                        No. 13411
      IN THE SUPREME COURT OF THE STATE OF MONTANA




GEORGE C. MILLER, d/b/a
CENTRAL PLUMBING AND HEATING,
               Plaintiff and Appellant,



CHARLES W. MELANEY and MARY
GLADYS MELANEY, husband and wife,
and DEL HOSTETTER,

               Defendants and Respondents.



Appeal from:    District Court of the Eighteenth Judicial
                 District
                Honorable W. W. Lessley, Judge presiding.
Counsel of Record :
    For Appellant:

          Bolinger and Wellcome, Bozeman, Montana
          Page Wellcome argued, Bozeman, Montana
    For Respondents :

          Thomas I. Sabo, Bozeman, Montana
          Landoe, Gary and Planalp, Bozeman, Montana
          Robert Planalp argued, Bozeman, Montana



                              Submitted:   January 10, 1977




Filed: ,,dK
               377
M r . J u s r i c e Gene B . Daly d e l i v e r e d t h e Opinion of t h e Court.


             This appeal involves a subcontractor's attempt t o foreclose

a mechanic's l i e n a g a i n s t homeowners and a g e n e r a l c o n t r a c t o r .

The d i s t r i c t c o u r t , G a l l a t i n County, d e c l i n e d t o f o r e c l o s e t h e

mechanic's l i e n and r u l e d i n f a v o r of a l l d e f e n d a n t s .                 The sub-

c o n t r a c t o r , George C. M i l l e r , d/b/a C e n t r a l Plumbing and H e a t i n g ,

appeals.

             On June 3 , 1974, t h e g e n e r a l c o n t r a c t o r Del H o s t e t t e r

e n t e r e d i n t o a c o n t r a c t w i t h homeowners C h a r l e s W. Melaney and

Mary Gladys Melaney t o c o n s t r u c t an a d d i t i o n t o t h e i r home.                         The

t o t a l c o n t r a c t p r i c e f o r t h e work was $22,600.                 The c o n t r a c t

provided f o r compensation t o t h e c o n t r a c t o r i n p e r i o d i c payments,

upon completion of s p e c i f i c segments of t h e work.                             The f i n a l

payment was due upon completion of t h e a d d i t i o n and t h e c o n t r a c t o r ' s

d e l i v e r y of l i e n w a i v e r s t o t h e homeowners.

             M i l l e r a c c e p t e d a s u b c o n t r a c t t o i n s t a l l t h e h e a t i n g system

p u r s u a n t t o t h e g e n e r a l c o n t r a c t o r ' s s p e c i f i c a t i o n s which i n c l u d e d

t h e s i z e and l o c a t i o n o f d u c t work and f u r n a c e .             The c o n t r a c t

p r i c e was $925.00.

             Homeowners t e n d e r e d a l l payments under t h e c o n t r a c t , when

due, u n t i l t h e payment f o r $1,520 which was t o be p a i d a f t e r t h e

i n s t a l l a t i o n of t h e h e a t i n g system.         Homeowners r e f u s e d t o make

t h i s payment because of a l l e g e d i n s u f f i c i e n c y of t h e h e a t i n g

system.        Following r e f u s a l of payment, t h e c o n t r a c t o r withdrew

from t h e job and t h e s u b c o n t r a c t o r was denied admission t o t h e

site.      The s u b c o n t r a c t o r h a s never r e c e i v e d payment f o r work p e r -

formed on t h e a d d i t i o n .
         Thereafter homeowners contacted an architect who re-

designed the heating system by replacing a substantial portion

of the existing duct work with a larger diameter duct and insulating

the duct system. A supplemental furnace was installed in the

garage to heat those portions of the house farthest from the

furnace which was initially installed by the subcontractor. Home-

owners paid $1,542.60 for these modifications to the heating system.
         The subcontractor brought an action inpthe district court

to foreclose his timely filed mechanic's lien. The district

court denied the subcontractor foreclosure on the mechanic's lien
and awarded homeowners a personal judgment against the subcontractor

on their counterclaim for defective workmanship, holding the gross

amount of damages incurred by homeowners exceeded the cost of the

subcontractor's work by $757.08.   The district court awarded home-

owners attorney fees and costs incurred in defending the lien

foreclosure action. The district court further held the general
contractor was entitled to judgment in his favor, thus denying
the subcontractor any recovery from the contractor.

         These issues are presented for this Court's review:
         1)   Allowing homeowners to recover a personal judgment

against the subcontractor, lien claimant, by means of a counter-

claim.

         2)   The judgment in favor of the general contractor thus

allowing general contractor to avoid liability to the subcontractor.
         Issue 1.   The subcontractor contends that a personal
judgment can only be based upon the privity of a contractual re-
lationship between the homeowner and the subcontractor.   Since no

contract was executed between homeowners and the subcontractor

in the instant case, the subcontractor argues no privity of con-

tract was established for purposes of rendering a personal judgment.
        This Court fails to find merit in this contention.    The

correcc law is stated at 53 Am Jur 2d, Mechanics' Liens, $391:

        "In an action by a contractor or other claimant to
        enforce a mechanic's lien, the owner may avail him-
        self of all matters allowable by way of cross bill,
        cross complaint, recoupment, setoff, or counterclaim
        which arise out of the contract between the owner
        and the contractor, and which are available against
        the contractor or other claimant. He may maintain a
        cross bill, cross complaint, or counterclaim to recover
        damages sustained by the failure to perform the work
        according to the contract, or to recover damages
        connected with the construction, such as for defects
        or delay, damages for fraud, or damages from a
        materialman's inducing him to enter into a contract
        with a bankrupt contractor who did not complete his
        contract. **  *I'



        See: Monarch Lumber Co. v. Wallace, 132 Mont. 163, 314



        The subcontractor cites the Montana case, Frank J. Trunk

& Son, Inc. v. DeHaan, 143 Mont. 442, 391 P.2d 353, and a

California case, R. D. Reeder Lathing Co. v. Allen, 57 Cal.Rptr.

841, 425 P.2d 785, to support his position.

        Trunk, like the instant case, concerned a subcontractor's

attempt to foreclose a mechanic's H e n against homeowners who

benefited from the subcontractor's work.      The district court

denied the subcontractor recovery under the mechanic's lien

because of invalid filing of the lien. The subcontractor contended

the district court should have entered personal judgments against

the homeownersand the contractor notwithstanding the invalidity of
                                             Court
the lien. The district court found, and this/affirmed, that a

personal judgment against the homeowners could not arise since

such a judgment could only be grounded upon privity of contract

between the subcontractor and the homeowners.    Absent the sub-

contractor's privity of contract with the homeowners, the only

basis upon which a judgment against the homeowners could be pre-

dicated, i.e., the lien, was lost by failure to perfect it.
            The c r i t i c a l d i s t i n c t i o n between Trunk and t h e i n s t a n t

case i s t h e a v a i l a b i l i t y of remedies.       I n Trunk t h e subcontractor

was denied a personal judgment a g a i n s t t h e homeownersbecause h i s

remedy was t h e mechanic's l i e n which he f a i l e d t o p e r f e c t .            Had

t h e subcontractor perfected h i s l i e n , he would have been allowed

t o recover even though no c o n t r a c t e x i s t e d between t h e l i e n claimant

and t h e homeowner.         The subcontractor need only e s t a b l i s h a con-

t r a c t , express o r implied, between t h e homeowner and t h e prime

contractor.        The r a t i o n a l e behind t h i s r u l e i s t h a t by v i r t u e of

t h e c o n t r a c t between t h e prime c o n t r a c t o r and homeowner, an implied

agency i s c r e a t e d between t h e two, giving t h e c o n t r a c t o r t h e

a u t h o r i t y t o c o n t r a c t with subcontractors and materialmen f o r

performance and supplying of m a t e r i a l s .             Glacier S t a t e Electric

Supply Company v. Hoyt, 152 Mont. 415, 451 P.2d 90.

           S i m i l a r l y , t h e homeowner i s vested with c e r t a i n remedies

when he f a c e s a l i e n f o r e c l o s u r e a c t i o n brought by a subcontractor,

a s s p e c i f i c a l l y s e t out h e r e t o f o r e i n 53 Am J u r 2d, Mechanics'

Liens, 6391, which includes t h e remedy of counterclaim here.                             The

purpose of mechanic's l i e n l e g i s l a t i o n i s n o t t o s t r i p t h e homeowner

of recourse f o r f r i v o l o u s l i e n foreclostsre a c t i o n s , but t o allow

t h e l i e n claimant a remedy where no p r i v i t y of c o n t r a c t e x i s t s

between t h e l i e n claimant and t h e property owner.

           I n R.D.     Reeder Lathing Co. v. Allen, 57 Cal.Rptr."altl, 425

P.2d 785, 788, t h e C a l i f o r n i a c o u r t s t a t e d :

           ""'While t h e e s s e n t i a l purpose of t h e mechanic's l i e n
           s t a t u t e s i s t o p r o t e c t those who have performed labor o r
           furnished m a t e r i a l towards t h e improvement of t h e property
           of another,       ***        inherent i n t h i s concept i s a recogni-
           t i o n a l s o of t h e r i g h t s of t h e owner of t h e b e n e f i t e d
           property. I t has been s t a t e d t h a t t h e l i e n laws a r e f o r
           t h e p r o t e c t i o n of property owners a s w e l l a s l i e n claimants.
           **    *""I
             Reeder, Like Trunk, involved a s u b c o n t r a c t o r who sought

t o f o r e c l o s e a mechanic's l i e n t o impress t h e improved p r o p e r t y .

The lower c o u r t g r a n t e d t h e s u b c o n t r a c t o r ' s motion f o r summary

judgment and decreed t h a t defendant was p e r s o n a l l y l i a b l e t o t h e

s u b c o n t r a c t o r f o r t h e v a l u e of t h e l a b o r and m a t e r i a l s s u p p l i e d .

The Supreme Court found t h e p r o v i s i o n of t h e lower c o u r t judgment

which h e l d t h e defendant p e r s o n a l l y l i a b l e t o t h e p l a i n t i f f was

erroneous.         A s i n Trunk, t h e Supreme Court of C a l i f o r n i a . h e l d

t h a t i n t h e absence of a c o n t r a c t between a l i e n claimant and t h e

property owner, t h e r i g h t t o e n f o r c e a mechanic's l i e n a g a i n s t

r e a l p r o p e r t y does n o t g i v e r i s e t o p e r s o n a l l i a b i l i t y of t h e owner.

            The r u l e denying a l i e n claimant a p e r s o n a l judgment a g a i n s t

a property owner i n a l i e n f o r e c l o s u r e a c t i o n , where p r i v i t y of

c o n t r a c t i s a b s e n t , cannot be conversely a p p l i e d t o deny a p r o p e r t y

owner a p e r s o n a l judgment a g a i n s t a l i e n c l a i m a n t f o r damages

a t t r i b u t a b l e t o t h e l i e n c l a i m a n t and a r i s i n g o u t of t h e c o n t r a c t

between t h e p r o p e r t y owner and t h e prime c o n t r a c t o r .

            - s u e 2.
            Is               The c o n t e n t i o n t h e d i s t r i c t c o u r t e r r e d when

it concluded t h e g e n e r a l c o n t r a c t o r owed nothing t o t h e subcon-

t r a c t o r and was e n t i t l e d t o a judgment i s c o r r e c t .

            The record of t h e proceedings i n t h e d i s t r i c t c o u r t d i s -

c l o s e s t h e s u b c o n t r a c t o r c o n s t r u c t e d t h e h e a t i n g system i n com-

p l i a n c e w i t h c e r t a i n s p e c i f i c a t i o n s provided by t h e g e n e r a l con-

t r a c t o r , e.g.,   the s i z e of t h e f u r n a c e , t h e l o c a t i o n of t h e f u r n a c e

and t h e l o c a t i o n of a i r d u c t s .      Inherent i n the d i s t r i c t c o u r t ' s

award of damages t o t h e homeowners i s a d e t e r m i n a t i o n t h a t t h e

h e a t i n g system, a s o r i g i n a l l y designed, was inadequate.                       Liability

i n regard t o damages f o r d e f i c i e n c y i n d e s i g n a p p l i e d t o t h e

contractor, not the subcontractor.
        The district court erred when it entered judgment for

the general contractor and denied the subcontractor his right

to indemnification.   The district court must determine the con-

tractor's liability for damages based upon the effect of the

contractor's deficient design specifications which the subcontractor

was compelled to use in performing under the contract.

        The judgment of the district court is affirmed in part,

reversed in part and remanded for modification not inconsistent

with this opinion.



                                    ustice



We Concur:




~&Lef
    Justice
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