Court Opinion

ID: 7953789
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:45:05.01704+00
Date Added: 2024-06-11T16:34:15.235468
License: Public Domain

Coleman, J.
(concurring). The Chief Justice and I reach the same result in this case. We reverse the Court of Appeals and remand for further proceedings. However, I find his opinion does not sufficiently describe the building contract fund act and its relationship to the Uniform Commercial Code. The focus should be on Continental Electric Company’s position as trustee under the building contract fund act and not on National Bank of Detroit’s position as a lender of funds and holder of a security interest.
This contest is between two parties owed money by Continental Electric Company. National Bank of Detroit had a security interest in Continental’s accounts receivable. Westinghouse Electric Corporation had subcontracted work from Continental.
Eames & Brown had installed plumbing in a building. Faulty installation resulted in water damage. The firm’s insurer, Aetna Life & Casualty Company, contracted with Continental to repair the damage. Continental subcontracted the work to Westinghouse.
When these agreements were made NBD had a security interest in Continental’s present and future accounts. NBD notified each defendant of this interest.
Continental became insolvent. Aetna paid Westinghouse directly for materials and services provided under the subcontract with Continental.
NBD sued for the money paid to Westinghouse claiming the money under its security interest; Westinghouse said the building contract fund act entitled it to the money.
The circuit court said the building contract fund *626act did not apply. NBD was then granted summary judgment.
The Court of Appeals affirmed for three reasons. It said the building contract fund act is a penal statute not intended to determine priorities between creditors. Second, Westinghouse’s claim arose after NBD perfected its security interest. Third, the act does not create a lien covered by the Uniform Commercial Code.
The Court of Appeals’ conclusion about the building contract fund act is in error. B F Farnell Co v Monahan, 377 Mich 552; 141 NW2d 58 (1966) overruled Club Holding Co v Flint Citizen Loan & Investment Co, 272 Mich 66; 261 NW 133 (1935), which had indicated that the statute was penal.
Correcting the Court of Appeals on the nature of the statute still leaves the problem of resolving the competing statutory interests. When our Uniform Commercial Code (MCLA 440.1101 et seq.; MSA 19.1101 et seq.) was adopted, the building contract fund act (MCLA 570.151 et seq.; MSA 26.331 et seq.) was not repealed.
Article 9 of the UCC applies to "any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures” but it "does not apply to statutory liens” with one exception not in issue. MCLA 440.9102. MCLA 440.9104(c) says the "article does not apply * * * to a lien given by a statute or other rule of law for services or materials except as provided in section 9310 on priority of such liens”.1
*627Bidwell v Whitaker, 1 Mich 469 (1850), said that a lien "[i]n its largest sense * * * embraces every case in which property is charged with the payment of any debt or duty”. In discussing a lien arising by operation of law, the Court in Aldine Manufacturing Co v Phillips, 118 Mich 162; 76 NW 371 (1898), said it was analogous to a common law lien defined as "’the right of detention, in persons who have bestowed labor upon an article, or done some act in reference to it, and who have the right of detention till reimbursed for their expenditures and labor’. Oakes v Moore, 24 Me 214, 219; 41 Am Dec 379 [1844].” Also see 51 Am Jur 2d 142 and discussions in McClintic-Marshall Co v Ford Motor Co, 254 Mich 305; 236 NW 792 (1931) and Cheff v Haan, 269 Mich 593; 257 NW 894 (1934).
The building contract fund act does not create a lien.2 It imposes a trust on a contractor "for the benefit of the person making the payment, contractors, laborers, subcontractors or materialmen”. MCLA 570.151. The trustee must use "any payment made to him * * * to first pay laborers, subcontractors and materialmen, engaged by him to perform labor or furnish material for the specific improvement”. MCLA 570.152. Failure to do so subjects the trustee to criminal penalties.
The beneficiary of the trust also has "the common law remedy this Court has provided in favor of those who under the act are aggrieved by [the contractor’s] statutory violation”. Farnell at p 557. In Farnell the contractor-trustee had been paid for work done under a contract and turned the payment over to a trustee in bankruptcy without paying a subcontractor. The Court said the remedy *628"was not destroyed, either by defendant’s voluntary petition in bankruptcy or by his voluntary payment to the trustee in bankruptcy of that which was not his”. Earlier the Court noted that the funds "were never the 'property’ of defendant within [the provisions of the bankruptcy act]”.
MCLA 440.9303(1) says a security interest "is perfected when it has attached and when all of the applicable steps required for perfection have been taken”. MCLA 440.9204(1) says a security interest "cannot attach until * * * the debtor has rights in the collateral”.
Farnell indicates that Continental did not have any rights in the money owed by Aetna until the trust obligation "to first pay * * * subcontractors * * * engaged by [it] to perform labor or furnish material” had been discharged. NBD’s security interest does not attach until this is done.
The Chief Justice believes it is "entirely consonant with the purposes of the Act to assign a specific account receivable, arising out of a particular improvement, to a lender to raise money to pay” the subcontractor. I believe the statutes make Continental the trustee of the fund for specified purposes, make Westinghouse the beneficiary, and postpone the attachment of NBD’s security interest until the trust is discharged.
The Chief Justice says a "security interest created by a general, continuing assignment should be regarded as valid at least to the extent it does not exceed the amount of money lent by the secured party actually used in creating the specific improvement”. Again, I would focus on all the relationships created by the statutes and not just on the secured party/debtor one. NBD’s security interest does not attach until Continental has a right to the money. Continental does not have a *629right to money until its trust obligation is discharged.
However, the building contract fund act should not be used to diminish the rights of creditors who have followed the UCC. It is possible that the money paid to Westinghouse exceeded that which was due under the building contract fund act. It is possible that if Continental had not been insolvent and NBD had not taken a security interest in the accounts receivable, some of the money paid to Westinghouse would have been retained by Continental. NBD should be given an opportunity to develop the facts and determine if Westinghouse received more than was due under the building contract fund act.
I would reverse the Court of Appeals and remand to the trial court for a hearing to determine whether the payment to Westinghouse exceeded the money due under the building contract fund act. If Westinghouse did receive more than was due, NBD should have an opportunity to demonstrate that its security interest attaches to the excess.
Lindemer and Ryan, JJ., took no part in the decision of this case.

 See Note, Nonconsensual Liens Under Article 9, 76 Yale LJ 1649 (1967), and Miller, Liens Created by Operation of Law: A Look at Section 9-310 of the Uniform Commercial Code, 76 Com U 221 (1971). Also see notes Priorities Between Article Nine Security Interests and Statutory Liens in Iowa, 23 Drake L Rev 169 (1973), and Priority Between Security Interests and Liens Arising by Operation of Law in Oregon, 12 Willamette U 173 (1975).

 The 1 Restatement, Trusts, 2d, § 9 says a "mortgage or a pledge or a lien is not a trust”.