Court Opinion

ID: 9541363
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:24:49.208619+00
Date Added: 2024-06-11T15:02:47.301826
License: Public Domain

OAKS, Justice
(concurring specially):
I concur in those portions of the majority opinion which hold (1) that it was not error to reject Structo’s instruction based upon the mechanic’s lien law, (2) that INA had no duty to defend the negligence action brought against Structo by Jacobsen Construction, (3) that INA breached no duty by initiating a third-party complaint against its own insured (Structo) in this case, and (4) that Structo had no right to recover on its counterclaim against INA. On the central question of Structo’s subcontractor status, I concur in the result.
For the reasons explained below, I conclude that the definition of “subcontractor” in Instruction 16, quoted in the footnote,1 was erroneous in that it included suppliers who should not be included in that favored status for purposes of coverage under the contractor’s insurance. In other words, the instruction was too favorable to Structo. If INA had excepted to this instruction, we should have remanded the case for a new trial under the standard discussed below. But INA effectively acquiesced in the correctness of Instruction 16 by taking no exception, by arguing its content to the jury, and by taking no cross-appeal. In that circumstance, the legal definition of “subcontractor” in that instruction became the law of the case as far as INA is concerned, and will not be changed to its advantage on appeal. Pettingill v. Perkins, 2 Utah 2d 266, 269, 272 P.2d 185, 186-87 (1954); Lindgren v. Voge, 260 Minn. 262, 271, 109 N.W.2d 754, 761 (1961); Holtfoth v. Rochester General Hospital, 304 N.Y. 27, 105 N.E.2d 610 (1952); Schedler v. Wagner, 37 Wash.2d 612, 617, 230 P.2d 600 (1951); 5 Am.Jur.2d Appeal & Error § 623 (1962).
Reviewing the evidence according to the definition in Instruction 16, I concur in the majority’s conclusion that Structo was a subcontractor as a matter of law, so that Structo’s motion for a directed verdict on INA’s third-party complaint should have been granted.
In the remainder of this opinion, I will suggest why Instruction 16 was not an accurate statement of the law and should not be used in future cases.
In former times, the distinction between subcontractor and materialman in controversies over a supplier’s right to obtain payment from the contractor’s bond or insurance’ turned largely on whether a supplier furnishing materials for construction installed them or performed other work on them at the construction site. Annot., 141 A.L.R. 321 (1942). In apparent response to changes in construction techniques and relationships, many jurisdictions have modified this rule, and the more modern cases have *1331groped for a different test. The performance of significant on-site work, such as installation, would still qualify a supplier as a subcontractor, but the fact that no work was performed on-site would not necessarily disqualify a supplier from subcontractor status. E.g., Holt & Bugbee Co. v. City of Melrose, 311 Mass. 424, 41 N.E.2d 562, 141 A.L.R. 319 (1942); Weyerhaeuser Co. v. Twin City Millwork Co., 291 Minn. 293, 191 N.W.2d 401 (1971); United States v. MSI Corp., 350 F.2d 285 (2d Cir.1965).
There are apparently no governing precedents in this state to distinguish for this purpose between the meaning of “subcontractors” (who are explicitly covered in construction bonds and insurance policies) and materialmen (who are not so covered). The definition that emerges from this case should be consistent with the intent of the contracting parties and should implement a distinction between subcontractor and ma-terialman that is clear, workable, and sensible in the context of the commercial relationships involved.
Instruction 16 and most of the recent cases seem to base their distinction between subcontractor and materialman on the terms of the contractual relation between the prime contractor and the supplier. This approach probably stems from the decision in MacEvoy v. United States, 322 U.S. 102, 108-09, 64 S.Ct. 890, 894, 88 L.Ed. 1163 (1944), which defined a subcontractor as one “who has a contract to furnish labor or material to the prime contractor,” but more specifically, under the usage in the building trades, as “one who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract, thus excluding ordinary laborers and materialmen.” Although lacking in certainty and sharpness in distinguishing between subcontractors and mate-rialmen, this definition clearly directs the focus of inquiry to the terms of the contract under which the supplier performs.
The problem with the terms-of-the-contract approach is that it must be supplemented with other tests or it can be manipulated to include virtually every material-man within its terms. All who furnish materials can be said to contract with the prime contractor or his subcontractors for part of the work or services the prime contractor has agreed to perform. Consequently, it is not surprising to find courts that ostensibly apply the terms-of-the-contract test declaring that the status of a supplier is not dependent upon the title of the contracting instrument (e.g., contract or purchase order) or how the supplier is designated there (e.g., subcontractor or vendor). United States v. Lembke Construction Co., 370 F.2d 293, 296 (10th Cir.1966); Weyerhaeuser Co., supra, 191 N.W.2d at 404. Courts have also added the requirement that to be a subcontractor the party must have contracted to perform a “substantial part” of the work, and to do so in accordance with plans and specifications provided by the prime contractor. E.g., Theisen v. County of Los Angeles, 54 Cal.2d 170, 352 P.2d 529, 538, 5 Cal.Rptr. 161, 170 (1960).2
The policy reason for restricting the application of the terms-of-the-contract test, as stated in such cases as MacEvoy v. United States, supra, and Tiffany Construction Co. v. Hancock & Kelley Construction Co., 24 Ariz.App. 504, 510, 539 P.2d 978, 984 (1975), is to place workable limits on the favored classification of subcontractors. Otherwise, the status of subcontractor could theoretically extend down the chain of commercial contacts to hundreds of suppliers who had some supply or service function furthering the prime contract but in a relationship so remote that it would be unworkable and unfair to give them the benefit of bond or insurance contracts meant to bene*1332fit the prime contractor and those most immediate to it and to the performance of its function. The problem with the terms-of-the-contract test is that it lacks the precision necessary to carry out the purpose of the rule. The same is true of the test of whether the article supplied was actually fabricated by specification for the particular job (the test relied upon in Justice Howe’s opinion). This can be illustrated with examples.
Suppose a construction job required 200 two-by-fours 8 feet in length, and a lumber supplier contracted to provide them. Later, because its stock of two-by-fours in that length was temporarily depleted, the supplier cut lumber specifically to meet the contract specifications. This lumber supplier should not be a subcontractor for purposes of the prime contractor’s payment bond or insurance coverage on construction, even if this quantity of lumber made up a very significant proportion of the prime contractor’s total performance. Similarly, if detailed specifications for wooden cabinets on a particular construction job could be met by the delivery of cabinets commonly used and generally stocked for sale in the trade, the supplier of those cabinets should not be a subcontractor for these purposes, even if the supplier specially fabricated the cabinets according to specifications for this particular contract.
As is evident from these simple examples, the critical element in determining whether a supplier is a subcontractor or a material-man for this purpose should not be how the supplier is identified in the contract (or purchase order), the size of the contract (either absolutely or in proportion to the overall work), or whether the supplier follows contract specifications in preparing the item specially for delivery on this particular job. The critical consideration should be whether the article being supplied is uniquely suited to this particular job, in the sense that it (1) was not readily available on the market as a stock-in-trade item and (2) could not be sold to others in the ordinary course of business without material sacrifice if it were not used on this particular job.3 If the item is uniquely suited to the prime contract under this test, its supplier should be a subcontractor for this purpose; otherwise, it should not.
The test suggested above corresponds to an element used in many of the modern cases cited in the majority opinion.4 Unlike its incidental treatment in those opinions, however, I submit that it should be the dispositive consideration in the definition of subcontractor for this purpose.
HALL, C.J., concurs in the concurring opinion of OAKS, J.

. A subcontractor means one who has contracted with the original contractor for the performance of all or a part of the work or services which such contractor has himself contracted to perform.

. One court carried this principle so far as to hold that a party which had fabricated iron and steel on specifications expressly for a construction contract was not a subcontractor because its work was not a “large and definable part of the construction project,” since it comprised only about two percent of the total construction cost. Aetna Casualty & Surety Co. v. United States, 382 F.2d 615, 617 (5th Cir.1967).

. Compare U.C.A., 1953, § 70A-2-201(3)(a), which employs a similar two-part test for identifying unique goods in a different commercial context.

. For example, Theisen, supra, 54 Cal.2d at 183, 352 P.2d at 537, 5 Cal.Rptr. at 169, stressed that the doors were not standard stock-in-trade items. Holt, supra, 311 Mass, at 426, 41 N.E.2d at 563, distinguished interior trim prepared according to contract specifications and not available on the open market from products the supplier had prepared for its own specifications. Weyerhaeuser, supra, 291 Minn, at 298-99, 191 N.W.2d at 404-05, emphasized that the doors were not items readily available through ordinary building suppliers. MSI Corp., supra, 350 F.2d at 287, stressed that the hydraulic system was built to specifications and was not generally available on the open market. In holding that suppliers were not subcontractors, both Lembke, supra, 370 F.2d at 295-96, and Tiffany, supra, 24 Ariz.App. at 511, 539 P.2d at 985, emphasized that the specifications for the concrete and the rock chips furnished in those cases were merely descriptive of the type of product to be furnished rather than an identification of a customized product.