Summary
In Hribar, which involved a second-degree relationship, the subcontractor of the subcontractor sought to be paid under sec. 289.536, Stats., from funds in the hands of the prime contractor, who had already paid in full his debt on the public project to his subcontractor, the debtor of the plaintiff.
Summary of this case from In re Bossell, Van Vechten ChapmanOpinion
January 9, 1964 —
February 4, 1964.
APPEAL from a judgment of the circuit court for Racine county: ELMER D. GOODLAND, Circuit Judge. Reversed.
For the appellant there were briefs by Whyte, Hirschboeck, Minahan, Harding Harland, attorneys, and Edward D. Cleveland of counsel, all of Milwaukee, and oral argument by Mr. Cleveland.
For the respondent there was a brief by Weisman Weisman of Racine, and oral argument by Jacob Weisman.
Hribar Trucking, Inc. (hereinafter Hribar), was engaged by James A. Buckley to do certain trucking of sand and gravel, both for Buckley and a firm controlled by Buckley, Racine Washed Sand Gravel Company. Jos. D. Bonness, Inc. (hereinafter Bonness), was the prime contractor on certain state highway-construction projects. Bonness and Buckley had a contractual arrangement under which Buckley agreed to furnish the sand and gravel needed by Bonness in connection with these state highway-construction projects. Buckley also furnished Bonness with sand and gravel for other construction projects.
Hribar brought the present action against Bonness, Buckley, and the State Highway Commission for money alleged to be owing to Hribar. By an amended complaint, Hribar claims that it has an equitable lien under the provisions of sec. 289.536, Stats., on funds which the State Highway Commission is obligated to pay Bonness as the prime contractor under the highway-construction contract.
The trial court gave judgment for Hribar to the effect that it had an equitable lien against moneys owed by the state to Bonness and that if such funds were not sufficient to satisfy Hribar's claim, then such an equitable lien would be found to exist on money which had already been paid to Bonness under the contract in question. Buckley defaulted. The state did not file briefs or give oral argument in the case, since it was only a garnishee defendant. The trial court gave judgment for Hribar in the amount of $11,343.51 together with interest from October 15, 1959. The amount for which judgment was rendered represented moneys which Hribar claimed from Buckley for transporting the sand and gravel to the Bonness highway-construction projects.
Buckley also employed other truckers to haul sand and gravel to projects other than those of Bonness, and Hribar also did trucking for Buckley in addition to trucking to the Bonness projects. Hribar was never instructed by Buckley as to which accounts Hribar should credit the moneys received from Buckley. Hribar followed the practice of crediting these payments from Buckley on the oldest account, even though the account so credited was for work on jobs unrelated to Bonness.
Bonness and Buckley had a complex business arrangement between themselves. However, it appears that Bonness made no specific effort to insure that Buckley was in fact applying the payments received from Bonness for the sand and gravel so as to satisfy claims for trucking services provided for the hauling of such sand and gravel used on the Bonness highway-construction projects.
In October, 1959, Hribar made it known to Bonness that Buckley was in default in payments for the trucking by Hribar to the Bonness projects. Buckley had been in the habit of making a payment to Hribar every month up until that time. Bonness made no payments to Buckley after October 7, 1959, except one payment on November 10, 1959, in the amount of $119.99. On December 31, 1959, Hribar's notice of lien was recorded with the State Highway Commission.
This appeal is by the defendant Bonness against the whole of the judgment below.
Statute Involved.
"289.536 THEFT BY CONTRACTORS. All moneys, bonds or warrants paid to, or to become due to any principal contractor or subcontractor for public improvements are a trust fund in his hands; and the use of such moneys by him for any purpose other than the payment of claims on such public improvement, before such claims have been satisfied, constitutes theft."
The problem presented by this case is whether one who renders services to a subcontractor on a public-improvement project may assert an equitable claim against the prime contractor when the subcontractor fails to make payment in full to the one rendering the services. We must determine whether sec. 289.536, Stats., was intended to allow equitable recovery against a principal contractor upon a trust theory in favor of one who is a second-degree subcontractor.
At the outset it is clear that sec. 289.53 (1), Stats., is not applicable to provide relief to Hribar. That section applies to legal liens, and this court has said that the supplier of a subcontractor of a contractor does not have a legal lien under sec. 289.53 (1). Lehmann Tire Supply v. Mashuda Construction Co. (1961), 14 Wis.2d 176, 109 N.W.2d 650. The scope of sec. 289.536 is broader than sec. 289.53 (1). This was suggested in Morris F. Fox Co. v. State (1938), 229 Wis. 44, 49, 281 N.W. 666, where this court quoted the following with approval:
"The term `claim' is more comprehensive than `lien,' and includes nonlienable items, so long as they are germane to performing such contract upon the public work. The legislature evidently intended that the rights of those contributing their labor or materials to the public work should be protected above other creditors whose claims bear no relation to the public improvement."
Under sec. 289.536, Stats., a subcontractor who furnished labor or material to a principal contractor on a public-improvement job but who did not qualify for the legal lien provided for in sec. 289.53 (1), might attain some protection under sec. 289.536. For example, if the subcontractor failed to give the written notice to the public authority within the time required for a legal lien under sec. 289.53 (1), such subcontractor could fall back on sec. 289.536 if the contractor diverted funds. However, a second-degree subcontractor, like Hribar, cannot qualify under either statutory section.
To permit the respondent Hribar to qualify under sec. 289.536, Stats., the court would be required to make the tacit finding that Bonness had perpetrated a crime, since the statute is framed in terms of theft. Bonness' contractual relationships with Buckley were somewhat complicated. However, there is no indication that Bonness was a party to Buckley's default as to Hribar. The amount claimed by Hribar against Bonness is over $11,000, but only $119.99 was paid by Bonness to Buckley after Bonness received notice of the default.
On the facts of the instant case, it seems inequitable to conclude that Hribar should be permitted to hold Bonness under a statute which denominates the prohibited conduct as "theft." Furthermore, if the legislature had intended to provide that one who furnishes services to a subcontractor on a public-improvement project could have equitable relief against the prime contractor (who may have paid the defaulting subcontractor in full), we believe that such change in public policy would have been more explicitly stated in the statute. Having paid Buckley in full, Bonness cannot be made a guarantor with reference to the ultimate receipt of payment by Hribar, with whom Bonness had no privity of contract.
Our holdings in Murphy v. National Paving Co. (1938), 229 Wis. 100, 281 N.W. 705, Theiler v. Consolidated Indemnity Ins. Co. (1933), 213 Wis. 171, 250 N.W. 433, and Danischefsky v. Klein-Watson Co. (1932), 209 Wis. 210, 244 N.W. 772, do not warrant the conclusion urged by the respondent. Such authorities would be helpful to the plaintiff if Hribar were a subcontractor in privity of contract with Bonness and if Bonness had diverted the funds it received under the contract and paid claims which were unrelated to the public-improvement project. The record will not support the conclusion that Hribar stood in the relationship of a subcontractor to Bonness, nor does the record support the conclusion that Bonness improperly diverted funds. Money paid to Buckley was in turn paid out by Buckley for unrelated work, but this was not a diversion on the part of Bonness; it was the result of Buckley's failure to specify the account to be credited by Hribar.
By the Court. — Judgment reversed.