Niagara Venture v. Sicoli & Massaro, Inc.

• Decision Date: 27 December 1990
• Citation: 77 N.Y.2d 175,565 N.Y.S.2d 449,566 N.E.2d 648
• Court: New York Court of Appeals Court of Appeals
• Parties: , 566 N.E.2d 648 In the Matter of NIAGARA VENTURE, a Limited Partnership, Respondent, v. SICOLI & MASSARO, INC., et al., Appellants, et al., Respondents.

Page 449

565 N.Y.S.2d 449

77 N.Y.2d 175, 566 N.E.2d 648

In the Matter of NIAGARA VENTURE, a Limited Partnership, Respondent, v. SICOLI & MASSARO, INC., et al., Appellants, et al., Respondents.

Court of Appeals of New York.

Dec. 27, 1990.

Robert W. Michalak and Lisa G. Massaro, Buffalo, for Sicoli & Massaro, Inc., appellant.

Craig L. Miller, Buffalo, for Patterson-Stevens, Inc., appellant, relying on the brief of Sicoli & Massaro.

Richard G. Collins, Buffalo, for Niagara Venture, respondent.

OPINION OF THE COURT

KAYE, Judge.

Are private improvement (or mechanics') liens valid against a property owner's interest in the undeveloped portion of a tract when, at the time the liens are filed, the owner has conveyed the developed portion of the tract to a third party? For the reasons stated below, we answer that question in the affirmative, and dismiss petitioner property owner's petition to discharge respondents' liens.

This controversy centers on the construction of a water theme park--"The Niagara Splash"--in the City of Niagara Falls. The project was initiated by a series of agreements among Niagara Venture (petitioner), the City of Niagara Falls (the City) and the Niagara Falls Urban Renewal Agency, and was funded in part by public grants and loans from the City. Pursuant to an agreement dated October 15, 1986, the City and the Urban Renewal Agency conveyed a total of 20.6 acres to petitioner. As provided in the agreement, the northerly portion of the parcel was to be the site of the theme park structures, and the southerly portion, fronting on Rainbow Boulevard in the City, was to become part of a previously approved hotel complex. The agreement further contemplated a later sale-and-leaseback between petitioner and the City. ¹

In March 1987, petitioner entered into agreements with various contractors and suppliers, including respondents, for labor and materials to construct the theme park. It is undisputed that at the time of these arrangements, petitioner owned the unified 20.6 acre tract upon which the improvements were made.

On September 3, 1987, in accordance with the sale-and-leaseback arrangement contemplated by the October 15, 1986 agreement, petitioner conveyed the developed 16.1-acre portion of the tract, containing the theme park structures, to the City for a nominal amount, and retained the undeveloped 4.5-acre portion of the tract. The City thus became record owner of the 16.1 acres and leased it back to petitioner, who was to pay rent in the amount of its debt service obligations to the City. The agreement specifies that the lease will run until all such obligations are paid, at which time petitioner will repurchase the parcel for a nominal amount. Petitioner, under the agreement and its amendments, is meanwhile obligated to pay taxes based on the full assessment value of the 20.6 acres and in addition is to receive all depreciation and tax losses, deductions or credits relating to the theme park buildings, machinery and equipment.

It is undisputed that petitioner gave respondents no prior notice of the September 3, 1987 conveyance, and that at the time of the conveyance respondents had not yet demanded and been refused final payment for their work. In November 1987 and May 1988, respondents filed public improvement and mechanics' liens against the entire 20.6 acres. Petitioner soon after instituted the present proceeding under Lien Law §§ 19 and 20 to discharge all liens against the property, on the theory that it was no longer the owner of the improvements.

The trial court denied the request to discharge the public improvement liens, discharged the mechanics' liens to the extent they encumbered property owned by the City, and upheld the mechanics' liens on the 4.5 acres. On appeal of so much of the order as upheld the mechanics' liens as against the 4.5 acres, a divided Appellate Division reversed and discharged those liens, reasoning that petitioner retained no improved property that could be the subject of private improvement liens. We now reverse, agreeing with the trial court and the Appellate Division dissenters that the mechanics' liens were valid as against the 4.5-acre balance of the tract still owned by petitioner at the time the liens were filed.

A first principle, accepted by the parties and the Appellate Division unanimously, is that a lien filed against a unified parcel operates against the owner's interest in the entire parcel even if improvements are physically made on only a portion of the property (see, W.L. Dev. Corp. v. Trifort Realty, 44 N.Y.2d 489, 406 N.Y.S.2d 437, 377 N.E.2d 969). Thus, had the liens been filed before petitioner conveyed away any portion of the parcel, those liens would have encumbered its interest in the entire parcel, including the 4.5 undeveloped acres (see, Jannotta v. Noslac Realty Corp., 231 App.Div. 864, 246 N.Y.S. 510; Woolf v. Schaefer, 103 App.Div. 567, 93 N.Y.S. 184). ² The question that divides the parties and the Appellate Division Justices is whether petitioner is freed of the encumbrances on the 4.5-acre undeveloped portion of the tract because of its prior conveyance of the developed portion. We conclude that it is not.

Our analysis centers on the Lien Law, which creates the interests at issue here, and particularly on sections 3 and 4 of the Lien Law. Section 3 provides that: "[A] contractor [or] subcontractor * * * 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 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, from the time of filing a notice of such lien as prescribed in this chapter."

Petitioner contends that the statutory words "upon the real property improved" limit the scope of a lien to the precise site of an improvement--a reading of the statute that would immediately put it at variance with the long-accepted principle that a lien filed against a unified parcel operates against the entire parcel. But additionally, it seems plain that the purpose of those words in section 3 is to differentiate mechanics' liens from equitable liens created by contract (see, James v. Alderton Dock Yards, 256 N.Y. 298, 303, 176 N.E. 401) and common-law liens on personal property (see, Deeley v. Dwight, 132 N.Y. 59, 63, 30 N.E. 258). The mechanic's lien is, by contrast, a statutory creature, fashioned by the Legislature to protect those who, by their labor and materials, enhance the value of real property (see, Matter of Perrin v. Stempinsky Realty Corp., 15 A.D.2d 48, 49, 222 N.Y.S.2d 148, appeal dismissed 11 N.Y.2d 931, 228 N.Y.S.2d 683, 183 N.E.2d 85; see generally, Bowmar, Lien Priorities in New York § 3.1 [1987]; Jensen, Mechanics' Liens § 1 [2d ed. 1924]; Griffin, Mechanics' Liens of State of New York §§ 2, 3 [1929].

It is the function of section 3 to define both who qualifies as a "mechanic" and the type of lien such a person secures. Section 3 does not purport to fix the extent of the lien; indeed, read literally, section 3 provides for a mechanic's lien to apply to an entire improved parcel, with no protection for a subsequent good-faith purchaser. Lien Law § 4, explicitly captioned "Extent of line," defines the scope of the lien.

Section 4 provides that a mechanic's lien "shall extend to the owner's right, title or interest in the real property and improvements, existing at the time of filing the notice of lien." Petitioner urges that the words "real property and improvements" must be read in the conjunctive, that a lien can attach only to real property and improvements coexisting in the possession of the owner at the moment of filing. Again, petitioner's hypertechnical reading of the statute must be rejected. Section 4 explicitly creates a lien on the owner's "right, title or interest" in the real property, not in any particular segment of it (see, Gates & Co. v. National Fair & Exposition Assn., 225 N.Y. 142, 156, 121 N.E. 741). Petitioner's interest in the improved parcel was subject to the liens prior to the conveyance, and its remaining interest is still subject to those liens.

Petitioner's strict reading of the relevant sections runs afoul also of Lien Law § 23, which specifies that the statute, being remedial, should be read liberally to secure its beneficial interests and purposes. As the Appellate Division dissenters observed, petitioner's construction "subverts the beneficial interests and purpose of the Lien Law by permitting an owner of land to escape his responsibility to his contractors and suppliers by enabling him to retain lands free and clear of the mechanic's liens filed by them, solely because the owner conveys a portion of his lands to another." (App.Div., 559 N.Y.S.2d 53, 55.)

The result we reach is fully consistent with both the letter of the Lien Law and the policy underlying the statute. The Lien Law may be said to have a dual purpose: first, to provide security for laborers and materialmen and second, to provide notice and a degree of certainty to subsequent purchasers (see, Carl A. Morse, Inc. v. Rentar Indus. Dev. Corp., 56 A.D.2d 30, 37, 391 N.Y.S.2d 425, affd. 43 N.Y.2d 952, 404 N.Y.S.2d 343, 375 N.E.2d 409, appeal dismissed 439 U.S. 804, 99 S.Ct. 59, 58 L.Ed.2d 96). "Time of filing" in the context of section 4 is a balancing of those interests, providing security for the lienor and protection for the subsequent purchaser, not a haven for property owners seeking to escape their commitments to contractors and materialmen. Reading the statute as petitioner urges would be contrary to the first goal of the Lien Law and would not advance the second. But both statutory purposes are served when the lien is recognized as valid against the interest in the improved parcel remaining in the hands of the owner, and invalid against the portion conveyed to...