American Blower Corp. v. Talcott — 10 N.Y.2d 282

Majority

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American Blower Corporation, on Behalf of Itself and on Behalf of All Other Persons Entitled to Share in the Funds Received by Baker Smith & Co., Inc., as Subcontractor from Paul Tishman Co., Inc., Respondent, v. James Talcott, Inc., Appellant, et al., Defendant.

Argued May 18, 1961;

decided July 7, 1961.

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Julius J. Abeson, J. Jacob Hahn and Francis J. Ryan, Jr., for appellant.

I. Baker Smith’s assignments to Talcott of the receivables did not violate the trust provisions of the Lien Law. (Matter of Smathers, 309 N. Y. 487 ; Raymond Concrete Pile Co. v. Federation Bank & Trust Co., 288 N. Y. 452 ; Vulcan Rail & Constr. Co. v. County of Westchester, 250 App. Div. 212 ; Gramatan-Sullivan v. Koslow, 143 F. Supp. 641 , 240 F. 2d 523 , 353 U. S. 958 ; Matter of Scheftel, 275 N. Y. 135 ; Pouch v. Prudential Ins. Co., 204 N. Y. 281 ; National Bank v. Whitney, 103 U. S. 99 .) II. Even if the receivables were trust res and Talcott knew they were, there was still no violation of the trust provisions of the Lien Law. (Stark v. National City Bank, 278 N. Y. 388 ; Clarke v. Public Nat. Bank & Trust Co., 259 N. Y. 285 ; Seminole Nation v. United States, 316 U. S. 286 ; Matter of Breen v. Board of Trustees of N. Y. Fire Dept. Pension Fund, 299 N. Y. 8 ; People v. Ryan, 274 N. Y. 149 .) III. The assignments of the receivables, though not filed, were valid and enforcible as against the nonlienor plaintiff. (Amiesite Constr. Corp. v. Luciano Contr. & Bldg. Co., 284 N. Y. 223 ; Foreman v. Jacques Constr. Co., 261 N. Y. 429 ; Manton v. Brooklyn & Flatbush Realty Co., 217 N. Y. 284 ; Tisdale Lbr. Co. v. Read Realty Co., 154 App. Div. 270 ; Sexauer & Lemke v. Burke & Sons Co., 228 N. Y. 341 .) IV. The delivery of the Tishman checks to Talcott, as proceeds of the validly assigned receivables, was lawful and not in violation of the trust provisions of the Lien Law. (Fortunato v. Patten, 147 N. Y. 277 ; State Factors Corp. v. Sales

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Factors Corp., 257 App. Div. 101 ; County Trust Co. of N. Y. v. Mara, 242 App. Div. 206 , 266 N. Y. 540 ; United States v. New Hampshire Fire Ins. Co., 173 F. Supp. 529 ; People v. Dalsis, 5 A D 2d 28 ; Hughes v. Lawyers Trust Co., 108 F. 2d 792 , 310 U. S. 647 .) V. There is no evidence to support any finding of diversion. VI. There is no evidence to support any finding of Talco it’s knowledge of diversion by Baker Smith. (Bonham v. Coe, 249 App. Div. 428 .)

Herman N. Schwartz, M. M. Leichter and Jay Kushner for respondent.

I. Section 36-b of the Lien Law, as amended by the Laws of 1942, imposed a trust upon the funds received by subcontractor Baker Smith from contractor Tishman for the improvement of Roosevelt Hospital. The evidence completely supports the Referee’s finding and the Appellate Division’s unanimous affirmance thereof that Baker Smith diverted section 36-b trust funds to appellant. (Corbin-Kellogg Agency v. Tasker, 248 App. Div. 58 ; Matter of Einach, 1 Misc 2d 537 .) II. The cases cited by appellant in support of its narrow and restrictive construction of the clear language of the statute are inapplicable to the facts at bar and are in conflict with the stated legislative intention. (Raymond Concrete Pile Co. v. Federation Bank & Trust Co., 288 N. Y. 452 ; Century Ind. Co. v. Bank of Gowanda, 265 App. Div. 907 ; Gramatan-Sullivan v. Koslow, 240 F. 2d 523 ; Bischoff v. Yorkville Bank, 218 N. Y. 106 ; Fogarty v. City of Albany, 157 Misc. 30 ; Marsich v. Eastman Kodak Co., 244 App. Div. 295 .) III. The evidence completely supports the Referee’s finding that appellant with full knowledge participated in Baker Smith’s diversion of the trust moneys derived from the Roosevelt Hospital improvement. (Ward v. City Trust Co., 192 N. Y. 61 ; Squire v. Ordemann, 194 N. Y. 394 ; Bischoff v. Yorkville Bank, 218 N. Y. 106 ; Williamson v. Brown, 15 N. Y. 354 .) IV. The omission of the covenant provided by subdivision 6 of section 13 and the failure to file as required by section 15 of the Lien Law render the ‘ ‘ assignments ’ ’ invalid as against job claimants specified in section 36-b and article 3-A. (Amiesite Constr. Corp. v. Luciano Contr. & Bldg. Co., 284 N. Y. 222 ; New York Trap Rock Corp. v. National Bank of Far Rockaway, 260 App. Div. 1035 , 285 N. Y. 825 ; Vulcan Rail & Constr. Co. v. County of Westchester, 250 App. Div. 212 .) V. The “ assign

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ments ” gave appellant a mere equitable claim against Baker Smith to the Roosevelt Hospital trust funds. (Bischoff v. Yorkville Bank, 218 N. Y. 106 ; Despard v. Walbridge, 15 N. Y. 374 ; Warren v. Chemical Bank & Trust Co., 274 App. Div. 785 ; Mascioni v. I. B. Miller, Inc., 261 N. Y. 1 ; Williams v. Ingersoll, 89 N. Y. 508 ; Donovan v. Middlebrook, 95 App. Div. 365 ; Matter of Knowlton, 208 Misc. 454 ; Allhusen v. Caristo Constr. Corp., 303 N. Y. 446 ; Bush v. Lathrop, 22 N. Y. 535 ; State Factors Corp. v. Sales Factors Corp., 257 App. Div. 101 .) VI. The fact that appellant made loans to Baker Smith does not excuse its diversion of the trust funds derived from the Roosevelt Hospital improvement.

This ease, like Aquilino v. United States ( 10 N Y 2d 271 ), also decided this day, involves an interpretation of the trust provisions of the Lien Law. Since we have expressed our views of these provisions at length in the Aquilino case, we do not repeat them; instead, we apply the conclusions, which have already been stated, to the problems presented here.

This is a contest between an assignee (Talcott, Inc.) of moneys due under a construction contract and a sub-subcontractor (American Blower Corporation). The sub-subcontractor seeks to impress a trust under article 3-A of the Lien Law on four checks paid to the subcontractor (Baker Smith & Co.) and indorsed over to the assignee on the assignment.

The Lien Law trust fund provisions, as they existed at the time the facts giving rise to this case occurred, afforded protection for both mature and unmatured claims (Aquilino v. United States, supra, at pp. 279-280). However, a statutory trustee under those provisions is empowered by statute to make assignments of payments due him (Lien Law, § 13, subd. [1-a]; § 15) and, therefore, such an assignment, if properly perfected and without regard to notice, is not such a diversion of the trust res as can give rise to an action to impress a trust by a beneficiary. Therefore, had the assignment been perfected here, the assignee Talcott would be entitled to the contested funds.

The fact is, however, that the assignee did not record his assignment as required by statute. (See Lien Law, § 15; see, also, Lien Law, § 13, subd. [1-a].) Section 15 of the Lien Law declares that no assignment of moneys due under a building

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contract “ shall * * * be valid for any purpose, unless the contract * * * or a statement containing the substance thereof and such assignment # * be filed within ten days after the date of such assignment of contract ’ The assignee Talcott not having filed as required, his claim must be considered defective as against American Blower, one of the statutory beneficiaries of the trust fund provisions.

This result comports with both the spirit and the letter of the statutes we are considering. It is true, of course, that the assignee Talcott contributed his money to the improvement, just as the sub-subcontractor American Blower contributed heating and ventilating work to it. This, together with the fact that the form of interim financing which Talcott provided is evidently a basic requirement of the contracting business, is a strong argument in Talcott’s favor. These considerations are outweighed, however, by the fact that Talcott had available a means of protecting its interest and that it failed to take advantage of it.

Amiesite Constr. Corp. v. Luciano Contr. Co. ( 284 N. Y. 223 ) and Foreman v. Jacques Constr. Co. ( 261 N. Y. 429 ) are relied upon to establish that a materialman who is not a lien creditor cannot successfully assail an unfiled assignment. Without entering into a discussion of these very complicated cases, we would merely point out that, in a ease later than either of those cited, we left that precise question open. (See New York Trap Rock Corp. v. National Bank of Far Rockaway, 285 N. Y. 825 ; see, also, 1942 Report of N. Y. Law Rev. Comm., p. 284; N. Y. Legis. Doc. [1942], No. 65 [H], p. 14.) Furthermore, after all of these eases were decided, the trust fund provisions were specifically amended to overcome the doubts raised by the Amiesite ( 284 N. Y. 223 , supra) and Trap Rock ( 285 N. Y. 825 , supra) cases as to the necessity of filing by a statutory beneficiary such as a subcontractor. (See 1942 Report of N. Y. Law Rev. Comm., p. 284; N. Y. Legis. Doc. [1942], No. 65 [H], p. 14.) To accomplish this purpose, the statute was amended to read in this way: “Such trust may be enforced by civil action * * * by any person entitled to share in the fund, whether or not he shall have filed, or had the right to file, a notice of lien”. (Emphasis supplied.)

In view of this plainly worded provision, it is clear, on the one hand, that American Blower, a statutory beneficiary, may

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impress a trust on the contested funds even though it did not file a lien. It is also plain, on the other hand, that, under section 15 of the Lien Law, an assignment of moneys due under a construction contract is not valid “for any purpose” unless recorded. Since this is so and since Talcott failed to record its assignment, American Blower must prevail.

The judgment of the Appellate Division should be affirmed, Avith costs.

Chief Judge Desmond and Judges Dye, Froessel, Van Voorhis, Burke and Foster concur.

Judgment affirmed.

Cases cited

In re the Accounting of Guaranty Trust Co. 309 N. Y. 487 N.Y. 1956-01-12 p. 283
Raymond Concrete Pile Co. v. Federation Bank & Trust Co. 288 N. Y. 452 N.Y. 1942-07-29 p. 283, p. 284
In re the Accounting of Fraser 275 N. Y. 135 N.Y. 1937-07-13 p. 283
Pouch v. Prudential Insurance Co. of America 204 N. Y. 281 N.Y. 1912-01-30 p. 283
National Bank v. Whitney 103 U. S. 99 SCOTUS p. 283
Stark v. National City Bank 278 N. Y. 388 N.Y. 1938-07-07 p. 283
Clarke v. Public National Bank & Trust Co. 259 N. Y. 285 N.Y. 1932-06-01 p. 283
Seminole Nation v. United States 316 U. S. 286 SCOTUS 1942-05-11 p. 283
Breen v. Board of Trustees of New York Fire Department Pension Fund 299 N. Y. 8 N.Y. 1949-03-03 p. 283
People v. Ryan 274 N. Y. 149 N.Y. 1937-04-27 p. 283
Amiesite Construction Corp. v. Luciano Contracting & Building Co. 284 N. Y. 223 N.Y. 1940-11-19 p. 283, p. 286
Foreman v. Louis Jacques Construction Co. 261 N. Y. 429 N.Y. 1933-04-11 p. 283, p. 286
Manton v. Brooklyn & Flatbush Realty Co. 217 N. Y. 284 N.Y. 1916-02-22 p. 283
Sexauer & Lemke v. Luke A. Burke & Sons Co. 228 N. Y. 341 N.Y. 1920-04-13 p. 283
Fortunato v. Patten 147 N. Y. 277 N.Y. 1895-10-22 p. 283
County Trust Co. v. Mara 266 N. Y. 540 N.Y. 1935-01-24 p. 284
People v. Dalsis 5 A D 2d 28 N.Y. App. Div. 1957-12-05 p. 284
In re the Accounting of Einach 1 Misc 2d 537 N.Y. Sur. Ct. 1955-11-25 p. 284
Bischoff v. Yorkville Bank 218 N. Y. 106 N.Y. 1916-05-02 p. 284, p. 285
Fogarty v. City of Albany 157 Misc. 30 N.Y. Sup. Ct. p. 284
Ward v. City Trust Co. of New York 192 N. Y. 61 N.Y. 1908-04-14 p. 284
Squire v. Ordemann 194 N. Y. 394 N.Y. 1909-02-23 p. 284
Williamson v. Brown 15 N. Y. 354 N.Y. p. 284
New York Trap Rock Corp. v. National Bank of Far Rockaway 285 N. Y. 825 N.Y. 1941-05-22 p. 284, p. 286
Despard v. Walbridge 15 N. Y. 374 N.Y. p. 285
Mascioni v. I. B. Miller, Inc. 261 N. Y. 1 N.Y. 1933-01-10 p. 285
Williams v. Ingersoll 89 N. Y. 508 N.Y. 1882-10-10 p. 285
In re the Accounting of Brooklyn Trust Co. 208 Misc. 454 N.Y. Sur. Ct. 1955-07-21 p. 285
Allhusen v. Caristo Construction Corp. 303 N. Y. 446 N.Y. 1952-01-24 p. 285
Bush v. Lathrop 22 N. Y. 535 N.Y. p. 285
Aquilino v. United States 10 N Y 2d 271 N.Y. 1961-07-07 p. 285

Statutes and regulations cited

Lien Law p. 284, p. 285, p. 287