Crystaplex Plastics v. Redevelopment Agency

• Decision Date: 26 January 2000
• Citation: 92 Cal.Rptr.2d 197,77 Cal.App.4th 990
• Court: California Court of Appeals Court of Appeals
• Parties: (Cal.App. 4 Dist. 2000) CRYSTAPLEX PLASTICS, LTD., Plaintiff and Appellant, v. REDEVELOPMENT AGENCY OF THE CITY OF BARSTOW, Defendant and Respondent. E024343 Filed

92 Cal.Rptr.2d 197 (Cal.App. 4 Dist. 2000)

CRYSTAPLEX PLASTICS, LTD., Plaintiff and Appellant, v. REDEVELOPMENT AGENCY OF THE CITY OF BARSTOW, Defendant and Respondent.

E024343

COURT OF APPEAL, FOURTH DISTRICT, DIVISION TWO, STATE OF CALIFORNIA

Filed 1/26/00

APPEAL from the Superior Court of San Bernardino County. John M. Tomberlin, Judge. Reversed.

(Super.Ct.No. BCV 03736)

Heenan Blaikie and Deborah F. Sirias for Plaintiff and Appellant.

Richards, Watson & Gershon, Anthony B. Drewry and Michael G. Colantuono for Defendant and Respondent.

CERTIFIED FOR PUBLICATION

HOLLENHORST, J.

O P I N I O N

The trial court sustained the demurrer of defendant Redevelopment Agency of the City of Barstow to plaintiff's first amended complaint without leave to amend and ordered the action dismissed. Plaintiff appeals.

STANDARD OF REVIEW

"Where a trial court sustains a demurrer without leave to amend, we review such action under the abuse of discretion standard. [Citations.] If there is a reasonable possibility that the pleading can be cured by an amendment, the trial court's ruling will be reversed. [Citation.] [] On review, we examine the Complaint's factual allegations to determine whether they state a cause of action on any available legal theory. [Citation.] We treat the demurrer as admitting all material facts which were properly pleaded. [Citation.] However, we will not assume the truth of contentions, deductions, or conclusions of fact or law [citation] and we may disregard any allegations that are contrary to the law or to a fact of which judicial notice may be taken. [Citation.]" (Interinsurance Exchange v. Narula (1995) 33 Cal.App.4th 1140, 1143.)

THE FIRST AMENDED COMPLAINT

The complaint alleges that plaintiff Crystaplex contracted to supply and install a hockey rink at the Sportspark in Barstow. The Sportspark is owned by defendant Redevelopment Agency, and the general contractor on the construction project was Recreation Technologists, Inc. ("Rectech"). Rectech employed a subcontractor named Earth Inline Hockey, Inc. ("EIH"), and EIH contracted with Crystaplex. Crystaplex performed its obligations under the contract between September and December 1996.

On or about December 6, 1996, the Redevelopment Agency issued a check in the amount of $31,979 for the hockey rink. The check was made payable jointly to EIH and Crystaplex. The check was sent to EIH and EIH cashed it without paying Crystaplex. Crystaplex discovered these facts in April 1997.

Crystaplex then sued the Redevelopment Agency as drawer of the check.

The Redevelopment Agency demurred, contending that the complaint failed to state a cause of action against it under California Uniform Commercial Code sections 3309, subdivision (a)(2) and 3310, subdivision (b)(4) because it fails to allege the facts required for application of either of those sections.¹ Defendant's position was, and is, that these sections are intended to protect a payee whose check is lost, destroyed, or stolen. Defendant contended, and contends, that the facts alleged do not show that the check was lost, destroyed or stolen, and that the statutes are therefore inapplicable. The trial court agreed, and sustained the demurrer.

Plaintiff appeals, contending that the allegations of the complaint are adequate to state a cause of action for recovery for a lost, destroyed, or stolen check under sections 3309 and 3310, subdivision (b)(4).

DISCUSSION

Accepting, as we must, the factual allegations of the complaint, it appears that Crystaplex was a materials supplier to a public works project owned by defendant

Redevelopment Agency. Rectech was the general contractor and EIH was a subcontractor. The Redevelopment Agency apparently employed a joint check system to pay the general contractor, subcontractors, and material suppliers. "To protect themselves against mechanics' lien and bond claims, owners and contractors have adopted a custom of issuing checks with the supplier listed as a joint payee along with the subcontractor. The theory is that the subcontractor will pay the supplier when the endorsement is given, thus reducing the risk of a mechanics' lien or bond claim." (1 Acret, Cal. Construction Contracts and Disputes (3d ed. 1999) 3.82, p. 243.)

As our Supreme Court describes it: "The use of joint checks is well established by custom and practice in the construction industry. [Citations.] [] When a subcontractor and his materialman are joint payees, and no agreement exists with the owner or general contractor as to allocation of proceeds, the materialman by endorsing the check will be deemed to have received the money due him. [Citations.] Inclusion of the materialman as payee makes clear that the maker of the check intends to discharge obligations owed the materialman. . . . [] The material man [sic] may protect himself by simply refusing to endorse the check until assured by escrow [or] other arrangement that he will recover his rightful share of the check. Because the materialman is positioned to demand immediate payment in exchange for his endorsement, the custom and use of joint checks is beneficial to materialmen. [] The joint check rule is likewise beneficial to owner and general contractor. They have contracted with the subcontractor--not the materialman--and are usually unaware of the nature and size of the materialman's claim against the subcontractor. The joint check rule provides a simple yet expeditious method for owner and general contractor to pay their debts to the person with whom they have contracted while eliminating the risk the subcontractor will not pay the person with whom he has contracted." (Post Bros. Constr. Co. v. Yoder (1977) 20 Cal.3d 1, 5-6.)²

In this case, the owner issued a joint check to a subcontractor and a materialman. The owner allegedly sent the check to EIH, the subcontractor, and EIH allegedly cashed or deposited the check without obtaining the endorsement or consent of Crystaplex. In this action, Crystaplex has elected to proceed against the Redevelopment Agency, as drawer of the check, under sections 3309 and 3310, subdivision (b)(4). Accordingly, we only consider whether the plaintiff has stated a cause of action under those sections, and we do not decide or express any view as to Crystaplex's stop notice or other remedies.³

Similarly, we do not consider the question of Crystaplex's remedies against the bank that cashed the check, nor do we need to decide whether the stop notice remedy is plaintiff's exclusive remedy under Civil Code section 3264, or whether, as plaintiff contends, the stop notice remedy is a cumulative remedy.

Section 3309 allows the payee of a check to enforce it against the drawer when the check has been lost or stolen. Specifically, it states: "(a) A person not in possession of an instrument is entitled to enforce the instrument if (1) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (2) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (3) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. [] (b) A person seeking enforcement of an instrument under subdivision (a) shall prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, Section 3308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means."

"If a thief steals a check from a payee, the payee might turn to his or her drawer for payment. Section 3-309 allows a person who loses an instrument by misplacing it or theft to enforce it in certain circumstances. . . . [] Thus, a payee who receives a check in payment for services, and then loses the check while walking home, can still enforce the instrument. Similarly, if the payee was the victim of a mugging on the way home and the thief made off with the payee's wallet containing the check, the payee remains entitled to enforce the instrument. If, on the other hand, the drawer had entrusted a messenger with delivery of the check to the payee, and the messenger instead chose to flee to Jamaica with the check, the payee would not be able to enforce the instrument because the payee would not have had possession at the time of the loss. (The payee, not having been paid, could still enforce the underlying obligation, however.)." (2 White & Summers, Uniform Commercial Code (4th ed. 1995) 18-2, p. 211.) Thus, "[i]n the limited cases covered by 3-309 the payee may sue upstream against the drawer on a stolen (or lost) instrument, provided the payee indemnifies the drawer against the possibility of a second claim on the stolen check." (2 White & Summers, supra, at 18-1, p. 208.)

Section 3310, subdivision (b)(4) states: "(b) Unless otherwise agreed and except as provided in subdivision (a), if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply: . . . [] (4) If the person entitled to enforce the instrument taken for an obligation is a person other than the obligee, the obligee may not enforce the obligation to the extent the obligation is suspended. If the obligee is the person entitled to enforce the instrument but no longer has possession of it because it was lost, stolen, or destroyed, the obligation may not be...