Paerdegat Boat and Racquet Club, Inc. v. Zarrelli

• Decision Date: 21 December 1981
• Parties: In the Matter of PAERDEGAT BOAT AND RACQUET CLUB, INC., et al., Respondents, v. Joseph ZARRELLI, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 162

445 N.Y.S.2d 162

83 A.D.2d 444

In the Matter of PAERDEGAT BOAT AND RACQUET CLUB, INC., et

al., Respondents, v. Joseph ZARRELLI, Appellant.

Supreme Court, Appellate Division,

Second Department.

Dec. 21, 1981.

Corash & Hollender, Staten Island (Paul Hollender, Staten Island, of counsel), for appellant.

Bernard Gold, Staten Island, for respondents.

Before HOPKINS, J. P., and TITONE, RABIN, GULOTTA and WEINSTEIN, JJ.

WEINSTEIN, Justice.

The law has long been settled that a mechanic's lien cannot attach to property owned by a municipality, at least when the property is being used for a public purpose (see Poillon v. Mayor of City of New York, 47 N.Y. 666; Leonard v. City of Brooklyn, 71 N.Y. 498; Sexauer & Lemke v. Burke & Sons Co., 228 N.Y. 341, 127 N.E. 261; Kennedy & Co. v. New York World's Fair 1939, 260 App.Div. 386, 22 N.Y.S.2d 901, affd. 288 N.Y. 494, 41 N.E.2d 789; Matter of Hempstead Resources Recovery Corp. v. Scalamandre & Sons, 104 Misc.2d 278, 428 N.Y.S.2d 146; Ingram & Green v. Wynne, 47 Misc.2d 200, 262 N.Y.S.2d 663; 10 McQuillin, Municipal Corporations § 28.58). We hold today, however, that when publicly-owned land is leased to a private entity to be used for a private purpose, a mechanic's lien may attach to the leasehold interest therein.

The petitioner Paerdegat Boat and Racquet Club, Inc. (hereafter Paerdegat) leased a parcel of real property in the Borough of Brooklyn from the City of New York, which owned the plot. Paerdegat erected thereon a building for use as a racquet club. It then engaged the services of appellant, Joseph Zarrelli, and petitioner Electro-Thermal Systems, Inc. to install, among other things, sky lights on the building. Zarrelli allegedly abandoned the job, leaving it to be completed by Electro-Thermal Systems; Zarrelli denies this. In any event, Zarrelli, claiming that he was owed the sum of $14,000, thereupon filed two liens against the property, each for the amount allegedly owed; one was a public improvement lien, as contemplated by section 5 of the Lien Law, and the second was a mechanic's lien, as provided for in section 3 thereof.

The petitioners brought this proceeding to have the liens discharged. Special Term, reasoning that a mechanic's lien may not attach to city-owned property or to the improvements erected thereon, granted the application for discharge of the mechanic's lien. It also discharged the public improvement lien, and Zarrelli has appealed to this court from the order entered thereon. We need not devote a great deal of discussion to that part of Special Term's order which discharged the public improvement lien. Section 5 of the Lien Law limits such a lien to instances where work is done pursuant to a contract with the State or a public corporation. There is no indication herein that the work in question involved any public contract; indeed, the contrary would seem to be the case. Accordingly, Special Term ruled correctly when it discharged the public improvement lien.

Special Term's summary discharge of the mechanic's lien, however, merits somewhat greater discussion. Important questions of policy and law have been raised, and we take this opportunity to expound the legal and policy considerations which have a bearing on their resolution.

To begin with, we note that although a lien may be filed against a leasehold interest in property for money allegedly owed by the lessee (see Cornell v. Barney, 94 N.Y. 394), such a lien would be subject to the general rule that a lien shall extend only to the right, title, or interest of the owner ^* in the property, but no further (see Lien Law, § 4). Accordingly, if a lien is attached to certain property as against a lessee of such property, any enforcement pursuant to section 41 of the Lien Law would be effective only insofar as the lessee has an interest therein, and would not at all encumber the interest of the lessor (see Cornell v. Barney, supra; Johnson v. Alexander, 23 App.Div. 538, 48 N.Y.S. 541), unless the work done by the lienor was pursuant to a contract to which the lessor or his agent was a party (seeKnapp v. Brown, 45 N.Y. 207). It is clear, then, that even if the mechanic's lien in question is to be sustained, it will be ineffective as against any rights and interests that the City of New York holds in the subject property.

We may now reach the central question posed by this appeal: can property owned by a municipal corporation and leased to a private entity for private purposes validly be encumbered by a mechanic's lien to the extent of the leasehold interest? In order to answer that question, we must bear in mind the reason why publicly-owned land being used for public purposes has been held to be inalienable. That reason is postulated on the assumption that the purpose of public lands and buildings is to further the public interest; that is, that municipally-owned property is utilized by municipal governments in order to facilitate their carrying out the duties with which they are charged. Any interference with the municipality's right to free and unencumbered use of its property would thus constitute a detriment to the public served by the municipal government. Therefore, no matter how just and reasonable the claim of a contractor who has labored on municipal property might be, "public's interest in municipal land is of greater value or concern than that of a single person seeking to assert the additional remedy of a mechanic's lien" (Matter of Hempstead Resources Recovery Corp. v. Scalamandre & Sons, 104 Misc.2d 278, 279, 428 N.Y.S.2d 146, supra ). This consideration is reflected in section 383 of the New York City Charter, which provides that "rights of the city" on all publicly-owned property "are hereby declared to be inalienable."

It can be seen that the principle of inalienability of public property in order to avoid interference with the functioning of government is not applicable to the case at bar. Paerdegat is a private entity. Its facilities are used for private purposes. Any benefit which the City of New York might have obtained from the installation by Zarrelli of sky lights in the building was wholly incidental, and not at all the purpose of the work. Public funds were not expended for Zarrelli's work, and the city was not a party to the contract involving it. As was stated above, enforcement of the lien against the leasehold interest would in no way affect the city's interest in the property, for the lien would terminate, at the latest, with the lease. In short, there is nothing public about the use to which Paerdegat is putting the property, and hence, any encumbrance thereon would in no way affect the public. We therefore see no reason why the mechanisms set forth in the Lien Law should not be available to an alleged creditor of Paerdegat.

Moreover, we believe that nothing in the New York City Charter mandates a contrary holding. The inalienability provided for by section 383 extends only to "rights of the city" in its property, but since this lien could not be enforced against the city's interests therein, no rights of the city are involved. We can perceive of only one way in which a municipality could suffer if a lien were filed against the interest of its lessee. We recognize that New York City's control over its property might indeed be compromised if this court were to permit Zarrelli's mechanic's lien to attach to the leasehold, since the land could fall into the hands of an unknown individual for the remaining period of the lease without approval by the Board of Estimate, as required by subdivision a of section 384 of the New York City Charter; this danger was recognized by the court in Matter of Hempstead Resources Recovery Corp. v. Scalamandre & Sons (supra). Although such individual would be bound by the terms of the lease with Paerdegat, with respect to uses to which the property could be put and to rent, this individual could prove to be less conscientious in adhering to the terms of the lease than was Paerdegat, and yet enforcement of the lien would mean that the Board of Estimate would have had no opportunity to guard against such eventuality.

This consideration does not carry such great weight in our view, however, for the Charter itself provides for an instance where city-owned property may be leased to an unknown individual without specific prior approval of him by the Board of Estimate. Pursuant to paragraph 1 of subdivision b of section 384 of the Charter, the Board of Estimate, once it had decided to lease property owned by the city, must lease it "only" for the highest rental offer at public auction or by sealed bids. Pursuant to that paragraph, the city may restrict the use to which such property may be put, and even effectively restrict the class of persons who may bid on the property (see Fur-Lex Realty v. Lindsay, 81 Misc.2d 904, 367 N.Y.S.2d 388), but if a potential bidder's offer is sufficiently high it cannot reject his offer (but see General Municipal Law, § 103, and Abco Bus Co. v. Macchiarola, 52 N.Y.2d 938, 437 N.Y.S.2d 967, 419 N.E.2d 870, revg. 75 A.D.2d 831, 427 N.Y.S.2d 876, with respect to accepting bids for city contracts). The city thus runs the risk, in such an instance, of leasing its property to persons unknown to the Board of Estimate. There should, accordingly, be no objection to city property being subjected to a lien by an unknown lienor, as long as the lien is limited to the term of the private lease of the property. In other words, when the city has already elected to alienate its property by leasing it, there is no sound policy reason to hold that the property is inalienable.

In the absence of such sound policy reasons, we hold that the policy of affording creditors the opportunity to encumber property on which they have performed labor or furnished materials, in order to facilitate satisfaction of the debt, is controlling. We fear that a contrary holding could result in a situation where private...