Frontier Excavating, Inc. v. Sovereign Const. Co., s. 1

• Decision Date: 31 October 1968
• Docket Number: Nos. 1,2,s. 1
• Citation: 294 N.Y.S.2d 994,30 A.D.2d 487
• Parties: FRONTIER EXCAVATING, INC., in behalf of itself and in behalf of all other persons entitled to share in the funds received or to be received by Sovereign Construction Co., Ltd., Contractor, from the Lackawanna Municipal Housing Authority, Owner, in connection with real property owned by the Lackawanna Municipal Housing Authority, and situate in the City of Lackawanna, New York, Appellant, v. SOVEREIGN CONSTRUCTION CO., Ltd., of New Jersey and Lackawanna Municipal Housing Authority, Respondent. FRONTIER EXCAVATING, INC., in behalf of itself and in behalf of all other persons entitled to share in the funds received or to be received by Sovereign Construction Co., Ltd., Contractor, from the Seneca Nation Housing Authority, Owner, in connection with real property owned by the Seneca Nation Housing Authority, and situate in the Town of Irving, New York, Appellant, v. SOVEREIGN CONSTRUCTION COMPANY, LTD., OF NEW JERSEY, sued herein as Sovereign Construction Co., Ltd., and Seneca Nation Housing Authority, Respondents. Action
• Court: New York Supreme Court — Appellate Division

Page 994

294 N.Y.S.2d 994

30 A.D.2d 487

FRONTIER EXCAVATING, INC., in behalf of itself and in behalf

of all other persons entitled to share in the funds received

or to be received by Sovereign Construction Co., Ltd.,

Contractor, from the Lackawanna Municipal Housing Authority,

Owner, in connection with real property owned by the

Lackawanna Municipal Housing Authority, and situate in the

City of Lackawanna, New York, Appellant, v. SOVEREIGN CONSTRUCTION CO., Ltd., of New Jersey and Lackawanna Municipal Housing Authority, Respondent.

FRONTIER EXCAVATING, INC., in behalf of itself and in behalf

of all other persons entitled to share in the funds received

or to be received by Sovereign Construction Co., Ltd.,

Contractor, from the Seneca Nation Housing Authority, Owner,

in connection with real property owned by the Seneca Nation

Housing Authority, and situate in the Town of Irving, New

York, Appellant, v. SOVEREIGN CONSTRUCTION COMPANY, LTD., OF NEW JERSEY, sued

herein as Sovereign Construction Co., Ltd., and

Seneca Nation Housing Authority, Respondents.

Action Nos. 1, 2.

Supreme Court, Appellate Division, Fourth Department.

Oct. 31, 1968.

Lutwack, Feldman & Burke, Buffalo (David P. Feldman, Buffalo, of counsel), for appellant.

M. Carl Levine, Morgulas & Foreman, New York City (Edwin Efros, New York City, of counsel), for respondent.

Before GOLDMAN, J. P., and DEL VECCHIO, MARSH, WITMER and HENRY, JJ.

WITMER, Justice.

This is appeal from an order and two judgments entered thereon in two representative actions tried together, in which the plaintiff seeks to compel the defendant, under Article 3--A of the Lien Law, to account to the plaintiff and all others similarly situated with respect to (action No. 1) defendant's contract for the construction of a public housing improvement for the Seneca Nation Housing Authority (hereinafter referred to as 'Seneca') and (action No. 2) defendant's contract for the construction of a public housing improvement for the Lackawanna Municipal Housing Authority (hereinafter referred to as 'Lackawanna'). Upon the trial and before the conclusion of plaintiff's evidence, the Court granted defendant's motion to dismiss the complaint in each action, upon plaintiff's acknowledgment that it did not have evidence to prove, and did not then claim, that defendant had diverted any funds which it had received from either of these projects. The Court held that proof, or at least claim, of diversion by the contractor-trustee was jurisdictional and a prerequisite to the maintenance of these actions. The plaintiff contends that claim of diversion is not necessary; and this appeal presents the narrow issue thus raised.

Defendant is the general contractor on each of such projects, and the plaintiff was a subcontractor employed to do excavation work thereon. By the terms of each contract the defendant contractor is not required to pay the plaintiff subcontractor 'for any work performed unless and until the OWNER (Housing Authority) has actually paid the CONTRACTOR therefor'. After doing substantial work on the projects, for some reason not apparent from the record plaintiff ceased work thereon. It claims that the defendant owes to it on the Seneca project the sum of $16,271.95 on the base contract and $57,393.72 for extras, and on the Lackawanna project the sum of $8,650 on the base contract and $22,761.89 for extras. The defendant denies that the plaintiff's figures are correct, and contends that anyway it has not received the funds from either owner (i.e., Seneca or Lackawanna), and that thus, under the contracts, nothing is presently owing from it to the plaintiff. It further contends that under subdivision 1 of section 74 of the Lien Law it may use payments it receives from the owners on these projects for such trust purposes as it sees fit and need not account to the plaintiff therefor.

In addition to holding that claim of diversion is jurisdictional, the Court below held that the plaintiff has an adequate remedy at law. With respect to the latter, we think it clear that the existence of a different remedy, if one exists, is not fatal to plaintiff's actions herein (Matter of John R. Philip, Inc. v. Langella, 285 App.Div. 1038, 140 N.Y.S.2d 151; Lien Law § 76, subd. 6; and see Onondaga Commercial Dry Wall Corp. v. 150 Clinton St., 28 A.D.2d 71, 281 N.Y.S.2d 208).

Defendant contends that plaintiff's remedy is under section 76 of the Lien Law, which provides that a beneficiary a trust created under Article 3--A of that law 'shall be entitled, upon request, after the expiration of thirty days from the date his trust claim became payable' to examine the trustee's books with respect to the particular trust or, at his option, receive a verified statement therefrom. Since defendant maintains that by the terms of the contract nothing is owing by it to the plaintiff because the owners have not paid the defendant, this section affords the plaintiff little relief (see Matter of Hansen Excavating Co. v. Comet Constr. Corp., 14 A.D.2d 911, 222 N.Y.S.2d 233). In view of this special contract provision, the defendant acknowledges that the plaintiff has the limited remedy in an action at law to examine the defendant before trial to determine whether the defendant has received payment from the owners and is guilty of diversion. Thus, the defendant challenges the plaintiff's contention as to the extent of a beneficiary's remedies under Article 3--A of the Lien Law.

The purpose of the enactment of said Article 3--A was to make more certain that laborers and materialmen on an improvement are paid from the project funds.

'The trust concept was intended precisely to forbid that an owner, contractor or subcontractor act merely as entrepreneur and was intended to require that he act, instead, as fiduciary manager of the fixed amounts provided for the operation.' (Law Revision Commission Report on Trust Fund provisions of Lien Law, p. 214 McKinney's 1959 Session Laws, p. 1601, at p. 1605.)

The Article makes it plain that the owner or the contractor is a trustee (Lien Law §§ 70, 72) for the benefit of subcontractors, laborers and materialmen (Lien Law § 71), who necessarily, therefore, become Cestuis que trustent or beneficiaries of such trusts. The plaintiff should, thus, have the normal rights of a trust beneficiary except insofar as specific provisions of Article 3--A declare or at least indicate to the contrary.

The Article does limit to some degree the rights of its trust beneficiaries as compared to the usual rights of other trust beneficiaries. Whereas the latter may require an accounting of the trustee on any reasonable demand (II Scott on Trusts, 3rd Ed., § 172), a beneficiary under this Article may only require the trustee to permit examination of its books or records after thirty days have expired from the date the trust claim became due (Lien Law § 76, subd. 1). It is stated in the Commission Report that this provision is mandated by practical considerations (Law Revision Commission Report, pp. 222--223, supra, 1959 McKinney's Session Laws, pp. 1601, 1611). The defendant rests very heavily on this point.

In addition, although a trustee is normally required to act...