1998 -NMCA- 38, Hasse Contracting Co., Inc. v. KBK Financial, Inc.

• Decision Date: 17 October 1997
• Docket Number: No. 17745,17745
• Citation: 1998 NMCA 38,956 P.2d 816,125 N.M. 17
• Parties: , 35 UCC Rep.Serv.2d 336, 1998 -NMCA- 38 HASSE CONTRACTING COMPANY, INC. Plaintiff-Counterdefendant-Appellee, v. KBK FINANCIAL, INC. Defendant-Counterclaimant-Appellant, and Gosney & Sons, Inc., Defendant-Counterclaimant-Appellee.
• Court: Court of Appeals of New Mexico

Page 816

956 P.2d 816

125 N.M. 17, 35 UCC Rep.Serv.2d 336,

1998 -NMCA- 38

HASSE CONTRACTING COMPANY, INC. Plaintiff-Counterdefendant-Appellee, v. KBK FINANCIAL, INC. Defendant-Counterclaimant-Appellant and Gosney & Sons, Inc., Defendant-Counterclaimant-Appellee.

No. 17745.

Court of Appeals of New Mexico.

Oct. 17, 1997.

Certiorari Granted Feb. 26, 1998.

Richard D. Yeomans, Guebert & Yeomans, P.C., Albuquerque, for Plaintiff-Counterdefendant-Appellee.

Gordon S. Little, Gordon S. Little, P.A., Albuquerque, for Defendant-Counterclaimant-Appellant.

Michael H. Hoses, Miller, Stratvert, Torgerson& Schlenker, P.A., Albuquerque, for Defendant-Counterclaimant-Appellee.

OPINION

BUSTAMANTE, Judge.

¶1 This interpleader action, arising from a public construction project, involves a disputed fund claimed by a materialman and a secured finance company which loaned money to one of the subcontractors on the project. KBK Financial, Inc. (KBK), the factor appeals a summary judgment which determined that the materialman should be paid from the interpleaded fund before KBK. We affirm.

STANDARD OF REVIEW AND APPLICABLE LAW

¶2 When reviewing a grant of summary judgment, appellate courts view the evidence in the light most favorable to the party opposing the motion. That is, we review the evidence in support of the right to a full trial on the merits. Sarracino v. Martinez, 117 N.M. 193, 194, 870 P.2d 155, 156 (Ct.App.1994). When there is conflicting evidence, or the evidence supports conflicting inferences, summary judgment is improper. Id. Summary judgment should be granted only when a party is entitled to judgment as a matter of law. Id.

¶3 KBK asserts that we should apply Texas law because the contract was accepted in Texas, citing Orcutt v. S & L Paint Contractors, Ltd., 109 N.M. 796, 791 P.2d 71 (Ct.App.1990). However, in its reply brief, KBK recognizes that Texas and New Mexico have adopted similar versions of Article Nine of the Uniform Commercial Code governing secured transactions, and further asserts that the result in this case would be the same under either state's law. Given this concession, we do not address KBK's conflict of laws issue directly. Instead, we analyze the case as a matter of New Mexico law.

FACTS AND PROCEEDINGS

¶4 Hasse Contracting Company, Inc. (Hasse) subcontracted with Corn Construction to do much of the concrete work on a state highway project located in San Juan County (the project). Hasse's work included concrete for certain bridges, drainage structures, and retaining walls. Hasse entered into an agreement with Hilfiker Systems, Inc. (Hilfiker) in June 1994 for supply of some of the materials. Under the agreement, Hilfiker agreed to deliver precast concrete panels to the project at a specified unit price.

¶5 The agreement between Hasse and Hilfiker was memorialized on a printed purchase order form supplied by Hasse (Purchase Order). The reverse side of the Purchase Order recited conditions of the agreement. The only provisions relevant to the issues in this case are numbers 1, 3, and 5. We quote them in pertinent part as follows:

1) Compliance with General Contract Provisions: Insofar as they are not inconsistent with the terms and conditions of this order, the general conditions and provisions of the general contract for which the material covered hereby is to be supplied are incorporated herein by reference and made a part hereof as fully as if written herein.

...

3) Releases: The Seller agrees to furnish waivers or releases from his material men or other suppliers for the purchases represented on this order upon request by the general contractor.

...

5) Assignment: The supplier or vendor shall not assign this purchase order nor any interest therein without first obtaining the written consent of the contractor, nor shall the supplier or vendor assign or attempt to assign any funds accrued or to accrue under this purchase order without first obtaining the written consent of the contractor and no such assignment shall be binding on the contractor unless and until accepted in writing by the contractor.

¶6 Hilfiker, a Texas company, entered into an agreement with Gosney & Sons, Inc., a Colorado corporation (Gosney) to actually manufacture and deliver the precast concrete panels to the job site. Hasse asserts that Hilfiker's arrangement with Gosney was a violation of paragraph five of the Purchase Order, in that Hilfiker did not notify Hasse of the subcontract and did not seek its permission.

¶7 Gosney performed under its agreement with Hilfiker, delivering acceptable precast concrete panels to the job site in January and February of 1995. Aware of the delivery of the acceptable panels, Hilfiker invoiced Hasse on or about February 14, 1995, in the amount of $55,924. The invoice was apparently incorrect, but the parties do not dispute that, when the per unit cost was applied, the correct price for the material delivered was $49,004.58, the amount interpleaded by Hasse.

¶8 On February 14, 1994, prior to the agreement with Hasse, Hilfiker executed a Factoring Agreement with KBK. There is no dispute in the record that KBK is "engaged in the business of purchasing accounts receivable from those persons or firms rendering services to others[.]" Under the Factoring Agreement, Hilfiker agreed to sell to KBK its accounts receivable up to an aggregate amount of $275,000.

¶9 Paragraph two of the Factoring Agreement, provided as follows:

All accounts purchased by KBK shall be purchased without recourse against the Seller as to the financial ability of the customers to pay, and all losses from financial inability of the customers to pay such accounts shall be KBK's sole responsibility in the absence of any breach by the Seller of the warranties, covenants and guarantees set forth.

The Factoring Agreement further required Hilfiker to sell, transfer, and assign to KBK all of Hilfiker's rights in accounts accepted by KBK, and Hilfiker was required to execute and deliver to KBK "such notices of assignment and other documents ... as KBK may request to better protect the sale and assignment of accounts hereunder." Hilfiker and KBK executed a financing statement which is valid on its face. The financing statement was filed with the Texas Secretary of State on February 22, 1994.

¶10 There is no dispute in the record that Hasse was not aware of the Factoring Agreement between Hilfiker and KBK when the Purchase Order was executed. It is also uncontested that Hasse first became aware of the assignment to KBK of Hilfiker's account receivable on March 7, 1995, when Hasse received by facsimile transmission a letter from KBK giving notice that KBK was exercising its rights under the Factoring Agreement and the Uniform Commercial Code to demand that "Hilfiker's Systems, Inc.'s Customers make all future payments directly to KBK."

¶11 Hasse had not made any payments to Hilfiker prior to March 7, 1995, when it received the demand from KBK. In March 1995, Hilfiker filed for bankruptcy pursuant to a chapter seven liquidation petition. Hilfiker did not pay Gosney. On March 10, 1995, it also made a specific assignment of the Hasse receivable to KBK. On April 19, 1995, Gosney placed Corn Construction, the general contractor, on notice that it had furnished materials to the project in the amount of $50,840. Gosney gave notice that unless full payment of the amount due was received within five days of the letter, Gosney would bring an action "upon the contract payment bond provided in connection with the Project by Corn Construction Company as general contractor." As required by New Mexico's Little Miller Act, NMSA 1978, §§ 13-4-18 to -20 (1923, as amended through 1987), a payment bond had been provided for the project.

¶12 Under the payment bond, the surety would be responsible for paying Gosney. The bond required Corn Construction as the general contractor to indemnify the surety for payments made under the fund to materialmen. In turn, Hasse's contract with Corn Construction required Hasse to indemnify Corn Construction for any cost and expenses Corn Construction might incur satisfying the claims of any materialmen to the project. Faced with the prospect of paying twice for the concrete work, Hasse refused to pay KBK pursuant to its demand, and instead filed its complaint for interpleader joining Hilfiker, KBK, and Gosney.

ANALYSIS

¶13 KBK views the case as a simple matter of priority under the Uniform Commercial Code (UCC). Its theory is that it is entitled to the funds payable to Hilfiker because pursuant to the Factoring Agreement and financing statement it is a secured party possessed of a perfected security interest superior to all other claims to the fund. KBK asserts it is entitled to the funds free and clear of any claim by Gosney because the agreement between Hasse and Hilfiker (1) does not "allow Hasse to pay Gosney rather than Hilfiker" and 2) does not contain any requirement that Hilfiker pay its materialmen and suppliers, either prior to or as a condition to Hasse's payment to Hilfiker.

¶14 KBK would require Hasse to pay it as assignee even if such a payment would essentially guarantee that Gosney would not get paid from the fund since Hilfiker is in bankruptcy and KBK has no obligation under the Factoring Agreement or the UCC to satisfy Hilfiker's obligations. See NMSA 1978, § 55-9-317 (1961). From a practical standpoint, acceptance of KBK's position would result in Hasse creating a claim against itself since the project surety or the general contractor would seek reimbursement for payments made to Gosney under the payment bond.

¶15 Hasse and Gosney dispute KBK's status as a secured party. They assert variously that: (1) the assignment by Hilfiker to KBK was improper under Hilfiker's contract with Hasse; 2) the subcontract between Hilfiker and Gosney was a breach of Hilfiker's contract with Hasse; (3) the assignment to KBK was actually a partial satisfaction of a pre-existing debt...