Failure to Commence Lien-Foreclosure Action Within One Year of its Filing Did Not Preclude Recovery

On January 10, 2022, Justice Elizabeth H. Emerson of the Suffolk County Commercial Decision issued a decision in American Universal Supply Inc. v Gibson Air Mech. Inc., 2022 NY Slip Op 50018(U), holding that plaintiff's failure to commence an action to foreclose its mechanic's lien did not preclude it from seeking recovery on the bond substituted therefor and that plaintiff properly and timely asserted its claim to recover on the bond. Denying defendant insurers’ motion to dismiss, the Court explained:

Surety bonds to discharge mechanic's liens are conditioned for the payment of any judgment which may be rendered against the subject property for the enforcement of the liens (Lien Law § 19 [4]). It, therefore, follows that, although the property itself was released from the lien, for the plaintiff to be entitled to recover, it must commence a formal action for the enforcement of the lien and obtain a judgment as if the lien still existed (Martirano Constr. Corp. v Briar Constr. Corp., 104 AD2d 1028, 1031).

In Morton v Tucker (145 NY 244), the Court of Appeals addressed the procedure to be followed in enforcing the lien. The Court found that the bond takes the place of the property and becomes the subject of the lien in the same form and manner as in the case of the payment of money into court (Id. at 249):

"The action is in equity brought under the statute in which all of the persons interested, including the sureties upon the bond, are made parties. The complaint . . . should allege the giving of the bond and the discharging of the lien . . . and instead of asking judgment for a sale of the premises it should demand relief as against the persons executing the bond for the amount that should be determined to be payable upon the lien. The court then upon the trial can determine the rights and equities of all of the parties and award the final judgment contemplated by the statute."

Thus, any action brought, whether before or after the filing of the undertaking, although ostensibly to foreclose the lien, in reality is or becomes an action to test the validity of the lien had it not been discharged and, if found to be valid, to procure a judgment upon the undertaking, rather than a judgment of foreclosure upon the real estate (Adams Engineering Co. v Menowiz, 53 Misc 2d 364, 365-366 [and cases cited therein]).

The complaint in this action alleges that the plaintiff sold goods and services to the Gibson defendants for which they have not paid, that the plaintiff filed a mechanic's lien against the property, that the lien was bonded and discharged, and that the plaintiff demands payment from the insurance defendants for the work performed and materials supplied. The court finds that such allegations are legally sufficient and properly state a cause of action against the insurance defendants.

The action was commenced and the complaint amended to include a cause of action to enforce the lien against the insurance defendants prior to the expiration of the one-year period (see, Lien Law § 17). The lien was filed on February 26, 2018, and the action commenced on September 5, 2018. Although the plaintiff did not initially seek enforcement of the lien, it amended the complaint on January 16, 2019, to include a cause of action for recovery against the insurance defendants "for work performed and materials supplied at the job site subject to the bond." Accordingly, contrary to the insurance defendants' contentions, the lien did not expire by operation of law, nor was it necessary to file a notice of pendency to continue the lien (see, Lien Law § 17; White Plains Sash & Door Co. v Doyle, 262 NY 16, 19-20).

Once the lien was bonded, it detached from the realty and attached to the bond (Shepherd Showcase, Inc. v Pekala, 138 AD2d 960, 961 [and cases cited therein]). Thereafter, the plaintiff ceased to have any interest in the Westchester property (Id.). Accordingly, this court has jurisdiction to dispose of the plaintiff's equitable action to enforce the lien since the judgment the plaintiff seeks will be rendered on the bond rather than on the Westchester realty (Id.).

The attorneys at Schlam Stone & Dolan frequently litigate actions to enforce liens both of an equitable and legal nature. Please contact the Commercial Division Blog editors at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.