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Carey Electric Contracting v. First Nat'l Bk.





APPEAL from the Circuit Court of Kane County; the Hon. JOHN S. PAGE, Judge, presiding.


On April 12, 1976, plaintiffs Carey Electric Contracting, Inc. (Carey), Piping Systems, Inc. (Piping), C & K Precision Concrete Co. (C & K) and Hastings Pavement Co., Inc. (Hastings) filed a 12-count suit against the First National Bank of Elgin (the Bank), asking that they be declared the beneficial owners of certain funds held by the Bank. On June 21, 1978, after viewing written exhibits and hearing oral testimony, the trial court issued a decree finding in favor of the Bank on all 12 counts. All four plaintiffs have appealed.

This dispute arises over a check for approximately $62,000 deposited in the Bank by Benchmark, Inc. (Benchmark), in November 1975, which the Bank set off against monies owed it by Benchmark. Plaintiffs claim that the Bank had no right to set off those funds and that the Bank should be declared to be a constructive trustee of the funds for the benefit of plaintiffs.

In July 1975 the City of Elgin entered into a contract with Benchmark, a general contractor, for a public works project. According to this contract Benchmark was to be paid in five separate installments. To receive payments it had to submit waivers executed by its subcontractors waiving mechanics' liens on work done pursuant to the requested payment. As Benchmark was not paid by the city until 30-45 days after payment was requested, it borrowed money from the Bank to cover expenses in the interim and assigned a security interest in the city's payment to the Bank. The contract with the city contained a provision that Benchmark could not assign the right to payment without written consent of the city; the city's checks, however, were made payable to both Benchmark and the Bank. Three of the plaintiffs, Carey, Piping and C & K, were subcontractors working on the project in question. The fourth plaintiff, Hastings, became the co-principal on Benchmark's contract bond pursuant to a bonding agreement, for which Hastings was to receive a fee of $57,500.

When the fifth payment from the city to Benchmark became due the subcontractors had still not been paid for work done pursuant to the fourth payment. On November 5, 1975, Benchmark delivered a check for $4500 to Carey and one for $11,520 to C & K. At that time William A. Miller, the president of Benchmark, requested that both subcontractors not deposit the checks until November 11. Both Carey and C & K agreed to this delay and executed lien waivers on the same date, their representatives testifying that they had done so on the assumption that Benchmark's checks would be good on November 11. The representative of C & K testified that a request to hold the check for a few days was not infrequently made in the contracting business, but that if he had known that Benchmark would not have had sufficient funds to cover the check on November 11 he would not have executed the lien waiver. The third subcontractor, Piping, as was its ordinary practice, sent executed lien waivers to Benchmark for both payment request #4 and payment request #5, along with its invoice, without receiving any specific request to do so. A representative from Piping testified that it gave the lien waivers to Benchmark in reliance on Benchmark's integrity to pay the money covered by the waivers.

The city delivered to Benchmark a check for $62,458.19, dated November 10, 1975, and made out to Benchmark and the Bank. On November 11 Carey and C & K deposited the checks from Benchmark in their respective accounts at other banks. The checks arrived at the defendant Bank on November 13 and were automatically marked paid. Subsequently, the Bank realized that there were not sufficient funds to cover these checks, marked them accordingly on November 14, and returned them to plaintiffs' banks.

On November 14, 1976, Miller, the president of Benchmark, gave the $62,000 check to a Bank officer and told him "I had to have money from that check to pay subs and the payroll on the Fountain Square job." The Bank officer made no commitment to allow the money to be used for that purpose and, in fact, later used the entire proceeds of the check as set-offs against loans Benchmark had with the Bank. It is not clear whether the loans the check was applied against had matured at that time, nor is it clear whether the checks to the subcontractors were returned before or after Miller's conversation with the Bank officer.

Benchmark was unable to finish the project and subsequently became bankrupt.

Hastings' claim is not based on work done as a subcontractor but on its relations as a co-principal to Benchmark on the bonding agreement. A representative of Hastings testified that its agreeing to become a co-principal had been necessary for Benchmark to obtain the contract and that it had relied on Benchmark to fulfill its obligations. Hastings was never paid the $57,500 due under the bonding agreement. In addition, upon Benchmark's default, Hastings was forced to pay more than $300,000 in unpaid wages and debts connected with the project.

Prior to trial the parties entered into a stipulation, incorporated in a pretrial order, that damages for Carey were $7,865.09, for Piping $18,795, and for C & K $24,670. As to Hastings, it was merely stipulated that $57,500 was owed on the bonding agreement. There was no stipulation as to any additional damages.

In order to prevail, plaintiffs herein must prove two things. First, that Benchmark held the $62,000 check as a constructive trustee for their benefit and, second, that the Bank's possession of the check is subject to those rights under the constructive trust.

Plaintiffs offer three potential grounds for the existence of a constructive trust with Benchmark as trustee: (1) fraud, (2) misrepresentation, and (3) the existence of a confidential relationship. Plaintiffs' first argument is that a constructive trust should be found to exist because of Benchmark's allegedly fraudulent behavior in at least impliedly promising that it would meet its future contract obligations when, in fact, it could not. In this context plaintiffs argue strongly that the president of Benchmark should have known that there was a good chance of the Bank's applying the $62,000 check to loans when he gave checks to Carey and C & K on November 5. Defendant Bank contends that plaintiffs have waived this issue by not raising it in the trial court but, in fact, it is not clear whether plaintiffs did raise this issue there. Fraud was not specifically referred to in the pleadings but was discussed in detail in one of plaintiff's trial briefs. As we are convinced that there was not fraud sufficient to establish a constructive trust in this case, we can discuss the merits of the question without reaching a decision on whether it was raised at trial.

• 1-4 In its general sense, fraud means anything calculated to deceive, including all acts, omissions and concealments involving a breach of legal or equitable duty, trust or confidence resulting in damage to another. There is no general rule for determining what facts will constitute fraud. Rather, its existence depends upon the particular facts of each case. It is well settled, however, that fraud is never presumed. (Majewski v. Gallina (1959), 17 Ill.2d 92, 160 N.E.2d 783.) Fraud may be the basis for a constructive trust (see, e.g., Brennan v. Persselli (1933), 353 Ill. 630, 187 N.E. 820), but Benchmark's actions in the instant case do not meet traditional requirements of fraud. As the court noted in Wright v. Peabody Coal Co. (1937), 290 Ill. App. 110, 116, 8 N.E.2d 68, 70:

"* * * in order to constitute fraud in law, a representation must be an affirmance of fact and not a mere promise or expression of opinion or intention. [Citations.] A false representation within the meaning of the law in order to constitute a cause of action must be a representation as to an existing or past fact and not a mere promise to do some ...

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