Hasse Contracting Co. v. Kbk Fin.

• Citation: 980 P.2d 641
• Decision Date: 26 April 1999
• Docket Number: 24-790
• Parties: HASSE CONTRACTING COMPANY, INC., Plaintiff-Counterdefendant-Respondent, v. KBK FINANCIAL, INC., Defendant-Counterclaimant-Petitioner, and GOSNEY & SONS, INC., Defendant-Counterclaimant-Respondent.Opinion Number: 1999-IN THE SUPREME COURT OF THE STATE OF NEW MEXICO Filing Date:
• Court: Supreme Court of New Mexico

HASSE CONTRACTING COMPANY, INC., Plaintiff-Counterdefendant-Respondent v KBK FINANCIAL, INC., Defendant-Counterclaimant-Petitioner, and GOSNEY & SONS, INC.,

Defendant-Counterclaimant-Respondent

Docket No. 24,790

Opinion Number: 1999-NMSC-023

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Filing Date: April 26, 1999

ORIGINAL PROCEEDING ON CERTIORARI

Diane Dal Santo, District Judge

Gordon S. Little, P.A., Gordon S. Little, Albuquerque, NM for Petitioner

Guebert & Yeomans, P.C., Richard D. Yeomans, Albuquerque, NM, Miller, Stratvert & Torgerson, P.A., Lyman G. Sandy, Alice Tomlinson Lorenz, Albuquerque, NM for Respondents

OPINION

FRANCHINI, Justice.

{1} In this interpleader action, a subcontractor on a state highway construction project deposited with the district court a sum of money that is claimed by both a financing company and a materials supplier on the project. The district court determined that the supplier was entitled to the money. The Court of Appeals affirmed, adopting an apparently unqualified public policy preference for suppliers over other creditors, including secured creditors. See Hasse Contracting Co. v. KBK Fin., Inc., 1998-NMCA-038, ¶¶ 27-33, 125 N.M. 17, 956 P.2d 816. Because we conclude that the Legislature has declined to give suppliers absolute priority over secured creditors, we do not agree with the Court of Appeals' rationale. For the reasons discussed herein, however, we agree with the Court of Appeals' conclusion affirming the district court's grant of summary judgment in favor of the supplier.

FACTS AND PROCEDURAL POSTURE

{2} On February 14, 1994, Hilfiker Systems, Inc. entered into a factoring agreement with another Texas corporation, KBK Financial, Inc. In the agreement, Hilfiker expressly granted KBK a security interest in "its inventory, accounts and contract rights and proceeds therefrom." (Emphasis added.) The parties agreed that KBK's security interest included accounts and contract rights "that may hereafter arise or be acquired" by Hilfiker. The agreement further provided that "[t]ermination of this Agreement shall not affect the rights and obligations of the parties accruing with respect to prior transactions." KBK recorded its security interest by filing a financing statement with the Texas secretary of state on February 22, 1994.

{3} In June 1994, Hilfiker signed a contract with Hasse Contracting Company, Inc., a New Mexico corporation. Under the contract, Hilfiker agreed to supply precast concrete panels for a state highway construction project in San Juan County, New Mexico. A purchase order sent by Hasse to Hilfiker embodied the terms of the contract. The contract contained an anti-assignment clause. Additionally, the contract expressly stated that the "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."

{4} The general contract referenced by the above language had been let by the state to Corn Construction Company, which is not a party to this lawsuit. By law, a condition of the general contract bound Corn and its subcontractors on the project to "make prompt payment to their subcontractors and suppliers." NMSA 1978, § 13-4-28 (1985). Furthermore, pursuant to the Little Miller Act, NMSA 1978, §§ 13-4-18 to 13-4-20 (1923, as amended through 1987), the contract obliged Corn to post a payment bond to protect any unpaid "person, firm or corporation who has furnished labor or material in the prosecution of work provided for in such contract." Section 13-4-19(A).

{5} Corn subcontracted much of the concrete work on the project to Hasse, with the proviso that Hasse would indemnify Corn if Corn had to pay claims against the payment bond by any of Hasse's suppliers. As we have said, Hasse then sought a supply of precast concrete panels from Hilfiker. Hilfiker, in turn, arranged for Gosney & Sons, Inc., a Colorado corporation, to cast the panels and to deliver them to the job site , which was in northwestern New Mexico. Gosney cast the panels and delivered them to Hasse at the job site over a period between mid-January1994 and early February 1995. During one of its deliveries, on January 26, 1995, Gosney presented Hasse with a bill for the panels. Upon learning that the deliveries were complete, Hilfiker also sent Hasse an invoice for the panels (Invoice No. 0366) on February 14, 1995.

{6} In the midst of Gosney's delivery of the concrete panels, on or about February 1, 1995, KBK notified Hilfiker that it was terminating the factoring agreement , effective 30 days later as provided in the agreement. On March 10, 1995, Hilfiker specifically assigned Invoice No. 0366 to KBK . On March 15, 1995, KBK notified Hasse that payment of the invoice should be mailed to it and not Hilfiker. Later in March, Hilfiker filed for bankruptcy , and Hilfiker's trustee in bankruptcy subsequently abandoned any interest Hilfiker might have had in Invoice No. 0366.

{7} On April 19, 1995, Gosney notified Corn of its intent to make a claim against the payment bond unless it was otherwise paid for supplying the concrete panels. From the record, it does not appear that Hasse was made aware of this demand , which if paid from the payment bond would arguably have triggered Hasse's liability to Corn for indemnification. Hasse, however, was already faced with Gosney's bill, Hilfiker's invoice, and KBK's claim for payment for the concrete panels, and consequently Hasse filed this interpleader action in the district court, naming Gosney and KBK as parties and depositing $49,004.58 with the clerk of the court. Eventually, Hasse, Gosney, and KBK each moved for summary judgment.

{8} Following a hearing, the district court resolved the competing motions by awarding Gosney "all proceeds and interest deposited in or held in the Court Registry in full payment of all its claims in this action." The district court was not required to detail the basis for its decision, and it did not do so. See Rule 1-052(B)(1)(a) NMRA 1999. KBK appealed, and the Court of Appeals upheld the district court, furnishing in the process a rationale for the district court's decision. We granted certiorari to review that rationale and, in so doing, we also necessarily evaluate whether the district court's decision was legally correct.

DISCUSSION

Standard Of Review And Applicable Law

{9} Summary judgment is appropriate when, as here, the parties do not dispute the facts, but only the legal effect of those facts. See Gardner-Zemke Co. v. State, 109 N.M. 729, 732, 790 P.2d 1010, 1013 (1990). In such cases, the district court determines as a matter of law which movant is entitled to summary judgment. See id. Appellate courts review matters of law de novo. See Self v. United Parcel Serv., Inc., 1998-NMSC-046, ¶ 6, 126 N.M. 396, 970 P.2d 582 (applying de novo standard to review of summary judgment "where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law").

{10} KBK, relying on Orcutt v. S&L Paint Contractors, Ltd., 109 N.M. 796, 798, 791 P.2d 71, 73 (Ct. App. 1990), argues that Texas law governs the Hasse-Hilfiker contract because it was executed at Hilfiker's headquarters in Hurst, Texas. However, since the relevant provisions of New Mexico law were incorporated into the contract by reference, it makes no difference whether the law of contracts of Texas or New Mexico controls. With regard to the secured transactions aspects of this case, we apply New Mexico law instead of Texas law because KBK concedes that "the result would be the same under either state['s] law."

Whether Suppliers Are Always Favored Over Other Creditors

{11} The Court of Appeals, in affirming the district court's grant of summary judgment, relied heavily on the materialmen's lien statute, NMSA 1978, § 48-2-2 (1973). See Hasse Contracting Co., 1998-NMCA-038, ¶¶ 27-33. The Court perceived in the statute a general "public policy preference for materialmen." Id. ¶ 33. The Court "recognize[d] that Section 48-2-2 does not apply to this case directly because this was a public works project, and public property cannot be subjected to a materialmen's lien under Section 48-2-2." Id. ¶ 29. However, since the project was covered by a Little Miller Act payment bond, and since the public policy behind the Little Miller Act is to provide protection for suppliers in the public contracts arena similar to the statutory materialmen's lien, see State ex rel. W.M. Carroll & Co. v. K.L. House Constr. Co., 99 N.M. 186, 187-88, 656 P.2d 236, 237-38 (1982), the Court of Appeals reasoned that suppliers on public and private projects should be treated the same "for purposes of determining their priority to retained funds intended to be used to pay project costs." Hasse Contracting Co., 1998-NMCA-038, ¶ 29. Applying this reasoning to this case and reaching a result in favor of Gosney over KBK, the Court of Appeals appears to have assumed that Section 48-2-2 establishes absolute priority in suppliers on private construction projects against other creditors. It does not.

{12} A lien under Section 48-2-2 is subjugated by statute to encumbrances that have attached prior "to the time when the building, improvement[,] or structure was commenced, work done[,] or materials were commenced to be furnished." NMSA 1978, § 48-2-5(A) (1991). A supplier takes free of such an encumbrance only if it was unrecorded and he or she had no notice of it. See id. The Legislature has further restricted the materialmen's lien statute in that liens thereunder of more than $5,000.00 must be perfected before the materialman enjoys protection. See 48-2-2.1(B) (1993). These provisions indicate that timing and actual or constructive notice_not a general public policy favoring materialmen_are the principal considerations in determining priority between suppliers and other creditors, at least in the context of...