THE SPALDING LUMBER COMPANY et al.

v.

HENRY A. BROWN et al.

Opinion filed February 14, 1898.

1. MECHANICS' LIENS-under section 24 of act of 1895 a school building is a public improvement. A school building falls within the term "public improvement,” as used in section 24 of the Mechanic's Lien law of 1895, (Laws of 1895, p. 235,) and a school board falls within the description "officials of this State, county, township, city or municipality,” also used therein.

2. SAME-sub-contractor's lien becomes perfect upon service of notice. Under section 24 of the Lien law of 1895 a sub-contractor's lien for labor or materials furnished for a public improvement is created by performing such labor or furnishing such material, and becomes perfect as to all funds not paid over or bonds and warrants not delivered, upon service of the notice on the officials, as specified.

3. SAME―sub-contractor obtaining an order from contractor is not entitled to priority of payment. An order on a school board, given by a contractor, while his claim was but a chose in action, to a subcontractor for the amount due the latter for labor or material furnished for a school building, cannot be paid in full as against other sub-contractors who have served notices of their claims on such board, as required by section 24 of the Mechanic's Lien law of 1895, but only pro rata with the other claims.

4. BONDS when sureties on a contractor's bond are not liable to subcontractors. Sureties on a contractor's bond, given to a school board to secure a full performance of a contract to erect a school building and as protection against liens thereon, are not liable to subcontractors for the amount of their unpaid claims against the contractor, where there is no breach of the bond as to the school board and the bond does not protect sub-contractors.

APPEAL from the Appellate Court for the Third District;-heard in that court on appeal from the Circuit Court of McLean county; the Hon. THOMAS F. TIPTON, Judge, presiding.

The board of education of Kickapoo Union School District No. 22, etc., filed its bill in chancery alleging that it entered into a written contract with one H. A. Brown for the erection of a school house for said district, at the

price of $4398, payable in five installments. A copy of the contract was filed with the bill. It was alleged in the bill that the contractor having failed to complete the building according to the terms of the contract, the complainant took the matter out of his hands, pursuant to a provision of the contract, and completed the building, and that there still remained due Brown a considerable sum of money, which complainant was ready and willing to pay to him or to the sub-contractors who were claiming it, some of them demanding priority over others, wherefore the bill prayed that Brown and the sub-contractors should interplead in respect to the unpaid amount. It was further alleged that when the written contract was entered into, Brown gave a bond, with sureties, for the faithful performance of his undertaking, and that complainant was ready to assign the bond for the benefit of the subcontractors, if so required by the court. The contractor, and Mrs. H. A. Brown, who signed the contract with him, his sureties on the bond, and his creditors, the sub-contractors, were all made parties to the bill.

Such proceedings were had that it was determined there remained in the hands of the complainant, unpaid on the contract, the sum of $1189.13, and it was ordered that upon payment thereof complainant should be dismissed, its costs of the suit to be taxed and deducted from said fund. It was further ordered that the defendant creditors should interplead, and the cause was referred to the master to inquire and report in what way they were entitled to participate in the fund which had been deposited in the custody of the court. The report of the master was subsequently presented, and this was followed by a decree finding the amount due each of the sub-contractors, the aggregate being $3095.96, leaving a deficit of $2023.38, which it was ordered should be paid into court by the contractor and Mrs. H. A. Brown, who signed the contract with him, and it was ordered that the sub-contractors should share pro rata in the fund then in

the custody of the court. For the purpose of reversing the decree, two of the sub-contractors, the Spalding Lumber Company and Myers & Miller, appealed to the Appellate Court, where the decree of the circuit court was affirmed, and in order to reverse the judgment of the Appellate Court they have appealed to this court.

MCQUISTON & FREDERICK, and BARR & MAYNE POLLOCK, for appellants:

A part of a debt or chose in action may be assigned in equity, and in such case a trust will be created in favor of the equitable assignee of the fund, and will constitute an equitable lien upon it which equity will enforce. Nor does it make any difference that the fund is not due yet or that it is not in actual existence. The order will operate as an equitable assignment when it becomes due or comes into existence.

v. Edsall, 127 id. 535.

Warren v. Bank, 149 Ill. 9; Phillips

An order given to a sub-contractor or material-man by a contractor, upon the owner, amounts to an assignment of the contractor's interest, and after notice the owner is bound to apply the fund to the payment of the order, and the filing of subsequent liens does not affect the liability of the owner to pay the order. Lauer v. Dunn, 115 N. Y. 405; Brill v. Tuttle, 81 id. 454; Beardsley v. Cook, 143 id. 143; Murray v. Micoline, 31 N. Y. Sup. 1109; Kelly v. Syracuse, id. 283; Board of Education v. Duparquet, 24 Atl. Rep. 922.

When payment has been made in good faith, a lien notice only attaches to what remains after said payments are deducted. In other words, the lien only attaches to the amount the owner is indebted to the contractor at the time notice is served. Shaw v. Chicago Sash Co. 144 Ill. 520; Stock Yards v. O'Reilly, 85 id. 546.

An equitable assignee does not even take subject to existing equities of third persons, if they are latent. Silverman v. Bullock, 98 Ill. 11; Himrod v. Gilman, 147 id. 203.

A mechanic's lien statute is in derogation of common right, and must be construed strictly. Cook v. Heald, 21 Ill. 425; Brady v. Anderson, 24 id. 110; Rothberger v. Dupuy, 64 id. 453; Shaw v. Chicago Manf. Co. 144 id. 520.

KERRICK & BRACKEN, for appellees T. F. Harwood &

Sons:

School boards or districts are municipal corporations. Trustees of Schools v. Douglas, 17 Ill. 209.

A school board is a municipal corporation created for a special purpose, and its powers are expressly limited by statute. School Board v. Thompson, 5 Minn. 280.

School boards have no power to accept building orders. If they do so, the orders are not binding. Peers v. Board of Education, 72 Ill. 508; Watts v. McLean, 28 Ill. App. 537; Bourdeaux v. Coquard, 47 id. 254.

An assignee takes a non-negotiable instrument subject not only to the equities of the original parties, but also to the equities of third persons. Sumner v. Waugh, 56 Ill. 539.

Mr. JUSTICE CRAIG delivered the opinion of the court: Upon looking into the record it appears that the contractor, H. A. Brown, gave the Spalding Lumber Company an order, which reads as follows:

"$948.00.

"GIBSON CITY, FORD Co., ILL., Aug. 14, '95. "Geo. Dooley, Clerk, and John Davis, President,

of School Board, Downs Township 22, McLean Co., Ill. "Please pay the Spalding Lumber Co., or order, nine hundred forty-eight dollars ($948), less freight on four cars of brick and three cars of lumber, being in full for the four cars of brick and three cars of lumber. You will pay the above installments as the architect certifies, as my payments are due.

This order was presented to the board of education August 17, 1895, but not paid. A second order for $82.65

was given on September 13 of the same year, and presented within three days thereafter, but payment was refused. It also appears that H. A. Brown gave Myers & Miller an order for $385, which was presented to the board for payment August 5, 1895, and payment refused. The two appellants who hold these orders claimed in the circuit and Appellate Courts, and claim here, that under these orders they are entitled to a priority over the other sub-contractors in the fund in the hands of the school

board.

Section 24 of the Lien law provides: "Any person who shall furnish material, apparatus, fixtures, machinery or labor to any contractor for a public improvement in this State, shall have a lien on the money, bonds or warrants due or to become due such contractor for such improvement: Provided, such person shall, before any payment or delivery thereof is made to such contractor, notify the officials of this State, county, township, city or municipality whose duty it is to pay such contractor, of his claim by a written notice and the full particulars thereof. It shall be the duty of such officials so notified to withhold a sufficient amount to pay such claim until it is admitted or by law established, and thereupon to pay the amount thereof to such person, and such payment shall be a credit on the contract price to be paid to such contractor. Any officer violating the duty hereby imposed upon him shall be liable on his official bond to the person serving such notice for the damages resulting from such violation, which may be recovered in an action at law in any court of competent jurisdiction. There shall be no preference between the persons serving such notice, but all shall be paid pro rata, in proportion to the amount due under their respective contracts." Hurd's Stat. 1897, p. 1040.

It is first claimed in the argument that a school building is not a public improvement, within the meaning of section 24 of the Lien law. This position is predicated on the argument that the act, in designating the officers