Massachusetts: Written Contract for Mechanic’s Lien Purposes Defined, “Capping Mechanism” Provision Not Enforced
June 2, 2003
A cornerstone of the Massachusetts mechanic’s lien law,
M.G.L. c. 254, §1, et seq. (the lien law), is the requirement of a written
contract. Prior to the 1996 Amendments, case law had narrowly interpreted the
term “written contract,” stating that it was “an entire and continuing
arrangement in writing between a supplier and subcontractor …. It does not
mean to us merely a series of purchase orders and invoices issued from time to
time.” Gettens Elec. Supply Co. v. W.R.C. Properties, Inc., 21 Mass. App. Ct.
658, 66-661 (1986). A significant change implemented by the 1996 Amendments
was to expand the number of potential lien claimants by eliminating the
restrictive interpretation of “written contract” as defined by Gettens. Under
the lien law, the term “written contract” is now defined as case law defines
it. See M.G.L. c. 254, §4. In other words, a written contract as developed
through case law is the equivalent to a written contract for purposes of the
lien law.
Recently, the Norfolk Superior Court held that the
exchange of delivery tickets for concrete products along with invoices for
such concrete products constitutes a written contract, thus the supplier had a
valid mechanic’s lien. Scituate Ray Precast Concrete Corp. v. Intoccia Constr.
Co., Inc., Norfolk Superior Court, C.A. No. 01-00139 (Mulligan, J.). The
significance of this ruling is in what was lacking in the record.
Specifically, there was no evidence in the ruling that there was any payment
of the invoices. Conceivably, therefore, there could have been no “meeting of
the minds” as to the agreed price for the materials.
Perhaps the most significant aspect of this case,
however, is the Court’s interpretation of another provision of M.G.L. c. 254,
§4. In connection with increasing the number of potential lien claimants by
expanding the definition of “written contract,” the 1996 Amendments provided
owners with additional protection from subcontractor and supplier liens.
Under M.G.L. c. 254, §4, the total value of a lien for a section 4
(subcontractor or supplier) lien claimant is limited to the amount due to the
general contractor. This provides the owner with a capping mechanism so that
the owner does not have to pay twice — once to the general contract and once
to the subcontractor. The subcontractor, to protect itself, should provide
notice of its existence to the owner by serving it with a Notice of
Identification (serving the Notice of Identificatin does not, however,
establish a lien; the subcontractor or supplier must record and serve a Notice
of Contract). See M.G.L. c. 254, §4. By providing the Notice of
Identification, the owner then has knowledge of the subcontractors and
suppliers working on the project, and can account for payments by the general
contractor to those subcontractors and suppliers by requiring partial lien
waivers in exchange for payments. If the subcontractor fails to provide the
notices, the owner would have no knowledge of the existence of the
subcontractors and suppliers, and would face the possibility of having its
property subject to many liens if the general contractor had failed to pay the
subcontractors and suppliers the progress payments. To protect the owner, the
lien law caps the amount of the subcontractor’s or supplier’s lien at the
amount due the general contractor at the time the subcontractor recorded and
served its Notice of Contract. If the owner had paid the general contractor
in full at the time the subcontractor recorded and served its Notice of
Contract, the subcontractor’s lien amount would be zero. Therefore, the
subcontractor had a financial incentive to provide the Notice of
Identification.
The Scituate case alters this capping mechanism. In this
case, there was no money due the general contractor at the time the Notice of
Contract was filed. The Court did not enforce the capping mechanism described
above because, in the Court’s view, it was in conflict with the intended
purpose of the lien law. The Court determined that the actions or inactions,
i.e. breaches of contract, of other contractors were irrelevant to the
calculation of the amount due the subcontractor. Therefore, the Court held
that the capping mechanism was not applicable, and held that the plaintiff had
a valid lien.
There have been, however, other Superior Court decisions
contrary to Scituate, enforcing the capping mechanism. Until an appellate
court rules on this particular provision of the Lien Law, the enforcement of
the capping mechanism of the lien law is in doubt.
In summary, this case is significant because it further
refines the definition of “written contract” and because it casts doubt upon
statutory protection for owners, and general contractors providing indemnity
to owners.
For more information, call John W. DiNicola, toll free,
at 1-888-688-8500.