Opinion
2011-12-15
In re MAYRICH CONSTRUCTION COMPANY, Petitioner–Appellant, v. OLIVER LLC, etc., Respondent–Respondent.
The McDonough Law Firm, L.L.P., New Rochelle (K. Richard Marcus of counsel), for appellant. Zetlin & DeChiara LLP, New York (David Abramovitz of counsel), for respondent.
The McDonough Law Firm, L.L.P., New Rochelle (K. Richard Marcus of counsel), for appellant. Zetlin & DeChiara LLP, New York (David Abramovitz of counsel), for respondent.
MAZZARELLI, J.P., ANDRIAS, FRIEDMAN, CATTERSON, FREEDMAN, JJ.
Order and judgment (one paper), Supreme Court, New York County (O. Peter Sherwood, J.), entered September 22, 2010, upon reargument, vacating a prior order and judgment (one paper), same court and Justice, entered March 19, 2010, which granted the petition and directed respondent owner to serve upon petitioner a verified statement drawn in accordance with Lien Law § 76, and denying the petition and dismissing the special proceeding, unanimously affirmed, with costs.
The two mortgages that are the subject of this proceeding were obtained for the purpose of acquiring property and air rights, respectively. Neither contains an express promise by respondent to improve property. Accordingly, no funds were received by respondent “under or in connection with a contract for an improvement of real property,” as required by Lien Law § 70(1), and petitioner has not established that the trust provisions of Lien Law article 3–A are applicable.
We reject petitioner's argument that the loan proceeds were received “in connection with a contract for an improvement of real property” because the property and air rights were acquired to facilitate the development of the overall project. Although article 3–A is a remedial statute and is to be liberally construed to carry out its purpose, the courts are not authorized to enlarge that clearly defined purpose ( see Tri–City Elec. Co., v. People, 96 A.D.2d 146, 149, 468 N.Y.S.2d 283 [1983], affd. 63 N.Y.2d 969, 483 N.Y.S.2d 990, 473 N.E.2d 240 [1984] ). Lien Law article 3–A was enacted “ ‘to insure that funds obtained for financing of an improvement of real property and moneys earned in the performance of a contract for either a privately owned improvement or a public improvement will in fact be used to pay the costs of that improvement’ ” ( Canron Corp. v. City of New York, 89 N.Y.2d 147, 153–154, 652 N.Y.S.2d 211, 674 N.E.2d 1117 [1996], quoting 1959 Report of N.Y. Law Rev. Commn., at 209, reprinted in 1959 N.Y. Legis. Doc. No. 65[F], at 25). To hold that funds received for the purpose of purchasing real property become part of a trust constituted for the purpose of improving property would unduly enlarge this clearly defined purpose.
While Lien Law § 70(5)(c) provides that trust funds for which an owner is deemed to be a trustee include money received by him or her “under a mortgage recorded subsequent to the commencement of the improvement and before the expiration of four months after completion of the improvement,” the mere fact that the mortgages were recorded during the statutory period does not render the loan proceeds a trust fund. Section 70(5)(c) is subject to the requirement of § 70(1) that trust funds be “for or in connection with an improvement of real property” ( see McKinney's Cons. Laws of NY, Book 1, Statutes § 98; Matter of Long v. Adirondack Park Agency, 76 N.Y.2d 416, 420, 559 N.Y.S.2d 941, 559 N.E.2d 635 [1990] [all parts of statute to be harmonized and given effect] ).
Nor does the mere presence of the Lien Law § 13(3) language in the mortgages transform the underlying acquisition loans into trust funds ( see Monroe Sav. Bank v. First Natl. Bank of Waterloo, 50 A.D.2d 314, 318, 377 N.Y.S.2d 827 [1976], lv. denied 39 N.Y.2d 708, 385 N.Y.S.2d 1027, 351 N.E.2d 439 [1976] ). Lien Law §§ 13(2) and 13(3), read together, govern the priority between mechanic's liens and mortgages; they do not govern the creation of trust funds ( see A & V 425 LLC Contr. Co. v. RFD 55th St. LLC, 15 Misc.3d 196, 202–203, 830 N.Y.S.2d 637 [Sup. Ct. N.Y. County 2007] ). Weber v. Welch, 246 A.D.2d 782, 668 N.Y.S.2d 71 [1998] is not to the contrary. The funds at issue there were borrowed under a mortgage-secured improvement loan for the construction of a residential dwelling and constituted trust funds.