Plaintiffs, David R. and Robert *351 W. Blair, doing business as Quality Tire Company, appeal as of right from a judgment of no cause of action entered against them on their complaint against defendant Michigan National Bank-West Oakland. Plaintiffs and defendant bank stipulated to the following facts.
On February 23, 1979, and March 26, 1979, defendant made business loans to Trafco Products, Inc., not a party on appeal, in an aggregate amount оf $30,766. These loans were secured in part by all of Trafco’s assets and by the personal guaranties of Trafco’s owners, Ronald L. and Brenda Trafton. Also sometime in February, 1979, Trafco openеd a general checking account with defendant in the name of "Trafco Products, Inc.”; the account was not designated as a trust or other special account.
On November 13, 1979, plaintiffs еntered into a contract with Trafco for the construction of a commercial building for plaintiffs by Trafco. The total amount to be paid by plaintiffs to Trafco under the contract was $36,300. Pursuant to this contract, plaintiffs drew a check for Trafco for $15,000, which check Trafco deposited in its account with defendant on November 13, 1979. On December 20, 1979, plaintiffs drew another check for Trafco for $10,000, which Trafco deposited in an account with another bank. Sometime thereafter, Trafco ceased performance of its construction contract with plaintiffs after having only partially performed, which partial construction work plaintiffs value at $10,000. Plaintiffs spent in excess of $15,000 after Trafco’s default to complete construction of the building.
On November 15, 1979, defendant exercised its common-law right of setoff against Trafco’s checking account with defendant after Trafco defaulted on the business loans. Defendant seized all the *352 money in Trafco’s account, amounting to $17,425.15. Plaintiffs and defendant stipulated that Trafco used its accounts to cover not only plaintiffs’ construction project but also other projects and matters personal to Trafco’s principals and that Trafco used funds and accounts at more than one bank regarding plaintiffs’ construction project.
Plaintiffs filed a complaint against defendant bank seeking recovery of the $15,000 they paid to Trafco. Plaintiffs argue that the $15,000 check deposited in Trafco’s account represented trust money held by Trafco as a trustee pursuant tо the building contract fund act, MCL 570.151
et seq.;
MSA 26.331
et seq.,
and consequently the $15,000 was not an asset of Trafco subject to setoff by defendant, Trafco’s lender. Plaintiffs primarily rely on
Burtnett v The First Natl Bank of Corunna,
We agree with plaintiffs that defendant’s and the circuit court’s reliance on
Portage, supra,
was misplaced. The
Portage
case did not involve a setoff by the bank of money in its depositor’s account. One requirement for proper exercise of a bank’s right of setoff is that the funds set off be the property of the bank’s debtor.
Hansman v Imlay City State Bank,
Section 1 of the building contract fund act provides as follows:
"In the building construction industry, thе building contract fund paid by any person to a contractor, or by such person or contractor to a subcontractor, shall be considered by this act to be a trust fund, for the benefít of the person making the payment, contractors, labоrers, subcontractors or materialmen, and the contractor or subcontractor shall be considered the trustee of all funds so paid to him for building construction purposes.” MCL 570.151; MSA 26.331. (Emphasis added.).
Tо effectuate its purpose of protecting people from fraud and imposition in the building construction industry, the act creates a trust for the benefit of laborers, subcontractors or mаterialmen, as well as for the person who pays for the construction project.
People v Miller,
It is noteworthy that it has been held, in the context of a bankrupt contractor, that money possessed by the contractor as trustee under the building contract fund act is not property of the contractor subject to appropriation by the bankruptcy trustee.
BF Farnell Co v Monahan,
We conclude that money held in an account by a contractor as trustee pursuant to the act is not property of the contractor subject to setoff by the contractor’s bank-lender. We do not find it fatal to plaintiff’s claim that Trafco’s account with defendant was not specially designated in any way. The act does not mandate any particular method of handling the trust funds, People v Miller, supra, p 345, and the Burtnett decision instructs that the bank’s lack of knowledge as to the true ownership of the monies set off is not a defense, Burtnett, supra, p 635. While we agree with the statement in Portage Aluminum Co, supra, p 294, that banks hаve no duty to pry into the affairs of their depositors in order to protect third parties, we fail to find in this statement any justification for allowing a bank to retain monies set off which are later shown tо constitute trust funds under the act. In *355 other words, we do not expect a bank to investigate the nature of monies held in its depositor-debtor’s general account prior to exercising its right of setoff; hоwever, should it subsequently be established that money set off belonged to another and was not the property of the bank’s depositor-debtor, the bank is not entitled to retain it.
We hold that Trafco, pursuant to the act, held funds given it by plaintiffs merely as a trustee to the extent that plaintiffs’ payments to Trafco exceeded the value of the partial construction work performed. While it is undisputed that plaintiffs paid Trafco a total of $25,000, the parties’ stipulation of facts states only that plaintiffs allege the value of the work performed to be $10,000 and defendant has appаrently not stipulated to the correctness of that figure. Hence, this is an issue to be resolved on remand.
We further hold that plaintiffs have sufficiently identified or traced, as required by
Burtnett, supra,
p 635, the $15,000 they gave to Trafco to the $17,425.15 set off by defendant bank two days after Trafco deposited the check. According to the parties’ factual stipulations, Trafco’s owners used the account for рersonal matters, thus raising the possibility that some of the money in the account when set off by defendant belonged to Trafco’s owners, and some withdrawals from the account were made during the twо days between Trafco’s deposit of the check and defendant’s setoff. Nevertheless, even where mingling of trust funds with other funds occurs, the
cestui que trust
has a lien upon the entire fund, and the law presumes that the trust fund was not paid out so long as an amount equal to the trust fund remained.
Sherwood v Central Michigan Savings Bank,
Defendant also points to the parties’ stipulation that Trafco used its accounts for various construction projects, making it possible that some of the money in the acсount may be subject to trust fund claims by other Trafco customers or subcontractors, laborers, and materialmen on other projects. However, defendant merely raises the possibility of othеr trust fund claims, and it is equally possible that any money deposited by Trafco in the account from other projects constituted profit and not trust funds by way of Trafco’s completion of those other projects and full payment to the subcontractors, laborers, and materialmen. See People v Miller, supra, p 345. Moreover, we fail to see how this argument improves defendant’s position since, even if somе money in the account is identifiable as trust funds belonging to someone other than plaintiffs, still as trust money it is not subject to setoff by the bank. Defendant did not make a motion objecting to plaintiffs’ failure to join necessary parties, GCR 1963, 205; the only parties before this Court are plaintiffs and defendant, and plaintiffs have established a claim superior to defendant’s right of setoff. The right of any other trust fund claimants to the money awarded plaintiffs could be protected by the court’s including some provision in its final judgment, GCR 1963, 205.2(4).
Reversed and remanded for proceedings consistent with this opinion; no costs, an issue of public significance having been presented.