Reliance Insurance v. North Carolina National Bank , 39 N.C. App. 420 ( 1979 )

HEDRICK, Judge.

At the outset, we note that defendant, although properly grouping its exceptions and assignments of error in the record, has failed to bring them forward in his brief as required by Rule 28(e) of the Rules of Appellate Procedure. We nevertheless proceed to treat the assignments of error in the record as though they had been properly brought forward.

The facts of this case are not in controversy. Defendant’s assignments of error all relate to the trial court’s conclusions of law. Defendant first contends that it was not required as a matter of law to give notice of the levy to Reliance because Reliance was not a depositor of the Bank and Reliance did not have an account with the bank. Nowhere in defendant’s brief is there cited any legal authority for its contentions. Defendant argues only that the corporate resolution authorizing the opening and maintaining of the account was executed by Rustin, and that Reliance never requested the Bank to include its name on the account signature card as a depositor or to send monthly statements or cancelled checks to it. Defendant next contends that the terms of the agreement do not require it to give notice of the tax levy to Reliance. In support of this contention, defendant argues that nowhere in the agreement is there any language specifically requiring the Bank to give notice of a tax levy to Reliance or stating that the funds coming into the special account were the property of Reliance.

We believe defendant’s contentions are wide of the mark. Reliance was a depositor of the Bank. By opening an account and delivering to a bank money, funds, or credits constituting the deposit, one becomes a depositor and a contractual relationship between the bank and the depositor is created. In re Michael, 273 N.C. 504, 160 S.E. 2d 495 (1968); 10 Am. Jur. 2d Banks § 338 (1963). While it is certainly possible to open an account using the funds of a third party and not create a depositor relationship between the bank and the third party, that is not the situation in the present case. Here, not only did Reliance open the account and provide its initial funding of $12,000, but it also met with representatives of the Bank and entered into a detailed agreement specifically delineating the conditions under which the Bank could pay funds out of the account. The fact that the Bank agreed to use the title “Rustin Construction Company, Inc. Special Account” or that it sent monthly banking statements and cancelled checks to the Charlotte address of Rustin does not deprive Reliance of its status as a depositor. The fact that Rustin was a depositor obviously does not preclude Reliance from also being a depositor of the same account. Finally, we note that the agreement itself provided that “Bank agrees to deposit the proceeds of all monies received from said Bonded Contract from Contractor [Rustin] or from Surety [Reliance], in said trust account.” (Emphasis added.)

The general rule concerning a bank’s duties to its depositors is as follows:

Since a deposit is a matter of contract between a depositor and the bank, the depositor may stipulate at the time of deposit as to how or by whom the money may be drawn out ... A high standard of contractual responsibility has been imposed on banks in paying money chargeable against their depositors’ accounts. The bank must, in paying out a deposit, comply with its agreement with the depositor. In the absence either of prior or subsequent negligence or misleading conduct on the part of the depositor, it cannot charge him with any payments except as are made in conformity with his genuine orders; payments otherwise made cannot be charged against the depositor regardless of the care exercised and the precautions taken by the bank. (Emphasis added.)

10 Am. Jur. 2d Banks § 494, at 462-63 (1963).

While the Bank may not have had a duty as a matter of law to give notice to Reliance of the tax levy, had it given notice then that would constitute one element in determining any “prior or subsequent negligence” on the part of the depositor; however, it would not have absolved the Bank of liability for making a payment not in conformity with the terms of the “Trust Agreement.” In addition, the language contained in paragraph (8) of the agreement does not relieve the Bank of liability for wrongful payment; it only provides that the Bank has “no obligation to assure that checks issued on said trust account are actually for payment of bona fide charges” pursuant to the bonded contract.

Defendant next contends that the “Trust Agreement” it entered into did not create a valid trust under the laws of North Carolina. Assuming arguendo the correctness of this contention, we think it irrelevant. Once funds were deposited in the special account they could only be disbursed as approved by Reliance, and they no longer were the property of Rustin, if indeed they ever were. The language of the agreement plainly stated that Reliance had the right “to have all payments earned or to be earned by Contractor [Rustin] under Bonded Contracts applied to the payments of labor and material and charges of Contractor [Rustin] incurred in connection with the performance of Bonded Contracts.” Furthermore, although Rustin would not by itself withdraw any funds from the special account, the agreement provided that the Bank “upon written request from the Surety [Reliance], will pay over to the Surety [Reliance] any funds on deposit in said trust account and the proceeds of any monies received under said assignments after said request from the Surety [Reliance].”

Additionally, there is plenary evidence in the record tending to show that the Bank knew that Reliance provided the initial funding of the account, that subsequent funding was from Rustin’s assignment of future proceeds from bonded contracts and from Reliance, and that the funds in the account were held for the sole purpose of discharging Reliance’s obligation under its bond. A cursory examination of the “Trust Agreement” reveals that its purposes were to ensure that all of the funds in the special account would be used for Reliance’s benefit and to protect Reliance from having funds improperly disbursed. The trial court correctly concluded that the funds in the account were not the property of Rustin, and therefore were not subject to the levy by the I.R.S. against the property of Rustin. This assignment of error has no merit.

Finally, defendant contends that the court erred in concluding that Reliance had no duty to mitigate its damages by filing a claim for a refund with the I.R.S. or assisting the Bank in doing so because Reliance could have done either with little or no expense while the Bank did not have the necessary information to file the claim.

The funds in the special account were not the property of Rustin and the Bank had no authority to pay the funds to the I.R.S. in settlement of the tax levy against Rustin. The general rule is that a depositor’s funds are unaffected by any unauthorized payment and the depositor may sue either the person to whom the deposit has been paid without authority or the Bank. 10 Am. Jur. 2d Banks § 508 (1963). We do not believe that the depositor should be put to an election in this situation and thus be forced to run the risk of being precluded from maintaining an action against the Bank. Nor do we believe that the Bank should be permitted to take no action to recover the wrongful payment and then plead as a defense the failure of the depositor to take action against the wrongful payee when both parties have a similar opportunity to remedy the wrong. See Shaw v. Greensboro, 178 N.C. 426, 101 S.E. 27 (1919). Furthermore, on the facts of this case we are unable to say that Reliance would have been able to minimize the loss “with reasonable exertion or trifling expense.” Construction Co. v. Crain and Denbo, Inc., 256 N.C. 110, 121, 123 S.E. 2d 590, 598 (1962); Troitino v. Goodman, 225 N.C. 406, 35 S.E. 2d 277 (1945).

For the reasons stated above the judgment appealed from is affirmed.

Affirmed.

Chief Judge MORRIS and Judge ERWIN concur.