the subcontractor has a lien only to the extent of the owner's indebtedness to the contractor, payments to the contractor before notice of the subcontractor's lien usually deprive the subcontractor of his lien to the extent of such payments.299 In the latter class of states, an owner who has, before notice from a subcontractor, accepted an order drawn by the contractor in favor of a third party, may pay the order after receiving such notice, without becoming liable therefor to the subcontractor.2 210 In Iowa, actual notice of the subcontractor's account may take the place of the formal statutory notice to the extent that the owner of the property on which improvements are being made cannot defeat a subcontractor's lien for material furnished, by paying the principal contractor, if he knows of the subcontractor's claim at the time of payment, even though the subcontractor has not then given the statutory notice of his lien.2

211

209 St. Louis National Stock Yards v. O'Reilly, 85 Ill. 546; Rowland v. Railroad Co., 16 N. W. 355, 61 Iowa, 380; Nash v. Railroad Co., 17 N. W. 106, 62 Iowa, 49; Andrews v. Burdick, 16 N. W. 275, 62 Iowa, 714; Ewing v. Folsom, 24 N. W. 595, 67 Iowa, 65; Mallory v. Waterworks Co., 42 N. W. 521, 77 Iowa, 715; Rousselot v. Kirwin, 8 La. Ann. 300; Lumbard v. Railroad Co., 55 N. Y. 491; Crane v. Genin, 60 N. Y. 127; Smith v. Merriam, 67 Barb. (N. Y.) 403; Allen v. Carman, 1 E. D. Smith (N. Y.) 692; Lynch v. Cashman, 3 E. D. Smith (N. Y.) 660; Nolan v. Gardner, 4 E. D. Smith (N. Y.) 727; Thompson v. Yates, 28 How. Prac. (N. Y.) 142; Robbins v. Arendt, 23 N. Y. Supp. 1019, 4 Misc. Rep. 196. See ante, § 233.

210 St. Louis National Stock Yards v. O'Reilly, 85 Ill. 546.

211 Andrews v. Burdick, 16 N. W. 275, 62 Iowa, 714; Othmer v. Clifton, 29 N. W. 767, 69 Iowa, 656; Chicago Lumber Co. v. Woodside, 32 N. W. 381, 71 Iowa, 359; Hug v. Hintrager, 45 N. W. 1035, 80 Iowa, 359. In one case it appeared that the defendant contracted with a carpenter to build a house. The carpenter purchased the lumber from plaintiffs on credit. Defendant did not know from whom the lumber was purchased, or that it was not paid for, until after he had paid the carpenter the contract price; but he did know the carpenter had bought the lumber of some one; and in his contract he had reserved the right to discharge mechanics' liens, if any should be claimed. Plaintiff's brought this action to foreclose their mechanic's lien. It was held that these facts were sufficient to put defendant upon inquiry, by which the existence of the claim might have been discovered before settling with the carpenter, and that the lien must be enforced. Gilchrist v. Anderson, 13 N. W. 290, 59 Iowa, 274.

Collusive Payments.

§ 741. In order to defeat the subcontractors' liens, payment to the contractor must have been made in good faith. A receipt in full given by the contractor upon payment to him of only part of the amount receipted for is not binding on the subcontractor.212 The New York statute expressly provides that any payment made to the contractor by collusion between him and the owner for the purpose of avoiding the provisions of the law giving liens to subcontractors shall be void as against such subcontractors.21 Probably, this would be so held by the courts on grounds of public policy, even in the absence of statutory direction. Under such a statute, a collusive settlement between the owner and contractor will be disregarded by the court; 214 and collusive payments, though not made in advance, are of no effect as against subcontractors.215 In Illinois, payments made by the owner to the contractor without requiring a statement of the amounts due subcontractors and material men, as required by law, are no defense against the claim of a subcontractor.21

216

Premature Payments.

§ 742. Closely akin to collusive payments are premature pay ments, or those made to the contractor before his account becomes due. A subcontractor who is advised of the terms of the original contract would naturally infer that the owner would not pay the contractor until he is called upon to do so by the terms of his contract, and might therefore delay notifying the owner of his lien until a short time before payment to the contractor fell due. Under such circumstances, payment to the contractor in advance would work a great hardship on the subcontractor, so as almost to constitute a fraud upon him. Nevertheless, the courts hold that, in the ab

212 Crawford v. O'Connor, 73 N. Y. GOO.

213 Post v. Campbell, 83 N. Y. 279; Cheney v. Association, 65 N. Y. 282; Hofgesang v. Meyer, 2 Abb. N. C. (N. Y.) 111; Lind v. Braender, 7 N. Y. Supp. 664, 15 Daly, 370.

214 Smith v. Coe, 2 Hilt. (N. Y.) 365.

215 Hofgesang v. Meyer, 2 Abb. N. C. (N. Y.) 111.

216 Hintze v. Weiss, 45 Ill. App. 220.

217

sence of statutory prohibition, such advance payments may be made,. and the subcontractors are bound thereby, if they have not notified the owner before the payments were made.2 Under a statute directing the disallowing, as against lienors, of any payment made"by collusion, for the purpose of avoiding the provisions of this act,. or in advance of the terms of any contract," payments made in advance, although without fraud or collusion, cannot be allowed.218Under such a statute, an owner who stipulates to make the contractor monthly payments during the work, on an architect's certificate that the work done warrants the payment, will be protected in any monthly payment by the certificate.219 And, when the building contract provides for payments as the work progresses, payments made when the work has been substantially finished to the required stages cannot be considered premature, so as to subject the owner

217 Dunlop v. Kennedy (Cal.) 34 Pac. 92; Rowland v. Railroad Co., 16 N. W. 355, 61 Iowa, 380; Lynch v. Cashman, 3 E. D. Smith (N. Y.) 660: Schneider v. Hobein, 41 How. Prac. (N. Y.) 232. Contra, Walsh v. McMenomy, 16 Pac. 17, 74 Cal. 356. It is held that the California act relating to mechanics' liens, which provides that no money shall be paid on a building contract by the reputed owner to the contractor until after the commmencement of the work, and that 25 per cent. of the contract price shall be reserved for at least 35 days. after the completion of the work, applies only to those contracts where the price to be paid thereunder exceeds $1,000; and, where the contract price does not exceed $1,000, the reputed owner may pay the whole of it to the contractor, either before the commencement of the work or during its progress, unless a written notice is served on him by the laborers or material men that they have performed labor for or furnished material to the contractor, or that they have agreed so to do. Sidlinger v. Kerkow, 22 Pac. 932, 82 Cal. 42; KerckhoffCuzner Mill & Lumber Co. v. Cummings, 24 Pac. 814, 86 Cal. 22.

218 Post v. Campbell, 83 N. Y. 279; Banham v. Roberts, 28 N. Y. Supp. 828, 78 Hun, 246. But a statute which provides that if the owner shall, for the purpose of avoiding the provisions of this act, or in advance of the terms of any contract, pay, by collusion, any money on such contract, and the amount still due shall be insufficient to satisfy the claims, the owners shall be liable to the amount that would have been unpaid had no such payment been made, does not apply, where the owner has made a payment in advance, without collusion. Lind v. Braender, 7 N. Y. Supp. 664, 15 Daly, 370. The Louisiana statute also makes the owner liable to the subcontractors and workmen if he pays the contractor in advance. Rousselot v. Kirwin, 8 La. Ann. 300; McBurney v. Bradbury, 6 La. Ann. 39; Fourcher v. Day, 6 La. Ann. CO.

219 Rousselot v. Kirwin, 8 La. Ann. 300.

to liability to material men to the additional extent of the payments so made.220 Where the statute declares that all payments made within 60 days after completion of the work shall be at the owner's risk, a payment within the 60 days by the owner to the contractor does not bind the material man in the second degree.221 Under an act providing for additional security to material men and laborers, and requiring 25 per cent. of the contract price to be withheld by the owner from the contractor, 25 per cent. of all earnings for work actually done in the progress of erecting the building or other structure need not be withheld, but partial payments may be made to any amount less than 75 per cent. of the total contract price.222 It is held in Ohio that where a contractor becomes unable from want of means to go on with his contract, and the owner, to enable him to do so, in good faith makes payments to him faster than required by contract, such payments are not payments in advance of sums due, within the meaning of the mechanic's lien law.2

223

Payments to Subcontractors and Workmen.

§ 743. Owners, when sued by contractors, sometimes attempt to offset payments made by them to the subcontractors and workmen. Such payments, however, stand upon a different footing from those made to the contractor, which we have just considered, since they have no privity of contract to support them. Where a contractor agrees to furnish the materials and do the work necessary in the

220 Stimson Mill Co. v. Riley (Cal.) 42 Pac. 1072.

221 Ballou v. Black, 31 N. W. 673, 21 Neb. 131. Where the owner of a building knows, or has opportunity to know, that there are subcontractors, he cannot, as against liens they may thereafter establish, legally make final payment to the contractor until the expiration of the 30 days allowed them by statute within which to file and serve notice of their claims. Merritt v. Hopkins (Iowa) 65 N. W. 1015.

222 McAuliff v. Bailie, 15 S. E. 474, 89 Ga. 356. A building contract provided that the owner should retain 10 per cent. from payments on partial estimates until completion of the building, and also that a certain part of the contract price should be paid in an order on another. Held that, as affecting claims of subcontractors to mechanics' liens, the 10 per cent. should be retained from the amount of the order, as well as the cash payments. Merritt v. Hopkins (Iowa) 65 N. W. 1015.

223 Schneidhorst v. Luecking, 26 Ohio St. 47.

224

construction of a house, the owner has no authority to pay a claim for labor without the contractor's consent until he has been given the notice required by statute to fix a lien; and, if he does so, such payment is no defense to an action by the contractor.2 But the owner of a building who, out of the contract price, has paid laborers who were entitled to file claims, and would have filed them but for such payment, is entitled to credit therefor.225 In an action to foreclose a mechanic's lien, it appeared that plaintiff sublet a portion of the work he had contracted to do upon a structure located on defendant's land to one S., and, when the work was completed, gave S. an order on defendant, which the latter refused to pay, whereupon S. filed a claim, and obtained judgment against defendant for the amount due him, together with attorney's fees and costs. It was held that, under a statute making it the duty of a contractor to protect the owner's property from any liens of subcontractors or material men, defendant was entitled to a credit for the full amount which he had paid S. under such judgment.226 The owner should not pay some subcontractors, to the exclusion of others, until all the claims are filed, or he will render himself liable to the latter; nor can he plead a previous understanding with those paid.227

DIVISION V. AGREEMENT NOT TO ASSERT LIEN.

Agreement as Waiver.

§ 744. Since a mechanic may waive his lien after it has accrued, may he not waive it in advance by a provision to that effect in the building contract? This question has been answered in the affirmative by the courts of Pennsylvania. In a recent case the supreme court of that state says: "The agreement of the builder to provide all the labor and materials for the erection of a building, and look for his security solely to the personal responsibility of the owner, leaving the building unincumbered by liens, is a valid and binding one. It violates no rule of public policy. A statute that should

224 Walker v. Newton, 10 N. W. 436, 53 Wis. 336.

225 Dunlop v. Kennedy (Cal.) 34 Pac. 92.

226 Clancy v. Plover (Cal.) 40 Pac. 394.

227 Othmer v. Clifton, 69 Iowa, 656, 29 N. W. 767.