
    In the Matter of Reddick & Sons of Gouverneur, Inc., Respondent, v Vincent Cesario et al., Constituting Carthage Central School Board District No. 1, et al., Appellants.
   Judgment unanimously reversed, with costs and matter remitted to Supreme Court, Lewis County for trial. Memorandum: In this article 78 proceeding to compel respondent to release $33,966.50 of retainage funds under a school construction contract, pursuant to a tender of three municipal bonds having that value, in accordance with section 106 of the General Municipal Law, respondent answered that petitioner has failed to comply with section 3813 of the Education Law which provides for service of notice of verified claim within certain times and allegation of compliance therewith, and respondent also interposed a counterclaim that petitioner is obligated to return to respondent over $100,000 of retainage funds which were erroneously released to petitioner and that petitioner’s three municipal bonds are held as part return of such erroneous release. In an effort to avoid application of section 3813 of the Education Law, petitioner asserts that it is inequitable for respondent to retain its three bonds which were delivered to obtain release of the $33,966.50 retainage funds, and that compliance with section 3813 is not required in an equitable action ( Boyle v Kelley, 53 AD2d 457; Fontana v Town of Hemstead, 18 AD2d 1084). Respondent replies that in an article 78 proceeding, equitable principles do not apply; but that it would welcome an equitable determination. Special Term decided only the section 106 General Municipal issue, leaving the remaining issues for later determination; and a motion on respondent’s counterclaim is pending undecided before another Special Term Justice (Inglehart, J.). Since the parties each invoke equitable principles, we convert this special proceeding into an action for declaratory judgment (CPLR 103, subd [c]), reverse the judgment and remit the issues presented in the pleadings, including the counterclaim, to Supreme Court, Lewis County (Inglehart, J.), to reopen the pending motion on the counterclaim and consider all the issues in the declaratory judgment action, in which the parties may proceed anew, presenting such evidence as they deem appropriate (see McGrath v Hilding, 41 NY2d 625). (Appeal from judgment of Lewis Supreme Court — article 78.) Present — Marsh, P. J., Moule, Simons, Dillon and Witmer, JJ.  