A proper and valid mechanic’s lien will generally provide a vehicle for a contractor to obtain payment for services rendered, but the law on mechanic’s liens can provide pitfalls for the unwary. A mechanic’s lien while valid on its face (proper timing, service, and filing, etc.) can still be dismissed based on a number of legal factors. One such fatal legal roadblock is the derivative rule. Simply put, the lien of a downstream subcontractor or vendor is valid and enforceable only up to the amount, if any, due and unpaid to the upstream contractor. C.S. Behler, Inc. v. Daly & Zilch, Inc., 277 AD2d 1002, 716 N.Y.S.2d 506 (4th Dept 2000). A lien attaches only to the funds owed to the party directly above the lienor; each tier of subcontractors, materialmen and laborers has its own lien fund and may look only to its own lien fund for recovery. Id.

Philan Dep’t of Borden Co. v. Foster-Lipkins Corp., 39 A.D.2d 633, 633 (4th Dept. 1972) provides a good illustration on of the rule. In Philan a vendor provided materials on a construction site pursuant to its purchase order with a subcontractor. The subcontractor walked off the job. The general contractor spent over $60,000 above the subcontract price to complete the work called for. The vendor filed a mechanic’s lien, and the trial court granted the vendor a judgment of foreclosure upon the landowner’s land per his mechanic’s lien. The appellate court reversed and dismissed the materialman’s complaint holding that if nothing was due the subcontractor when the lien was filed, he abandoned the job, and the subcontract was completed according to its provisions by others, the mechanic’s lien would then attach to the extent of the difference between the cost of completion and the amount unpaid on the subcontract when the lien was filed. If the cost of completion exceeded the balance due on the contract, there would be no surplus upon which the lien would attach. The lienor carried the burden to show that a sum existed to which his lien could attach. Here, the vendor was unable to do so and its lien foreclosure action was dismissed. Id.

Dan Adams  can be reached at dadams@adamsleclair.law