Mechanic's Liens Part 2 -- "Not Ordinarily Liable"

In my last post, I tried to define and explain mechanic's liens through frequently asked questions. A mechanic's lien, when properly done, allows a person who has done work on your house to put a lien on your house to secure payment. This mechanism to secure payment is not as important for a general contractor performing work on a property, as it can also sue for breach of contract and make other claims against the property owner. However, for a subcontractor, a mechanic's lien is generally the sole mechanism by which a subcontractor can recover against an owner, when that subcontractor does not get paid by the general contractor.

Prior to the enactment of the mechanic's lien law, a subcontractor who provided labor and materials generally had no right to recover from the property owner. The mechanic’s lien law changed the the common law. However, it is the sole mechanism for a subcontractor to recover from the owner but only if the subcontractor strictly adheres to the mechanic’s lien law.

Let me give you an example from a case I handled last year. I represented the owner of a commercial property where it contracted with a general contracting company to build a shopping center. The project was plagued with problems, and the general contractor essentially abandoned the job after the owner passed away. The owner had paid the general contractor quite a bit of money. Unfortunately, the general contractor had not paid all of its sub-contractors.

Many of the sub-contractors recorded mechanic's liens, but at least one did not. This particular subcontractor brought a lawsuit against the owner seeking to recover on claims of breach of contract, goods sold and delivered and quantum meruit. Unfortunately for the subcontractor, the general contractor had failed to pay it more than $150,000.00 for labor and materials. The last two claims are equity claims whereby a party asks to be compensated the fair value of its work so that the other party does not obtain a benefit for free. The breach of contract claim was dismissed at the outset because there was no contractual relationship between the property owner and the subcontractor. The goods sold and delivered and the quantum meruit claim remained.

The issue that remained was based on language from a 1991 Massachusetts Appeals Court decision. In Evans v. Multicon Constr. Corp., the Appeals Court ruled that without a lien perfected under G.L. 254, an owner who enters into a general contract for improvements on real property is “not ordinarily liable” to subcontractors whose sole contractual arrangements are with the general contractor. If a subcontractor does not follow the mechanic's lien law, it is barred from recovery, regardless of the theory. In other words, unless there was some circumstance that was out of the ordinary, without a perfected mechanic's lien, the subcontractor could not collect from the property owner.

The subcontractor vigorously claimed that the facts in our case were so unusual that this was not an ordinary case and the “not ordinarily liable” rule should not apply. I, on behalf of the owner, argued that this case was simply the all too familiar scenario of a general contractor who went out of business and did not pay subcontractors. The court agreed with the owner and the subcontractor lost. The subcontractor did obtain a judgment against the general contractor, but the chances of collection are very slim given the facts.

There are several lessons to take away from this case. First, if you are a subcontractor, consider making it a regular practice to record a Notice of Contract one every job. I am told that many general contractors do not like when this is done. However, the mechanic's lien law voids any provision in a contract that prohibits a contractor from taking steps to enforce a lien. Mass.Gen.L. ch. 254 § 32. However, what the statute says and reality may not match. In the event, it is not realistic to record a notice of contract for every job, then be mindful of payments or lack of payments. If you have finished a job and have not gotten paid, then you must take steps to protect your interests. Under the mechanic's lien law, you have 90 days once work stops at the site to record your notice of contract. If you are at the beginning of a project, you have a lot of time; if you are at the end of the project, the timing could be trickier.

Second, if you are an owner, keep track of the amount of work being down and the amount of payment being requested. As stated in my last post – you must control the money. That rule is critical regardless of whether the work is residential or commercial. If you hear subcontractors on your job are not being paid, consult legal counsel immediately. The issues are complicated and something you say or do can come back and haunt you later, including promises to pay subcontractors directly.

How, you ask? That will be subject of my next post.