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PROPERTY OWNER (LANDLORD) LIABLE FOR PAYMENT FOR ELECTRICAL WORK REQUIRED BY THE LEASE AND CONTRACTED FOR BY THE LESSEE.

The Fourth Department determined the owner of property leased to the party who hired an electrical contractor was liable for payment of the electrical contractor's mechanic's lien. As part of the lease agreement, the owner/landlord required the lessee (Peaches) to contract for the electrical work. The Fourth Department noted that all the other departments have held the owner is not liable in this context unless the owner directly contracted for the work. The Fourth Department concluded, however, that a Court of Appeals case controlled:

Lien Law § 3 provides in relevant part that a “contractor . . . who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof . . . shall have a lien . . . upon the real property improved.” For purposes of this provision, a “requirement in a contract between . . . landlord and tenant, that the . . . tenant shall make certain improvements on the premises is a sufficient consent of the owner to charge his property with claims which accrue in making those improvements” (Jones v Menke, 168 NY 61, 64; see De Klyn v Gould, 165 NY 282, 287). The Court of Appeals subsequently reaffirmed Jones's broad interpretation of section 3 in McNulty Bros. v Offerman (221 NY 98), holding that, as long as “the liens have been confined to work called for by the lease[,] . . . the landlords' estate may be charged to the same extent as if the owners of that estate had ordered the work themselves. In substance, they have made the lessee their agent for that purpose” (id. at 106). Jones and McNulty Bros. have not been overturned or disavowed. Ferrara v Peaches Café LLC, 2016 NY Slip Op 03286, 4th Dept 4-29-16


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PLAINTIFF-CONTRACTOR’S FAILURE TO PROVE THE VALUE OF THE WORK PRECLUDED RECOVERY UNDER THE LIEN LAW AND UNDER A QUANTUM MERUIT THEORY; CRITERIA FOR AMENDMENT OF A COMPLAINT TO CONFORM TO TRIAL PROOF DESCRIBED.

In an action to foreclose a mechanic’s lien, the Second Department determined Supreme Court properly allowed amendment of the pleadings to conform with the proof, which was consistent with an action for quantum meruit. Plaintiff contractor was unable to show the value of the work performed, so plaintiff’s Lien Law and quantum meruit actions failed. Similarly, the defendants failed to prove they ended up paying more than the original agreed price for the work. So defendants’ counterclaims for breach of contract and damages failed. With respect to the amendment of the complaint to conform to the proof, and the flaws in plaintiff’s proof of the value of plaintiff’s work, the court wrote:

Pursuant to Lien Law § 3, a contractor who performs labor or furnishes materials for the improvement of real property with the consent, or at the request of, the owner “shall have a lien for the principal and interest, of the value, or the agreed price, of such labor . . . or materials upon the real property improved or to be improved and upon such improvement.” “A lienor may seek amounts due from both written contracts and from change orders for extras, depending on whether the owner gave his consent for the extra work” … . The lienor’s right to recover is limited by the contract price or the reasonable value of the labor and materials provided … . The lienor has the burden of establishing the amount of the outstanding debt by proffering proof either of the price of the contract or the value of labor and materials supplied … .

… [P]laintiff failed to offer bills, invoices, receipts, time sheets, checks, or any other evidence which would establish the cost of materials, work done by subcontractors, or the number of hours he worked on the job and proffered no explanation for his failure to present this evidence. He likewise failed to provide any detailed description of the work performed, the cost of any portion of the work, or the hourly rate at which he valued his labor. Indeed, at trial, the plaintiff admitted that the sum asserted in his lien was only an estimate. … .

Pursuant to CPLR 3025(c), a trial court may permit the amendment of pleadings before or after judgment to conform them to the evidence “upon such terms as may be just” … .Here, although the complaint sought recovery in the form of foreclosure on his mechanic’s lien, at trial, the plaintiff sought to conform the pleadings to the proof and assert a cause of action for recovery in quantum meruit. The Supreme Court granted that motion, and therefore, contrary to the defendants’ contention, that theory of recovery was properly before the court. * * *

Here, although the plaintiff presented evidence satisfying … three elements [of quntum meruit], this cause of action must fail for the same reason that the cause of action to foreclose his mechanic’s lien must fail; namely, his failure to present any evidence of the value of the materials supplied or services rendered. DiSario v Rynston, 2016 NY Slip Op 02611, 2nd Dept 4-6-16

CONTRACT LAW (PLAINTIFF-CONTRACTOR’S FAILURE TO PROVE THE VALUE OF THE WORK PRECLUDED RECOVERY UNDER THE LIEN LAW AND UNDER A QUANTUM MERUIT THEORY)/QUANTUM MERUIT (PLAINTIFF-CONTRACTOR’S FAILURE TO PROVE THE VALUE OF THE WORK PRECLUDED RECOVERY UNDER THE LIEN LAW AND UNDER A QUANTUM MERUIT THEORY)/MECHANIC’S LIEN (PLAINTIFF-CONTRACTOR’S FAILURE TO PROVE THE VALUE OF THE WORK PRECLUDED RECOVERY UNDER THE LIEN LAW AND UNDER A QUANTUM MERUIT THEORY)/LIEN LAW (PLAINTIFF-CONTRACTOR’S FAILURE TO PROVE THE VALUE OF THE WORK PRECLUDED RECOVERY UNDER THE LIEN LAW AND UNDER A QUANTUM MERUIT THEORY)/EVIDENCE (PLAINTIFF-CONTRACTOR’S FAILURE TO PROVE THE VALUE OF THE WORK PRECLUDED RECOVERY UNDER THE LIEN LAW AND UNDER A QUANTUM MERUIT THEORY)/CIVIL PROCEDURE (CRITERIA FOR AMENDMENT OF A COMPLAINT TO CONFORM TO TRIAL PROOF DESCRIBED)/COMPLAINT, AMENDMENT OF (CRITERIA FOR AMENDMENT OF A COMPLAINT TO CONFORM TO TRIAL PROOF DESCRIBED)

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UNLICENSED CONTRACTOR CAN NOT RECOVER UNDER HOME IMPROVEMENT CONTRACT OR IN QUANTUM MERUIT.

The Second Department affirmed the dismissal of plaintiff contractor’s complaint seeking quantum meruit and recovery under the lien law because the contractor did not allege it was duly licensed in Nassau County when the home improvement services were rendered:

” An unlicensed contractor may neither enforce a home improvement contract against an owner nor seek recovery in quantum meruit'” … . “Pursuant to CPLR 3015(e), a complaint that seeks to recover damages for breach of a home improvement contract or to recover in quantum meruit for home improvement services is subject to dismissal under CPLR 3211(a)(7) if it does not allege compliance with the licensing requirement” … .

Here, the complaint did not allege that the plaintiff was duly licensed in Nassau County at the time of the services rendered (see Nassau County Administrative Code § 21-11.2). Moreover … the plaintiff conceded that it did not possess the necessary license. Therefore, the plaintiff was not entitled to enforce its contract against the defendant or to recover in quantum meruit … . Holistic Homes, LLC v Greenfield, 2016 NY Slip Op 02619, 2nd Dept 4-6-16

CIVIL PROCEDURE (UNLICENSED CONTRACTOR CAN NOT RECOVER UNDER HOME IMPROVEMENT CONTRACT OR IN QUANTUM MERUIT)/CONTRACT LAW  (UNLICENSED CONTRACTOR CAN NOT RECOVER UNDER HOME IMPROVEMENT CONTRACT OR IN QUANTUM MERUIT)/LIEN LAW (UNLICENSED CONTRACTOR CAN NOT RECOVER UNDER HOME IMPROVEMENT CONTRACT OR IN QUANTUM MERUIT)/CONTRACT LAW (UNLICENSED CONTRACTOR CAN NOT RECOVER UNDER HOME IMPROVEMENT CONTRACT OR IN QUANTUM MERUIT)/MECHANIC’S LIEN (UNLICENSED CONTRACTOR CAN NOT RECOVER UNDER HOME IMPROVEMENT CONTRACT OR IN QUANTUM MERUIT)/QUANTUM MERUIT (UNLICENSED CONTRACTOR CAN NOT RECOVER UNDER HOME IMPROVEMENT CONTRACT OR IN QUANTUM MERUIT)

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Although Plaintiff Could Not Establish a Valid Mechanic’s Lien, Supreme Court Should Have Allowed the Action to Proceed As If it Were Brought As a Breach of Contract

The Second Department determined plaintiff’s complaint seeking foreclosure of a mechanic’s lien (re: work done pursuant to a contract) should not have been dismissed on the ground the notice of pendency (of the mechanic’s lien) had expired. Because the complaint alleged the existence of a contract, performance of plaintiff’s  obligation thereunder, the amount unpaid balance, and sought a personal judgment for any deficiency after the foreclosure sale, plaintiff’s action should have been allowed to proceed:

“… [U]nder the plain language of the Lien Law, the Supreme Court had the authority to retain the action and award a money judgment even though the lien had expired … . Section 17 of the Lien Law provides that the ‘failure to file a notice of pendency of action shall not abate the action as to any person liable for the payment of the debt specified in the notice of lien, and the action may be prosecuted to judgment against such person.’ The same rule applies where, as here, the notice of pendency expired during the pendency of the plaintiff’s action … . Section 54 of the Lien Law provides that if ‘the lienor shall fail, for any reason, to establish a valid lien in an action under the provisions of this article, he may recover judgment therein for such sums as are due him, or which he might recover in an action on a contract, against any party to the action.’ The complaint in this action alleged the existence of the contract, the plaintiff’s performance of its obligation thereunder, and the unpaid balance of the agreed price. Additionally, the ad damnum clause included a request for a personal judgment against the defendants for any deficiency remaining after a foreclosure sale. These allegations were sufficient to support an award of a personal judgment against the defendants even if the mechanic’s lien was defective …”. Aluminum House Corp. v Demetriou, 2015 NY Slip Op 06767, 2nd Dept 9-16-15

 

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Verified Statement Demonstrated Site Contractor’s Improper Use of Funds Held in Trust for the Payment of Subcontractors—Plaintiff Subcontractor Entitled to Summary Judgment on Liability Re: Subcontractor’s Mechanic’s Lien

The Third Department affirmed Supreme Court’s grant of summary judgment to plaintiff subcontractor in plaintiff’s action against the site contractor seeking payment for completed work. Plaintiff alleged it was underpaid for its work and filed a mechanic’s lien. The general contractor withheld 1 1/2 times the amount of the lien from its payment to the site contractor.  The plaintiff demanded a verified statement from the site contractor (showing the receipt and disbursement of funds held by the site contractor in trust for subcontractors) pursuant to Lien Law 76. The verified statement submitted by the site contractor indicated a multi-million dollar discrepancy between the amount it received and the amounts paid out. Because of the discrepancy, the site contractor was found to have used the funds it held in trust for subcontractors for purposes other than the trust. Plaintiff was therefore entitled to summary judgment on liability:

Pursuant to Lien Law article 3-A, owners, contractors and subcontractors are required to maintain funds in trust in order to “provide[] protection to certain parties involved in the improvement of real property, ensuring that they will be properly compensated for their services” … . Specifically, and insofar as is relevant here, “[t]he funds received by a contractor or subcontractor. . . shall be a separate trust and the contractor or subcontractor shall be the trustee thereof” (Lien Law § 70 [2]). A trustee, in turn, is required to, among other things, maintain books or records with respect to each trust, detailing the trust assets receivable, trust accounts payable, trust funds received, trust payments made with trust assets and transfers in repayment of or to secure advances made pursuant to a notice of lending … . A beneficiary of such a trust is entitled to, among other things, “receive a verified statement setting forth the entries with respect to the trust contained in such books or records” … . “Any use of the trust funds other than the payment of claims under the contract . . . is an improper diversion of trust assets” …, and the trustee’s failure to keep the statutorily required books and records “shall be presumptive evidence that the trustee has applied or consented to the application of trust funds . . . for purposes other than a purpose of the trust” (Lien Law § 75 [4]). Anthony DeMarco & Sons Nursery, LLC v Maxim Constr. Serv. Corp., 2015 NY Slip Op 06394, 3rd Dept 7-30-15

 

Court Has No Inherent Power to Vacate a Notice of Lien Which Is Valid on Its Face—Validity of Lien Must Be Determined in Foreclosure Proceeding

The Second Department noted that a court has no inherent power to vacate a notice of lien which is valid on its face. Determination of the validity of the lien must await trial by foreclosure:

A court has no inherent power to vacate or discharge a notice of lien except as authorized by Lien Law § 19(6) … . Lien Law § 19 enumerates the grounds for the discharge of a mechanic’s lien interposed against a nonpublic improvement … . Where, as here, the notice of lien was not invalid on its face, any dispute regarding the validity of the lien must await trial thereof by foreclosure … . Rivera v Department of Hous. Preserv. & Dev. of City of New York, 2015 NY Slip Op 06126, 2nd Dept 7-15-15

 

In the Absence of Prejudice, a Notice of Lien May Be Amended to Correct a Misdescription of the True Property Owner

The Court of Appeals, in a full-fledged opinion by Judge Lippman, determined, in the absence of prejudice, a notice of mechanic’s lien can be amended nunc pro tunc to reflect the true owner of the property:

Here, the true owner is the sole shareholder of the listed owner, the conveyance of the property in question from the listed owner to the true owner was not at arm’s length, and the public and certainly the true owner here were on notice that a lien had been placed on the property. The subject notice of lien also provided means for third parties to contact the true owner. And, significantly, the true owner and listed owner consented to the underlying work that allegedly went uncompensated. Under the particular circumstances presented, the misnomer is a misdescription that does not constitute a jurisdictional defect and is curable by amendment. * * *

Article 2 of the Lien Law provides that it “is to be construed liberally to secure the beneficial interests and purposes thereof” (Lien Law § 23), which include “provid[ing] security for laborers and materialmen and . . . provid[ing] notice and a degree of certainty to subsequent purchasers” … . It states that “substantial compliance . . . shall be sufficient for the validity of a lien and to give jurisdiction to the courts to enforce the same” (Lien Law § 23) and “[a] failure to state the name of the true owner . . . or a misdescription of the true owner, shall not affect the validity of the lien” (Lien Law § 9 [7]). The Lien Law also authorizes amendment provided it does not “prejudice . . . an existing lienor, mortgagee or purchaser in good faith” (Lien Law § 12-a [2]). Thus, read together, it explicitly provides that it should be construed liberally, states that a misdescription of the true owner shall not invalidate a lien, and allows amendment where a third party would not be prejudiced. Matter of Rigano v Vibar Constr Inc, 2014 NY Slip Op 08762, CtApp 12-16-14

 

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Under Liberal Construction of Lien Law Defendant Did Not Waive Its Mechanic’s Lien by Failing to Assert Lien-Based Counterclaims and Cross Claims In Its Initial Answer

The Third Department, in a full-fledged opinion by Justice Lahtinen, determined that the defendant had not waived its mechanic’s lien by failing to assert lien-based counterclaims and cross claims it in its initial answer and therefore could amend its answer accordingly:

“The duration of a lien is prescribed by statute and the right to enforce it, like the right to file and create it, is derived therefrom” … . That statutory framework “is remedial in nature and intended to protect those who have directly expended labor and materials to improve real property at the direction of the owner or a general contractor” … . The law governing mechanic’s liens is thus liberally construed to ensure that its purpose is accomplished, and substantial compliance with its provisions is generally sufficient (see Lien Law §§ 23, 40…).

Lien Law § 44 (5) provides in pertinent part that “[e]very defendant who is a lienor shall, by answer in the action, set forth his [or her] lien, or he [or she] will be deemed to have waived the same, unless the lien is admitted in the complaint, and not contested by another defendant.” * * *

…[H]ere, at the time [defendant] made its motion to amend its answer, plaintiff’s complaint, read in conjunction with [defendant’s] answer as well as the other pleadings, constituted a sufficient substantial admission of [defendant’s] lien such that, had the matter gone to trial on those pleadings, [defendant’s] rights would have been preserved under the statutory language … . Since [defendant’s] lien rights had not been already waived as a matter of law when it made its motion to amend its answer, its proposed counterclaim and cross claims were not wholly devoid of merit. Edwards & Zuck PC v Cappelli Enters Inc, 2014 NY Slip Op 08690, 3rd Dept 12-11-14

 

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Corporation Created by Seneca Nation to Operate a Golf Course Was Not Entitled to Sovereign Immunity—Contractor Hired to Build the Course Can Sue to Foreclose a Mechanic’s Lien

The Court of Appeals, in a full-fledged opinion by Judge Pigott, over a dissent, determined that a corporation created by the Seneca Nation for the operation of a golf course (Lewiston Golf) was not entitled to sovereign immunity and, therefore, could be sued by the company with which the Seneca Nation contracted to build the golf course.  The contractor brought suit to foreclose on a mechanic’s lien:

Indian tribes possess the common law immunity from suit traditionally enjoyed by sovereign powers, unless waived. In Matter of Ransom, we set out several factors for courts to [*6]use to determine whether an entity, such as a corporation or agency, that is affiliated with an Indian tribe has the right to claim sovereign immunity against suit.

“Although no set formula is dispositive, in determining whether a particular tribal organization is an ‘arm’ of the tribe entitled to share the tribe’s immunity from suit, courts generally consider such factors as whether: [1] the entity is organized under the tribe’s laws or constitution rather than Federal law; [2] the organization’s purposes are similar to or serve those of the tribal government; [3] the organization’s governing body is comprised mainly of tribal officials; [4] the tribe has legal title or ownership of property used by the organization; [5] tribal officials exercise control over the administration or accounting activities of the organization; and [6] the tribe’s governing body has power to dismiss members of the organization’s governing body. More importantly, courts will consider whether [7] the corporate entity generates its own revenue, whether [8] a suit against the corporation will impact the tribe’s fiscal resources, and whether [9] the subentity has the power to bind or obligate the funds of the tribe. The vulnerability of the tribe’s coffers in defending a suit against the subentity indicates that the real party in interest is the tribe.” (Ransom, 86 NY2d at 559-560 [internal quotation marks, citations, and square brackets omitted; numbering added].) * * *

…[T]he primary purpose of creating the golf course in Lewiston was to act as a regional economic engine and thereby serve the profit-making interests of the Seneca Nation’s casino operations in the area. While this may result in more funds for government projects on the Seneca Nation’s reservations and elsewhere that benefit members of the tribe, … the purposes of Lewiston Golf were sufficiently different from tribal goals that they militate against Lewiston Golf’s claim of sovereign immunity. However, the purposes factor of Ransom is not determinative… . While some of the remaining Ransom factors favor the conclusion that Lewiston Golf is protected by sovereign immunity, the most important ones strongly support the opposite conclusion. Sue/Perior Concrete & Paving Inc v Corporation, 2014 NY Slip Op 08218, CtApp 11-25-14

 

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Parol Collateral Agreement Can Be Alleged Where Written Contract Does Not Embody Entire Agreement/Where Existence of Contract Is Disputed, Causes of Action for Unjust Enrichment and Quantum Meruit Are Okay/Courts Can Not Excuse Failure to Strictly Comply with Lien Law Requirements

The Second Department noted:  proof of a parol collateral agreement is okay where the written contract is not intended to embody the whole agreement; where the existence of a contract is in dispute, causes of action for unjust enrichment and quantum merit are okay; courts do not have discretion to excuse strict compliance with Lien Law 11:

…”[A] written agreement does not exclude proof of a parol collateral agreement made even between the same parties, where the written contract is not intended to embody the whole agreement and does not on its face purport to cover completely the subject-matter of the alleged collateral agreement” … . Here, although the first cause of action was based on a written contract, the plaintiff stated a second cause of action based on the breach of an alleged oral agreement as to services not encompassed in the written agreement.

As to the third and fourth causes of action, where, as here, the existence of the contract is in dispute, the plaintiff may allege causes of action to recover for unjust enrichment and in quantum meruit as alternatives to a cause of action alleging breach of contract (see CPLR 3014…).

Lien Law § 11 provides that within 5 days before or 30 days after filing the notice of lien, a lienor “shall” serve a copy of such notice upon the owner, as relevant here, at the owner’s “last known place of residence.” However, the plaintiff’s affidavit of service of the mechanic’s lien demonstrates that the plaintiff failed to serve the notice of the mechanic’s lien in compliance with Lien Law § 11, as the notice was not sent to the defendants’ last known place of residence. As strict compliance with the statutory requirements is mandated and the courts do not have discretion to excuse noncompliance… . Thompson Bros Pile Corp v Rosenblum, 2014 NY Slip Op 06577, 2nd Dept 10-1-14

 

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