Court Opinion

ID: 7020608
Source: CourtListenerOpinion
Date Created: 2022-07-24 04:41:43.056782+00
Date Added: 2024-06-11T11:56:15.535090
License: Public Domain

JUSTICE HEIPLE, dissenting: This case is a suit on a commercial bond. The suit was brought by an electrical parts supplier against the surety company for an alleged partial nonpayment to them by an electrical subcontractor on a construction project. McCoy Construction Company (McCoy) was the general contractor. Grawey Electric Company (Grawey) was the subcontractor. Fidelity and Deposit Company of Maryland (Fidelity) was the commercial surety company. The time frame for this controversy was from July 1980 to May 1981, some 10 months. During this time, the supplier furnished some $62,000 worth of materials to the subcontractor for this project. For work performed, the contractor paid the subcontractor some $112,000, and the subcontractor paid the supplier some $115,000. On the surface, it would at first appear that the supplier had been paid in full, heaped and rounded measure. Where is the controversy? The controversy arises because the subcontractor, Grawey, was also buying materials from the supplier, Graybar, for other unrelated jobs. When payments were made from Grawey to Graybar, Graybar did not credit all payments just to this particular project. Not at all. Some of these payments were also credited to various other projects wherein Grawey was buying electrical supplies from Graybar. Indeed, of the $115,000 paid by Grawey to Graybar, Graybar allocated only $36,000 to the McCoy project. Thus, Graybar claimed a balance due on the McCoy project of $26,000 ($62,000 supplied, less credits of $36,000) and asked for a judgment against Fidelity in that amount. Upon a trial being held, the trial court awarded a judgment to Graybar in the amount of some $21,000. Fidelity appeals and Graybar cross-appeals. At trial, Fidelity argued that Graybar had no right to allocate Grawey’s payments in the manner that was done; that the $26,000 claimed by Graybar was in fact satisfied by McCoy’s payments to Grawey of $112,000 and by Grawey’s payments of $115,000 to Graybar which amply exceeded Graybar’s total materials bill on the McCoy project of $62,000. Our supreme court pronounced the law applicable to this situation in the case of Alexander Lumber Co. v. Aetna Accident & Liability Co. (1921), 296 Ill. 500. I restate it as follows. A surety has a special equity interest in funds paid by a contractor to a subcontractor (the debtor), which funds are in turn used by the subcontractor to pay its supplier (the creditor). This special equity requires the creditor to apply the funds paid by the debtor to the account of the contractor which is covered by the bond. This special equity will arise when payments are made and the debtor fails to designate the accounts on which payments are to be applied. Absent such designation of accounts, they will be deemed to be credited against the specific project for which the bond was issued. That is the law. On the other hand, if the debtor does, in fact, direct the creditor to allocate payments among various accounts, that direction is controlling and the special equity of the surety does not arise. Where the debtor prefers other accounts with the same creditor, the court must consider that this is just as much a default (so far as the bond is concerned) as if the debtor had spent the money elsewhere. In the instant case, and upon hearing the evidence, the trial court’s judgment of some $21,000 was grounded on the premise that all but some $2,000 paid by Grawey to Graybar was directed by Grawey, thus bringing the surety bond into play. That is to say, the trial judge found Grawey to be in default to Graybar on the McCoy project to the extent of $21,000. The question is, did Graybar successfully prove that Grawey had directed payments to other accounts? Graybar’s exhibit No. 9 is a group exhibit consisting of copies of Graybar invoices billed to Grawey. The foundation for this exhibit was laid by Mr. .Abel, a credit manager of Graybar, who testified that the invoices in this exhibit were sent by Graybar to Grawey. The invoices were later returned to Graybar along with checks from Grawey. The invoices listed bills for materials for several different accounts. The checks did not always cover the entire bill. Abel stated that an employee of Grawey, named Mr. Collins, directed payment among the accounts by placing check marks next to the particular items to be paid with the check. Scrutiny of this evidence reveals that it is flawed. First of all, the invoices offered are not the original invoices. They are copies. Moreover, the invoices in the exhibit are not even copies of the original invoices returned by Grawey, which supposedly carry check marks; rather, the invoices are copies of copies of the invoices sent out by Graybar. This is a violation of the best evidence rule which requires that the original writing be introduced into evidence unless the original is shown to be lost, destroyed or unavailable. In such a case, the proponent must prove the prior existence of the original, its unavailability, the authenticity of the substitute and the proponent’s own diligence in attempting to procure the original. Graybar should have had in its possession the original check-marked invoices returned by Grawey. Yet, Graybar never attempted to introduce the original invoices and never explained their unavailability. The admission of this group exhibit into evidence was error. Moreover, Mr. Abel’s testimony did not and could not lay the proper foundation to bring the subject of the check marks on the invoices into evidence. His testimony was clearly hearsay. Although Abel stated that an employee of Grawey named Mr. Collins had directed payment among the accounts by placing check marks next to the particular items to be paid, Abel stated that he never discussed the meaning of the check marks with Mr. Collins, and Abel further admitted that he had no idea who, at Grawey, made the check marks or sent the invoices back to Graybar. Thus, the incompetence of this evidence is doubly manifest. On another specific item, Mr. Abel also testified that Mr. Collins hand delivered a sealed envelope to Abel. The envelope contained a $15,000 check. Abel further related that Collins had told him the check was part payment for the material used in the K-mart job (a different job than the McCoy project). This, too, was incompetent. No competent witness testified to Collins’ position and authority to direct payment for Grawey. This case should be reversed. The majority, however, declines to do so, finding that the funds were not traced through from the contractor to the subcontractor to the supplier. This is error. The evidence before the trial court was that the supplier furnished some $62,000 worth of materials to the subcontractor for the project. Further, that the contractor paid the subcontractor some $112,000 and that the subcontractor paid the supplier some $115,000. That is sufficient prima facie tracing. There was no other evidence. All else is conjecture. While other evidence might have been introduced to show that the money came from here or there and went elsewhere, there was no such evidence. On the evidence before it, sketchy as it was, the trial court was entitled to conclude prima facie that Graybar received ample money from the subject project to be fully paid. That established the special equity of Fidelity in those funds. The question remaining was whether, under the evidence, Graybar had properly allocated those funds to other accounts. As already indicated, I believe the evidence on that point was deficient. Thus, I dissent.