Several months ago I blogged about the Notice of Intent to Lien required of a subcontractor, whose mechanic’s lien will be capped by the amount that the owner owes (or will owe) the general contractor on the date the notice of intent is received by the owner. The precise language of the statute, RSA 447:6, is “Such notice may be given after the labor is performed or the material is furnished, and said lien shall be valid to the extent of the amount then due or that may thereafter become due to the contractor, agent or subcontractor of the owner.”
What if you are a third-tier sub or supplier? By whose unpaid contract balance is your lien capped on the date of receipt of your Notice of Intent? Is your cap (1) the amount due or to become due from the owner to the GC, or (2) the amount due or to become due to the party with whom you contracted?
While one can read the statute to suggest that (2) is the answer, (1) makes more sense as a policy matter. After all, the point of the Notice of Intent is to protect owners from having to pay twice for the same work, once to the GC and a second time to a lienor who performed the work but whom he didn’t know about when he wrote his check to the GC. On this logic, once the owner has fully paid the GC for all work without notice of any lien claims from unpaid lower tiers, his property should be lien-free.
But consider the case of Westinghouse Electric Supply Co. v. Electromech, Inc., 119 N.H. 833 (1979). Westinghouse sold electrical supplies on credit to an electrical subcontractor, Electromech, who worked for two separate GCs on two separate projects. When Electromech went bankrupt before paying for the materials, Westinghouse gave notice of intent to lien the two projects. In each case the owners had not yet fully paid their GCs on the day the notices arrived, withholding sums more than sufficient to cover what Westinghouse was owed. However, the GCs each had backcharges against Electromech such that Electromech wasn’t owed as much as it, in turn, owed Westinghouse. The Court limited Westinghouse’s lien, saying: “We hold that a correct interpretation of RSA 447:6 limits the lien of the materialman to amounts due or that may thereafter become due to the subcontractor with whom the materialman contracted. Accordingly, Westinghouse can only recover the amount the owner owes the subcontractor, Electromech.”
(This may have been loose language. An owner has no contract with the GC’s subs, so without some equitable remedy -- which wasn't even on the Court's radar -- “the amount the owner owes the subcontractor” is always zero. Indeed, the Court in Westinghouse rejected the plaintiff’s argument that “once the owner's indebtedness to the principal contractor is established, the materialman's claim to the proceeds in the owner's hands becomes direct and completely independent of the rights of the contractor or other subcontractors.”)
The Court’s decision that “RSA 447:6 limits the lien of the materialman to amounts due or that may thereafter become due to the subcontractor with whom the materialman contracted" leaves an important question unanswered: is the lien also limited by what the owner owes the GC? If not, an owner who has fully paid for the project prior to getting a Notice of Intent can still suffer a lien from a third tier sub or supplier whenever the second tier who owes him money is itself owed money by the GC. Perhaps both (1) and (2) are caps! That would be consistent with Westinghouse’s purpose “to protect the owner from unknown liability to the subcontractor or materialman and from liability for payments in excess of the amounts owed to the general contractor.” But the Court never had to reach this two-cap issue, since there was still money owed from owner to GC. Until our Supreme Court gets a case that presents the question squarely, it is safest to assume that lower tier subs and suppliers who delay sending a Notice of Intent to Lien will have two hurdles to clear.
What if you are a third-tier sub or supplier? By whose unpaid contract balance is your lien capped on the date of receipt of your Notice of Intent? Is your cap (1) the amount due or to become due from the owner to the GC, or (2) the amount due or to become due to the party with whom you contracted?
While one can read the statute to suggest that (2) is the answer, (1) makes more sense as a policy matter. After all, the point of the Notice of Intent is to protect owners from having to pay twice for the same work, once to the GC and a second time to a lienor who performed the work but whom he didn’t know about when he wrote his check to the GC. On this logic, once the owner has fully paid the GC for all work without notice of any lien claims from unpaid lower tiers, his property should be lien-free.
But consider the case of Westinghouse Electric Supply Co. v. Electromech, Inc., 119 N.H. 833 (1979). Westinghouse sold electrical supplies on credit to an electrical subcontractor, Electromech, who worked for two separate GCs on two separate projects. When Electromech went bankrupt before paying for the materials, Westinghouse gave notice of intent to lien the two projects. In each case the owners had not yet fully paid their GCs on the day the notices arrived, withholding sums more than sufficient to cover what Westinghouse was owed. However, the GCs each had backcharges against Electromech such that Electromech wasn’t owed as much as it, in turn, owed Westinghouse. The Court limited Westinghouse’s lien, saying: “We hold that a correct interpretation of RSA 447:6 limits the lien of the materialman to amounts due or that may thereafter become due to the subcontractor with whom the materialman contracted. Accordingly, Westinghouse can only recover the amount the owner owes the subcontractor, Electromech.”
(This may have been loose language. An owner has no contract with the GC’s subs, so without some equitable remedy -- which wasn't even on the Court's radar -- “the amount the owner owes the subcontractor” is always zero. Indeed, the Court in Westinghouse rejected the plaintiff’s argument that “once the owner's indebtedness to the principal contractor is established, the materialman's claim to the proceeds in the owner's hands becomes direct and completely independent of the rights of the contractor or other subcontractors.”)
The Court’s decision that “RSA 447:6 limits the lien of the materialman to amounts due or that may thereafter become due to the subcontractor with whom the materialman contracted" leaves an important question unanswered: is the lien also limited by what the owner owes the GC? If not, an owner who has fully paid for the project prior to getting a Notice of Intent can still suffer a lien from a third tier sub or supplier whenever the second tier who owes him money is itself owed money by the GC. Perhaps both (1) and (2) are caps! That would be consistent with Westinghouse’s purpose “to protect the owner from unknown liability to the subcontractor or materialman and from liability for payments in excess of the amounts owed to the general contractor.” But the Court never had to reach this two-cap issue, since there was still money owed from owner to GC. Until our Supreme Court gets a case that presents the question squarely, it is safest to assume that lower tier subs and suppliers who delay sending a Notice of Intent to Lien will have two hurdles to clear.
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