General Elec. Supply Co. v. Mt. Aut

No. 80-55 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980

GENERAL ELECTRIC SUPPLY COMPANY, Division of General Electric Co., A Corporation, Plaintiff and Respondent,

MONTANA AUTOMOBILE ASSOCIATION, a corporation; BRUCE D. JAMISON, d/b/a JAMISON CONSTRUCTION, et al., Defendants and Appellants.

Appeal from: District Court of the Thirteenth Judicial District, In and for the County of Yellowstone. Honorable Charles Luedke, Judge presiding. Counsel of Record: For Appellants: Joseph P. Hennessey argued and Larry Grubbs, argued, Billings, Montana Harrison, Loendorf & Poston, Helena, Montana For Respondent: Fred Dugan argued, Billings, Montana

Submitted: September 15, 1980

Filed: - SRF 3 fl f$@ Decided: SEP 9 0 19w

Clerk

M r . C h i e f J u s t i c e F r a n k I. H a s w e l l d e l i v e r e d t h e O p i n i o n o f t h e Court.

T h e d e f e n d a n t M o n t a n a A u t o m o b i l e A s s o c i a t i o n (MAA) appeal s f r o m a judgment entered i n D i s t r i c t Court f o l l o w i n g a n o n j u r y trial. T h e d i s t r i c t j u d g e f o u n d t h a t t h e p l a i n t i f f was e n t i t l e d t o r e c o v e r $2,956.80, p l u s c o s t s and a t t o r n e y f e e s i n a l i e n foreclosure.

D e f e n d a n t MAA c o n t r a c t e d w i t h J a m i s o n C o n s t r u c t i o n ( c o n t r a c t o r ) t o e r e c t a b u i l d i n g on MAA's r e a l p r o p e r t y i n Billings, Montana. D u r i n g t h e f a l l o f 1977, t h e now b a n k r u p t s u b c o n t r a c t o r Clawson p u r c h a s e d e l e c t r i c a l m a t e r i a l s on open a c c o u n t f r o m t h e p l a i n t i f f G e n e r a l E l e c t r i c S u p p l y Company ( G E ) f o r t h e MAA j o b . C l a w s o n a l r e a d y owed G E a l a r g e sum o f money f o r m a t e r i a l s p u r c h a s e d d u r i n g t h e summer o f 1 9 7 7 f o r o t h e r j o b s , b u t t h e a m o u n t was n o t y e t s u c h as t o a l a r m GE. B u t by December 1 9 7 7 , G E b e c a m e c o n c e r n e d a b o u t C l a w s o n ' s now o v e r d u e a c c o u n t s . G E c o n t a c t e d C l a w s o n b y p h o n e t o make a r r a n g e m e n t s w i t h h i m t o p a y a t l e a s t $37,749.69 on h i s a c c o u n t o f o v e r $100,000, o r GE threatened t o stop extending credit. On D e c e m b e r 2 9 , 1977, at t h e t i m e t h a t C l a w s o n was p a i d f o r t h e MAA j o b b y t h e c o n t r a c t o r , C l a w s o n made t h e p a y m e n t o f $ 3 7 , 7 4 9 . 6 9 o n h i s GE a c c o u n t . GE a p p l i e d t h i s c h e c k t o t h e p a s t due a c c o u n t s o f $ 3 7 , 7 4 9 . 6 9 , and d i d not apply i t t o t h e accounts r e f l e c t i n g m a t e r i a l s purchased f o r t h e MAA j o b - - n o n e o f w h i c h w e r e p a s t due a t t h a t t i m e . A p p e l l a n t c o n t e n d s t h a t t h i s a p p l i c a t i o n o f f u n d s was c o n t r a r y t o Clawson's instructions.

I n F e b r u a r y 1 9 7 8 , GE f i l e d a m a t e r i a l m a n ' s l i e n a g a i n s t MAA f o r f a i l u r e t o p a y f o r t h e e l e c t r i c a l supplies. S u i t was l a t e r brought t o enforce the l i e n , and j u d g m e n t was e n t e r e d i n f a v o r o f GE. We a f f i r m .

The i s s u e s p r e s e n t e d t o t h i s C o u r t f o r p u r p o s e s o f appeal a l l r e l a t e t o one c e n t r a l q u e s t i o n : Did the D i s t r i c t Court e r r i n f i n d i n g t h a t a v a l i d l i e n e x i s t e d a g a i n s t MAA?

Both p a r t i e s t o t h i s a c t i o n agree t h a t i f the m a t e r i a l s u s e d i n t h e c o n s t r u c t i o n o f t h e MAA b u i l d i n g w e r e s u p p l i e d b y GE b u t were n o t p a i d f o r t h a t GE has a v a l i d b a s i s f o r a l i e n . But, a p p e l l a n t s c o n t e n d t h a t G E was n o t i f i e d t h a t C l a w s o n ' s p a y m e n t t o G E was t o be a p p l i e d t o t h e M A A a c c o u n t ; t h e r e f o r e t h e MAA d e b t s h o u l d be c o n s i d e r e d as h a v i n g b e e n p a i d . 6 0 Am J u r 2 d P a y m e n t $5 81, 82; M o n i d a h T r u s t v. Hruze ( 1 9 2 2 ) , 62 Mont. 444, 449, 2 0 5 P. 232, 233-234.

A c r e d i t o r i s bound by t h e i n s t r u c t i o n s g i v e n t o h i m by t h e d e b t o r as t o t h e a p p l i c a t i o n o f a p a y m e n t . Section 28-1-1106, MCA, sets out the c r e d i t o r ' s duties:

" A p p l i c a t i o n o f p e r f o r m a n c e when t h e r e a r e several obl i g z i o n s . Whenever a d e b t o r u n d e r s e v e r a l o b l i q a t i o n s t o a n o t h e r d o e s an a c t b v way o f p e r f o r m a n c e , i n w h o l e o r i n p a r t , w h i c h i s e q u a l l y a p p l i c a b l e t o t w o o r more o f such o b l i g a t i o n s , s u c h p e r f o r m a n c e m u s t be a p p l i e d a s follows:

"(1) I f , a t t h e t i m e o f performance, t h e i n t e n - t i o n o r d e s i r e o f t h e d e b t o r t h a t such p e r f o r - m a n c e s h o u l d be a p p l i e d t o t h e e x t i n c t i o n o f a n y p a r t i c u l a r obligation i s manifested t o the c r e d i t o r , i t m u s t be so a p p l i e d .

"(2) I f no s u c h i n t e n t i o n o r d e s i r e i s t h e n manifested, the c r e d i t o r , w i t h i n a reasonable t i m e a f t e r s u c h p e r f o r m a n c e , may a p p l y i t t o w a r d t h e e x t i n c t i o n o f any o b l i g a t i o n p e r f o r m a n c e o f w h i c h was d u e t o h i m f r o m t h e d e b t o r a t t h e t i m e o f such p e r f o r m a n c e . . ." I n o r d e r t o f i n d t h a t t h e c r e d i t o r (GE) e r r e d i n a p p l y i n g

C l a w s o n ' s p a y m e n t t o t h e p a s t due a c c o u n t s , then, i t was n e c e s s a r y f o r t h e D i s t r i c t C o u r t t o f i n d t h a t Clawson " m a n i f e s t e d " his "intention or d e s i r e " t o GE t h a t t h e $37,749.69 p a y m e n t be a p p l i e d t o t h e MAA account. C l a w s o n c o n t e n d s t h a t GE knew o r s h o u l d h a v e k n o w n how t h e c h e c k was t o be a p p l i e d .

B a s e d on t h e e v i d e n c e p r e s e n t e d a t t r i a l , the d i s t r i c t j u d g e f o u n d t h a t m a t e r i a l s v a l u e d a t $2,956.80 were supplied t o MAA, a n d t h a t t h e n o t i c e t o t h e c r e d i t o r as t o p a y m e n t was n o t s u f f i c i e n t t o deem t h e MAA a c c o u n t p a i d . T h e s e f i n d i n g s m u s t be p r e s u m e d t o be c o r r e c t and w i l l n o t be s e t a s i d e u n l e s s c l e a r l y erroneous. Rule 52(a), M.R.Civ.P. A review of the evidence s h o w s some c o n f l i c t , b u t t h i s Court w i l l not

" ' s u b s t i t u t e i t s weighing o f the evidence f o r t h a t o f the t r i a l court. When t h e r e i s a c o n f l i c t i n t h e evidence, the f i n d i n g s o f the t r i a l c o u r t a r e p r e s u m e d t o be c o r r e c t i f s u p - p o r t e d b y s u b s t a n t i a l e v i d e n c e . "' K o s m e r l v. Barbour ( 1 9 7 9 ) ~ Mont. , 5 8 9 P.2d 1 0 1 7 , 1 0 1 9 , 3 6 S t . R e p . 2 1 0 , .31 2

T h e e v i d e n c e a t t r i a l o n t h e q u e s t i o n o f n o t i c e came p r i -m a r i l y f r o m GE's p r i n c i p a l w i t n e s s M r . Resch, and f r o m M r . Clawson. R e s c h , a c r e d i t and c o l l e c t i o n s p e c i a l i s t f o r G E i n S a l t Lake City t e s t i f i e d t h a t GE r o u t i n e l y f o l l o w s i n s t r u c t i o n s f r o m a d e b t o r as t o t h e a p p l i c a t i o n o f f u n d s . I f no s p e c i a l i n s t r u c t i o n s a r e g i v e n b y t h e d e b t o r , GE n o r m a l l y d e l e t e s t h e o l d e s t account items f i r s t . He t e s t i f i e d t o s u c h a p r o c e d u r e i n t h i s case. I n December 1977, Resch c o n t a c t e d Clawson by phone a b o u t h i s p a s t due a c c o u n t - - n o n e o f w h i c h was MAA r e l a t e d . At t h a t time, $37,749.69 was 9 0 - 1 2 0 d a y s i n a r r e a r s on an a c c o u n t t o t a l o f o v e r $100,000. R e s c h ' s t e s t i m o n y was t h a t C l a w s o n g a v e h i m no i n s t r u c t i o n s on t h e p h o n e as t o a p p l i c a t i o n o f h i s n e x t payment, n o r d i d Resch e v e r r e c e i v e any i n s t r u c t i o n s f r o m t h e GE employees i n B i l l ings. Clawson t e s t i f i e d o t h e r w i s e :

"Q. And do y o u r e c a l l t h e d i s c u s s i o n s y o u h a d w i t h M r . Resch c o n c e r n i n g y o u r a c c o u n t d u r i n g t h a t g e n e r a l a r e a o f December 2 9 t h o f ' 7 7 o r s h o r t l y - - A. I s p o k e t o h i m o n t h e p h o n e , and h e s a i d t h a t we h a d t o h a v e t h i s a m o u n t o f money in. O t h e r w i s e , t h e y were g o i n g t o c l o s e t h e account. So I t o l d h i m t h a t when I g e t t h e check from Jamison C o n s t r u c t i o n [ t h e c o n t r a c t o r o n t h e MAA j o b ] a n d H a n s o n K e l l y C o n s t r u c t i o n , I w i l l bring it in.

"Q. So y o u d e f i n i t e l y r e m e m b e r s a y i n g t h a t y o u w e r e g o i n g t o g e t y o u r money f r o m t h o s e t w o s o u r c e s ? A. They were t h e o n l y t w o I had l e f t -- Yes, I d o - - t h e o n l y t w o t h a t I h a d money coming from."

C l a w s o n t e s t i f i e d f u r t h e r t o h a v i n g d i s c u s s e d t h i s same m a t t e r w i t h an e m p l o y e e i n t h e B i l l i n g s GE o f f i c e p r i o r t o m a k i n g t h e payment, and t h a t a t t h e t i m e o f m a k i n g p a y m e n t , he t o l d t h e employee: " T h e y p a i d me. Now h e r e ' s y o u r s . " Clawson's u n d e r s t a n d i n g was t h a t t h e p a y m e n t s w o u l d go t o p a y o f f t h e MAA j o b and t h e H a n s o n K e l l y j o b .

The r e c o r d does n o t c o n t a i n any t e s t i m o n y f r o m t h e employee i n B i l l i n g s , and i n f a c t , i t i s n o t c l e a r as t o w h e t h e r t h e c h e c k was h a n d - d e l i v e r e d t o G E b y C l a w s o n o r i f i t was m a i l e d t o GE i n S a l t L a k e C i t y . Nonetheless, t h e check used t o p a y t h e $37,749.69 c o n t a i n e d no n o t a t i o n as t o how i t was t o b e a p p l i e d o r as t o t h e s o u r c e o f t h e f u n d s . Clawson d i d n o t endorse t h e check from t h e c o n t r a c t o r (Jamison) d i r e c t l y over t o GE, b u t r a t h e r d e p o s i t e d J a m i s o n ' s c h e c k and w r o t e a s e p a r a t e c h e c k t o GE. Additionally, even i f GE had been t o l d t h a t t h e f u n d s i n q u e s t i o n came f r o m J a m i s o n C o n s t r u c t i o n , t h e r e c o r d d o e s n o t show t h a t G E n e c e s s a r i l y knew o f t h e c o n n e c t i o n b e t w e e n Jamison, C l a w s o n a n d t h e MAA j o b . The GE i n v o i c e s p e r t a i n i n g t o t h e MAA j o b w e r e d e s i g n a t e d "AAA" b u t no m e n t i o n o f J a m i s o n C o n s t r u c t i o n was on t h e i n v o i c e s . Based on t h i s t e s t i m o n y , the D i s t r i c t C o u r t Judge found:

" T h e r e i s some u n c e r t a i n t y as t o w h e t h e r t h e c h e c k was d e l i v e r e d l o c a l l y o r w h e t h e r i t was m a i l e d t o S a l t L a k e C i t y , b u t , i n any e v e n t , i t was d e l i v e r e d t o p l a i n t i f f w i t h o u t a n y t h i n g b e i n g e x p r e s s l y s a i d a t t h a t tme as t o what p o r - t i o n o f t h e a c c o u n t i t was t o a p p l y u p o n . In r e t r o s p e c t , C l a w s o n , o f AAA E l e c t r i c , t e s t i f i e d t h a t he assumed i t w o u l d go t o p a y o f f t h e j o b s f r o m w h i c h t h e p a y m e n t t o h i m h a d come u n d e r h i s comment a t t h e t i m e o f d e l i v e r y , ' I g o t m i n e , now h e r e i s y o u r s . ' However, t h e d i s c u s s i o n i n w h i c h t h e $ 3 7 , 7 4 9 . 6 9 p a y m e n t became f i x e d r e 1 a t e d t o t h e S e p t e m b e r and O c t o b e r b a l a n c e s , n o n e o f w h i c h i n v o l v e d t h e Montana A u t o m o b i l e A s s o c i a t i o n job. So, a p p l i c a t i o n o f t h e p a y m e n t t o t h e S e p t e m b e r and O c t o b e r b a l a n c e s d i d n o t o p e r a t e t o e x t i n g u i s h l i a b i l i t y f o r t h e purcha- ses o f s u p p l i e s t h a t went i n t o t h a t job." ( F i n d i n g o f f a c t , No. 4 . )

A p p e l l a n t a l s o p o i n t s t o l i e n waivers which t h e c o n t r a c t o r Jamison r e q u i r e d Clawson t o s i g n a t t h e t i m e t h a t Jamison p a i d Clawson:

" 2 9 D e c e m b e r , 1 9 7 7 , f o r l a b o r and m a t e r i a l o n t h e M o n t a n a A u t o m o b i l e A s s o c i a t i o n c o n t r a c t i n t h e amount o f $4,631.55." ( E x h i b i t A)

A p p e l l a n t contends t h a t t h e e x i s t e n c e o f t h e l i e n waivers b r i n g s t h i s c a s e w i t h i n t h e r u l e o f C a r r o l l v. Beck ( 6 t h C i r . 1945), 151 F.2d 964. I n t h a t c a s e t h e r u l e was s e t o u t t h a t a d e b t o r may c o n t r o l t h e a p p l i c a t i o n o f f u n d s i f t h e d e b t o r owes m o r e t h a n o n e matured debt t o the creditor. But t h i s power i s l i m i t e d . If the c r e d i t o r k n o w s t h e s o u r c e o f t h e d e b t o r ' s f u n d s and knows o f a duty o f the debtor t o discharge a p a r t i c u l a r debt, then the cred i t o r m u s t so a p p l y t h e f u n d s . C a r r o l l , 1 5 1 F.2d a t 966.

Many c o u r t s d i s p u t e t h i s h o l d i n g , f i n d i n g no s u c h d u t y i n the creditor. See A n n o t . , 1 6 6 A.L.R. 641, 642. Montana has n o t r u l e d d i r e c t l y on t h i s q u e s t i o n , a1 t h o u g h M o n t a n a a p p e a r s t o s u p p o r t t h e v i e w o f no d u t y a t l e a s t i n s u r e t y s h i p c a s e s . See N a t i o n a l B a n k v. Bingham (1931), 9 1 Mont. 62, 72, 5 P.2d 554, 556-557; Annot ., 57 ALR2d 8 5 5 , 8 5 9 - 8 6 0 . However, i t i s not necessary f o r t h i s Court t o address t h a t issue here. There i s nothing i n t h e r e c o r d t o i n d i c a t e t h a t GE h a d a n y k n o w l e d g e w h a t s o e v e r o f t h e l i e n waivers, n o r was t h e r e a n y d e t e r m i n a t i o n t h a t t h e l i e n waivers evidenced a contractual duty o f Clawson's t o apply t h e p a y m e n t t o t h e MAA j o b . For these reasons, we r e j e c t a p p e l l a n t ' s a r g u m e n t b a s e d on C a r r o l l , supra, and r e l a t e d c a s e s .

T h i s Court i s not unmindful o f the harsh r e s u l t s i n t h i s case. MAA p a i d i t s c o n t r a c t o r f o r t h e w o r k d o n e on i t s b u i l d i n g , a n d now MAA i s i n a p o s i t i o n o f h a v i n g t o p a y a g a i n . GE was a b l e t o u s e M A A ' s money t o p a y o l d and p e r h a p s u n c o l l e c t i b l e d e b t s , a n d w i l l now g e t a d d i t i o n a l money f r o m MAA t o p a y t h e C l a w s o n / M A A debt. However, b a s e d on t h e j u d g e ' s factual findings, w h i c h we f i n d t o be s u p p o r t e d b y s u b s t a n t i a l e v i d e n c e , we d e t e r m i n e t h a t s e c t i o n 28-1-1106, MCA, requires t h i s result. This Court i s faced w i t h a case i n w h i c h t h e l e g i s l a t u r e has s e t f o r t h a c l e a r mandate, which t h e Court i s o b l i g e d t o f o l l o w . T h a t s u c h an i n e -q u i t a b l e r e s u l t occurred here suggests t h a t t h e l e g i s l a t u r e s h o u l d r e v i e w t h i s s t a t u t e w h i c h has been i n t h e codes v i r t u a l l y unchanged s i n c e 1895, d e s p i t e d r a s t i c changes i n t h e c o n d u c t o f business.

The j u d g m e n t o f t h e D i s t r i c t C o u r t i s a f f i r m e d .

Chief Justice

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