Hero & Company v. Farnsworth & Chambers Co.

107 So. 2d 650, 236 La. 306, 1958 La. LEXIS 1311

• Court: Supreme Court of Louisiana
• Decided: December 15, 1958
• Docket: 43625
• Status: Published

Opinions

SIMON, Justice.

This is a suit wherein a materialman is seeking to obtain a solidary money judgment for materials furnished on a particular building project against a subcontractor, to whom the materialman furnished supplies, the general contractor and its surety, and the lessee of the property on which the improvements were constructed. The materialman also seeks recognition of a materialman’s lien upon the lease and the improvements constructed thereon.

Plaintiff is Hero & Company, a partnership engaged in the selling of plumbing and electrical supplies under the trade name of the Valley Supply Company, henceforth to be referred to as Valley.

Defendants are the following: Roy Loup and Bernard Younger, doing business under the name of Loup & Younger, plumbing contractors; Farnsworth & Chambers Co., Inc., general contractors, henceforth referred to as Farnsworth; Aetna Casualty & Surety Company, surety for the general contractor; and the F. & C. Realty Company and its assignee, Gilmore Park Homes, Inc., lessees of the land and owners of the improvements erected thereon.

On August 6, 1955, the F. & C. Realty Company consummated a 75-year lease with the United States for certain government-owned land in the Algiers section of New Orleans for the purpose of erecting and operating a housing project for the use of U. S. Navy personnel. The F. & C. Realty Company then entered into a building contract with its companion corporation, Farnsworth, as prime contractor for the construction thereof. In connection with this contract, the Aetna Casualty & Surety Company executed a bond guranteeing the faithful performance of the contract and the payment of all persons performing work or furnishing materials in connection therewith. Neither the contract nor the bond was recorded.

Bids for the plumbing and heating work required in the project having been submitted, Loup & Younger, being the lowest bidder, was awarded the sub-contract on condition that it furnish a satisfactory performance bond. Unable to do so, Loup & Younger presented an alternative arrangement to Farnsworth whereby Valley would furnish all materials required under Loup & Younger’s sub-contract and would waive its materialman’s lien privilege if Farnsworth would make all checks payable under the sub-contract to the joint account of Valley and Loup & Younger. This arrangement was accepted as evidenced by the exchange of the following two letters:

“November 7, 1955

“Farnsworth & Chambers Co., Inc. 121 Jefferson Hwy. New Orleans, La.

“Attention: Mr. Stewart

“Subject: Navy Project Gilmore Park New Orleans, Louisiana

“Gentlemen :

“On the Gilmore Park Project, we are furnishing your plumbing subcontractor, Loup & Younger, with the materials for this job.

“In consideration of your making all checks and payments jointly payable to Valley Supply Company and Loup & Younger on this job, we will waive our material lien privilege.

“Very truly yours,

E. D. Marsh (signed) General Manager

“Loup & Younger Roy L. Loup (signed)

Bernard J. Younger (signed)

Jefferson Parish, La.*

Subscribed by E. D. Marsh, Roy L. Loup and Bernard J. Younger before me, Notary, This 15th day of November, 1955.

“(Signed) Wm. J. White Notary Public.’'

“November 28, 1955

“Valley Supply Co. 1200 Lafayette St. Gretna, Louisiana

“Attention: Mr. E. D. Marsh, General Manager

“Reference: Gilmore Park Housing Project New Orleans, Louisiana

“Dear Mr. Marsh:

“We acknowledge receipt of your letter dated November 7, 1955 in which you advise you are furnishing the materials for reference project and in consideration of Farnsworth & Chambers making all checks payable jointly to Valley Supply Co. and Loup & Younger, you will waive your material lien privileges. The document as written and executed is agreeable to Farnsworth and Chambers and this letter will act as our acceptance.

“It is understood that Valley Supply Co. is to furnish all materials to Loup & Younger and it is your obligation and responsibility for all materials furnished for this job.

“Yours very truly,

Farnsworth & Chambers Co., Inc.

By: J. M. Gubble (Signed) for O. H. Brigman

“OHB/leh

Loup & Younger

Roy L. Loup (Signed)

Bernard J. Younger (Signed)

12-1-55”

Farnsworth then entered into the subcontract with Loup & Younger at a base price ■of $92,345.61. Subsequent change orders increased the sub-contract to a total price of '$97,948.70. The work was begun and prosecuted through to completion though not without several difficulties and disagreements arising among the three parties involved in this phase of the work. During the course of the work Farnsworth issued checks totalling $78,857.10 payable to the joint account of Loup & Younger and Valley, and has admittedly withheld the remaining $19,091.70, pending settlement of all claims arising thereunder.

Notwithstanding its agreement to waive its liens and privileges, and, in fact, claiming a prior breach by Farnsworth, Valley recorded affidavits of claim for $19,474.33 against the improvements and the lease and then instituted this suit for personal judgment for the above sum against the aforenamed defendants in solido and for recognition of their lien privileges. Reference has been made to two other claims made upon Farnsworth under Loup & Younger’s subcontract by subcontractors employed by Loup & Younger but these claims are not involved in this proceeding, and as to which we make no comment.

All defendants answered, pleading special defenses. Defendants Loup & Younger contended that its agreement with plaintiff constituted a joint venture under the law and prayed for an accounting and settlement thereof. Defendants Farnsworth, F. & C. Realty Company, Inc., Gilmore Park Homes, Inc., and Aetna Casualty & Surety Company set up the defense payment as well as the existence of a joint venture between plaintiff and Loup & Younger.

The trial court found that the agreement existing between plaintiff and Loup & Younger was not, in legal contemplation or in the intent of the parties, a joint venture, but was simply an exclusive buy and sell agreement, with an assurance of payment by a third party in exchange for a waiver of lien privileges. The trial court further found that the third party, Farnsworth, breached its contract by its failure to have made progress payments, and thereby held plaintiff justified in recording its lien privilege notwithstanding its prior waiver of same. The trial court, accordingly, rendered judgment as prayed for in favor of plaintiff and against all defendants solida rily. All defendants have appealed.

A close scrutiny of plaintiff’s position reveals that it is relying on contradictory positions to establish its claim. On the one hand, it asserts that their entire agreement is embodied in an exchange of letters between itself and Farnsworth. It asserts this position to obviously overcome the defendants’ contention that it is a “co-adventurer” with Loup & Younger. Then, on the other hand, it attempts to incorporate the provisions of the sub-contract between Loup & Younger and Farnsworth into its specific agreement with Farnsworth as a basis for thus asserting a prior breach of the contract by Farnsworth. One stand must yield, and the abandonment of either is fatal to plaintiff’s action against all defendants except Loup & Younger.

Let us examine plaintiff’s first position. If their entire agreement is embodied in the two letters of November 7, and November 28, 1955, supra, then the only reasonable interpretation is that plaintiff gave up all of its lien rights against the general contractor, the surety, and the improvement owner in exchange for preferential payment over all others from the money that would come into the hands of its customer, Loup & Younger, under this sub-contract. There could be no other reason for making the progress payments payable to the joint order of plaintiff and Loup & Younger. It is uncontroverted that Farnsworth gave plaintiff preferential access to $78,857.10 as evidenced by their jointly payable checks. Though the value of the materials furnished by plaintiff is in dispute, the amount asserted by plaintiff itself does not exceed $66,858.52. There is nothing in the two letters that would indicate how these jointly payable checks were to be apportioned between plaintiff and Loup & Younger.

If the agreement between them was a simple buy-sell agreement, as we conclude it to be, then the only possible apportionment would be that plaintiff would enjoy preferential payment for its materials and Loup & Younger would receive the surplus. To hold otherwise would be to go beyond the terms and conditions stipulated in the two letters which plaintiff asserts constitutes the whole of their agreement. Plaintiff had within its complete control sufficient funds out of which the indebtedness due it for sold materials could have been paid. Rather than pay this indebtedness from these funds plaintiff applied portions thereof as advances to Loup & Younger in meeting the latters’ payroll. Regardless of the motives which prompted the diversion of these funds, it cannot now be heard to urge nonpayment of the indebtedness due it for materials sold and delivered. It follows that plaintiff must now look to its purchaser, Loup & Younger, for reimbursement of any claim of nonpayment.

The shortage of funds for the payment of materials resulted from plaintiff’s imputation of part of the jointly payable funds to loans made to Loup & Younger to meet their payrolls. No authority for this imputation can be found in the aforementioned two letters of agreement. Plaintiff relies on Article 2163 of the LSA-Civil Code which provides that “The debtor of several debts has a right to declare, when he makes a payment, what debt he means to discharge.” Plaintiff relies on this codal article as authorization of an explicit agreement between Loup & Younger as debtor, and plaintiff, as creditor, whereby the payments made to them jointly by Farnsworth were to be credited first to discharging the loans made by plaintiff to meet Loup & Younger’s payroll and secondly to payment of the material supplied by plaintiff. But in so doing, plaintiff ignores the true status of the parties herein.

By their stipulation that Farnsworth was to guarantee payment to Valley through the device of jointly payable checks, Farnsworth must be considered the debtor insofar as the rights of imputation under Article 2163 are concerned. The only reasonable imputation by Farnsworth arising out of the agreement between it and plaintiff is the latter, as vendor, was to paid first for all of its materials furnished, before any funds were to be paid to Loup & Younger. We are supported in this reasoning by two recent cases decided in other jurisdictions: City Lumber Company v. National Surety Corp., 229 S.C. 115, 92 S.E.2d 128; and F. & C. Engineering Co., Inc., v. Moore, Tex.Civ.App., 300 S.W.2d 233.

We find further support in the testimony of plaintiff’s general manager who admitted that “ * * * i am going to get my materials out of the jointly payable checks” and that there were sufficient funds placed in Valley’s hands by Farnsworth to pay for all of the materials it had furnished.

To traverse this defense of payment, plaintiff urges their second contention that Farnsworth had, as aforestated, breached its agreement, thereby releasing plaintiff from its obligations thereunder and allowing it to assert its lien privileges by recordation. The trial court agreed with plaintiff, finding that Farnsworth did not fully comply with Section 22(a) of the subcontract, which section obligated the general contractor to make progress payments upon approved statements within five days after receipt of payment from the owner, F. & C. Realty Co. and its assignees Gilmore Park Homes, Inc.

The unavoidable effect of this contention, if upheld, is to hold Farnsworth obligated to plaintiff for all the stipulations that the general contractor has obligated itself to Loup & Younger in the sub-contract. In other words, plaintiff would make itself a party to the sub-contract between Farnsworth and Loup & Younger. For plaintiff to assert this is to admit that the arrangement between plaintiff and Loup & Younger was a joint venture, one of the special defenses pleaded by all defendants.

We are convinced, however, that neither in legal contemplation or in the intent of the parties was the arrangement existing between Valley and Loup & Younger a joint venture. There can be no question as to the intent of the parties. All of the representatives of plaintiff and defendants Roy Loup and Bernard Younger testified that they never intended to create a joint venture, and these admissions foreclose the issue as to the parties themselves inasmuch as the intention of the parties is governing. This principle was recognized by this Court in Daspit v. Sinclair Refining Co., 199 La. 441, 6 So.2d 341, 345, in the following statement:

“As between the parties, the general rule with reference to joint adventures or special partnerships is that the relationship arises only where the parties intended to associate themselves as such.”

As to the legal effect toward third parties of the various activities carried oii by both, parties under .their agreement, we are equally convinced that no joint venture was created. There are no hard and fast legal rules fixing the requisites for a joint venture; each case must be considered sui generis and care must be exercised that consideration is given to the usages and practices characteristic of the particular commercial undertaking sought to be labeled a “joint-adventure”. To satisfy the requirements by a showing that a joint profit is sought by one or more parties would be to put the “joint venture” label on almost every commercial venture requiring the cooperation of two or more parties.

In the instant case involving the construction industry, we are fully cognizant of the common-place practice wherein numberless suppliers of materials deal with numberless contractors and subcontractors with never a suspicion that they were entering into a special partnership or a “joint venture”. The instant case does not present an exception. We recognize that dealers in materials must, for competitive reasons, service their accounts, give advice, extend credit, offer suggestions on the proper type of materials and equipment, and perform a number of helpful accommodations to secure their clientele. This is what plaintiff did in this instance, and we decline to penalize them for their business resourcefulness. This finding is not to be construed, however, that facts and circumstances may not give rise to a legal joint venture between or among suppliers and builders, as is not the case here.

Accordingly, we find that the agreement between plaintiff, Valley Supply Company, and defendants, Loup & Younger, was exclusively a buy-sell agreement with an obligation by a third party to guarantee payment. That the third party, Farnsworth & Chambers, has discharged its obligation properly by putting within the control of plaintiff sufficient funds out of which it could have been completely paid. Hence, it follows that Farnsworth & Chambers, its surety Aetna Casualty & Surety Company, and the owners and assignees of the land-lease and the improvements, F. & C. Realty Company and Gilmore Park Homes, Inc., are to be relieved of any further direct liability to plaintiff, thereby defeating plaintiff’s claim for a materialman’s lien and privilege.

Plaintiff has established its claim against the defendants, Roy Loup and Bernard Younger, and it is entitled to a personal judgment against said partners for the full amount of the balance due on the materials furnished by Loup & Younger, plus legal interest from date of judicial demand until paid.

Accordingly, for the reasons assigned, it is ordered, adjudged and decreed that the judgment rendered by the District Court in favor of plaintiff, Valley Supply Company, and against the defendants, Roy L. Loup and Bernard J. Younger, doing business under the name and style of Loup & Younger, for the full amount of $19,474.33, in solido, with legal interest from date of judicial demand until paid is affirmed. In all other respects the judgment so rendered is now reversed, annulled and set aside.

It is further ordered, adjudged and decreed that all rights of plaintiff and defendants, Loup & Younger, to be asserted against the fund of $19,091.70 retained by Farnsworth & Chambers, Inc., are reserved to them, respectively, as against any and all claimants thereto. All costs to be borne by defendant, Loup & Younger.

Affirmed in part and reversed in part.

HAMITER, J., absent. TATE, J., dissented in part.