Diamond International Corp. v. Bristol County Builders Corp.
Docket: No. 81-103-Appeal
Court: Supreme Court of Rhode Island; November 17, 1983; Rhode Island; State Supreme Court
Consolidated civil actions were tried without a jury, resulting in a judgment favoring Diamond International Corporation for $6,251.23, while a counterclaim by Bristol County Builders Corp. against Diamond was dismissed. Industrial National Bank obtained a judgment against Builders on its counterclaim for $3,473.84 and was ordered to pay Diamond $4,000 that it had withheld based on a claimed lien under G.L.1956 (1969 Reenactment) 34-27.1-1. Builders appealed the judgments against it and the award to Diamond, with the appeal partially sustained and partially denied.
The case arose from Builders' construction of a house in Attleboro, Massachusetts, where Builders purchased materials from Diamond. Builders secured a construction loan from the bank, and subsequently, Diamond claimed a lien on the mortgage proceeds, prompting the bank to withhold $4,000. Builders alleged this withholding prevented them from completing the house, leading to a mortgage default. The bank refused to discharge its mortgage without the additional $4,000 and eventually foreclosed, selling the property for $31,300.
The primary issue was whether G.L. 34-27.1-1 applied to Diamond's claim, which was acknowledged as a material-man. The statute indicated that in construction mortgage loans under $100,000, mortgagees could only pay the owner or lessee unless a lien or notice was duly recorded or a written statement from unpaid subcontractors was provided.
Claims from subcontractors listed as unpaid necessitate action from the mortgagee, who must either issue joint checks to the owner or lessee and subcontractors for the unpaid amounts or withhold the total unpaid amounts. If a dispute regarding a subcontractor's performance arises, payment to that subcontractor is deferred until resolution. The statute specifically addresses subcontractors and does not extend to materialmen unless they are explicitly included in the definition of subcontractors. Definitions are provided from Black’s Law Dictionary, distinguishing between the two roles. Relevant case law and statutory references from the Rhode Island Legislature further clarify this distinction, indicating that when the legislature aims to protect materialmen, it does so explicitly. Consequently, the statute in question (G.L. 34-27.1-1) does not apply to materialmen like Diamond, who supplied materials rather than performing subcontracted work. The trial court found that the loan agreement's terms did not obligate the bank to advance an additional $4,000 to Builders, as the conditions for such advancement were tied to the completion of construction, which was never fulfilled. Thus, there was no obligation for the bank to make the additional payment.
Builders failed to complete construction on the mortgaged premises, and the trial justice's findings confirm that the loan agreement was correctly interpreted. Consequently, the bank was not required to advance the final $4,000 to Builders. However, the bank incorrectly included this amount as dedicated under the statute to Diamond, preventing Builders from being obligated to repay it to the bank. The second mortgage had an agreement with Builders to accept a property conveyance if the bank agreed to a payoff of $24,000 plus interest. Builders’ attorney communicated this offer to the bank on January 8, 1975, but the bank demanded $28,000 plus interest, totaling $29,532.49. Since G.L. 34-27.1-1 does not apply to Diamond, the bank was wrong to demand repayment of the withheld $4,000 and to refuse the $24,000 payoff offer. The trial justice's finding that the bank was entitled to $28,000 was erroneous, leading to a wrongful foreclosure by the bank, which cannot claim expenses related to it, including attorneys' fees. Builders may claim damages resulting from the foreclosure, but not for the failure to advance the $4,000. The judgment of $6,251.23 plus interest and costs in favor of Diamond is upheld since it reflects uncontradicted evidence of indebtedness for materials provided. Builders’ counterclaim against Diamond was dismissed due to lack of evidence of a breached duty. The judge's order for the bank to pay the $4,000 to Diamond is reversed, as the statute in question does not apply. Builders’ appeal is partially sustained and partially denied, with the case remanded to the Superior Court for further proceedings. The relevance of the statute's amendment by P.L. 1979, ch. 375 is noted as not pertinent to the current matter.
