Monday, October 27, 2008

Mechanic's Lien: What is Part of the Original Contract

A recent decision by Judge Thomas D. Horne of the Circuit Court of Loudoun County in Tart Lumber Co., Inc. v. Drewer Dev. Corp. may have significant impact on the timing requirements for filing mechanic's liens by suppliers, subcontractors and other lien claimants. Judge Horne dismissed approximately half of the $91,613.51 of liens by finding that each invoice evidenced a separate contract with a separate required date for filing of the memorandum of mechanic's lien.

Under Virginia Code ß43-4 a lien claimant must file a memorandum of lien no "later than ninety days from the last day of the month in which he last performs labor or furnishes material." In the 1993 Virginia Supreme Court case of American Standard Homes Corp. v. Reinecke a portion of a mechanic's lien was dismissed because subsequent orders were not considered part of the original deal; thus, the memorandum for the earlier materials was found to be filed after the statutory period for filing expired.

Judge Horne essentially agreed with the title companies' view of the Reinecke case. Even though the contractor signed a credit agreement pursuant to which the goods were delivered, the court found that each separate delivery was a separate contract. The credit agreement did not obligate the supplier to sell, nor the buyer to purchase, any specific materials. Thus, the court found each order to be a separate contract with a new 90-day filing requirement.

While Judge Horne is only a circuit court judge and his opinion has no precedent value in other courts, it may mean that other judges and ultimately the Virginia Supreme Court will have the same interpretation of the Reinecke case. On the other hand, we are aware that other circuit court judges have ruled more favorably regarding inclusion in "last perform(ed) labor or furnish(ed) materials". Apparently there are some cases on appeal to the Virginia Supreme Court to settle this issue.

Meanwhile, it will be important to file mechanic's liens within 90 days of the last day of the month for each separate invoice, or make sure you can prove that subsequent deliveries were pursuant to a prior single contract. Judge Horne's opinion focused on whether the supplier would have been required to deliver and whether the contractor would have been required to accept the materials in question; absent such requirement, he found that there was no contract and each delivery was a separate sale with a separate time period. This means that claimants need a written contract for the entire order, or file quick and often.

As you imagine, claimants seeking to collect unpaid bills believe the courts are impairing the protection that the mechanic's lien statute intended to provide. Property owners, title companies and banks are pleased with the ruling which presents another technical roadblock to enforcement of a mechanic's lien.

The above article is not meant to replace legal counsel. To speak to an attorney, please contact Gross & Romanick directly by filling out our online form, emailing law@gross.com, or calling (703) 273-1400.