Opinion
Rehearing Denied June 3, 1968.
Hearing Granted July 3, 1968.
Robert N. Chargin, Public Defender by Frank A. Grande, Deputy Public Defender, Stockton, for defendant-appellant.
Thomas C. Lynch, Atty. Gen., by Roger E. Venturi and Jon A. Schoenberger, Deputy Attys. Gen., Sacramento, for plaintiff-respondent.
FRIEDMAN, Associate Justice.
Defendant appealed to the appellate department of the San Joaquin Superior Court after a nonjury municipal court trial resulted in his conviction of seven misdemeanor violations of Penal Code section 484b. Although divided, the appellate department affirmed the judgment, then certified the appeal to this court under Penal Code section 1471 and rule 62, California Rules of Court. We ordered the case transferred here.
Enacted in 1965, Penal Code section 484b is in general directed at persons in the construction and building improvement field who fail to use construction instalments for the payment of laborers and materialmen on the project. Specifically, it provides: 'Any person who receives money for the purpose of obtaining or paying for services, labor, materials or equipment and willfully fails to apply such money for such purpose by either willfully failing to complete the improvements for which funds were provided or willfully failing to pay for services, labor, materials or equipment provided incident to such construction and wrongfully diverts the funds to a use other than that for which the funds were received, shall be guilty of a public offense and punishable by a fine not exceeding five thousand dollars ($5,000), or by imprisonment in the state prison not exceeding five years, or in the county jail not exceeding one year, or by both such fine and such imprisonment if the amount diverted is in excess of ten thousand dollars ($10,000). If the amount diverted is less than ten thousand dollars Decisional needs do not call for a detailed narration of the seven individual transactions. The prosecution evidence revealed a substantially repeated pattern. Defendant contracted for the performance of home improvement jobs, at times as the sales representative of a contractor, at other times for a corporation he had organized himself. Price of the individual projects ranged from $1,852 to $6,680. The homeowners made down payments and progress payments to defendant. The jobs came to a halt before completion, the owners facing unpaid construction bills and completion costs which substantially exceeded the contract balances. In most of the cases unpaid suppliers had filed liens against the properties by the time defendant came to trial. Additional liens were threatened. Although defendant had used some of the project payments for project costs, the evidence demonstrates that he and an associate had a practice of anticipating expected profits and of paying themselves commissions and 'supervision' fees, thus stripping their venture of funds to complete the projects.
Defendant relies upon People v. Holder (1921) 53 Cal.App. 45, 199 P. 832, which invalidated a similar regulation still appearing as the last portion of Penal Code section 506. In Holder the court held that interim payments received by the builder-defendant became his property and he could not be guilty of embezzling his own property; that, by imposing a criminal sanction on a breach of contract, the statute violated article I, section 15, of the California Constitution, which prohibits imprisonment for debt except in cases of fraud; that, in fixing the payment of laborers and materialmen as the purpose of contract payments, the statute violated due proces by unreasonably interfering with liberty of contract.
The last part of Penal Code section 506, invalidated in People v. Holder, states: '* * * any contractor who appropriates money paid to him for any use or purpose, other than that for which he received it, is guilty of embezzlement, and the payment of laborers and materialmen for work performed or material furnished in the performance of any contract is hereby declared to be the use and purpose to which the contract price of such contract, or any part thereof, received by the contractor shall be applied.'
On the authority of Holder defendant contends that section 484b violates the constitutional ban on imprisonment for debt. Additionally, he charges it with vagueness offensive to the due process demand for a level of certainty in criminal statutes.
Courts will not decide constitutional questions unnecessarily. (Palermo v. Stockton Theatres, Inc. (1948) 32 Cal.2d 53, 65-66, 195 P.2d 1.) We do not reach the constitutional issues considered in Holder, nor the additional void-for-vagueness argument. There is no evidence of an essential element of the crime, and the conviction must be reversed for that reason. Section 484b applies only to the diversion of money received 'for the purpose of obtaining or paying for services, labor, materials or equipment. * * *' The written contracts in evidence do not recite nor did the witnesses describe any condition earmarking contract payments for use on the respective projects. There is no evidence that defendant received payments for any purpose other than satisfaction of his customers' obligations to pay him money at times fixed by contract. If the customers wanted or expected him to apply their payments to the job, they failed to express such a demand. Absent an explicit restriction, the money was paid to defendant as his own and not for the purpose of disbursement on the projects. (American Surety Co. v. Bank of Italy (1923) 63 Cal.App. 149, 161-162, 218 P. 466; People v. Holder, supra, 53 People v. Clemmons
Hutchinson v. Contractors' State etc. BoardThe Attorney General contends that section 484b should not be confined to cases of explicit earmarking. He urges that the statute itself establishes an earmarking requirement corresponding to the homeowners' tacit assumption that their payments would be applied to their projects. A reading of section 484b reveals no such requirement. The contention entails an interpretation extending the statute beyond its terms. While penal statutes are to be construed to effect their objectives, they cannot be given an application beyond their expressed intent; they include only offenses coming clearly within the import of their language. (California Gas Retailers v. Regal Petroleum Corp. (1958) 50 Cal.2d 844, 862, 330 P.2d 778.) The Attorney General's interpretation would transmute a provision resting upon earmarking into one imposing earmarking. Protecting construction projects, large and small, against improvident or insolvent contractors is a long-standing problem. It is a well-known subject of statutory regulation and of recognized contractual and fiscal devices. (See, for example, Code Civ.Proc. §§ 1185.1, 1190.1, 1192.1, 1193; Bus. & Prof.Code, §§ 7113, 7113.5, 7108, 7150-7158; Fin.Code, §§ 17005.1, 17401; Gov.Code, § 4200 et seq.) Like the statute invalidated in Holder, section 484b is an expression of a legislative search for methods of protecting homeowners against the danger of double payment for construction work. (See Nock, The 'Forgotten Man' of Mechanics' Liens Laws--The Homeowner (1964) 16 Hast.L.J. 198-228; Barnard, Limitation of Owner's Liability for Mechanics' Liens (1964) 16 Hast.L.J. 179-186; Senate Judiciary Committee for Interim 1957-1959, Fifth Progress Report, 17-119.)
A law transforming interim construction payments into virtual trust funds would affect the entire construction industry, as well as lenders, depositaries and sureties. While supplying needed protection to the unsophisticated buyers of home improvements, it could force unwanted protection on project owners who know how to utilize other protective devices. In enacting section 484b, the Legislature might have included an earmarking demand comparable to that part of section 506 invalidated in People v. Holder (see fn. 1, supra). It did not do so. It might have adoped a regulation patterned after laws of other states which impose a trust character on contract payments and penalize builders who, with intent to defraud, fail to pay laborers and suppliers out of such payments. (See State v. Jacks (1967) 243 Ark. 77, 418 S.W.2d 622; State v. Tabasso Homes (1942) 3 Terry 110, 42 Del. 110, 28 A.2d 248; Daugherty v. State (1965) 216 Tenn. 666, 393 S.W.2d 739; State v. Williams (1925) 133 Wash. 121, 233 P. 285; cf. Peairs v. State (1957) 227 Ark. 230, 297 S.W.2d 775; Commercial Nat. Bank of Sturgis v. Smith (1932) 60 S.D. 376, 244 N.W. 521.) It did not do so. Rather than fix payment of laborers and suppliers as the 'purpose' of construction payments, section 484b limits itself to a situation where the parties themselves have fixed that purpose. So drawn, its efficacy in safeguarding guileless homeowners is limited. So drawn, it is the apparent product of legislative choice. Since there was no evidence of any limitation on defendant's use of the pay ments, Judgment reversed.
Shifting developments since 1921 cast some doubt on the 'liberty of contract' phase of the Holder decision. (See, for example, Wilke & Holzheiser, Inc. v. Department of Alcoholic Beverage Control (1966) 65 Cal.2d 349, 358-360, 55 Cal.Rptr. 23, 420 P.2d 735.) The 'imprisonment for debt' phase of Holder should be viewed in the perspective of later case law, upholding anti-diversion legislation where the action is willful, that is, fraudulent. (In re Trombley (1948) 31 Cal.2d 801, 193 P.2d 734; People v. Neal C. Oester, Inc. (1957) 154 Cal.App.2d Supp. 888, 316 P.2d 784.
PIERCE, P. J., and REGAN, J., concur.