Lyon, J.:
The important question involved in this litigation, which was instituted to foreclose a mechanic’s lien, is whether the final payment by the owner to the contractor was made for the purpose of avoiding the provisions of section 7 of the Lien Law (Consol. Laws, chap. 33; Laws of 1909, chap. 38), which provided that “ Any payment by the owner to a contractor upon a contract for the improvement of real property, made prior to the time when, by the terms of the contract, such payment becomes due, for the purpose of avoiding the provisions of this article, shall he of no effect as against the lien of a subcontractor, laborer or material man under such contract, created before such payment actually becomes due.” The contract in question was made in September, 1911, and provided for furnishing the materials and performing the labor necessary for the construction by the contractor, Booth, for the Schenectady County Coal Company, the appellant, of five rein[759]*759forced concrete coal pockets, for the sum of $75,500, payments to be made monthly to the extent of eighty-five per cent of the architect’s estimates, the final payment to be made thirty-one days after the completion of the contract, which as to the large pocket was to be February 1, 1912, and as the four small pockets June 1, 1912. The contract provided that the owner might retain out of any payments due or to become due sufficient moneys to indemnify it against any liens chargeable to the contractor; also, that before final payment should be made the contractor should furnish to the owner a bond in the penal sum of $18,750, conditioned that the contractor should keep all the buildings in repair for the period of one year from the time of their completion. Upon undertaking the construction of the large pocket it was found that the laying of a concrete mat as a foundation to the pocket was necessary. This was done at an expense of $7,209.36, which was paid for as extra work, and accounts for the delay in the completion of the contract, but has no bearing upon the issues herein. On March 8, 1912, the appellant had paid Booth on account of the contract, and exclusive of the payment for the extra work of constructing the mat, $55,505, leaving unpaid upon the contract $19,995. The appel lant then proposed to Booth that if he would furnish it a surety bond in the penalty of $20,000 conditioned for the performance by him of the contract, it would pay him in advance of the time specified in the contract the said balance remaining unpaid thereon. March 15, 1912, Booth in acceptance of such proposition furnished said bond, and on March nineteenth the appellant paid him $15,000, and on March twenty-sixth the balance of $4,995 in full of the contract price, and also of the extra work in constructing the concrete mat. Booth continued work upon the pockets until June 13, 1912, when he abandoned the contract, and on June 17, 1912, became a bankrupt, having then expended upon the contract, exclusive of the construction of the mat, $79,960.64. The surety company thereupon -undertook the work of completing the contract and expended $8,000 thereon. Thereafter the appellant, claiming that the surety company had not fully completed the contract, which claim the surety company disputed, expended $2,000 upon the pockets. Commencing June 18, 1912, plaintiff and many [760]*760of the defendants1 filed hens against the coal pocket properties, and in July, 1912, this action was brought to foreclose the hen of the respondent cement company. The court in its decision, which is amply supported by the evidence, excepting in respect of the claim of the respondent cement company, as hereinafter stated, found the facts practically as above stated, and also that during the month of March, 1912, the appellant acquired knowledge that contractor Booth, who was repeatedly asking the appellant for advance payments, was embarrassed financially and in need of money to meet his payrolls; that there were unpaid claims against him for material and labor, and that he had misrepresented to the appellant the amount of the same, stating that the claim of the respondent cement company on account amounted to $579.40, whereas in fact it amounted to $1,358.40; that having constructive notice that he was owing other large sums of money to various other persons who had furnished materials for said contract, and having concluded that the appellant had mistakenly neglected to require of Booth before entering upon the contract the bond required by the contract to be given, although in fact the contract did not require such bond to be given until the time of making the final payment, and knowing that although about $63,000 had been expended by Booth upon the work, it was but about two-thirds completed, and that Booth was liable to lose a very substantial sum in completing the contract, the appellant proposed to Booth to pay him the balance unpaid upon the contract upon his furnishing a bond as before stated. The court also found that the said final payment was made for the purpose of avoiding the provisions of article (sic section) 7 of the Lien Law, and not in good faith, and that the respondent lienors were entitled to be paid for materials furnished and labor performed prior to March 26, 1912, but not subsequent to that date, and that as to such portions of their claims the said payment was not made in bad faith, and that the amounts included in the liens for labor. and materials subsequent to March twenty-sixth were invalid. The court also found that the claim of the respondent cement company was valid to the extent of $1,584.80 and that the claims of defendant lienors were valid to the extent in the aggregate of about $1,800, and [761]*761decreed foreclosure and sale of the properties, and the application of the proceeds to the payment of the liens and costs. From this decision the coal company alone has appealed, and the issue presented is whether the evidence satisfactorily establishes the conclusion arrived at by the trial court that the final payment was made by the appellant to contractor Booth prior to the time when it became due for the purpose of avoiding the provisions of the Lien Law.
The mere fact that the March payments were made to Booth in advance of the time required by the contract, or that the appellant had knowledge of the indebtedness of Booth to the lienors, is not of itself sufficient, under the present Lien Law, to charge the appellant with liability on account of such payments, but in addition thereto it must be shown, in order to avoid the effect of a payment as against a lien,- that the advance payments were made for the purpose of avoiding the provisions of the Lien Law, and the burden of so proving is upon the person asserting it. (Behrer v. McMillan, 114 App. Div. 450; Tommasi v. Archibald, Id. 838; Hudson River Blue Stone Co. v. Huntington, 143 id. 99; Wagner v. Butler, 155 id. 425.)
We think the finding of the trial judge that the payments made March nineteenth and twenty-sixth were made for such purpose was not warranted by the evidence as to the respondent cement company. Prior to making the payment of $15,000 on March nineteenth Ashton, the secretary and manager of the appellant, called Bayle, the president of the cement company, by telephone and asked him about Booth’s indebtedness to the cement company, and said that the appellant was going to pay Booth in full the next day or two. Bayle stated in the conversation that he thought that so far as the indebtedness to the cement company was concerned Booth was all right.
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Lyon, J.:
The important question involved in this litigation, which was instituted to foreclose a mechanic’s lien, is whether the final payment by the owner to the contractor was made for the purpose of avoiding the provisions of section 7 of the Lien Law (Consol. Laws, chap. 33; Laws of 1909, chap. 38), which provided that “ Any payment by the owner to a contractor upon a contract for the improvement of real property, made prior to the time when, by the terms of the contract, such payment becomes due, for the purpose of avoiding the provisions of this article, shall he of no effect as against the lien of a subcontractor, laborer or material man under such contract, created before such payment actually becomes due.” The contract in question was made in September, 1911, and provided for furnishing the materials and performing the labor necessary for the construction by the contractor, Booth, for the Schenectady County Coal Company, the appellant, of five rein[759]*759forced concrete coal pockets, for the sum of $75,500, payments to be made monthly to the extent of eighty-five per cent of the architect’s estimates, the final payment to be made thirty-one days after the completion of the contract, which as to the large pocket was to be February 1, 1912, and as the four small pockets June 1, 1912. The contract provided that the owner might retain out of any payments due or to become due sufficient moneys to indemnify it against any liens chargeable to the contractor; also, that before final payment should be made the contractor should furnish to the owner a bond in the penal sum of $18,750, conditioned that the contractor should keep all the buildings in repair for the period of one year from the time of their completion. Upon undertaking the construction of the large pocket it was found that the laying of a concrete mat as a foundation to the pocket was necessary. This was done at an expense of $7,209.36, which was paid for as extra work, and accounts for the delay in the completion of the contract, but has no bearing upon the issues herein. On March 8, 1912, the appellant had paid Booth on account of the contract, and exclusive of the payment for the extra work of constructing the mat, $55,505, leaving unpaid upon the contract $19,995. The appel lant then proposed to Booth that if he would furnish it a surety bond in the penalty of $20,000 conditioned for the performance by him of the contract, it would pay him in advance of the time specified in the contract the said balance remaining unpaid thereon. March 15, 1912, Booth in acceptance of such proposition furnished said bond, and on March nineteenth the appellant paid him $15,000, and on March twenty-sixth the balance of $4,995 in full of the contract price, and also of the extra work in constructing the concrete mat. Booth continued work upon the pockets until June 13, 1912, when he abandoned the contract, and on June 17, 1912, became a bankrupt, having then expended upon the contract, exclusive of the construction of the mat, $79,960.64. The surety company thereupon -undertook the work of completing the contract and expended $8,000 thereon. Thereafter the appellant, claiming that the surety company had not fully completed the contract, which claim the surety company disputed, expended $2,000 upon the pockets. Commencing June 18, 1912, plaintiff and many [760]*760of the defendants1 filed hens against the coal pocket properties, and in July, 1912, this action was brought to foreclose the hen of the respondent cement company. The court in its decision, which is amply supported by the evidence, excepting in respect of the claim of the respondent cement company, as hereinafter stated, found the facts practically as above stated, and also that during the month of March, 1912, the appellant acquired knowledge that contractor Booth, who was repeatedly asking the appellant for advance payments, was embarrassed financially and in need of money to meet his payrolls; that there were unpaid claims against him for material and labor, and that he had misrepresented to the appellant the amount of the same, stating that the claim of the respondent cement company on account amounted to $579.40, whereas in fact it amounted to $1,358.40; that having constructive notice that he was owing other large sums of money to various other persons who had furnished materials for said contract, and having concluded that the appellant had mistakenly neglected to require of Booth before entering upon the contract the bond required by the contract to be given, although in fact the contract did not require such bond to be given until the time of making the final payment, and knowing that although about $63,000 had been expended by Booth upon the work, it was but about two-thirds completed, and that Booth was liable to lose a very substantial sum in completing the contract, the appellant proposed to Booth to pay him the balance unpaid upon the contract upon his furnishing a bond as before stated. The court also found that the said final payment was made for the purpose of avoiding the provisions of article (sic section) 7 of the Lien Law, and not in good faith, and that the respondent lienors were entitled to be paid for materials furnished and labor performed prior to March 26, 1912, but not subsequent to that date, and that as to such portions of their claims the said payment was not made in bad faith, and that the amounts included in the liens for labor. and materials subsequent to March twenty-sixth were invalid. The court also found that the claim of the respondent cement company was valid to the extent of $1,584.80 and that the claims of defendant lienors were valid to the extent in the aggregate of about $1,800, and [761]*761decreed foreclosure and sale of the properties, and the application of the proceeds to the payment of the liens and costs. From this decision the coal company alone has appealed, and the issue presented is whether the evidence satisfactorily establishes the conclusion arrived at by the trial court that the final payment was made by the appellant to contractor Booth prior to the time when it became due for the purpose of avoiding the provisions of the Lien Law.
The mere fact that the March payments were made to Booth in advance of the time required by the contract, or that the appellant had knowledge of the indebtedness of Booth to the lienors, is not of itself sufficient, under the present Lien Law, to charge the appellant with liability on account of such payments, but in addition thereto it must be shown, in order to avoid the effect of a payment as against a lien,- that the advance payments were made for the purpose of avoiding the provisions of the Lien Law, and the burden of so proving is upon the person asserting it. (Behrer v. McMillan, 114 App. Div. 450; Tommasi v. Archibald, Id. 838; Hudson River Blue Stone Co. v. Huntington, 143 id. 99; Wagner v. Butler, 155 id. 425.)
We think the finding of the trial judge that the payments made March nineteenth and twenty-sixth were made for such purpose was not warranted by the evidence as to the respondent cement company. Prior to making the payment of $15,000 on March nineteenth Ashton, the secretary and manager of the appellant, called Bayle, the president of the cement company, by telephone and asked him about Booth’s indebtedness to the cement company, and said that the appellant was going to pay Booth in full the next day or two. Bayle stated in the conversation that he thought that so far as the indebtedness to the cement company was concerned Booth was all right. Bayle did not suggest that the appellant should not make such payment, nor request any protection of the cement company account. March fifteenth Ashton wrote Bayle a letter headed “personal,” as follows: “In taking up the matter further in relation to our telephone talk of a few days ago, I would like you to let me know how much cement as delivered to the Schenectady County Coal Company plants for Mr. Booth, you [762]*762figure is unpaid for. I have of course, figured that while you hold notes for some of this cement, same is not really paid for until notes are paid; and also would like to ask if you are perfectly satisfied with Mr. Booth’s responsibility, and willing to waive all claims against the Schenectady County Coal Company in the future.” So far as appears this letter was not answered. March 19, 1912, Ashton wrote Bayle the following letter:
“ (Personal)
“Mr. G-. F. Bayle, President,
“ Glens Falls Portland Cement Co.,
“G-lens Falls, 1ST. Y.:
“Dear Sir.—Confirming conversation over telephone this morning, we have arranged to pay Mr. Booth in full for contract work at Schenectady, notwithstanding that contract is not completed.
.“ He is giving us a bond for the amount of money advanced. We gave him this morning a check for $15,000, which leaves a balance of $4,995. We will give him a check for this balance, within the next day or two.
“Yours very truly,
“E. B. ASHTON.”
It was not until seven days later that the appellant made the final payment to Booth of $4,995. Ashton testified that the reason he wanted to let Bayle know that the appellant was to make final payment to Booth was because Bayle was a personal friend, and Ashton knew the cement company was furnishing all the cement for the construction of the pockets, and assumed that the cement company bill would be as large as any and was anxious that Bayle should know the situation and what was going on. Booth was a large purchaser of cement, having other large contracts for concrete work, and was indebted to the cement company in a considerable sum, and evidently the cement company considered it better business to continue to furnish him cement and allow him to proceed with his contracts and take the chances of meeting with a loss, as Bayle told Ashton he thought Booth was good, than to endeavor to secure, by filing a lien, or enforce by action payment of his then indebt[763]*763edness, as the cement company furnished him cement for his jobs up to the time he abandoned the contract, June 13, 1912, the amount furnished for the work upon the pockets being about $2,000. The cement company, however, received from Booth during that period payment of his note of $5,000.
Unquestionably at the time of making the final payment the officers of the appellant had well-seated suspicion of the ability of Booth to meet his obligations. They were constantly being annoyed by his importunities for payments. They had learned that his statement to them in answer to their inquiry as to the extent of his indebtedness was not true, but that the claims of creditors were much larger than he had stated to them. They knew that he must lose a considerable sum upon his contract for the construction of the coal pockets. That they anticipated financial difficulties is apparent from their desire to get the moneys which they would owe Booth upon his fulfillment of the contract out of their hands. That the possibility of resort being had to liens was considered by both the appellant and the respondent company seems to be evidenced by the letter of March fifteenth, in which Ashton asked Bayle if he was entirely satisfied with Booth’s responsibility and willing to waive all claims against the coal company in the future. The purpose of the appellant in giving the cement company full and timely information of its intention to make final payment to Booth was evidently to give that company ample opportunity to collect or secure its claim rather than to avoid the provisions of the Lien Law. As to the other respondent lienors, to none of whom notice was given by the appellant of its intention to make final payment to Booth, the evidence amply sustains the decision of the trial court that the payments of March nineteenth and twenty-sixth were made in advance for the purpose of avoiding the provisions of the Lien Law. However, the appellant contends that there would not have been sufficient funds in its hands for the satisfaction of the respondents’ liens had these advance payments been withheld until the time when they would have become payable under the terms of the contract. The disbursements, aggregating $8,000, made by the surety company towards the completion of the contract, must be considered as having been made [764]*764by Booth, and hence are not to be deducted as against the lienors from the moneys payable under the contract. There was thus left on hand, even after deducting the $2,000 expended by the appellant in alleged completion of the buildings, upwards of $3,500, or far more than sufficient to satisfy the liens of the lienors respondent other than those of the cement company. But the appellant contends that this surplus may be absorbed by the expense of keeping the buildings in repair for one year from the time of their completion as mentioned in the contract. However, the contract did not permit the appellant to withhold the payment of any portion of the contract price during such year, but provided that the appellant should make final payment thirty-one days after the completion of the work, although before the same should be made the contractor should furnish to the owner the bond, hereinbefore mentioned, in the penal sum of $18,750 conditioned for his so doing. This provision the appellant waived by making final payment without requiring such bond, taking the bond of the surety company conditioned that “ Booth shall in all respects comply with and perform the terms and conditions of the agreement entered into between said Raymond M. Booth and the Schenectady County Coal Company,” -under which clause it may be assumed the appellant will contend that the surety company is holden to perform the covenant to keep the buildings in repair for one year from the time of their completion.
As to the credit of $1,277.30 for bags returned, it is not material, in view of our holding as to the invalidity of the lien of the respondent cement company, whether in the absence of specific instructions as to the application of this sum, which in fact was credited by the cement company to Booth’s account generally, the credit should be applied to his indebtedness incurred previous or subsequent to March twenty-sixth.
The decisions of the trial court should be modified by reversing the decree as to the cement company and dismissing the complaint upon the merits, with costs, and by affirming the decree as to the other respondent lienors, with costs.
The court disapproves of findings Nos. 17 and 18 so far as they find that the payments of March nineteenth and twenty-[765]*765sixth, aggregating $19,995, were made, as to the said cement company, for the purpose of avoiding the provisions of the Lien Law, and that the said cement company is entitled to be paid the amount of its said claim, and substitutes a finding that as to said cement company said payments made in advance were not made for the purpose of avoiding the provisions of the Lien Law, and that said cement company is not entitled to be paid by appellant or to enforce its lien for any sum whatever.
All concurred, except Kellogg, J., who wrote for reversal, in which Woodward, J., concurred.