Lease Agreement. Section 7-103 of the General Obligations Law provides that:
1. Whenever money shall be deposited or advanced on a contract or license
agreement for the use or rental of real property as security for performance of the contract or
agreement or to be applied to payments upon such contract or agreement when due, such money,
with interest accruing thereon, if any, until repaid or so applied, shall continue to be the money of
the person making such deposit or advance and shall be held in trust by the person with whom
such deposit or advance shall be made and shall not be mingled with the personal moneys or
become an asset of the person receiving the same."
Further, the Lease Agreement also provided for segregation of the security deposit,
pursuant to paragraph 29, which stated: "The security deposit shall be deposited in a banking
institution at Landlord's discretion in a segregated account." Gutterman Aff, Exh F at ¶ 29.
The email correspondence dated February 15, 2008, submitted by plaintiff, demonstrates that
Developer admits that the funds were never separately placed in an account, as required. Therein,
Bruce Benjamin, one of Developer's members states: "With regard to the statement of the escrow
account, as courtesy and good faith we are going to forward you the interest earned for the past 4
months on the security deposit of $400,000. This [sic] funds were not placed in a seperate
[sic] account, however as courtesy we will gladly forward . . . the interest earned for the past
four months." Gutterman Aff, Exh M (emphasis added). Thus, Developer has conceded its failure
to place the security deposit into a segregated account, which is clearly a violation of GOL §
7-103, and constitutes conversion.