Geneva Pipe Co. v. S & H Ins. Co.

Decision Date31 January 1986
Docket NumberNo. 19273,19273
Citation714 P.2d 648
CourtUtah Supreme Court
PartiesGENEVA PIPE COMPANY, a Utah company, Plaintiff and Appellant, v. S & H INSURANCE COMPANY, a California corporation, Defendant, Third-party Plaintiff and Respondent, v. John W. MAUGHAN and Gladean Maughan, Third-party Defendants.

Gary H. Weight, Provo, for plaintiff and appellant.

Joel R. Dangerfield, Bryce E. Roe, Salt Lake City, for defendant, third-party plaintiff and respondent.

HOWE, Justice:

Plaintiff, Geneva Pipe Co., seeks reversal of a summary judgment awarded to S & H Insurance Co., defendant.

In February of 1981, defendant issued material payment bonds to insure payment to persons performing labor on and supplying materials to two construction projects with the city of Monticello in San Juan County, Utah. The general contractor on the projects was third-party defendant, John Maughan, dba Jonco Construction Co. (Jonco). At the request of Jonco, plaintiff supplied labor and materials to the two projects, for a total value of $222,282.18.

Plaintiff received three payments from Jonco in July, September, and October of 1981, totalling $105,000. These checks were designated by Jonco to be applied to the Monticello project account. Plaintiff received two additional checks, one in June for $45,000 and one in November for $7,500, which were not designated for specific application. Plaintiff applied both checks to the payment of charges made by Jonco prior to the Monticello projects.

Jonco failed to pay the plaintiff the balance owing on the Monticello projects and filed for bankruptcy. Plaintiff brought this action against the defendant to recover the balance owing on those projects and alleged that it had not been notified by Jonco to apply the June and November payments to those projects. It further alleged that during the years it had been doing business with Jonco, a period exceeding four years, its practice had been to apply checks not otherwise designated to Jonco's oldest charges.

Defendant moved for summary judgment based on its contention that there was no genuine issue as to any fact relevant to the material issues raised. Jonco's president, by affidavit, swore that when he learned that the checks had not been applied to the Monticello projects, he notified plaintiff that they should be so applied. Defendant subsequently tendered into court the amount claimed to be owing by plaintiff, reduced by the total amount of the June and November checks, $52,500, plus interest, for a total of $77,992.16. After entering its order awarding summary judgment to defendant, the court released the funds to plaintiff on June 6, 1983.

I.

On appeal from a summary judgment, we review the evidence in a light most favorable to the losing party. An award of summary judgment is appropriate if the pleadings, affidavits, and other submissions of the parties show that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Rule 56(c), Utah R.Civ.P.; Norton v. Blackham, Utah, 669 P.2d 857 (1983); Bowen v. Riverton City, Utah, 656 P.2d 434 (1982); Massey v. Utah Power and Light, Utah, 609 P.2d 937 (1980).

Plaintiff assails the lower court's reliance on U.C.A., 1953, § 58A-1-19 1 in awarding summary judgment. That section provides Any owner or contractor in making any payment to a materialman, contractor, or subcontractor with whom he has a running account, or with whom he has more than one contract, or to whom he is otherwise indebted, shall designate the contract under which the payment is made or the items of account to which it is to be applied. When a payment for materials or labor is made to a subcontractor, or materialman, such subcontractor or materialman shall demand of the person making such payment a designation of the account and the items of account to which the payment is to apply. In any case where a lien is claimed for materials furnished or labor performed by a subcontractor or materialman, it shall be a defense to the claim that a payment made, by the owner to the contractor for the materials has been so designated, and paid over to the subcontractor or materialman, and that when the payment was received by the subcontractor or materialman he did not demand a designation of the account, and of the items of account to which the payment was to be applied.

Plaintiff contends that the lower court erred in relying on this section because it applies only when a mechanics' lien is claimed. We agree. We find the section to be not applicable to this case, despite defendant's contention that Western Ready Mix Concrete Co. v. Rodriguez, Utah, 567 P.2d 1118 (1977), mandates that the statute is controlling here. However, that case, unlike the instant case, was brought to foreclose a mechanics' lien. We there held section 58A-1-19 (then section 58-23-14.5) to be applicable and that a materialman had the duty to demand from the contractor a designation of the account to which a payment is to be applied. If the materialman fails to do so, such failure may be asserted by the owner as a defense in any lien foreclosure action brought by the materialman. Plaintiff correctly points out that the language of the statute restricts use of the defense to "any case where a lien is claimed for material furnished or labor performed by a subcontractor or materialman...." We are bound by that legislative limitation. Inasmuch as the materialman is precluded under U.C.A., 1953, § 38-1-1 2 from placing a lien on public property, as is the case here with Monticello, the defense which may be asserted under section 58A-1-19 does not apply to a claim of a materialman furnishing materials or labor to a bonded public construction project. Thus, the materialman who has not been paid in full within the time period required by U.C.A., 1953, § 63-56-38 3 may proceed directly against the bonding company without encountering such a defense against its claim.

II.

Concomitantly with the determination that section 58A-1-19 is not controlling here, we must now determine whether plaintiff was entitled to judgment against defendant as a matter of law. Similar cases have been before this Court on previous occasions. In Salt Lake City v. O'Connor, 68 Utah 233, 249 P. 810 (1926), a case very similar to the one at bar, O'Connor, a contractor, entered into a contract with Salt Lake City for construction of a sewer. He obtained a bond for his faithful performance and prompt payment of labor and materials from National Surety Co. Utah Fire Clay Co. furnished materials for the project. Sums paid by O'Connor to Utah Fire Clay Co. were applied to preexisting debts of O'Connor which were not secured by the bond. The surety contended that the payments should have been applied to pay for materials furnished to the job from which the proceeds came and thus exonerate the surety on the contract, rather than permit the payments to be applied to an old debt. Unlike the instant case, however, O'Connor had directed the materialman, who was unaware of the source of the payments, to apply the payments to his old debts. In that case at 68 Utah 233, 242, 249 P. 810, we noted:

In transactions like the one...

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