New York Law Review

Tag: Lake Steel Erection

  • Lake Steel Erection, Inc. v. Aetna Cas. & Sur. Co., 64 N.Y.2d 765 (1985): Recovery on a Lien Discharge Bond is Limited to the Bond Amount

    64 N.Y.2d 765 (1985)

    Recovery against a surety on a lien discharge bond is limited to the face amount of the bond, unless an amendatory order increases the bond amount or the surety defaults.

    Summary

    Lake Steel Erection filed a mechanic’s lien, which was then discharged by the filing of a surety bond by Aetna. Lake Steel subsequently sought to recover more than the bond amount, including interest. The New York Court of Appeals held that recovery against the surety on the bond could not exceed the face amount of the bond as originally fixed, unless the bond was amended or the surety defaulted. Because neither condition occurred, Lake Steel’s recovery was limited to the bond’s face value.

    Facts

    Lake Steel Erection filed a mechanic’s lien for $47,342.41.
    With Lake Steel’s consent, the lien was discharged by filing an undertaking (discharge bond) in the amount of $51,000.
    Lake Steel later attempted to recover more than $51,000, including interest, from Aetna, the surety on the bond.

    Procedural History

    Lake Steel obtained a judgment in its favor. The Appellate Division modified the judgment, reducing it to $51,000, the amount of the discharge bond. The New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether recovery against the surety on a mechanic’s lien discharge bond can exceed the face amount of the bond, where there was no amendatory order increasing the bond amount and no default by the surety?

    Holding

    No, because upon the filing of a discharge bond, the lien attaches to the bond, which is substituted for the liened property, and recovery against the surety is limited to the face amount of the bond unless there is an amendatory order or the surety defaults.

    Court’s Reasoning

    The court reasoned that when a discharge bond is filed, the mechanic’s lien attaches to the bond, effectively substituting the bond for the property subject to the lien. Citing precedent (Milliken Bros. v City of New York, 201 NY 65, 74; Morton v Tucker, 145 NY 244, 248), the court emphasized that recovery against the surety cannot exceed the bond’s face amount, unless the amount is increased by court order (CPLR 2508; Lien Law, § 21, subd 5) or the surety defaults (General Obligations Law, § 7-301; CPLR 2502; Carrols Equities Corp. v Villnave, 57 AD2d 1044,1045; Mendel-Mesick-Cohen-Architects v Peerless Ins. Co., 74 AD2d 712, 713). The court stated that interest in excess of the face amount of the discharge bond is not otherwise recoverable (see McClendon Blacktop Co. v Johnson Bldg. Co., 46 AD2d 724), and no default had been shown. The court further clarified that the trust fund provisions of article 3-A of the Lien Law do not allow for the enforcement of a claim for interest exceeding the discharge bond amount. Only “the cost of improvement” (Lien Law, § 71, subd 1; Northern Structures v Union Bank, 57 AD2d 360, 368-369; Gruenberg v United States, 29 AD2d 527) can be charged under article 3-A.