N.Y. Lien Law § 72: Diversion of trust funds

§ 72. Diversion of trust funds. 1. Any transaction by which any trust

asset is paid, transferred or applied for any purpose other than a

purpose of the trust as stated in subdivision one or subdivision two of

section seventy-one, before payment or discharge of all trust claims

with respect to the trust, is a diversion of trust assets, whether or

not there are trust claims in existence at the time of the transaction,

and if the diversion occurs by the voluntary act of the trustee or by

his consent such act or consent is a breach of trust.

Nothing in this article affects the rights of a holder in due course

of a negotiable instrument or of a purchaser in good faith for value and

without notice that a transfer to him is a diversion of trust assets.

2. Trust assets shall not be levied upon or subject to a restraining

notice issued pursuant to section fifty-two hundred twenty-two of the

civil practice law and rules as the individual property of the trustee.

3. In any action or proceeding in which it is sought to apply trust

assets for a purpose other than a purpose of the trust as stated in

subdivision one or subdivision two of section seventy-one

(a) it shall be the duty of the trustee, if he is a party, to defend

the trust against such application, and if he knows of the action or

proceeding but is not a party, to make application for intervention

therein for the purpose of defending the trust;

(b) any beneficiary of the trust having a trust claim may intervene in

the action or proceeding to defend the trust against such application.