Opinion ID: 1251828
Heading Depth: 1
Heading Rank: 2

Heading: the bank's status as involuntary trustee of the statutory construction trust fund

Text: Under the terms of its assignment to the Bank, Midwest agreed that all or part of the proceeds from the Contractor's checks would first be applied to payment upon Midwest's notes for the Sandpiper projects. The agreement required that checks from the Contractor be made payable jointly to Midwest and the Bank. On endorsing the checks from Contractor, Midwest is deemed to have received them. [12] In this manner Midwest became a trustee ex lege or statutory trustee of all progress payments received. [13] As a subcontractor who performed labor and provided material on the Sandpiper projects, Midwest occupied the status of a lien claimant, and thus it, too, was a beneficiary of the statutory trust fund in its hands. When Midwest  while acting in its dual capacity of trustee and beneficiary  allowed trust funds to be used in repayment of the Sandpiper notes, although valid lienable claims, other than its own, remained to be satisfied, it did breach its fiduciary obligation, but only to the extent that the payments to the Bank, when made, may have exceeded the amount of valid lienable claims then in existence in favor of Midwest in its own behalf as an individual claimant on the projects. [14] In short, Midwest could repay the Bank, out of the trust fund in its hands, no more than the amount which it might rightfully pay itself. Any disbursements made to the Bank in sums greater than the amount Midwest was entitled to keep as a lien claimant on the projects did indeed constitute a wrongful diversion or misapplication of trust funds. While the evidence does tend to indicate that the Bank knowingly accepted trust funds in repayment of Midwest's Sandpiper notes, it is far from clear that the sums received by the Bank were at any time in excess of Midwest's own lienable claims.