Title: IN RE HARRIS
Citation: 2002 OK 35, 49 P.3d 710
Docket Number: 
State: Oklahoma
Issuer: Oklahoma Supreme Court
Date: May 7, 2002

IN RE HARRIS Annotate this Case IN RE HARRIS 2002 OK 35 49 P.3d 710 Case Number: 97286 Decided: 05/07/2002 THE SUPREME COURT OF THE STATE OF OKLAHOMA In re: CERTIFIED QUESTIONS OF LAW FROM THE UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF OKLAHOMA Honorable T.M. Weaver, Judge ¶0 The United States Bankruptcy Court for the Western District of Oklahoma certified the following questions pursuant to the Uniform Certification of Questions of Law Act, 1) Is an owner of real property who places trust funds with a general contractor pursuant to the Oklahoma construction trust fund statutes, QUESTIONS ANSWERED. James L. Bentley, Del City, Oklahoma, for Plaintiffs D. David Sisson, Norman, Oklahoma, Elaine M. Dowling, Oklahoma City, Oklahoma, for Defendant/Debtor KAUGER, J: ¶1 We are asked to answer two [49 P.3d 711] questions:1TheThe questions are reformulated pursuant to ¶2 Our determination that an owner of real property placing trust funds with a general contractor pursuant to the Oklahoma construction trust fund statutes, ¶3 We hold that FACTS ¶4 The debtor/defendant, Matthew Wayne Harris (Harris/debtor/contractor), is the sole proprietor of Harris Construction (the construction company). On July 29, 1999, the plaintiffs, Paul and Latricha Stevens (Stevens/owners), contracted with the construction company to repair and enlarge their Del City home. ¶5 The owners paid Harris Construction $30,000.00 on August 6, 1999, and construction began in October. After the foundation was poured in November, the owners made additional payments totaling $40,000.00. Because construction was never completed, the Stevens did not disburse the final $30,000.00. ¶6 Northwest Roofing Company (roofer/subcontractor) filed a mechanics's and materialmen's lien against Harris Construction and the Stevens' home on February 3, 2000. In response, the Stevens filed a breach of contract suit in district court against the construction company on June 7, 2000. Five months later, the contractor d/b/a Harris Construction filed a voluntary petition in bankruptcy. ¶7 On February 12, 2001, the Stevens filed an adversary pleading in the bankruptcy court seeking $70,000 for breach of contract and a determination that the damages are nondischargeable pursuant to 11 U.S.C. 1998 §523(a)(4) I. ¶8 AN OWNER OF REAL PROPERTY PLACING TRUST FUNDS WITH A GENERAL CONTRACTOR PURSUANT TO THE OKLAHOMA CONSTRUCTION TRUST FUND STATUTES, ¶9 Both Stevens and Harris recognize that the Oklahoma lien construction statutes protect subcontractors and suppliers performing work under a contract between an owner of real property and a contractor.10 The parties differ in that the homeowners assert that the same statutory scheme 42 O.S. 2001 §§152 and 153,11 benefits owners placing funds in trust with contractors for the payment of lienable claims. In contrast, Harris contends that the clear language of the statutes requiring that funds be held for the payment of "lienable claims" requires a construction of the statute limiting protection to those entitled to payment for work completed or supplies furnished, i.e. subcontractors and suppliers. Essentially, the contractor argues that owners simply have no standing to assert a claim arising under the lien construction statutes.12 We disagree. ¶10 We have not addressed the precise issue of whether owners enjoy beneficiary status under 42 O.S. 2001 §§152 and 153. Nevertheless, we have promulgated opinions instructive on the issue. ¶11 The primary issues presented in Manley v. Brown, 1999 OK 79, 989 P.2d 448 involved the right of clients to proceed in a malpractice action against attorneys and a law firm for allegedly substandard performance in rendering trial and appellate service in defending against a subcontractor's lien claim. In discussing cases demonstrating that a subcontractor must take affirmative steps to perfect a claim against a contractor for misapplied trust funds, we considered these same teachings as they related to owners' claims against contractors. The opinion provides at ¶19: ". . . [The cases] do not teach that the merits of an owner's claim against its contractor depend on a subcontractor's compliance with the notice requirements of the lien statute. Whether a subcontractor must give the §142.1 notice (when it is due) for an owner to recover against its contractor who is alleged to have misapplied construction trust funds is a question unanswered by case law extant at the critical time here . . . In sum, even if notice was the owner's due, the legal impact of a subcontractor's failure to give that notice upon a contractor's liability to the owner was then (and is now) far from clearly settled." [Emphasis in original.] The need for the subcontractor's statutorily required lien notification was left undecided in Manley to the extent that it affected the owner's rights against a contractor. Nevertheless, the opinion recognizes that an owner may benefit, as against a contractor, from [49 P.3d 714] the statutory protections of Oklahoma's construction trust fund lien statutory scheme. ¶12 In Sandpiper North Apartments, Ltd. v. American Nat'l Bank & Trust Co. of Shawnee, 1979 OK 124, 600 P.2d 332 , owners of real property and a contractor (collectively, owners) entered into three agreements with a subcontractor. The subcontractor assigned the proceeds of progress payments to its banker as security for financing the sub-contracts. The owners made progress payments on the subcontractor's work jointly to the subcontractor and to the bank. A portion of the payments were diverted when the bank applied monies to debts unassociated with the construction projects. Claiming protection under 42 O.S. 1971 §§152 and 153,13 the owners sued to recover the amounts paid to the subcontractor. We held in favor of the owners in Sandpiper determining that the proceeds of the construction project were subject to the statutory trust provisions, 42 O.S. 1971 §§152 and 153, to the extent of the valid lienable claims. In Sandpiper, both the owner of the real property and the contractor benefitted under the construction trust fund statutes. ¶13 We considered the position of owners of real property under other provisions of Oklahoma's mechanics and materialmen's lien laws in Roofing & Sheet Metal Supply Co. of Tulsa, Inc. v. Golzar-Nejad Khalil, Inc., 1996 OK 101, 925 P.2d 55. The issue presented was whether the subcontractor/supplier of roofing materials was entitled to a lien against the owners' property pursuant to 42 O.S. 1991 §§141 and 143.14 Therefore, references are to the current statutory compilation. Recognizing that materialmen's liens are purely statutory, we stated in Golzar-Nejad that such statutes work together "to provide protection from financial loss to contractors, subcontractors and materialmen, as well as to the owners of real property." [Emphasis supplied.] Determining that owners were entitled to protection under the statutory scheme, we held that the owner could only be billed for the supplies actually utilized in the roofing job. In so doing, we acknowledged the principle that: "[e]venhanded application of a statute requires that we not construe it one way for the benefit of an affected party, and then construe it the other way when the same affected party would suffer." [Emphasis in original.] The mechanic's and materialmen's statutes guaranteed the sub-contractor a lien for all materials utilized in the roofing job. However, the owner of real property benefitted from the same lien laws [49 P.3d 715] and was obligated to pay for only those materials utilized on the construction project. ¶14 Our decisions in Manley, Sandpiper and Golzar-Nejad place us squarely in the majority camp which recognizes that owners enjoy the protection offered by construction trust fund statutes.15 These courts reason that the primary purpose of such statutory schemes is to protect the owner involved in a fiduciary relationship with the contractor.16 The property owner is considered the direct beneficiary of the statutorily created trust because of the owner's potential for double liability if the contractor does not pay laborers and materialmen17 the precise situation presented here as the owners must satisfy the subcontractor's lien although they have previously paid these funds to the contractor. Although these decisions are not binding, we do note that two federal courts considering the effect of our lien statutes have determined that owners are intended beneficiaries of the statutory trust provisions.18¶15 We hold that an owner of real property placing trust funds with a general contractor pursuant to the Oklahoma construction trust fund statutes, 42 O.S. 2001 §§152 and 153,19 is a beneficiary of the statutory construction lien scheme to the extent of any lienable claims arising from the contract between the owner and the general contractor. II. ¶16 TITLE ¶17 The owners contend that the duty imposed on the contractor by 42 O.S. 2001 §§152 and 15320 to hold funds in trust for the payment of sub-contractors and suppliers creates a fiduciary duty between the owner and the contractor to the extent there are lienable claims due and owing by reason of a building or remodeling contract. The contractor argues that there is nothing to suggest facts sufficient to find a confidential relationship, i.e. the substitution of one party's will for that of another. ¶18 Courts disagree on whether mechanic's lien statutes create an enforceable trust from which a fiduciary relationship between property owners and contractors arises.21 Each decision is based, at least in part, on [49 P.3d 716] the language of the state statute.22 General statutes merely imposing criminal penalties for failure to properly dispose of funds have not been found to create a fiduciary relationship.23 Nevertheless, where statutes expressly designate monies received by a contractor as "trust fund" monies24 or where some other statutorily imposed professional requirement exists for general contractors,25 the courts have held an express trust arises imposing fiduciary responsibilities on the contractor in favor of the property owner. Cases with statutes similar to the Oklahoma scheme find the existence of a fiduciary obligation between owners/purchases of real property and general contractors.26 Further, the federal courts having the opportunity to construe Oklahoma's mechanic's and materialman's lien statutes have determined that a fiduciary relationship exists between owners and their contractors.27¶19 The contractor's argument that the relative bargaining powers between the parties controls whether a confidential relationship exists ignores the fact that a fiduciary relationship may arise from statute as was acknowledged in Lowrance v. Patton, 1985 OK 95, 710 P.2d 108 . ¶20 Lowrance involved an action by the administrator of a veteran's estate against the head of the Oklahoma Veterans Center to recover the veteran's funds which were kept in a special account at the Veterans Center and which were improperly paid to the veteran's son upon his father's death. At issue in [49 P.3d 717] Lowrance was 72 O.S. 1981 §22228 which authorized the establishment of special agency accounts by the Department of Veterans Affairs for receipt and disbursement of a patient's personal funds. In Lowrance, we determined that a fiduciary relationship was created by statute through which the care and custody of the veteran's funds were based upon an implied agreement between the Veterans Center and the decedent obligating the Veterans Center to safely hold the funds and to disburse them at the direction of the veteran or his lawfully appointed representative. ¶21 Just as the statute at issue in Lowrance imposed duties upon the Veterans Center in favor of its patients, the construction trust fund statutes impose a duty upon contractors to keep owner funds in trust for the payment of valid lienable claims. Section 15329 specifically provides that no portion of the funds collected from owners by contractors under §152 "shall be used for any other purpose until all lienable claims due and owing or to become due and owing shall have been paid." Here, as in Lowrance, the fiduciary duty between the owner and the contractor arises from the clear language of the statutory scheme identifying the owner-deposited funds as "trust funds"30 and imposing a mandatory duty31 on the contractor to disburse those funds for payment of potential liens against the owner's property. ¶22 We align ourselves with those jurisdictions determining that statutes similar to Oklahoma's identifying owner deposited dollars as "trust fund" monies and with the federal courts who have previously determined that a fiduciary relationship exists between owners and their contractors under 42 O.S. 2001 §§152 and 153. As in Lowrance v. Patton, ¶19, supra, the confidential affinity between the owner and the contractor arises from the statutory scheme. We determine that 42 O.S. 2001 §§152 and 15332 create a fiduciary duty between the owner of real property depositing construction funds with a general contractor and the contractor to the extent that there are lienable claims arising from a construction contract. CONCLUSION ¶23 We recognize that an important purpose of bankruptcy statutes is to relieve an honest debtor from the weight of oppressive indebtedness and to permit the person to start afresh.33 Nevertheless, this Court does not extend it auspices, in statutory construction, to consider the statute's propriety, desirability, wisdom or practicability. These matters are left to the legislative department.34 Here, the Legislature has denominated owner monies placed with a contractor as "trust funds" in 42 O.S. 2001 §15235 and provided in mandatory terms in §15336 that those funds shall not be disbursed for any purpose other than for the [49 P.3d 718] payment of all lienable claims due and owing until all such claims have been satisfied. The Stevens, as owners, are beneficiaries of the statutory construction trust fund lien scheme. Harris, as the Stevens' general contractor, was engaged in a fiduciary relationship with the owners created by statute to the extent that he held funds for the payment of materialmen's and subcontractor's liens. Harris was charged with the duty to hold the Stevens' advances in trust for payment of subcontractors and suppliers pursuant to 42 O.S. 2001 §§152 and 153.37 ¶24 HARGRAVE, C.J., WATT, V.C.J., HODGES, LAVENDER, KAUGER, SUMMERS, BOUDREAU, WINCHESTER, JJ. concur. ¶25 OPALA, J. concurs in result. 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