The factual background of the situation presented by this appeal may be found in an opinion prepared by Mr. Justice BUTZEL. People, *Page 69 for use of Youngs, v. United States Fidelity Guaranty Co.,263 Mich. 638. We there held that River Gravel Company was a subcontractor and affirmed a judgment obtained by Kenneth Youngs against United States Fidelity Guaranty Company, as surety on the bond of W. E. Wood Company. The Wood Company subsequently changed its name to Club Holding Company but we will hereinafter refer to this plaintiff as the Wood Company. Because of the situation discussed in our former opinion, and prior to the entry of judgment in that case, plaintiff Wood, its surety, and the Wolcotts, who had furnished material to defendant River Gravel Company, hereinafter referred to as Peterson, sought relief by bill in equity against defendants by way of an accounting. It is claimed that any moneys paid by Wood to Peterson and his assigns are trust funds for the benefit of those who might be entitled to a claim against Peterson arising out of the job involved in Wood's contract with the city of Flint.
During the course of the work, Peterson, who was furnishing and hauling materials under contract with Wood, became in need of funds and on March 20, 1931, assigned to First National Bank Trust Company at Flint all moneys due and to become due under the Wood contract. Later the bank declined to further finance Peterson and an arrangement was made whereby his indebtedness to the bank was taken over by defendant Flint Citizens Loan Investment Company, hereinafter referred to as the "Investment Company." Wood, who had previously accepted in writing the assignment by which it agreed to pay the moneys to the bank, recognized the transfer of this assignment to the Investment Company by subsequent acts. *Page 70
When money became due as referred to in our former opinion,supra, Wood required Peterson to furnish sworn statements and releases from his subcontractors and materialmen, etc. Not only did Peterson omit Youngs' name from the statements, but certain other defendants were not listed and the claims of some of the parties who executed releases were never paid because when Wood paid Peterson's September statement in the sum of $23,400.25 by checks in October, 1931, the Investment Company applied $14,867.05 against two notes given it by Peterson, $3,662 against a note on which he was co-maker with another, and disbursed the remainder as directed by Peterson.
Plaintiffs urge, as they did below, that a trust was imposed on these funds, either by reason of Act No. 259, Pub. Acts 1931, or upon the theory of a constructive trust, in that they were obtained by fraud from Wood and may be followed and an accounting had. The trial court declined to adopt either of the trust theories and entered a decree allowing the claims of cross-plaintiffs Steers and Cronk, but only as against Wood and its surety. It also held that neither plaintiffs Wolcott nor cross-plaintiffs Baxter Watson and Genesee Gravel Company were entitled to recover because of their written releases; that Lennon Gravel Company had made no claim and that Grandsen Son had submitted insufficient proofs, nor could Wood recover the amount of the Youngs judgment from the Investment Company. All of the plaintiffs and some of the cross-plaintiffs appeal.
The funds involved were paid by Wood without any reservations upon their use or application. No claim is made that the Investment Company had any part in securing the false sworn statement or the *Page 71 releases, and no one disputes that the moneys pertain to the contract between Wood and the city of Flint. That the Investment Company remained silent as to its intention to reimburse itself before disbursing the balance, does not create a liability as it was entitled to apply the funds as it saw fit. People, for use of Hirth, v. Powers, 108 Mich. 339, andStandard Oil Co. v. Day, 161 Minn. 281 (201 N.W. 410, 41 A.L.R. 1291). See, also, 41 A.L.R. 1297 and 48 C. J. p. 647. Appellants claim that the Hirth Case and those which follow have lost their authority by reason of the enactment of Act No. 259, Pub. Acts 1931, which became effective September 18, 1931; that since the Investment Company did not acquire the bank's interest until it became the owner of the assignment on September 25, 1931, it took subject to the effect of the statute. The rights of a subsequent assignee are important, but we apprehend that the parties are desirous of a determination of the applicability of the statute of 1931, supra, the title to which reads as follows:
"An act to protect the people of the State from imposition and fraud in the building construction industry, and to provide penalties for the violation of this act."
Section 1 of the act provides:
"In the building construction industry, the building contract fund paid by the owner to a contractor, or by the owner or contractor to a subcontractor, shall be considered by this act to be a trust fund, for the benefit of the owners, contractors, laborers, subcontractors or materialmen, and the said contractor or subcontractor shall be considered the trustee of all funds so paid to him for building construction purposes." *Page 72
Section 2 defines the statutory fraud and provides a penalty, while section 3 states what shall be evidence of intent to defraud. The act affects those matters which are criminal in their character and creates a particular statutory crime. The civil rights and obligations existing between owners, contractors, subcontractors, materialmen and the various trades, etc., seem to be undisturbed by the act.
To hold in the instant case that the Investment Company received such assigned funds in a trust capacity might require a similar application to moneys the subcontractor might pay anyone, including his butcher, baker, or candlestick maker, and such a holding might possibly relieve the principal contractor's surety from the obligations imposed by Act No. 187, Pub. Acts 1905, as amended, being 3 Comp. Laws 1929, §§ 13132-13136, and bonds given pursuant thereto. The act in question stands alone, without any reference to another; it is in harmony with the various provisions of the mechanics' lien law, and we cannot presume, in the absence of explicit language, that it was intended to apply to the erection of public buildings or to public works. To do so might have a nugatory effect on the provisions of the 1905 act as amended, and strike from the books a line of well-understood and established authorities. It is fundamental that the law does not favor repeal by implication and that penal statutes must be strictly construed.
If a trust is not established, in this particular instance, by statute, should a court of equity impose a constructive trust? We think the same reasoning applies with even greater force, as it is doubtful if any fraud existed on the part of the Investment Company, unless created by statute. Upon whom did it *Page 73 practice the claimed fraud? Nothing was concealed, unless it be an intention to reimburse itself for moneys advanced to or for Peterson, and he does not come here asking any relief. Wood willingly paid the money, induced to do so, not by any fraud of the Investment Company, but by that of Peterson.
No one seriously disputes the subrogation of the surety company to the rights possessed by its principal, Wood, but those rights are necessarily against Peterson and not the Investment Company.
Cross-appellants Baxter Watson, and Genesee Gravel Company, and appellant Wolcott are bound by their unqualified releases. They did not even take the usual escrow precautions. They may pursue their remedies against Peterson but not as to the Investment Company. Any notification by Peterson's creditors of his failure of payment after Wood had relied upon the releases is too late.
The trial court reached the correct conclusion. The decree is affirmed, with costs to those appellees who have filed briefs in this cause.
POTTER, C.J., and NELSON SHARPE, NORTH, FEAD, WIEST, BUTZEL, and EDWARD M. SHARPE, JJ., concurred. *Page 74