Ware Supply Co. v. Sacramento Savings & Loan Ass'n

gaged by Robin as the general contractor for the job. On June 20,1963, Sacramento on the one hand and Robin and Payne on the other entered into a written building loan agreement pursuant to which Sacramento made a construction loan to Robin in the total principal sum of $325,000 secured by a first deed of trust on the above property. The agreement by its express terms provided for the disbursement by Sacramento of the proceeds of the loan in accordance with a so-called “Loan Order Plan”^[1] or voucher system. (See Ilyn, Stop Notice!— Construction Loan Officer’s Nightmare, 16 Hastings L. J. 187 , 193.)

Carl W. Ferrell, called as a witness by plaintiff, testified that during 1963 he was the business manager of the John Payne Construction Company; that a few days before the signing of the building loan agreement on June 20, 1963 he discussed with the head loan officer of Sacramento (whose name he did not recall) the manner in which the loan funds were to be disbursed; that such conversation was had in the presence of Mike Ross, the actual owner of Robin; that in setting up the procedure for the disbursement of the loan funds he insisted on behalf of his company that the money be paid directly to Payne, the general contractor; that Sacramento’s loan officer objected to this arrangement, stating that it was their normal procedure to pay the subcontractors and suppliers direct after being so authorized by the owner and the contractor; and that the witness gave the following reasons for. insisting on payment to the general contractor: ‘ ‘ Our normal operation was to have the money come directly to us and we paid the subs and suppliers with our own cheeks and that is what I told him. That is the only way we would take the job. Otherwise, they could get another contractor. ... we were operating on a large basis. We had anywhere from three to four million dollars worth of work going. It made it much

simpler for us to pay the subs and the suppliers.”^[2] In any event, according to the witness, a procedure was established under which Payne, the general contractor, would submit to Sacramento “payout vouchers” with supporting labor and material releases covering the items listed in the voucher and upon approval by Sacramento would receive from the latter a check payable to Payne for all items so listed.

During November 1963 Ware furnished labor and materials for the job of a reasonable value of $7,362.42 which is the amount of the judgment. Of this amount the sum of $5,080 represented the reasonable value of windows supplied and installed by Ware prior to November 14, 1963. As we have said, this is the only amount in issue on this appeal.

On November 14, 1963 Payne presented to Sacramento on the latter’s printed form a payout voucher requesting payment of $12,780 for six items of labor and materials furnished to the Robin job and listed on the voucher.^[3] Attached to the payout voucher on Sacramento’s printed forms were “material releases” signed by the various subcontractors and materialmen covering all six items. Among these releases was one by plaintiff signed on its behalf by Ernest Ware, its president, for the sum of $5,080 for the furnishing and installation of windows.

At the top of the release form appear the words “Material Release.” Immediately below these in somewhat smaller lettering are the words: “Waiver of Mechanic’s Lien Rights and Certificate to Produce Payment—Materials— Pull or Partial”; all of these last words are underlined. After instructions with respect to its completion,^[4] the release reads

as follows: “TEE UNDERSIGNED, each as an individual, does hereby acknowledge receipt in full of all moneys and/or compensation of whatsoever nature due him or to become due him for any and all labor performed up to and including (Date) [November 14th] 19 [63] on or to the property or improvements thereon, or both, owned by [Robin Development Co.] and located at [20 Harder Road, Hayward, Calif.] also described as: Lot(s) [Portions of Parcels 1, 2 and 3] Tract [Meek Soto] And In Consideration of such receipt, does hereby release Sacramento Savings & Loan Association, the owner and the general contractor from any and all liability, either expressed or implied, and does hereby release and waive any and all claims and/or rights of lien which he now has or may have against the above described premises for material furnished thereon up to and including the above date.” (Italics added.) The release form was completed by filling in the blank spaces in long-hand printing; material thus added to the form has been enclosed by us in brackets.

Immediately following are several lines with three columnar headings: “Name (Actual Signature Required); Type of Materials Furnished; Amount.” On the release in question, the first column was left blank; in the second column was inserted “ (12) Windows” : and in the third “$5,080.00,” carried to the same total.

Just below the lines last mentioned is a double line extending across the entire page and immediately below it the language set forth in the footnote.^[5] Following such language is a signature line for “Sub-CoNTRACTOR” the prefix “Sub” being in much smaller lettering than “Contractor” and immediately beneath it a line designated “Contractor’s License No.”

without the prefix “Sub.” Plaintiff signed on the above signature line and presumably inserted its contractor’s license number on the second line.^[6] Across from the above lines is a separate signature line for “Owner and/or General Contractor” on which Payne signed.

Ernest Ware, president of plaintiff, testified under cross-examination that he signed the material release in Payne’s office so that Payne could in turn present it to Sacramento for the payment of Ware’s obligation. The witness assumed this was the normal procedure ‘ ‘ although I signed that to protect the people. They requested that I sign this to protect them for liens in consideration that I had been paid.” He admitted that he knew when he signed it that Payne was going to present it to Sacramento “in order to induce payment.” However, Mr. Ware did not furnish the information needed to fill out the form and the witness stated that the material release signed on behalf of plaintiff was actually filled out by one of Payne’s employees after Mr. Ware signed it. Fairly read, Mr. Ware’s testimony shows that he signed the form in blank.

On November 15, 1963 Sacramento issued a check to Payne in the sum of $12,780 in payment of the items set forth in the latter’s payout voucher. However, no part of the $5,080 included therein and due plaintiff was ever paid to plaintiff by Payne.

On November 22, 1963 plaintiff submitted to Payne an invoice in the sum of $7,762.46, which was later adjusted to $7,362.42 at the trial. Receiving no payment from Payne, plaintiff, on January 22, 1964, filed with Sacramento its bonded stop notice pursuant to Code of Civil Procedure section 1190.1, subdivision (h), and on August 25, 1964 commenced the instant action. In its answer Sacramento denied all liability and in addition alleged as a separate defense that it had paid Payne the $5,080 at the request of plaintiff; that plaintiff had signed the material release for the purpose of inducing such payment; that had it not been for plaintiff’s release, defendant would not have made the payment; and that as a result “plaintiff herein, at least to the extent of $5,080, is estopped to assert any claim against this defendant. ’ ’

The trial court found favorably to plaintiff on all material issues, specifically finding that when “plaintiff executed the

bottom portion of defendant’s material release form, plaintiff had not been paid the sum of $5,080 and plaintiff did not represent that it had already received said sum of $5,080 by executing said material release form”; that at the time Payne presented the payout voucher to Sacramento, the latter knew plaintiff had not yet been paid said $5,080; and that Payne was Sacramento’s “agent for payment”; and concluding that plaintiff was not estopped to assert any part of its claim'. Judgment for $7,362.42 was entered accordingly Defendant’s sole contention^[7] before us is that the evidence establishes estoppel as a matter of law and that as a consequence it fails to support the findings and judgment to the extent of $5,080. Plaintiff’s contrary position is that the perfecting of the stop notice created an unqualified right to payment which could not be defeated by a defense based upon the previous payment to the general contractor Payne. As plaintiff correctly points out to us, it is settled that where a bonded stop-notice claim is given pursuant to Code of Civil Procedure section 1190.1, subdivision (h), the statute requires that the fundholder “must withhold from the borrower or other person to whom said owner may be obligated to make payments or advancements out of said fund sufficient money to answer such claim. . . •” ‘‘ The fundholder must therefore withhold from funds furnished to pay construction costs or arising out of a construction loan sufficient money to answer bonded stop-notice claims regardless of the terms of its contract with the owner. . . . Subsection (h) requires that funds earmarked for construction purposes be used to pay suppliers of labor and materials who file claims under the subsection and therefore supersedes the private arrangements of borrower and lender.” (A-1 Door & Materials Co. v. Fresno Guar. Sav. & Loan Assn. (1964) 61 Cal.2d 728 , 734 [ 40 Cal.Rptr. 85 , 394 P.2d 829 ]; Rossman Mill & Lbr. Co. v. Fullerton Sav. & Loan

susceptible of only one inference in which event it is a question of law. (California Cigarette Concessions, Inc. .v. City of Los Angeles (1960) 53 Cal.2d 865 , 868 [ 350 P.2d 715 ]; Sawyer v. City of San Diego (1956) 138 Cal.App.2d 652 , 662 [ 292 P.2d 233 ].) Thus the trial court’s findings and conclusion that an estoppel did not exist in the instant case will be conclusive on appeal unless the opposite conclusion is the only one reasonably deducible from the facts. (Pacific Gas etc. Co. v. State Board of Equalization (1955) 134 Cal.App.2d 149 , 156 [ 285 P.2d 305 ]; People v. Watkins (1959) 175 Cal.App.2d 182 , 185 [ 345 P.2d 960 ].)

We proceed to determine whether all of the above elements of estoppel are present as a matter of law in the instant case. In so doing we disregard conflicting evidence on behalf of Sacramento and indulge in every legitimate inference which may be drawn from the evidence in favor of Ware. As to the first element it is apparent that Ware, the party to be estopped, was according to its own testimony apprised o'f the facts. It knew that it had not been paid for the windows by Payne or Robin and that the entire amount of $5,080 was due.

Turning to the second element of the doctrine we consider the condxict of Ware and inquire whether Ware intended such conduct to he acted upon by Sacramento. The nneontradicted evidence in the case demonstrates that Ware directed and requested Sacramento to pay directly to Payne, "the general contractor, the $5,080 for the windows furnished by Ware. Implicit in this direction is Ware’s intention that it be acted on. As we have set forth, Mr. Ware himself admitted that he signed the material release so that Payne could in turn present it to Sacramento for the payment of the amount owing to Ware and that he knew that the release was going to be "used to induce such payment.

To escape this result, plaintiff argues that the material release was “in effect two forms”; that plaintiff did not sign the top part which, as the argument goes, is the “Waiver of Mechanic’s Lien Rights” and therefore did not represent according to that part that he had received payment for the item involved; that it signed merely the bottom part of the form which, as the argument goes, is the “Certificate to Produce Payment”;^[8] and that by so doing plaintiff did not represent

in such bottom part that it had received payment but merely that the materials had been supplied. Such dichotomy, however, does not rescue plaintiff. It is not necessary in the instant case to ground the estoppel on plaintiff’s representation that he had received payment of the $5,080. The estoppel here arises out of plaintiff’s authorization of the payment of his bill to the general contractor; it rests upon plaintiff’s representation to Sacramento that plaintiff would look to Payne rather than to Sacramento for the eventual receipt of its money.

Is the third element of the doctrine present? Was Sacramento, the party asserting the estoppel, ignorant of the true state of the facts? The true state of the facts with which we are here concerned does not consist of the circumstance that plaintiff had not received payment since, as we have explained, that was not fundamental to the estoppel but consists of the circumstance that the general contractor would not, or did not intend to, pay plaintiff from the funds received. The payout voucher^[9] shows that the general contractor expressly agreed “that the check, or its proceeds, in payment for the above described materials and/or labor, is received In Trust and As Bailee for the sole and express purpose of paying all costs and charges for labor and/or materials described in this non-negotiable order, . . .’’ Neither this document nor any other evidence in the case is susceptible of the inference that Sacramento knew that such payment would not be made. On the contrary Sacramento could properly assume that the general contractor would faithfully perform his duties under the trust. (Code Civ. Proc., § 1963, subds. 1,19, 20.)

Finally, as to the fourth element of estoppel, it is manifest from the testimony of plaintiff and the pertinent documentary evidence summarized by us that Sacramento relied on Ware’s conduct to its injury. Plaintiff executed the material release so that Payne could present it and secure payment; the release was a condition precedent to such payment; upon its presentation, Sacramento made the payment out of the loan proceeds to the general contractor. It is obvious that in so doing it relied upon plaintiff’s representation that payment of its obligation could be made to Payne.