People v. Butcher

• Decision Date: 22 September 1986
• Citation: 229 Cal.Rptr. 910,185 Cal.App.3d 929
• Court: California Court of Appeals Court of Appeals
• Parties: The PEOPLE, Plaintiff and Respondent, v. Albert H. BUTCHER, Jr., Defendant and Appellant. Crim. 13223.

Page 910

229 Cal.Rptr. 910

185 Cal.App.3d 929

The PEOPLE, Plaintiff and Respondent, v. Albert H. BUTCHER, Jr., Defendant and Appellant.

Crim. 13223.

Court of Appeal, Third District, California.

Sept. 22, 1986.

Caryl Warner and Janet McGinnis for defendant and appellant.

John K. Van De Kamp, Atty. Gen., Roger E. Venturi and Maureen A. Daly, Deputy Attys. Gen., for plaintiff and respondent.

BLEASE, Acting Presiding Justice.

Defendant was convicted after a court trial of one felony count of violation of Penal Code section 484b, the diversion of construction funds. On appeal he presents two important questions of interpretation of the statute. The first is whether use of construction funds in good faith to defray project expenses other than those listed in an application for a progress payment is a diversion. We answer "no". The second is whether a diversion must cause failure to complete construction or failure to pay for services, labor materials, or equipment used in the construction in order to warrant a conviction. We answer "yes". We will reverse the defendant's conviction because the trial court appears to have grounded its

determination upon an affirmative answer to the first question.

FACTS

Defendant contracted in writing on May 31, 1979, to build a house for his friend William Altaffer pursuant to plans filed with the Mono County Building Department. The contract provided that Altaffer was to pay defendant $110,000 in installments as "described by Bank of America Mammoth Lakes" and defendant was to "pay promptly all valid bills and charges for material, labor or otherwise in connection with or arising out of the construction of said structure...." The construction was to be financed by a loan from the Bank of America.

Defendant prepared an estimate of costs for completion of the project on a printed form sheet listing the various items of material, labor, and services entailed in constructing a house. The estimate is deficient in that no cost figures are set forth for many items, e.g., "Heating, Vent, Air Condition" and "Overhead & Profit."

To draw on the construction loan defendant was required to submit a form entitled "Construction Progress Report." The form incorporated the estimate for costs with extension columns for reporting the percentage of these costs accruing in the course of construction to date. Defendant and Altaffer were required to sign the form and give it to the bank. The bank would send the report to an appraiser who would visit the building site and verify the report. If the appraiser approved the report the bank would make a progress payment.

Construction on the house began at the end of June or early July 1979. Altaffer paid $1200 for the building permit, $842.71 for the water meter permit, and $700 for site preparation out of his own funds. He testified that he was to be repaid for these outlays at the end of construction or would receive a credit against coverage at that time. Because the loan was delayed, Altaffer advanced defendant $4,000 to pay for labor. Altaffer testified that his arrangement with defendant provided that he would be reimbursed for all of his outlays at the time of the first draw on the construction loan.

Altaffer is a high school teacher. In the summer he has a job that takes him out of the country. To cover this period of absence he signed three blank "Construction Progress Report" forms. When Altaffer left Mammoth Lakes on July 15th the house had been framed and the roof was done. On July 10, 1979, defendant filled out one of the signed forms, reporting various cost items including 70 percent of rough plumbing and 100 percent of the building permit, water meter, survey, temporary facilities, demolition and site preparation, earthwork, structural concrete, rough lumber, rough carpenter labor, window frames and sash, and architectural and engineering fees. These items totaled $58,256.71. Defendant included the cost of materials that were on order and expected to arrive within a few days. The bank's appraiser verified the claim with the notation that the inspection showed substantial agreement with the form defendant submitted. On July 25, 1979, the bank issued a check for $52,431.04 to defendant. The bank retained 10 percent of this amount pending completion of the project. Defendant negotiated the check receiving $12,431.04 in cash and $40,000 in a cashier's check.

On July 26, 1979, defendant deposited the $40,000 check into his business account at the Bank of Irvine. The balance in the account after the deposit was $40,069. On July 27, 1979, defendant wrote a check on the account for $11,210.46 payable to Home Lumber. Defendant had contracted to build three houses in Mammoth Lakes during the same general period; the others were for a Mr. Boe and a Mr. Raymond. Defendant went to Home Lumber and paid the outstanding balance of $11,210.46. Home applied $2,644.07 of this sum to the Altaffer account, $7,780.63 to the Raymond account, and $785.76 to the Boe account. Defendant testified that this allocation was erroneous since no lumber had been delivered On July 29, 1979, defendant wrote a check on the Bank of Irvine account in the sum of $12,000 payable to Ron Harris for a Porsche. He testified that he returned $10,000 of this money to the Altaffer job in September with proceeds from a bank loan to finance the car.

or billed for the Raymond job. In his opinion $8,566.39 should have been credited to the Altaffer account and the remainder to the Boe account. At the time he made the payment defendant thought a little over $7,000 would go to the Altaffer account. Home Lumber's records reflect that invoices for lumber ordered on the Altaffer job prior to July 26, 1979, totaled $19,017.74.

Altaffer had the plans for his house prepared by Sandra Brodrick and her associate. Brodrick billed Altaffer $1,615 for her services. She was never paid. Neither Brodrick nor her associate were licensed as architects. Altaffer asked Brodrick to keep an eye on the construction project in his absence. On July 17, 1979, Brodrick questioned the framer about some construction techniques. She was unsure if the construction was being performed correctly. She telephoned Tom Hill in the county building department and he suggested they look at the house together. After they had conferred Hill "red-tagged" the project on July 19, 1979. A red-tag halts construction until noted deficiencies are cleared.

After the red-tag the plans were modified. The building department insisted that an engineer approve them. The engineer required numerous modifications of the structure. Defendant testified that because the original plans were improper the costs of construction were significantly higher than estimated. At some point Home Lumber, Harshbarger Glass, and Brodrick filed mechanic's liens on the house. The Bank of America retained approximately $19,000 of the construction loan proceeds pending resolution of the disputes. The house was eventually completed and Altaffer moved in. The dispute between defendant and Altaffer about responsibility for the alleged increased costs was submitted to arbitration. At trial defendant offered to prove that he had prevailed in the arbitration proceeding and had been awarded $24,000. This was ruled irrelevant. The trial court reasoned that under the information the crime must have occurred, if at all, within a month of July 25, 1979, and thus, subsequent events had no bearing.

Defendant adduced testimony that it is the custom in the construction industry that if loan proceeds are restricted to payment of specific costs a voucher system is used. (Compare Pen.Code, § 484c with Pen.Code, § 484b.) Further, he said that under industry custom there was no restriction on the use of the progress payment save that it had to be used on the Altaffer job.

Defendant claimed that at the time he received the first draw from the Altaffer construction loan he was entitled to reimbursement from the project and that he was due more money than the loan proceeds that he had used for his own purposes. He testified that he had paid for labor and materials and provided services amounting to $34,000 prior to the time he received the Bank of America check. He furnished documents purporting to receipt for payments for labor and materials prior to July 25, 1979, aggregating $24,151.62. However, $8,500 of the receipts were supposed to be duplicates for carpenter labor in framing; these were dated July 1981. Moreover, defendant had received $4,000 from Altaffer for framing. Defendant based the rest of his claim on services he had provided to the project in lieu of subcontracting, such as surveying and installing a temporary power pole, and on overhead and payroll expenses.

The closing arguments included a protracted dialogue between defendant's counsel and the trial court concerning the defense theory of the case. Immediately before finding defendant guilty the trial court opined that it did not matter whether defendant was entitled to a credit for outlays and services provided prior to receipt of the

loan proceeds. The trial court expressed the view that the loan proceeds were required to be used to defray the cost listed on the "Construction Progress Report" form. The trial court reasoned that when defendant applied the proceeds to other uses he had made a diversion within the meaning of Penal Code section 484b and thereby violated that statute.

DISCUSSION

I

Defendant contends that his conviction rests upon a misreading of Penal Code section 484b. ¹ An element of the offense is wrongful diversion of funds "to a use other than that for which the funds were received...." Defendant claims that use of an unrestricted construction loan draw to pay for any legitimate expense of the project is a use for which such funds are received. He argues that his conviction rests upon a contrary view of the reach of section 484b held by the trial court. The People reply that ...