B.F. Farnell Co. v. Monahan, 6

• Decision Date: 05 April 1966
• Docket Number: No. 6,6
• Citation: 141 N.W.2d 58,377 Mich. 552
• Parties: B. F. FARNELL COMPANY, a Michigan Corporation, Plaintiff and Appellant, v. James M. MONAHAN, Defendant and Appellee.
• Court: Michigan Supreme Court

Page 58

141 N.W.2d 58

377 Mich. 552

B. F. FARNELL COMPANY, a Michigan Corporation, Plaintiff and Appellant, v. James M. MONAHAN, Defendant and Appellee.

No. 6.

Supreme Court of Michigan.

April 5, 1966.

Samuel H. Rubin, Detroit, for plaintiff and appellant.

Dell & Shantz, by John F. Shantz, Royal Oak, for defendant and appellee.

Before the Entire Bench.

BLACK, Justice (for reversal).

Defendant-appellee has fairly stated the controlling question:

'Where a defendant-contractor (1) has received payment for work performed under a contract, and, while the funds were still in hand, but before the payment of all materialmen, (2) filed a voluntary petition in bankruptcy, (3) delivered those funds to the trustee in bankruptcy pursuant to the bankruptcy act (11 USC 110, et seq.) and (4) was subsequently discharged in bankruptcy, is such defendant-contractor entitled to a summary judgment, as a matter of law, against a plaintiff-materialman who claims a civil judgment, asserting that the receipt of said funds and the delivery thereof to the trustee in bankruptcy constitutes a fraudulent appropriation under act 259 of public acts of 1931 (CL 570.151 et seq.)?' ¹

Plaintiff, alleging that it is a beneficiary of a 'trust fund' created by operation of P.A.1931, No. 259 (C.L.1948, § 570.151 et seq.), ² sues defendant as trustee under the statute. Its complaint proceeds:

'5. That by virtue of section 26.331 of Michigan Statutes Annotated, the said fund of $3,749.88, so as aforesaid paid to the defendant was a trust fund held by the defendant, amongst others, for the benefit of this plaintiff to the extent of $2,405.48.

'6. That with said sum in the possession of the defendant for the benefit of this plaintiff, the defendant fraudulently converted the same to his own use and did on November 1, 1963 file a voluntary petition in bankruptcy.

'7. That the act of the defendant James M. Monahan was a wilfull and malicious fraud designed to cheat this plaintiff out of the sum of $2,405.48, which sum the defendant had in his possession as a trustee for the plaintiff.'

Defendant sought and obtained Summary judgment of no cause. Plaintiff appeals. The stated question turns upon the soundness as well as the applicability of Club Holding Co. v. Loan & Inv. Co., 272 Mich. 66, 261 N.W. 133. Club Holding, if allowed to stand, would seem to bar plaintiff's cause as alleged. Club Holding tells us, with respect to the stated question (p. 72, 261 N.W. p. 135):

'Section 2 (of the act of 1931) defines the statutory fraud and provides a penalty, while section 3 states what shall be evidence of intent to defraud. The act affects those matters which are criminal in their character and creates a particular statutory crime. The civil rights and obligations existing between owners, contractors, subcontractors, materialmen, and the various trades, etc., seem to be undisturbed by the act.'

It may be that Club Holding is presently distinguishable. The case was fully tried; not summarily determined. The Court finally found as a fact that no fraud had been 'practiced' as against the complaining parties; whereas there has been and so far could not be any such finding in the case before us. Club Holding nonetheless, a 'single decision' (see Smith v. Lawrence Baking Co., 370 Mich. 169; syll. No. 2, 121 N.W.2d 684), should be overruled if for no other reason than that of retention generally of the valued principle of such cases as Stout v. Keyes, 2 Doug. (Mich.) 184, 43 Am.Dec. 465, Ferguson v. Gies, 82 Mich. 358, 46 N.W. 718, 9 L.R.A. 589 and Creek v. Laski, 248 Mich. 425, 227 N.W. 817, 65 A.L.R. 1113.

When a statute provides a beneficial right but no civil remedy for its securance, the common law on its own hook provides a remedy, thus fulfilling law's pledge of no wrong without a remedy. See particularly Ferguson v. Gies and Creek v. Laski, supra; also the text of 1 Am.Jur.2d Actions, § 47, p. 579, 'Existence of remedy for a wrong.'

Ferguson says 82 Mich. p. 365, 46 N.W. p. 720:

'But it is claimed by the defendant's counsel that this statute gives no right of action for civil damages; that it is a penal statute; and that the right of the plaintiff under it is confined to a criminal prosecution. The general rule, however, is that where a statute imposes upon any person a specific duty for the protection or benefit of others, if he neglects or refuses to perform such duty, he is liable for any injury or detriment caused by such neglect or refusal, if such injury or hurt is of the kind which the statute was intended to prevent; nor is it necessary in such a case as this to declare upon or refer to the statute.'

Creek was an action for damages arising from destruction of a will in violation of statute (C.L.1915, §§ 13777, 13778). Defendant presented the same contention as was overruled in Ferguson. This Court said, 248 Mich. pp. 429, 430, 227 N.W. p. 819:

'The statute seems too plain to require construction. It created the duty of celerity in presenting a will and provides a stated penalty for delay. It does not cover the distinct wrong of spoliation, or provide a remedy for the varied damages which may result therefrom.

'Action on the case

--'is an outgrowth of the principle that, whenever the law gives a right or prohibits an injury, it will also afford a remedy. Hence, where there has been an injury for which none of the established forms of action will lie, an action on the case may be maintained, it being no objection that there is no precedent for the particular action, since the action is suited to every wrong and grievance that a person may suffer, and varies according to the circumstances of the case.' 11 C.J. p. 4.'

It is axiomatic that the question of what is and is not 'property,' within § 70 of the bankruptcy act (30 Stat. 565, as amended; 11 U.S.C. § 110), is governed generally by local law. See In re Berry, D.C.E.D.Mich., 247 F. 700 and In re Edward Misch Co's. Estate, D.C.E.D.Mich., 34 F.Supp. 781; affirmed Mahon v. Hallis, CCA 6, 112 F.2d 1007. Club Holding has led the sixth circuit to affirm that 'The Michigan Court holds that the statute is a penal statute and as such, does not affect the civil rights and obligations of the classes of persons mentioned therein.' The result is, so far, that what a contractor or subcontractor receives as trustee under the act of 1931 is held to be a part of his 'estate' when he is adjudicated a bankrupt. That is a wrong this Court has perpetrated and now may correct.

But it is said that these views do not square with the fact that plaintiff has--or may have--a remedy...