Factor May be Liable for Diversion of Lien Law Trust Funds

Caristo Constr. Corp. v. Diners Fin. Corp., 21 N.Y.2d 507 (1968)

In Caristo Constr. Corp., a general contractor paid a subcontractor who then turned the money over to a factoring corporation.  The factor failed to file assignment of accounts or a “Notice of Lending” and failed to deposit the general contractor’s checks in depository in trust.  In so doing, the factor participated in diversion of statutory trust funds, despite having returned to the subcontractor simultaneously with the payments “advances” equal to the payments.  The general contractor, who was forced to make payment after the subcontractor became insolvent, prevailed in a suit as subrogee against the factor.