Monroe Banking & Trust Company v. Allen
| Decision Date | 18 June 1968 |
| Docket Number | No. EC-6532.,EC-6532. |
| Citation | 286 F. Supp. 201 |
| Court | U.S. District Court — Northern District of Mississippi |
| Parties | MONROE BANKING & TRUST COMPANY, Plaintiff, v. Rufus Ben (Jack) ALLEN, Building Service Company, a corporation, and United States of America, Defendants. |
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Robert D. Patterson, Aberdeen, Miss., for Monroe Banking & Trust Co.
Thomas J. Tubb, West Point Miss., for Building Service Co.
H. M. Ray, U. S. Atty., Oxford, Miss., for United States of America.
This case poses for decision the priority of various claims, set out briefly as follows:
1. Claims of $10,658.92 asserted by Monroe Banking & Trust Company, plaintiff, to funds in the hands of defendant, Building Service Company, paid to it as prime contractor by owners under three separate contracts, for painting and related work which in each case had been subcontracted to Rufus Ben (Jack) Allen by Building Service Company, where Allen had assigned to the Bank all proceeds payable to him under said subcontracts as security for bank loans made to provide him with funds to perform the same;
2. Claims of Building Service Company to retain such funds based upon its asserted right to deduct from the assigned proceeds payable jointly to Allen and the Bank for materials sold by it to its subcontractor, Allen, in connection with the three jobs;
3. Claims of $3,884.03 asserted by the United States against the funds both previously paid to the Bank and those still retained by Building Service Company to satisfy tax liens arising against Allen on account of his failure to pay certain withholding taxes.
Plaintiff originally filed this action in the Chancery Court of Monroe County, Mississippi, against Allen, Building Service Company, and the United States of America. The case was removed to this Court by the government, pursuant to 28 U.S.C. § 1444. A cross-claim asserting the lien priority of the federal tax claim was filed against the Bank and Building Service Company. By separate answers, they denied the claims of the government to any portion of the funds in issue.
Allen did not contest the claims asserted by either the Bank of the United States, and suffered judgments to be taken against him.
The facts have been largely stipulated. Building Service, the general contractor for three separate construction contracts hereinafter mentioned, has received from the contracting owners all sums thereunder, and its subcontractor, Allen, has completed all work provided by the agreements made with him. Allen did not execute a bond to pay for his labor, materials, and equipment.
On August 22, 1961, Building Service Company subcontracted to Allen the painting and caulking on the Raspet Flight Laboratory job at a price of $6,730.00. This subcontract was evidenced by written agreement between the two parties.1 Allen applied to the Bank for a loan to finance labor and materials needed for the job. The Bank agreed to lend him a sum not in excess of 65% of the value of the subcontract, but on condition that the proceeds of the subcontract be assigned to the Bank as security for the loan. Allen delivered his subcontract to the Bank and on October 7, 1961, he executed a letter to Building Service Company authorizing it to "make all checks due me on the Raspet Flight Laboratory . . . payable both to myself and to Monroe Banking and Trust Company". After obtaining the signature of Allen thereon, the Bank forwarded this authority to Building Service Company, which agreed thereto by formal acceptance on October 9, 1961. Relying thereon, the Bank made various loans totaling $4,276.08 to Allen under this assignment, commencing in early October, 1961, and continuing for some months thereafter. Payments from Building Service and other sources reduced the loan balance to $267.83. On the Raspet job, Building Service Company made jointly to Allen and the Bank payments totaling $3,637.47, and withheld $3,092.53 to pay for materials sold by it to Allen and used on the job. These payments were made by check and were accompanied by statements of deductions for retainage2 and for accounts purporting to be due Building Service, which were submitted to the Bank on April 23, 1962, on July 17, 1962, and on December 21, 1962. Some of these submissions by Building Service showed "less statement" and "less statement attached", but no statement showing the basis of the deductions to be the sale of materials to Allen was, in fact, ever submitted to the Bank. Moreover, all advances secured by the Raspet subcontract were made by the Bank before it received the first check and "statement" dated April 23, 1962. The Bank had no prior notice from building Service that it was selling materials on credit to Allen for use on the Raspet job or that it intended to offset the materials account against payments due under the assigned subcontract.
On February 23, 1962, Building Service Company, as prime contractor, subcontracted to Allen the painting, labor and materials, on the Meats Research Laboratory job at a price of $7,385.00. Similar financing arrangements were made between Allen and the Bank as in the Raspet contract. On March 22, 1962, Allen executed a letter authorizing Building Service Company to remit all checks "due me on the Meats Research Lab. * * * payable both to myself and to the Monroe Banking and Trust Company * * *", which was agreed to and accepted by Building Service on March 23, 1962. On the basis of this acceptance the Bank made loans to Allen against this contract commencing in the month of March, 1962, and continuing for a period of some months thereafter, said loans aggregating $4,750.00, exclusive of renewals. Building Service Company paid to Allen and the Bank jointly two remittances under this subcontract totaling $4,536.63. The first remittance was made December 1, 1962, for $2,803.63 and the final one on February 22, 1963, for $1,733.00, said payments being made by check and accompanied by statements. The first submission showed deductions for contract retainage and for an item of $2,848.37 designated "less account attached" but no statement showing the basis of this account to be the sale of materials by it to Allen was, in fact, submitted to the Bank. Although the payments made by Building Service Company almost equaled the aggregate loans made by the Bank on this job, there is a resulting balance due the Bank of $1,550.00, arising from its apparent failure to credit its loans with the entire payments received from Building Service. Again, the Bank had made all advances before receiving from Building Service Company its first remittance and "statement". Prior thereto, the Bank had no notice that Building Service was selling materials on credit to the job and expected to offset its account against payments due by it under the subcontract.
On February 23, 1962, Building Service, again as prime contractor, subcontracted to Allen the painting on the Science Research Center job at a price of $18,000.00. On March 22, 1962, this contract was assigned to the Bank, with Allen executing a similar authority letter to Building Service Company authorizing it to "make all checks due me on the Science Research Center Building * * * payable both to myself and to Monroe Banking and Trust Company. * * *" This communication was, as were the two others, forwarded by the Bank to Building Service, which formally accepted same on March 23, 1962. On the basis of this acceptance the Bank made loans against this particular contract beginning in March, 1962, and on different dates thereafter for the balance of the year 1962, with recurring loans, exclusive of renewals, made almost each month of 1963 through August of that year. The original advances by the Bank on this job extended over a period of eighteen months with loans aggregating $13,650.00. The evidence does not disclose when Allen began work on this subcontract, or the schedule of its progress. Building Service made payments to Allen and the Bank jointly of only $3,952.45, credits from other sources having reduced the loan balance to $8,841.09. The remittances of Building Service Company were by checks accompanied by statements showing deductions for retainage and other purposes, but no statement was ever actually submitted to the Bank showing the basis for withholding funds to be the sale of materials by it to Allen. Building Service made its first payment on May 22, 1963, at which time its statement noted deductions for retainage and also of $2,679.49 for "account thru April 22, 1963". The second payment by Building Service was made on June 17, 1963, at which time there was deducted, in addition to retainage, $6,868.10 for "account thru May 23, 1963". On December 30, 1963, Building Service forwarded its statement to the Bank showing completion of the subcontract, with deductions as follows:
"Less Lynch Plastics, Inc. statement 8/12/63 152.63
Less Science Research Center job statement attached 3,629.01
Less Balance on Personal account 367.03
Less Payment on Amory Housing Project account 351.33"3
The Bank had disbursed all but $2,400.00 of it's advances to Allen before receiving the first "statement" dated May 22, 1963. Prior thereto, the Bank had no actual notice that Building Service was selling materials on credit to the job and that it was expecting to offset any account Allen owed it against the subcontract proceeds. After receipt of this statement regarding deductions from Allen's account by Building Service, the Bank made advances as follows: $500.00 on May 24, 1963, $900.00 on June 18, 1963, and $1,000.00 on July 5, 1963.
Allen was at all times and still remains indebted to Building Service after crediting his account with the amount of $10,658.52 in dispute. Allen resided in Monroe County, where he conducted an enterprise known as Jack Allen Paint Contractor. Building Service is a...
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