Onondaga Commercial Dry Wall Corp. v. 150 Clinton St., Inc.

• Decision Date: 02 July 1969
• Citation: 25 N.Y.2d 106,302 N.Y.S.2d 795,250 N.E.2d 211
• Parties: , 250 N.E.2d 211 ONONDAGA COMMERCIAL DRY WALL CORP., Plaintiff, v. 150 CLINTON STREET, INC. et al., Defendants. UNITED STATES of America et al., Intervenors-Respondents, v. ADIRONDACK CARPENTERS WELFARE FUND et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 795

302 N.Y.S.2d 795

25 N.Y.2d 106, 250 N.E.2d 211

ONONDAGA COMMERCIAL DRY WALL CORP., Plaintiff, v. 150 CLINTON STREET, INC. et al., Defendants.

UNITED STATES of America et al., Intervenors-Respondents, v. ADIRONDACK CARPENTERS WELFARE FUND et al., Appellants.

Court of Appeals of New York.

July 2, 1969.

Richard F. Schwerzmann, Watertown, for appellants.

Joseph Kover, Johnnie M. Walters, Lee A. Jackson, Crombie J. D. Garrett, Howard M. Koff, Washington, D.C., Justin J. Mahoney and James P. Shanahan, Syracuse, for United States of America, intervenor-respondent.

Louis J. Lefkowitz, Atty. Gen. (Ruth Kessler Toch and Edwin R. Oberwager, Albany, of counsel), for New York State Tax Commission, intervenor-respondent.

George A. Roland, for V. Zappala & Company, Inc., amicus curiae.

BERGAN, Judge.

The problem posed by this appeal is the relative rights of two classes of claimants to a balance of $23,000 due from the owner on a contract for the construction of apartment buildings. One class is made up of lienors under article 2 of the Lien Law Consol.Laws, c. 33; the other of trust beneficiaries under article 3--A.

In two lien foreclosure actions previously brought in Jefferson County, an order has been made by the Special Term directing the payment of the balance due on the contract into court under section 55 of the Lien Law. Such a deposit, the statute provides, shall 'take the place of' the property and 'shall be subject to the lien'.

The United States and the State of New York have tax claims arising directly from the prosecution of the work. The government's affirmative pleading as intervenor in this action and as attempted intervenor in the foreclosure actions is to impress a trust for its claim on the funds on deposit. The Appellate Division has enjoined the prosecution of the lienors' claims, to allow the tax claims to proceed. The two governments are clearly beneficiaries of the trust created by article 3--A of the Lien Law imposed on all proceeds from the work (Lien Law, § 71). But if the fund paid into court in the foreclosure actions in first applied to liens, it will be exhausted and nothing will be left for tax claims; if it is applied both to liens and to trust claimants alike, the statutory priority of the tax claims (Lien Law, § 77, subd. 8) would exhaust the fund and nothing will be left for the lienors. The conflict between lienors and article 3--A trust beneficiaries to the same judicially supervised fund is thus presented to this court for the first time. Since both groups cannot be paid, the choice to be made must rest on a construction of the statute.

The court at Special Term denied the application of the United States to enjoin the foreclosure actions. The effect of this would have been to distribute the fund to the lienors; the Appellate Division, by a divided court, reversing, granted the injunction, the effect of which seems intended to give the trust beneficiaries an interest in the fund which will, in turn, give priority to tax claims.

The statute on the whole, although it is not without its obscurities, seems to suggest a legislative intent to give lienors first access to a fund paid into court in a lien foreclosure action and to have the trust created by article 3--A attach to a residue after satisfaction of valid liens.

Concededly the United States and the State of New York would have no lien against the property on which the improvement was made, even though the tax claims arose directly from the work being done on the improvement and represented income taxes, social security and unemployment insurance taxes of workers collected and withheld by the building contractor Serafini from wages.

Such taxes, however, would constiute a valid basis for claims against trust assets coming into the hands of a contractor within section 71 of the Lien Law; and would have first priority in distribution of trust assets (§ 77, subd. 8).

But the fund which has been paid into court under section 55 of the Lien Law 'take(s) the place of the property upon which the lien existed' and this means that lien claims against it are to be looked upon as lien claims against the property itself and, as it has already been noted, tax claims are not lienable under the statute.

What is a 'trust' under article 3--A is so broadly...