Section 2344 Case - Assigning Funds to a Third Party
In Builders' Control Service of No. Cal., Inc. v. North American Title Guar. Co. (1962), a lender agreed to fund the owner-builder's construction of homes and deposited the loan proceeds with the plaintiff, a fund control agent; plaintiff was to use those funds to pay the construction costs.
The parties also agreed that the owner-builder would assign the proceeds from the sale of the newly constructed homes to the plaintiff fund control agent as an additional source to pay the construction costs.
The defendant acted as escrow holder for the proceeds of the home sales knowing the owner builder had assigned the sales proceeds to the plaintiff fund control agent. (Builders' Control Service, supra, 205 Cal. App. 2d at pp. 70-71.)
The issue in Builders' Control Service was whether the escrow holder, knowing its principal had assigned the sales proceeds held by it, was obligated to disburse those proceeds to the owner's assignee, the fund control agent.
Although the Builders' Control Service court concluded the escrow holder was obligated to disburse the funds to the owner-builder's assignee, the principles it applied have no application to whether an escrow holder owes duties to a nonparty based on an assignment made by a stranger to the escrow to a stranger to the escrow.
The Builders' Control Service court first noted that when a home sale escrow closed, the escrow holder held the sales proceeds as agent for the owner-builder principal.
The Builders' Control Service court then cited section 2344 for the rule that, when a principal has assigned funds to a third party, an agent for that principal who comes into possession of those funds must surrender them to the third party. (Id. at p. 73.)