Majority
p. 425Crescenzio Riche and Others, and All Other Lienor Creditors of Ferro Concrete Contracting Company and of M. Gustine Rieser, Assignee and Successor Thereof, Similarly Situated, Parties to a Certain Agreement Referred to in the Complaint, and Who May Come in and Contribute to the Expenses of This Action, Appellants, v. The Greenwich Bank of the City of New York, Respondent. Second Department, November 22, 1912.
Headnote
Contract — mechanic’s lien upon municipal improvements — bankruptcy of contractor — agreement that creditor shall complete work and distribute fund—when suit in equity premature.Where, after a contractor for a municipal improvement against which liens had been filed went into bankruptcy, one of the creditors, the defendant, undertook to complete the work for the benefit of all creditors under
p. 426
a contract whereby, with the consent of the receiver in bankruptcy, it took over all rights to payment, and the lienors released their hens, and the agreement provided that the net profits on the completion of the work, including the five per cent reserved by the municipality, should, when received, be divided as follows: sixty per cent to be-retained by the party completing the work, and forty per cent to be divided among the creditors pro rata, a suit in equity upon behalf of the lienors does not lie to compel the defendant to distribute forty per cent of the sums received, although the work has been completed, if the defendant has not received the total amount due, in that the city still retains five per cent thereof. Under such circumstances the suit in equity is premature.
Under such contract the defendant who agreed to complete the work and distribute the money holds the funds upon a trust for the benefit of the other creditors.
A suit in equity does not lie because the complaint charges the defendant With waste in doing the work, as that is a mere incident to an accounting when an action therefor lies, and the same is true as to allegations that the defendant has converted the moneys received.
Appeal by the plaintiffs, Crescenzio Riche and others, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Richmond on the 6th day of August, 1912, upon the decision of the court, rendered after a trial at the Richmond Special Term, dismissing the complaint.
J. L. Farrell, for the appellants.
James J. Allen [Clarence Storm with him on the brief], for the respondent.
Rieser. was the assignee of a contract with all money unpaid thereon, made with the city of New York for certain construction work, and was adjudged a bankrupt, and a receiver appointed. At that time the persons named as plaintiffs as material men were creditors of Rieser or his assignor, or both, and had liens upon money earned under the contract, but retained by the city pending completion of it, and the defendant was Rieser’s creditor upon claims provable in bankruptcy. The necessities of the creditors demanded the performance of the contract, and the defendant undertook it upon the terms stipulated in the contract on which the complaint is based. The scheme of the contract is that the defendant should take over
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the contract with all rights to payments; that the plaintiffs should release all liens, and that the receiver and all creditors joining in the contract should not permit them or the bankruptcy proceedings to impede the defendant’s undertaking or defeat its title to the property, and that the defendant should have the use of the plant for the purposes of the work. Among the things agreed to be done by defendant was this: “ The net surplus remaining, including the 5% reserved by the City of New York, shall, when and as received, be divided as follows: 60% shall be held or paid to the party of the first part and 40% shall be divided .among the parties of the third part pro rata, according to the amounts (with interest) now due each respectively for and on account of said contract work.” The work has been done and five per cent of the payments reserved as usual. At the opening of the trial the complaint was dismissed upon the ground that it did not state a cause of action in equity. Passing the question of the necessity of the examination of a complicated account, and the need of discovery, matters not beyond discussion, it seems clear that the plaintiffs released their liens or right to follow the property in bankruptcy that it might be used by the defendant as capital for doing the work, and that the surplus or profits should be divided in the manner stated, that is, the defendant should retain or pay itself sixty per cent thereof and divide the balance pro rata among the third parties to the contract. The contract is not that the defendant shall pay the receiver, who as second party having title, subject to the liens transferred it, but that forty per cent should be divided, i. e., distributed, amongst the once lienors." The plan involved a. statement of varied expenses in a somewhat important public work, and the deduction of the aggregate items so far as allowed and some other disbursements and payments, and the disposition of the surplus. The surplus did not belong to the defendant as against the creditors, nor did it agree to pay it, or to pay a sum equal to it, but it was allowed out of the surplus to pay itself or to keep sixty per cent of it and divide the balance of the fund. The surplus was to be a common fund in the defendant’s possession, belonging in different proportions to several persons, and such persons stood in a relation similar to cestuis
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trust to the defendant, a trustee. Instead of finishing the contract through the receiver and distributing the money, the defendant, a creditor, for all concerned took what there was of the contract, with all moneys conditionally earned and to be earned, and agreed to do the work and distribute what was realized as profit. But although the defendant has agreed to dispose of the surplus in the manner stated, it can be done only when received, and five per cent of the entire price paid' for the work has not come to the defendant for disposal. The duty of distribution follows possession of the fund. It is true that the agreement provides that the “net surplus * * * shall, when and as received, be divided,” but the net surplus cannot be divided until it shall be in hand. Hence, there is no breach of trust, and, unless some other equity shown, the action is premature. The complaint charges waste by the defendant and improvidence in doing the work, but that is a matter incident to an accounting when an action therefor lies. The complaint charges that “although a large surplus has been or should have been realized * * * the defendant, its agents and representatives, have converted to their own use or diverted, or both, or have wasted and squandered, or both, a large part of the money.” The defendant has not converted a surplus not realized, and there is no allegation that a surplus has been realized. The allegation has two aspects, one of which precludes conversion, and the other alternatively and doubtfully charges that a surplus has been earned and converted or diverted, or both, or wasted or squandered. Such matter, if properly pleaded, proffers usual matter for examination upon an accounting, but nothing is stated that requires for the plaintiffs’ protection the interposition of the court before the money is in hand and the fund ascertainable.
The judgment should be affirmed, with costs.
Jenks, P. J., Hirschberg, Burr and Carr, JJ., concurred.
Judgment affirmed, with costs.