Hoida, Inc. v. M & I Midstate Bank

Decision Date13 June 2006
Docket NumberNo. 2003AP2108.,2003AP2108.
Citation717 N.W.2d 17,2006 WI 69
PartiesHOIDA, INC., Plaintiff-Appellant-Petitioner, v. M & I MIDSTATE BANK and McDonald Title Company, Inc., Defendants-Respondents, William C. Herbert, Defendant-(In T.ct.).
CourtWisconsin Supreme Court

For the plaintiff-appellant-petitioner there were briefs by Scott R. Halloin and Mallery & Zimmerman, S.C., Milwaukee, and oral argument by Scott R. Halloin.

For the defendant-respondent M & I Midstate Bank, there was a brief by Russell T. Golla and Anderson, O'Brien, Bertz, Skrenes & Golla, Stevens Point, and oral argument by Russell T. Golla.

For the defendant-respondent McDonald Title Company, Inc., there was a brief by William J. Ewald and Denissen, Kranzush, Mahoney & Ewald, S.C., Green Bay, and oral argument by William J. Ewald.

An amicus curiae brief was filed by John E. Knight, James E. Bartzen, Kirsten E. Spira, and Boardman, Suhr, Curry & Field L.L.P., Madison, on behalf of the Wisconsin Bankers Association.


We review a court of appeals decision that affirmed the circuit court's grant of summary judgment dismissing the claims of Hoida, Inc. (Hoida) against defendants M & I Midstate Bank (M & I) and McDonald Title Company, Inc. (McDonald Title). Hoida is a subcontractor that incurred losses on a building project gone awry when the general contractor and the owner of the property fraudulently misappropriated approximately $650,000 of the project's construction loan proceeds. M & I and McDonald Title were the lending bank and the disbursing agent, respectively, on the project. Hoida claimed that it was a third-party beneficiary of the owner's loan agreement with M & I. Hoida also claimed that the defendants were negligent because they did not identify the subcontractors and materialmen who worked on the project, did not verify that the progress on the work was sufficient to justify the release of loan funds, and did not secure lien waivers from Hoida, which Hoida alleges would have prevented its losses. The defendants deny Hoida's claims. They also make a prima facie showing that they did not breach the duty of ordinary care under the circumstances by not undertaking the tasks Hoida identified and that the lack of lien waivers was not a cause-in-fact of Hoida's damage. The defendants also contend that public policy precludes Hoida's claim.

¶ 2 We conclude that Hoida has not stated a third-party beneficiary claim, and that it has not provided facts to controvert M & I's prima facie showing that it did not breach the duty of ordinary care under the circumstances. We also conclude that the claim Hoida seeks to establish against M & I is barred by the legislative determination of priority as between a lender and a subcontractor set out in Wis. Stat. § 779.01(4) (2003-04)1 and Wis. Stat. § 706.11. And finally, while we do not conclude that Hoida has overcome McDonald Title's prima facie showing that it did not breach the duty of ordinary care under the circumstances, if we were to do so, Hoida's negligence claim would be precluded by judicial public policy. Accordingly, we affirm the court of appeals.


¶ 3 In October 1996, The Villager at Nashotah, L.L.C. (Villager) entered into a construction loan agreement with M & I to borrow money to build four eight-unit apartment buildings in Plover, Wisconsin. The agreement between M & I and Villager was written and called for M & I to lend a total of $1,320,000 to Villager. The loan agreement set out the limits of M & I's responsibilities and it was secured by four separate real estate mortgages. Villager presented four initial draw requests for loan funds at the closing, and M & I disbursed those funds for project start-up. M & I made arrangements with McDonald Title to make the remaining disbursements of the loan. There was no written agreement between M & I and McDonald Title to establish the terms of the disbursement arrangement; their agreement was oral, arranged between the M & I loan officer for the project, Thomas Domaszek (Domaszek), and Robert McDonald (McDonald) of McDonald Title.

¶ 4 The loan agreement between M & I and Villager stated that M & I "shall not be responsible for any aspect of the Construction. . . or the procurement of lien waivers," and that M & I would have "no obligation or liability to contractors, subcontractors, laborers [or] materialmen."2 It also gave M & I the right to inspect the property at any time during construction, but explicitly stated that M & I "is in no way obligated to do so."3 Another provision required Villager to forward notices to M & I any time that an individual or business providing goods or services to the project gave notice or demand relating to payment.4

¶ 5 Another portion of the contract, "Owner's Deposit and Disbursement of Construction Funds," sets forth the respective responsibilities of M & I and Villager with regard to disbursement of construction funds. Among other provisions within that section, provision (d), was a requirement that construction funds be disbursed only upon the owner's order and satisfaction of the requirements within the lending contract.5 The contract also gave M & I the right, at its option, to complete construction if any breach of the contract occurred.6

¶ 6 M & I and McDonald Title agreed that McDonald Title would act as M & I's agent for disbursing the loan proceeds. Upon receipt of requests for payment from the general contractor, Packard Construction, Inc. (Packard), McDonald Title would follow a payment process and disburse funds. This payment process required the completion of a written Application and Certification for Payment form that contained Packard's itemized application for payment, the project architect's signed certificate for payment and Villager's signed certificate, as owner/borrower, authorizing payment in the amount of the application.

¶ 7 In February 1997, Packard subcontracted with Hoida for prefabricated wooden wall sections and roof trusses. Hoida commenced construction, and by February 26, Hoida had invoiced Packard for $5,705 of its work. The invoices required payment within 15 days. On March 5, 1997, as a result of not being paid, Hoida wrote to Villager and explained that pursuant to Wis. Stat. § 779.02, it possessed lien rights on the project property. However, Hoida did nothing further after sending the letter, and it continued to produce and ship materials to the construction site until April 23, 1997. Hoida also continued to invoice Packard, sending 51 separate invoices through the end of April.7 Hoida was paid only $25,000 over the course of those two months.

¶ 8 In late May or early June, after Hoida had delivered all of the product it contracted with Packard to produce, Kenneth Larsen of Hoida contacted Domaszek to advise him that Hoida had not yet been paid. McDonald Title and M & I became concerned at about the same time because the project did not appear to be progressing as planned. On June 5, 1997, almost three months after Hoida's letter to Villager giving notice that it claimed lien rights, Hoida served Villager with a Written Notice of Intent to File Construction Lien Claims pursuant to Wis. Stat. § 779.06.8 On June 6, 1997, McDonald informed Packard that no more funds would be provided until McDonald Title and M & I received lien waivers for the funds that had been released.

¶ 9 On July 7, 1997, McDonald sent a letter to Villager, to the attention of Mike Imperl (Imperl), stating that two subcontractors had filed separate notices of Intent to File Liens and that "obviously indicates that they haven't been paid." He requested a response and said that he would seek a replacement contractor if Villager did not take appropriate action. Throughout the month of July, McDonald attempted to reach Imperl to advise him of his concerns about the lack of construction progress and administration of the project.

¶ 10 Also in July, McDonald made visits to the construction site, and in the course of those visits, discovered that two buildings that should have been secured and locked were not. McDonald became worried that the buildings would not be completed by winter. On July 28, McDonald sent a letter to Imperl and three others associated with Villager, expressing concern about the project. He informed them that in spite of repeated requests, Packard had not provided construction breakdowns; Packard had failed to provide lien waivers; at least two subcontractors had not been paid; M & I had to advance money to them to keep them on the job; and generally, the project appeared to be progressing very slowly. Also on July 28, Hoida filed a Claim for Lien on the project.

¶ 11 On August 28, 1997, McDonald wrote to Imperl and John Christianson (Christianson), the owner of Packard, to tell them that the buildings must be locked and secure before any further funding could occur. It was subsequently discovered that Christianson and Imperl had misappropriated $650,000 to $700,000 of the construction funds. Imperl was later indicted on multiple counts of bank fraud. The architect for the project, William Herbert, also averred that his signature was forged on some of the draw requests that M & I paid through McDonald Title.

¶ 12 M & I commenced foreclosure on Villager's mortgages in order to complete the project and recover its losses. Hoida also obtained judgments against Villager, Packard and Christianson, but remained unpaid. Hoida's unpaid invoices total $291,582.81.9

¶ 13 In May of 2001, Hoida sued M & I and McDonald Title. Hoida, M & I and McDonald Title all filed motions for summary judgment. The circuit court concluded that there was no existing law upon which the court could conclude that M & I and McDonald Title owed a duty to protect Hoida against the losses that it incurred. It concluded Hoida had not met its burden of...

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