. Perky in September, about the 21st, conferred with him in reference to a contemplated loan, that he investigated the situation, and that he and his brother were financially able and willing, and were prepared to lend him $80,000 or $90,000, and were prepared to see him through his building operations.

Mr. Perky testifies that the establishment of his school was “the dream of his life,” and when he went to Europe for his health in August, 1904, he gave to Mr. Dormon, his attorney, a power of attorney, authorizing him to raise money to pay all certificates issued in his absence. It is impossible therefore to find any justification for the non-completion of this building, in the inability of Mr. Perky.to perform his contract as to payments. The contract was quite a large one to be executed in the time named, and it is evident that great expedition and good management were necessary on the part of the plaintiff to enable him .to comply as ¡to time, but he was an experienced builder, and his attention was called by the architect before the execution of the. contract, to the architect’s opinion that night work would be an absolute necessity to its completion, and $4,500 was added ³⁶⁵ to the bid — his own estimate of the additional cost of such night work. If, therefore, the time was in fact shorter than was prudent, that was a risk he took with open eyes, and constitutes no defence to him in law for failure to complete in time, nor can the fact that the rush required night work, and haste both day and night, constitute any defence for defective work or materials.

The rights of the parties must be determined by the terms of the contract by which they both advisedly bound themselves. When the case came to a hearing, the Court, in the opinion delivered, held that under the conditions of the pleadings, much of the testimony taken would be inadmissible, and suggested such an amendment would be allowed as to cure the vague and general allegations without making out a new and different case and the bill was accordingly amended so as to charge that the architects “ wrongfully and without justification failed and refused to make an estimate for the work and material put in place during the month of August preceding, and to give complainant a certificate for the payment of such work and material; whereupon complainant nevertheless proceeded with the erection of such building, and in good faith completed the same substantially as contracted for, save in certain relatively unimportant and minor variations and particulars, said default in respect thereto being unintentional on the part of the complainant, and the result of inadvertence on the part of its employees engaged in said work, and not being of a character materially to impair the usefulness or safety of such building or render it in any degree unfit for the purposes for which it was designed, and being susceptible of correction by the expenditure of relatively small sums of money for labor and material, or an allowance to the owner out of the contract price. But that the architects on September 20th, 1904, wrongfully and without justification condemned the whole work, and refused to accept the same in behalf of the defendants, and the defendants knowing the action of said architects to be wrongful and unjustifiable, did also refuse to accept and ³⁶⁶ pay for said building.” This amendment was made ex parte and without notice to defendants, who excepted thereto, but their exceptions were overruled. The defendants then answered the amended bill denying all its averments, and alleging that the architects in good faith, and in pursuance of the duties imposed upon them by the contract, refused to make said estimate and give said certificate, because of plaintiff’s failure to furnish proper materials and do proper work as required by said contract, and had failed and refused to make the changes in the work required by the architects in order to make said building conform to the specifications, and therefore no sum or sums of money were due under said contract in the judgment of said architects; and the defendants acted in good faith in reliance upon the judgment of said architects; that the building was not completed substantially as contracted, and was not fit for the use for which it was intended, and could not be made such without the expenditure of many thousands of dollars..

The defendants then asked leave to take additional testimony, agreeing that the testimony already taken should be considered as re-filed, after replication to amended answer, and this leave was refused, and the Court proceeded to final decree determining that there was due the plaintiff for work and labor in erecting said building the sum of $53,542.62 with interest from November 29th, 1904, and that upon correcting certain defects in said building enumerated in the decree, subject to the approval of said Court, the plaintiff would be entitled to the further sum of $15,000 to be paid into Court as therein provided within 30 days thereafter: also declaring that the lien sought to be enforced should embrace and include 1293 acres of land described in the surveyors report to be1 mentioned hereafter, and appointing trustees to sell said land. Either party in equity upon application to the Court, has the right to amend the pleadings at any time before final decree upon payment of such costs as the Court may direct, so as to bring the merits of the controversy fairly to trial. This amendment was a most liberal; and indeed unusual allowance of the exercise of that right, but it was plainly allowed with ³⁶⁷ the commendable purpose of avoiding further costly delay in this unfortunate litigation, and we cannot perceive that it made a new or different case — nor that any real injury has been worked to the defendants by the refusal to take additional testimony, and we shall not therefore question its allowance under the circumstances of this case. The learned Judge of the Circuit Court in the course of the opinion filed says: “In view of the effort that has been made by both the parties litigant and their respective counsel all through the progress of the case to lay the blame and responsibility for the present unfortunate situation upon the opposite side, I deem it proper to say that there is no testimony whatever in the case directly pointing, or from which the slightest inference can be di'awn, that either of the parties, or any of their representatives, either in the preliminnry negotiations, or in the consummation of the contract by its execution, acted otherwise than with the utmost good faith.” And in this view we fully agree, after a careful and laborious perusal of the testimony; but it is just here that we encounter the principal and most difficult question in the case.

This contract, and the work to be done under it, has been very properly denominated by the parties as a “rush contract” and “rush work,” and the haste required in its performance may well explain much oversight in the preparation and use of defective material, and the inspection of work not up to the requirements of the contract, both by the plaintiff’s employees and by the supervising architect. But this contract provides, as we have seen, that payments are to be made only upon certificates of the architect, and that all payments shall be due only when certificates for the same are issued, and the Maryland cases are uniform in holding that such a provision makes the production of the certificate a condition precedent to the liability of the owner to pay for material and labor, unless its refusal is due to fraud or bad faith. It was so held in Gill v. Vogeler, 52 Md. 663 ; Lynn v. B. & O. R. R., 60 Md. 404 ; B. & O. R. R. v. Brydon, 65 Md. 198 ; Annapolis & Balt. Short Line R. R. v. Ross, 68 Md ³⁶⁸ 310, and B. & O. R. R. v. Canton Co., 70 Md. 405 .

A citation from a single one of these cases will suffice to show how broadly and emphatically this doctrine has been stated. In Lynn v. B. & O. R. R., supra, Judge Miller said: “By granting the fourth prayer the jury were instructed that it was not sufficient for them to believe from the evidence that Legge unreasonably rejected the ice unless they find that his action in this respect was fraudulent or done in bad faith; and by the fifth instruction they were told that it is not enough to establish the fraud charged, that they may believe from the evidence that Legge rejected ice which they may believe from the evidence he ought to have accepted, or that he rejected ice which in • their opinion, or that of others, corresponded in all particulars with that described in the agreement. * * * While, as we have said, the condition precedent in this contract will be dispensed with by proving that the judgment of the agent to whom the parties entrristed the duty of inspection and approval was the result of his fraud or mala fides, it is plain that nothing less will suffice. This is well illustrated by Clarke v. Watson, 18 C. B. N. S. 278. In that case there was an agreement by which the plaintiffs contracted to do certain works according to certain plans and specifications, and were to be paidfor the samé upon the production of the certificate of the defehdant’ssurveyor thatthe contractors have d uly and efficiently performed and completed the work to his satisfaction.

The declaration,- to which there was a demurrer, averred that the plaintiffs had done all things under the contract necessary to entitle