Preventing Avoidance of Taxes by Transfer of the Right to Compensation Directly to a Creditor

In Canron Corp. v. City of New York (89 NY2d 147, 674 NE2d 1117, 652 NYS2d 211 [1996]), the Court of Appeals found that the assignment of insurance proceeds, intended to cover the cost of repairs made by subcontractor plaintiff, to rent owed to the City by the general contractor constituted a diversion of trust assets in violation of article 3-A, notwithstanding that the funds were not actually delivered to the general contractor. Applying, by analogy, provisions of the tax code designed to prevent the avoidance of taxes by transfer of the right to compensation directly to a creditor, the Court found that the trustee had constructive possession of the trust assets, notwithstanding the absence of actual possession. See also Aspro Mech., 1 NY3d 324, 805 NE2d 1037, 773 NYS2d 735 [2004] in which construction funds advanced to an owner by the New York City Housing Authority, which were assigned to the holder of the mortgage on the property, were found to be trust assets under article 3-A, though such funds never came into the owner's possession but were paid directly to the bank. the Court found that the bank became "a statutory trustee" with a fiduciary duty to the trust beneficiaries].