United States v. Durham Lumber Company

PETITIONER: United States
RESPONDENT: Durham Lumber Company
LOCATION: Federal Reformatory for Women in West Virginia

DOCKET NO.: 23
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 363 US 522 (1960)
ARGUED: Oct 19, 1959
DECIDED: Jun 20, 1960

Facts of the case

Question

Media for United States v. Durham Lumber Company

Audio Transcription for Oral Argument - October 19, 1959 in United States v. Durham Lumber Company

Earl Warren:

Number 23, United States of America, Petitioner, versus Durham Lumber Company, et al.

Mr. Heffron, you may proceed.

Howard A. Heffron:

Mr. Chief Justice, may it please the Court.

This case is here on certiorari to the Fourth Circuit.

It involves another facet of the same general issue which was before the Court in the last argued case, Aquilino from the New York Court of Appeals.

The statutory scheme in North Carolina whose laws are involved in this case is somewhat different from the scheme of the New York statutes, but its purpose is the same.

And I will attempt to relate the North Carolina statutes and their effect as I discuss the facts of this case.

The taxpayer here, as in Aquilino, is a general contractor who completed work on a construction contract with the owner.

The contract was completed and the proceeds are now due under the contract.

The federal tax lien preceded here the assertion by the subcontractors of their rights under North Carolina law.

Under the North Carolina statutory scheme, the subcontractors, they give notice to the owner of any liability which they claim owes to them from the general contractor.

As of that time, they have a right to sue the owner for the balance of any funds in the owner's possession which are owed to the general contractor.

In this case, the subcontractors gave their notice to the owner subsequent to the time the federal tax lien arose and the subcontractor's claimed that as a result of their action, the affect of North Carolina law was to give them an independent statutory right against the owner for the proceeds of the construction contract which were had yet been unpaid.

The Fourth Circuit agreed with the subcontractors and held that their right was to be preferred to that of the Federal Government under the tax lien.

Now, under the provisions of North Carolina law, the rights of the subcontractors do not arise until they do something -- until something affirmative is done.

In this instance, that was the act of furnishing the owner with the notice required under North Carolina law.

It is from that time that their rights date so that unlike the New York statute where the subcontractor's rights to the trust fund arose just as soon as their debt was unpaid by the contractor.

Under North Carolina law, that is not the case.

The arising of the contractor's liability to the subcontractor is not the date from which the subcontractor's rights spring.

The effect of date under North Carolina law is the date they supplied the affirmative act required of them by statute, which is to serve the notice upon the owner.

Now, when that notice is served upon the owner under North Carolina law, the owner is directed by statute to hold the proceeds aside.

He may not pay the proceeds to the contractor on the construction contract.

If he does so, he will nevertheless have to settle with the subcontractors so that he faces the threat of double liability in that instance.

The North Carolina cases have said that the owner holds the proceeds in -- in what is in essence a trust fund and that the subcontractors derive a right after they furnish the required notice to have an accounting in an ordinary civil action, the accounting for the trust fund, so that in that respect the North Carolina scheme is similar to that which was before the Court in New York.

Charles E. Whittaker:

Mr. Heffron may I ask you please two things; first, did -- do the North Carolina cases mentioned any trust in your view?

Howard A. Heffron:

Yes, they do.

Charles E. Whittaker:

Expressly mentioned the trust.

Howard A. Heffron:

Yes.

The North Carolina cases do, the statute does not, but the North Carolina cases have construed the effect of the giving of notice by the subcontractor as creating a trust fund in the hands of the owner of any funds he has which is not yet dispersed to the general contractor.

Charles E. Whittaker:

And secondly, did -- as you read it, the Fourth Circuit's opinion make any mention of the requirement of the service of notice by the mechanic?