B. G. Equipment Co., Inc. v. American Ins. Co.

• Decision Date: 17 February 1978
• Citation: 402 N.Y.S.2d 479,61 A.D.2d 247
• Parties: B. G. EQUIPMENT CO., INC., Respondent-Appellant, v. AMERICAN INSURANCE COMPANY, Appellant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 479

402 N.Y.S.2d 479

61 A.D.2d 247

B. G. EQUIPMENT CO., INC., Respondent-Appellant, v. AMERICAN INSURANCE COMPANY, Appellant-Respondent.

Supreme Court, Appellate Division, Fourth Department.

Feb. 17, 1978.

McGrath, Meyer, Lieberman & Lipp, P. C., Buffalo, for appellant-respondent; Howard L. Meyer, Buffalo, of counsel.

Woods, Oviatt, Gilman, Sturman & Clarke, Rochester, for respondent-appellant; Percival D. Oviatt, Jr., Rochester, of counsel.

Before MARSH, P. J., and CARDAMONE, DILLON, HANCOCK and WITMER, JJ.

DILLON, Justice:

The defendant appeals from a judgment awarded to the plaintiff B. G. Equipment Co., Inc. (BG) in the sum of $104,617.42, and the plaintiff cross-appeals on the ground that the judgment is inadequate by the sum of $19,174.

In January, 1972 Jespersen-Rochester, Inc. (JRI) contracted with Building Systems Housing Corporation of New York (BSHC), the prime contractor, to erect concrete building panels in connection with the construction of an apartment project in the City of Rochester. In May, 1972 the defendant executed a payment bond, as surety, for the benefit of suppliers of labor and material on the project. BG provided labor and rented certain equipment to JRI. The major rental item was a travelling tower crane for which JRI was to pay $6,848 a month. It became apparent during performance of its contract with BSHC that the financial condition of JRI was weak. It eventually went out of business without completing its work on the project and without paying BG. This action was commenced by BG solely against the defendant, based upon the payment bond.

Several issues are presented which require our consideration. Initially, we reject the defendant's claim that a mistrial was warranted based upon the ex parte submission of a trial memorandum to the court by BG's counsel. While it is argued that such conduct is acceptable under the standards of local custom and practice, nevertheless, a copy should have been furnished to the defendant (see DR 7-110). The court unequivocally stated, however, that the trial memorandum was not considered in making its determination (see Code of Judicial Conduct, Canon 3(A)(4)). Moreover, the defendant had ample opportunity to respond to the memorandum prior to the court's decision and we conclude, therefore, that the decision was not unfairly influenced by counsel's ex parte communication with the court.

Relying upon General Crushed Stone v. State of N. Y., 46 Misc.2d 266, 259 N.Y.S.2d 757, mod. 23 A.D.2d 250, affd. 19 N.Y.2d 737, 279 N.Y.S.2d 190, 225 N.E.2d 893, the defendant next claims that JRI violated the trust provisions of the Lien Law and that it was aided and abetted in doing so by BG. In this connection, however, the defendant has failed to satisfy its burden of proving a violation of the Lien Law. It failed to establish that JRI's books of account do not "show the allocation to each trust of the funds deposited in (its) general or special bank account or accounts" (Lien Law, § 75, subd. 1). Nor does the record establish any actual diversion of trust funds by JRI. Such a diversion occurs when the trustee utilizes a trust asset for a nontrust purpose before payment of all trust claims (Lien Law, § 72, subd. 1). While it appears that the bank account, which commingled trust assets with other monies, was reduced by JRI's expenditures for items obviously disassociated with the trust, it does not necessarily follow that JRI received sufficient funds to pay its suppliers but diverted them elsewhere.

The defendant also contends that BG's execution of a waiver of lien constituted a representation that JRI had paid all sums then owing to BG. In support of this argument, the defendant introduced evidence that custom and usage in the construction industry requires that a waiver of lien be interpreted as a representation of payment. The waiver, however, simply "WAIVES & RELEASES ALL LIEN OR RIGHT OF LIEN" and contains no language which might be construed as a representation of payment. Its terms are clear and unambiguous, and thus custom and usage may not be relied upon to vary the express language of the waiver (Matter of Western Union Tel. Co. (ACA), 299 N.Y. 177, 184, 86 N.E.2d 162, 166; International Harvester Co. v. Town of Ellery, 28 A.2d 1081, 285 N.Y.S.2d 104; see Richardson, Evidence (10th ed.), § 627). The waiver of lien extinguished BG's right to file a lien. Viewed alone, it does not bar the assertion of a claim for personal judgment (MacArthur Concrete Pile Corp. v. Kew Queens Corp., 276 App.Div. 1015, 95 N.Y.S.2d 392; Cummings v. Broadway-94th Street Realty Co., 233 N.Y. 407, 412, 135 N.E. 832, 833, rearg. den. 234 N.Y. 534, 138 N.E. 536; Tager v. Healy Ave. Realty Corp., 14 A.D.2d 584, 585, 218 N.Y.S.2d 679, 682; see Lien Law, § 54).

This is not to say, however, that the waiver of lien must be disregarded in considering the totality of facts before us, particularly in light of the relationship of Richard G. Bennett with both BG and JRI, as well as his conduct and knowledge in this whole transaction. The defendant forcefully argues that Bennett's role, coupled with the conduct and actions of both BG and JRI, requires that BG be estopped from recovery. We agree.

Bennett is president of BG which is wholly owned by Stewart & Bennett, Inc. Bennett is the chairman and treasurer of Stewart & Bennett, Inc. and owns 70% Of its stock. Bennett was also JRI's treasurer until September, 1973 when he became its president. One-third of JRI's stock was owned by Stewart & Bennett, Inc.

Although Bennett maintains that he was not an operating officer of BG, he was directly involved in aspects of its financial activities, at least to the extent of signing notes on behalf of BG in connection with its bank loans. Additionally, he discussed the purchase of the crane used on this project with the manager of BG and signed a note for over $100,000 in his capacity as president of BG, to obtain the funds used for its purchase.

Moreover, by August, 1973, he was aware of and concerned about the amount BG was owed by JRI. It was because of that concern that a decision was made to find new investors for JRI in order to pay its debts to BG and others. Although payments were made to other creditors, JRI made no payment to BG during the entire term of this contract, including the period of Bennett's presidency, except for a token sum paid in consideration of the waiver of lien. Despite his role as president of BG, Bennett testified, incredibly we believe, that BG was not paid because its managing officer, William Wesley, was not...