Canal Company v. Gordon

APPEAL from the Circuit Court for the Northern District of California; the case being thus:

A statute of California gives to all persons performing labor or furnishing materials for the construction or repairs of any building a lien, jointly, upon the building which they may have constructed or repaired, or for which they may have furnished materials, to the extent of the labor done, or materials furnished, or both. And a subsequent statute extends the previous one so as to include in its provisions ditches, flumes, or aqueducts, constructed to create hydraulic power, or for mining purposes. It is provided, however, 'that no lien shall continue for a longer period than one year after the work is done or materials furnished, unless suit be brought in a proper court to enforce the same within that time.'

With this statute in force, the South Fork Canal Company was desirous of having-for those purposes of mining to which in California water-conduits contribute aid-a canal or flume from a grand reservoir near Placerville to the south fork of the American River, a distance of about twenty-five miles. Beginning at the Placerville end, and making the canal in the direction purposed, they had, after they had made it about half way, a canal, which they used with a certain advantage. But by itself, this part-a part between Placerville and Long Canon-had no supply of water for more than two or three months in the year, and these were winter months. Then certain mountain streams fed it. Extended to the American River, the supply of water it was expected would be both increased and be constant. The Company accordingly, in March, 1853, entered into a contract with two persons, named Gorden & Kinyon, for an extension of the work from the point where the already mentioned part ended, to the river to which they thought that it was desirable to bring it. This new part was divided into sections designated as sections 17 to 25.

By the terms of the contract it was stipulated that the work should be completed by July 1st, 1853. It was to be paid for monthly, however, in a way specified, as the work progressed: it being provided at the same time, that if any money due should not be paid when due, such amounts should bear interest at current rates till paid.

Under the contract Gordon & Kinyon worked till the 7th day of June, 1853, at which time, on estimate taken according to the terms of the contract, they were entitled for work done in May, to about $20,000. The money not being paid, they on that day-the date is important-gave the company notice by which, after stating that punctuality on the company's part in making its promised payments was indispensable to their (Gordon & Kinyon's) being able to pay the numerous men whom they had at work, and that they thus acted in order to avoid embarrassment and discredit to themselves, they declared the contract 'annulled and at an end,' and they themselves 'no longer parties to it.' Expressing, however, in strong terms their obligations to the officers of the company for their personal kindness, expressing also the great interest which they themselves felt in the 'noble enterprise' which they had been directing, and 'pride in the contract from the very difficultyo f its execution and its importance relatively to the whole work,' they added in a form 'strictly confidential,' and, as they said, for the purpose of allowing the company to make other arrangements without interrupting the work, that they would, for six days longer from the date of the note (June 7th), continue the work undertaken by them, at their own risk, and should 'not ask pay beyond this date unless the company choose from their own sense of honor to pay.' They added, that at the end of the six days they would discontinue work unless a new and secure financial arrangement should be made, one either satisfactory to themselves or such as two of their own directors named would pronounce to be proper.

Receiving no reply to this letter, they wrote the company on the evening of the 13th of June that no action having been taken on the letter, nor answer given to it, and the six days having elapsed at 4 P.M. of the then 13th of June, they withdrew the whole of the former note-as they said that it was competent for them to do (the offers having been voluntary)-except that part of it which declared the contract broken, annulled, and ended.

On the next day Gordon informed the company in writing that kinyon was only interested in the contract to the extent of one-third of the profits, and on the 21st of June, he and Kinyon filed a notice of their claim of a lien on the works known as the South Fork Canal for the amount which they claimed. A day or two after the delivery to the company of the note of the 7th, the amount due on the May estimate was tendered to Kinyon, who declined to accept it.

On the 23d of June, Gordon & Kinyon brought suit against the company, for the purpose of enforcing their lien.

A few days afterwards, that is to say, on the 28th, the directors, in their office at Placerville, Gordon being in the city of San Francisco, took from Kinyon a release, executed in the name of Gordon & Kinyon, of all claims against the company. The consideration paid Kinyon for this release was $2000 in money, and $3000 in the company's stock, estimated at par. The certificates for this stock were made out in the name of Kinyon's wife. The whole of this transaction was concealed from Gordon by Kinyon, who immediately after it proceeded to San Francisco, whence by the next steamer he fled the country.

On the 12th of June of the following year (1854), Gordon having discontinued the suit already brought-filed a bill in the court, setting forth the contract, and the facts of the case, as above given, alleging that the contract had been broken by the company's failure to pay, that the work had been done to the amount of $84,000, that the release was fraudulent, and praying that the release might be disregarded, and the South Canal sold to satisfy his lien. An interlocutory decree being made in his favor, and the matter referred to a master, who reported $76,589 due (less $6200 credits) on the contract for work done on the canal, and $16,250 for work preliminary to it, such as roads, saw-mills, timber-slides, and such like things, which assisted in and were indispensable to accomplish the main work. No exceptions being filed, the report was confirmed, and a decree made for the amount reported, less the credits and less the $16,250 for preliminary work, this being held by the court not a lien under the statute. And the lien was decreed to extend to the whole canal; and the whole was directed to be sold to satisfy it.

As respected the relation of the two parts of the canal, testimony in the case, it may be mentioned, stated that both parts were 'parts of the same work, and each necessary to the other;' that to disconnect the two would lessen their value greatly; the work being worth 'very little-valueless'-without the extension to the American River.

It was from this decree that the present appeal, one by the company alone, came.

Mr. Wills, for the appellant, contended—

I. That the contract in its nature was entire, and for the performance of the whole work, and that the contractors having abandoned it before completion, were not entitled to recover even for what they actually did. Any delay in the payment of the estimates by the company was to be compensated, according to an express provision of the contract, by the payment of interest thereon from the time of such non-payment until paid.

II. That the lien, if it ever attached, was lost, 1st, by the release to the company by Kinyon, one of the co-contractors; 2dly, by the voluntary and needless dismissal of the first action; and 3dly, by the failure of Gordon to institute the present suit until after the lapse of more than one year from June 7th, 1853, which failure (Mr. Wills argued, on the letter of that date and of the subsequent 13th) was plainly evident; it being clear from these letters that the contract was ended on the 7th of June, and that all work done afterwards, if any was done, was done voluntarily. The 12th of June, 1854, when the suit below was brought, was therefore more than a year after the work was finished, and the case thus was not within the statute.

III. That the lien, if attaching at all, was to be restricted to the part, branch, or division of the canal on which the work was actually done, and for which the materials were furnished, and not extended over the whole.

Mr. Botts, contra:

I. The first breach of the contract was made by the company's non-payment, and fully authorized the contractors to abandon the work and to sue on a quantum meruit for the work already done. The provision with regard to the rate of interest did not authorize, or relieve from, the breach. On the contrary, it recognized the fact that a failure to pay would constitute a breach, and provided a measure of damages for the breach other than that fixed by California statute, which, in the absence of agreement, is interest at 10 per cent. The only effect, then, was to substitute the particular for the general measure of damages.

II. The release executed by Kinyon was palpably fraudulent.

III. Was the lien proceeded on within the year? The year ran not from the time when the company received notice of Gordon's election to abandon the contract, because it is not on the contract that this action is based, but from the period of the completion of the work, the value of which constitutes the complainant's claim. Tried by this test, the action was clearly within the time.

IV. The sale of the whole canal was rightly ordered. When the part upon which labor is bestowed is in its nature capable of being used separately and distinctly from the other portions of the structure, the lien is properly restricted to that part. But where the portion constructed by one mechanic is an inseparable part of the whole, whenever the use for which the thing is intended can in no degree be attained without the co-operation of all the parts, then, the liens of all the contractors rest upon the whole structure, and are not limited to their respective portions. We go further. Although the structure may possibly be divided without totally destroying the use for which it was intended, if the sum of the values of the different parts would be greatly less than the value of the whole, the lien of each contractor will rest upon the whole, and the structure will not be divided. Or, if a particular part erected by a particular contractor is comparatively worthless unless connected with the other parts, no division will be made. The extension was part and parcel of the original plan, the object being to conduct the headwaters of the South Fork to the 'Placer' mines at Placerville. That the canal was begun at the Placerville end, and that the winter streams or arroyos were turned into the channel as the work progressed, in no manner affected the integrity of the original design. The canal is a single structure intended for a single purpose. Any division of it destroys the structure; ad if it were divided into the sections, or artificial divisions for the purpose of contract, each part in the hands of a separate owner would be comparatively useless. The value of each lien would of necessity be impaired, if not destroyed. To cut up the flume into sections and assign his portion to each contractor, would be to give some of them aqueducts which had, and could have, no water to carry.

The decree, in short, was too favorable to the appellants. It ought to have been in favor of Gordon for the entire sum claimed.

Mr. Justice SWAYNE delivered the opinion of the court.