Paulsen Lumber, Inc. v. Meyer

• Decision Date: 26 June 1970
• Docket Number: No. 315,315
• Citation: 47 Wis.2d 621,177 N.W.2d 884
• Parties: PAULSEN LUMBER, INC., Respondent, v. Leonard M. MEYER, Appellant.
• Court: Wisconsin Supreme Court

Page 884

177 N.W.2d 884

47 Wis.2d 621

PAULSEN LUMBER, INC., Respondent, v. Leonard M. MEYER, Appellant.

No. 315.

Supreme Court of Wisconsin.

June 26, 1970.

Action for conversion of trust funds. The facts were presented by stipulation.

Between September 1, 1961, and June 1, 1962, the Paulsen Lumber, Inc., a building supply company, sold and delivered to Lee Homes, Inc., lienable building materials in the amount of $21,386.05. These materials were then used by Lee Homes, Inc., for the improvement of real estate for which it had not as yet found buyers.

During the period the sales of materials were made to Lee Homes, Inc., Leonard R. Meyer personally managed and supervised the purchase of such materials from Paulsen Lumber, Inc., as well as purchases from other suppliers. In addition, Mr. Meyer was responsible for borrowing money from the lenders who were given mortgages on the improved real estate and for applying these funds to the payment of suppliers such as Paulsen Lumber, Inc.

Although sufficient funds to pay for the materials received from Paulsen Lumber Inc., had been received from the mortgage lenders, Mr. Meyer applied such funds to purposes other than the payment of Paulsen Lumber, Inc. Upon the failure to Lee Homes, Inc., to remit payment for such materials, Paulsen Lumber, Inc., commenced an action against Leonard R. Meyer, claiming that he had tortiously converted the proceeds of the mortgage loans in that such proceeds were, under sec. 235.701, Stats.1961, trust funds held for its benefit.

The trial court determined the statute to be applicable and rendered judgment for the plaintiff. Defendant has appealed from that judgment.

Clyde M. Paust, Milwaukee, for appellant.

Peregrine, Schimenz, Marcuvitz & Cameron, Hugh R. Braun, Milwaukee, for respondent.

HANLEY, Justice.

Sec. 235.701, Stats.1961, provides:

'Building loans; trust funds. The proceeds of any such mortgage referred to in ss. 215.22 and 235.70, shall, when paid out by such state savings and loan association or such federal savings and loan association or of any other mortgage from any other source and received by the owner of the premises or by any contractor or subcontractor performing the work and labor forthwith constitute a trust fund in the hands of such owner or contractor or subcontractor for the payment pro rata of all claims due and to become due or owing from such contractor or subcontractor for lienable labor and materials until all such claims have been paid. The use of any of such moneys by any owner, contractor or subcontractor for any other purpose until all claims, except those which are the subject of a bona fide dispute, have been paid in full, or pro rata in cases of a deficiency, shall constitute theft of any moneys so misappropriated. The district attorney of the county where the premises are situated shall on the complaint of any aggrieved party prosecute such owner, contractor or subcontractor misappropriating such moneys for such theft.' (Emphasis supplied.)

The appellant's basic contention is that under the terms of the statute the only persons protected by the trust provisions are those to whom the contractor is indebted for lienable labor and materials. Since the statute provides that the trust is imposed for payment of claims due '* * * from such contractor or subcontractor * * *' the contractor himself is not the beneficiary of the statutory trust.

The appellant then argues that since he is the 'owner' of the improved land, Paulsen Lumber, Inc., is the 'contractor' and thus not afforded the benefit of the trust imposed by sec. 235.701, Stats.1961.

A reading of the statute clearly reveals that the trust is imposed upon funds '* * * for the payment pro rata of all claims due and to become due or owing from such contractor or subcontractor * * *.' (Emphasis supplied.) The statute does not impose a trust upon funds for the payment of claims owed by the owner unless the owner can also be deemed the contractor. The question thus is whether under the facts of this case, Paulsen Lumber, Inc., (hereinafter the respondent) or Lee Homes, Inc., is the 'contractor.' If the respondent is the contractor, it is not protected by the trust and its action must be dismissed.

In support of his contention that the respondent is the contractor in the instant case, the appellant refers this court to the definitions contained in sec. 289.01(1)(a) and (c), Stats.1961:

'Contractors' liens. (1) Definition. In this chapter unless the context or subject matter otherwise requires:

'(a) 'Contractor' means a person, other than a laborer, who enters into a contract with the owner of land to improve it or who takes over from a contractor his uncompleted contract; and includes an architect, professional engineer and surveyor employed by the owner.

'* * *

'(c) 'Owner' means the owner of any interest in land who enters into a contract for the improvement thereof.'

Appellant then argues that since Lee Homes, Inc., is clearly the owner of the real estate which was to be improved and since sec. 289.01(1)(a) and (c), Stats.1961, clearly distinguish between 'owner' and 'contractor,' the respondent (Paulsen Lumber, Inc.) must be considered the 'contractor.'

This argument assumes both that the definitions in sec. 289.01(1)(a) and (c), Stats.1961, are applicable to sec. 235.701, Stats.1961, and that an owner (Lee Homes, Inc.) cannot also act as his own 'contractor.'

Cases dealing with secs. 289.01(1)(a) and (c), Stats.1961, do lend some support to appellant's proposition that material suppliers, such as respondent, who deal directly with owners are contractors within the meaning of ch. 289, Stats.1961. These cases include Warnke v. Braasch (1940), 233 Wis. 398, 289 N.W. 598; Fraser Lumber & Mfg. Co. v. Laeyendecker (1943), 243 Wis. 25, 9 N.W.2d 97; and Duitman v. Liebelt (1962), 17 Wis.2d 543, 117 N.W.2d 672.

In Warnke, supra, the plaintiff, who was engaged in the retail sale of building materials, furnished materials directly to the defendant-homeowners who were to improve their homes. Under the statutes then in effect a 'contractor' had six months from the date on which material was last furnished in which to file a claim for a lien. Subcontractors, materialmen and laborers, however, had only 120 days from the date of furnishing the last labor or materials in which to file their claims for liens. This court held that since the plaintiff's lien had not been filed for more than eight months from the date on which the last materials were furnished, it was unnecessary to determine whether the plaintiff was a contractor or a materialman. By way of dictum, however, the court then noted that the 30-day notice provision relating to subcontractors, materialmen and laborers could have no application '* * * to cases where the materials are sold directly to the owner. * * *'

In Fraser, supra, this court was confronted with whether the plaintiff furnished materials to the defendant as a contractor or as a subcontractor. Again the status of the plaintiff (a lumber company) was significant because it was determinative of whether, under then existing statutes, he had timely filed his notice of claim for a lien. Although the plaintiff merely furnished the materials while another firm did the actual construction work, this court, applying the statutory definition of 'contractor,' held that the plaintiff was a contractor.

Duitman v. Liebelt, supra, involved a situation wherein one who had contracted for plumbing improvements sold the home to another before the plaintiff had completed work on the plumbing. Since the status of the plaintiff (plumbing company) was determinative of whether a claim for a lien had been timely filed, this...