Thomas H. Briggs & Sons, Inc. v. Allen

Beogden, J. Are funds in tbe bands of an owner bank, due or to become due to a contractor erecting a building for said bank, and thereafter disbursed after notice from a material furnisher, subject to a preference asserted by such material furnisher against the liquidator of the bank? The plaintiff as a material furnisher gave notice to defendant bank on 28 August, 1929, that it had not been paid for material so furnished' and used upon the property of the bank. The referee in his report states “that defendants, Raleigh Banking and Trust Company and Bankers Realty Company, entered into a contract with defendant Hudson . . . for the erection of an eight-story addition to the bank building of said owner in the city of Raleigh.” There is no exception to this finding of fact, and it is therefore assumed that the bank was owner. "When the notice was given by the material furnisher to the owner, it then became the duty of the owner to retain a sufficient sum due or to become due to the contractor by virtue of the terms of the contract to 23ay the claim of such materialman. After such notice such sum is referred to by textwriters and in decided cases as a trust fund. For instance, in Foundry Co. v. Aluminum Co., 172 N. C., 704, 90 S. E., 923, this Court said that “when a lien upon the property is once acquired by giving notice, the amount due the contractor shall be distributed among the claimants pro rata. The lien is acquired by notice to the owner, and not by filing with some officer, . . . and the amount due the contractor at the time of notice is not a debt due by the owner in the ordinary sense, but a trust fund.” To like effect is the statement in Home Building, Inc., v. Nash, 200 N. C., 430, 157 S. E., 134, as follows: “Such contract price is not deemed by the law to be a trust fund until notice has been given to the owner. . . . Moreover, the legal fiction of a trust fund after notice is designed exclusively for the purpose of enabling the claimant to share in the fund or proceeds undistributed and then remaining in the hands of the owner and due upon the contract price.” See, also, Bond v. Cotton Mills, 166 N. C., 20, 81 S. E., 936, and Mfg. Co. v. Andrews, 165 N. C., 285, 81 S. E., 418. However, the trust imposed by giving notice is limited. As the mate-rialman has no contractual relation with the owner, the trust-fund fiction was resorted to in order to enable the claimant to maintain an action to have the fund applied to the claim. The fiction was further designed for the purpose of distributing the fund'pro rata among those entitled thereto. Manifestly, it was not contemplated that such a limited trust could create a preference upon the general assets of an insolvent bank wisbn it happened to be the owner of the premises. *14 Furthermore, there is no finding of fact as to how much was due the contractor by the bank on the date of notice. There is a finding that “both said contractor and said surety made substantial payments to various and sundry material furnishers, in amounts in excess of the amount due by said Allen to the plaintiff after the said notice of claim was filed by plaintiffs with said contractor and with said owner.” But there is no finding that the bank paid anything to the contractor on the contract price after 28 August, 1929; nor is there any finding as to the amount of cash the bank had at the time the Commissioner of Banks entered upon the liquidation. No deposit was received by the bank in consequence of the notice and nothing occurred to swell the assets thereof in the hands of the liquidator by virtue of such notice. Indeed, the mere fact that a bank at the time of its failure held trust funds does not constitute in itself a preference in behalf of the beneficiary. Bank v. Corporation Commission, 201 N. C., 381; Hicks v. Corporation Commission, 201 N. C., 819. The judgment was rendered after the bank was in the custody of the liquidator, and hence the principle pronounced in Zachery v. Hood, 205 N. C., 194, 170 S. E., 641, is not applicable. Reversed. ScheNCk, J., took no x^art in the consideration or decision of this case.