Transcript ENFORCING ARBITRATION AGREEMENTS IN TENNESSEE

Tennessee Construction Lien
Law
Todd E. Panther
Tune, Entrekin & White, P.C.
Topics to Cover
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Lienable properties
Amount of lien
Perfection
Enforcement
Defenses
Liens on Certain Property
Is the Project Lienable?
• Three types of projects immune from liens
– Public property
• Including quasi-governmental entities
– Residential real property in some cases
– Property that is protected by a performance
bond for 100% of prime contractor’s price
Is the Project Lienable?
Residential Real Property
• Two definitions
• Tenn. Code Ann. §66-11-146(a): “a building
consisting of one (1) dwelling unit in which the
owner of the real property intends to reside or
resides as the owner’s principal place of
residence…”
– Includes buildings consisting of up to 4 dwelling units
so long as owner resides in one of the units
• Only prime contractors have lien rights for this
type of property
Residential Real Property
• Examples of residential property immune from a
remote contractor’s lien under §66-11-146:
– Custom built house
– Residential remodeling project
• Examples of residential property not immune
from a remote contractor’s lien under §66-11146
– Speculative home
– Pre-sold home
– Vacation home
Is the Project Lienable?
Residential Real Property
• Tenn. Code Ann. §66-11-146(b)(1)(A): a building
constructed “consisting of one (1) dwelling unit
intended as the principal place of residence of a
person or family”
– No requirement that owner intends to live there
• §66-11-146(b)(2): where owner and general
contractor are one and the same (or entities
controlled by same person), only persons who
contracted with the general contractor have lien
rights
Is the Project Lienable?
Performance Bond
• Tenn. Code Ann. §66-11-124(c) bars liens
by remote contractors where:
– Owner or owner’s agent provides payment
bond equal to 100% of prime contractor’s
contract price
– Bond must be in favor of remote contractors
– Must be issued before work begins
– Must be recorded
Is the Project Lienable?
Leased Property
• Lien permitted on fee estate only if lessee is determined
to be fee owner’s agent. Tenn. Code Ann. §66-11102(d).
• Court determines whether owner has right to control
conduct of lessee with respect to improvement, and to
consider:
– Whether lease requires lessee to construct specific improvement
on fee owner’s property;
– Whether owner pays for improvement through offsets in amount
of rent lessee pays;
– Whether owner maintains control over improvement; and
– Whether improvement becomes property of fee owner at end of
lease
• Codifies previous case law
Is the Project Lienable?
Condominiums
• Tenn. Code Ann. §66-11-118(c) governs liens
on condominiums:
– No lien against common elements
– If improvement contracted by association of unit
owners, lien attaches to all units for which association
acts
• Exception: attaches to specific units if association notified
lienor at contract that lien may only attach to units for which
improvement was made
– If improvement contracted by unit owner, lien only
attaches to that owner’s unit
AMOUNT OF THE LIEN
• Tenn. Code Ann. §66-11-102(a) clarifies what
lien secures: the contract price
• “Contract price” defined to include:
– Amount agreed upon for work, labor, furnishing
materials, equipment, services, overhead and profit (if
in contract), increased or decreased by price of
extras, breach of contract, defects in workmanship or
materials
– If no agreed upon price, reasonable value of all work,
labor, materials, services, overhead and profit
Furnishing Materials
• Redefined in Tenn. Code Ann. §66-11-101(4), means to:
– Supply materials intended to be and are incorporated into
improvement;
– Supply materials intended to be and are delivered to site and
become normal wastage in construction;
– Specially fabricate materials for use in improvement and, if not
delivered to improvement, are not readily resalable by lienor;
– Supply materials used for construction and do not remain in
improvement, subject to diminution in salvage value; or
– Supply tools, equipment, machinery as permitted by §66-11102(g)
Furnish Materials
• Tenn. Code Ann. §66-11-102(g): Tools,
equipment or machinery lienable as
follows:
– Reasonable rental value for period of actual
use and any reasonable period of non-use; or
– Purchase price, but only if used in course of
particular improvement and have no
substantial value to lienor after completion of
improvement for which they are used
Non-Lienable Items
• Tenn. Code Ann. §66-11-102(e), following not lienable:
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Interest
Service charges
Late fees
Attorney fees
Other items that do not result in an improvement to property
Other items not otherwise permitted by statute
• Consequential damages
• §66-11-102(f), limit on lienable profit:
– If lienor terminated, without default, before completion, has lien
for profit for as much of contract price as lienor has performed in
proportion to contract price as a whole
– Not entitled to profit for work not performed
PERFECTING THE LIEN
With Whom did the Claimant
Contract?
• Perfection requirements significantly differ
depending on who claimant contracted with
• Two types of contractors, prime and remote
– Tenn. Code Ann. §66-11-101(12), “Prime contractor”
is any person who supervises or performs work or
labor or furnishes material and who is in direct privity
of contract with the owner or owner’s agent
– Tenn. Code Ann. §66-11-101(14), “Remote
contractor” is any person who provides work, labor,
furnishes material under a contract with a person
other than the owner
Perfection Requirements: Prime
Contractors
• Typically not required to record lien in
order to perfect as to owner
– Exception: notice of completion
• Tenn. Code Ann. §66-11-112, required to
record to perfect as to subsequent
purchasers and encumbrancers
Tenn. Code Ann. §66-11-112
• Recording preserves lien over subsequent purchasers or
encumbrancers, but only if:
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Recorded in county where property (or part of property) lies;
Sworn and acknowledged statement of amount claimed;
Describes property; and
Recorded no later than 90 days from improvement’s completion
or abandonment
• Such lien not extinguished by conveyance of property
before lien recorded, if recorded within 90 day period
• Statute provides a form
Notices of Completion
• If notice of completion recorded and served, prime
contractor must serve notice of lien
– Must be written, served on person designated in notice of
completion for receiving notice of claim
– State amount of claim and certify that claim does not include
amount for any other job or contract
– Only if lien or contract not previously recorded
• Time for service:
– 1-4 family residential units, must be served within 10 days from
date of recording notice of completion
– All other projects, served within 30 days of recording of notice of
completion
• Failure to record within timeframe results in lien’s
expiration
Perfection: Filing Suit
• Must file suit within one year of project’s
completion or abandonment, or lien is lost,
Tenn. Code Ann. §66-11-106
– Begins at substantial completion
• Luter & Daniel v. Cobb, 41 Tenn. 525 (1860)
– Begins to run when work substantially finished, even
if minor work remains to be done
• Bristol Goodson Electric Light & Power Co. v.
Bristol Gas, Electric Light & Power Co., 99 Tenn.
371 (1897)
– Material suppliers: date of delivery of last materials
(excluding replacements for defective materials)
Tests for Substantial Completion
• Use and occupancy permit
– Not conclusive, as date of use and occupancy permit often not
same as actual completion
– Harrison v. Knafle, 161 S.W. 1003 (Tenn. 1913)
• Construction contract for installation of sprinkler system not
substantially complete until state-required inspection completed
• Intended purpose
– Most common definition
– Substantially complete on date where building (or portion
thereof) can be used for its intended purpose
– See, Tenn. Code Ann. §28-3-201; AIA General Conditions to
Standard Form of Agreement (A201-1997), ¶ 9.8.
Substantial Completion: Other
Issues
• Voightman v. Southern Railroad, 131 S.W. 982
(Tenn. 1910)
– Year begins to run from date prime contractor
substantially completes its work, not from date entire
improvement completed
• Abandonment, Tenn. Code Ann. §66-11-112(b):
– Where work stops for a period of 90 days and owner
or prime contractor intends to cease work
permanently or indefinitely, one year period begins to
run
Perfection Requirements: Remote
Contractors
• First, must serve notice of nonpayment
under Tenn. Code Ann. §66-11-145
• Liberal vs. strict compliance
– No appellate authority on what substantially
complies for a notice of nonpayment
– Under old statute, failure to strictly comply,
lien forfeited
Form of Notice of Nonpayment
• Tenn. Code Ann. §66-11-145, must include:
– Name of claimant and address to which owner and
prime contractor may reach claimant;
– General description of work, labor, materials, etc.
provided;
– Amount owed as of date of notice;
– Statement of last date claimant performed work
and/or provided labor or materials; and
– Description of property against which lien is claimed
• §66-11-145(d) provides a form
Form of Notice of Nonpayment:
Tips
• Lien claimant’s name should be the same as name on contract,
purchase order, etc.
• Description of work should be informative enough that someone not
familiar with project would understand claimant’s scope of work
• Last day of work does not include corrective work, minor work,
punch list, etc.
– Last day of substantial work
• Property description: description on building permit presumed to be
correct
– Otherwise, enough description such that no misunderstanding as to
what property claim attaches
– Need not be perfect description or completely accurate, but a positive,
unambiguous description of wrong property is inadequate
Notice of Nonpayment: Service
• Must be sent to the owner and the prime contractor in
privity with the remote contractor
– Identity of parties addresses, on building permit presumed to be
correct, Tenn. Code Ann. §66-11-145(a)
• Tenn. Code Ann. §66-11-149, notice must be sent by:
– Certified mail, return receipt requested;
– Hand delivery, evidenced by notarized sworn statement
confirming delivery; or
– Any other commercial service that provides delivery confirmation
• Time for service, Tenn. Code Ann. §66-11-145(a):
– Must serve within 90 days of last day of each month within which
work, labor, materials, etc. furnished
Remote Contractors: Notice of Lien
• Tenn. Code Ann. §66-11-115 remote contractor has lien,
if:
– complies with notice of nonpayment requirements; and
– Records and serves notice of lien on property owner within 90
days after improvement completed or abandoned
– Substantial completion determined just as for prime contractors
• Different deadlines if notice of completion recorded
– 1-4 family residential units, must be served within 10 days from
date of recording notice of completion
– All other projects, served within 30 days of recording of notice of
completion
– Remote contractors typically do not have lien rights for 1-4 family
residential properties
• Can use same form provided in Tenn. Code Ann. §6611-112(d)
Remote Contractors: Service of
Lien
• Tenn. Code Ann. §66-11-149(c), service of
lien is complete upon:
– Receipt by party being served by hand
delivery
– Within 3 business days of mailing if served by
certified or registered mail
– One business day after commercial delivery
Perfection: Filing Suit
• Tenn. Code Ann. §66-11-115(b), must file
suit within 90 days of service of notice of
lien
– Failure to file suit results in lien forfeiture
ENFORCING THE LIEN
Deadline for Enforcement
Prime Contractors
• Tenn. Code Ann. §66-11-106:
– A prime contractor’s lien shall continue for
one (1) year after the date the improvement is
complete or is abandoned, and until the final
decision of any suit properly brought within
that time for its enforcement
Starting Point of Tenn. Code Ann.
§66-11-106
• One year begins to run from date of substantial
completion
• Luter & Daniel v. Cobb, 41 Tenn. 525 (1860)
– Begins to run when work substantially finished, even
if minor work remains to be done
• Bristol Goodson Electric Light & Power Co. v.
Bristol Gas, Electric Light & Power Co., 99 Tenn.
371 (1897)
– Material suppliers: date of delivery of last materials
(excluding replacements for defective materials)
Tests for Substantial Completion
• Use and occupancy permit
– Not conclusive, as date of use and occupancy permit often not
same as actual completion
– Harrison v. Knafle, 161 S.W. 1003 (Tenn. 1913)
• Construction contract for installation of sprinkler system not
substantially complete until state-required inspection completed
• Intended purpose
– Most common definition
– Substantially complete on date where building (or portion
thereof) can be used for its intended purpose
– See, Tenn. Code Ann. §28-3-201; AIA General Conditions to
Standard Form of Agreement (A201-1997), ¶ 9.8.
Substantial Completion
• One year begins to run after improvement
is completed or abandoned
• Voightman v. Southern Railroad, 131 S.W.
982 (Tenn. 1910)
– Year begins to run from date prime contractor
substantially completes its work, not from date
entire improvement completed
Stopping Point of Tenn. Code Ann.
§66-11-106
• Stopping point is the date when suit to
enforce the lien is brought
– Will be discussed in more detail below
Deadline for Enforcement
Remote Contractors
• Tenn. Code Ann. §66-11-115(b):
– The lien shall continue for the period of ninety
(90) days from the date of service of notice in
favor of the remote contractor, and until the
final termination of any suit for its enforcement
properly brought pursuant to §66-11-126
within that period.
Starting Point of Tenn. Code Ann.
§66-11-115(b)
• 90 day period beings to run “from the date
of service of notice.”
• Tenn. Code Ann. §66-11-149(c), service of
lien is complete upon:
– Receipt by party being served by hand
delivery
– Within 3 business days of mailing if served by
certified or registered mail
– One business day after commercial delivery
Stopping Point of Tenn. Code Ann.
§66-11-115(b)
• The stopping point is the date when suit to
enforce the lien is brought
Methods of Enforcement
Tenn. Code Ann. §66-11-126
• Lien claimant must:
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File the lawsuit under oath
Seek a writ of attachment
Set forth the facts
State the amount due
Describe the property
Serve the owner
Remote contractors have discretion to serve contractor with
whom they contracted
• Lawsuit timely brought if seeks writ of attachment within
applicable time
• Must provide bond of $1,000 or lien amount, whichever
is less
Amount of Attachment
• Must attachment so much of property that
is sufficient to satisfy the amount due
• See, Tenn. Code Ann. §§26-6-120, 29-6128, and 29-6-157.
Methods of Enforcement
Tenn. Code Ann. §66-11-126
• No attachment required where:
– a payment bond
– contractor’s bond
– bond to discharge
• Bond must be recorded
• Lawsuit still must
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Be filed under oath
Set forth the facts
State the amount due
Describe the property
• Must serve the owner and the surety
Methods of Enforcement
Complaint Under Oath
• Arises out of attachment statutes
– Proper affidavit/verification required, or
attachment is void
• Defects in form can be cured by
amendment
• Substantive defects that cannot be cured
by amendment:
– Lack of signature/verification
– Lack of appropriate grounds
Lien Claimant’s Leverage
• Over owner
– No contractual privity required
– Can force owner to pay even if paid original contractor in full
• Over subsequent purchasers
– Only if records lien within 90 days of improvement’s completion
or abandonment
– Only if lien in valid form: verified under oath and acknowledged
– Owens Lumber & Millwork, Inc. v. National Equity Corp., 940
S.W.2d 66 (Tenn. Ct. App. 1996)
• A timely filed lien is not extinguished by a conveyance to a
subsequent purchaser prior to the lien being filed
– Tenn. Code Ann. §66-11-112 contains a form
Lien Claimant’s Leverage
Against Lenders
• Tenn. Code Ann. §66-11-104: all liens relate
back and take effect upon the visible
commencement of operations
• Williams Lumber & Supply Co. v. Poarch, 428
S.W.2d 308 (Tenn. 1968): all liens superior to
mortgage if visible commencement of operations
occurred before mortgage recorded
– Includes liens for work commenced after mortgage
recorded
Visible Commencement of
Operations
• Defined in Tenn. Code Ann. §66-11-101(16):
– [T]he first actual work of improving upon the land or
the first delivery to the site of the improvement of
materials, that remain on the land until actually
incorporated in the improvement, of such manifest
and substantial character as to notify interested
persons that an improvement is being made or is
about to be made on the land…
– Excludes: demolition, surveying, excavating, clearing,
filling or grading, placement of sewer or drainage
lines or other underground utilities, temporary security
fencing
Priority Over Mortgage
Tenn. Code Ann. §66-11-108
• Lien claimaint has priority over mortgage where:
– Serves mortgagee with written notice before work
begins
– No particular form of notice is required
– Mortgagee consents by certified or registered mail
• Consents if fails to serve written objection by certified or
registered mail within 10 days of receipt of notice
• Priority regardless of date of visible
commencement of operations
Enforcement – Arbitration
• Must file suit to enforce lien, but what if contract
has arbitration clause?
• File lawsuit to enforce lien requesting that, upon
answer, court stay litigation and refer to
arbitration
• File motion to stay the litigation and compel
arbitration
• After moving to compel arbitration, file demand
with appropriate entity
• Upon adjudication in arbitration, move for court
to enter judgment in accordance with award
Winning an Enforcement Action
• Lien is means of securing payment, not
right of payment
• Common defenses:
– Work is defective
– Work does not comply with the plans and
specifications
– Work is not timely completed
• Defenses are often raised after the work is
complete and the lien is served
Winning an Enforcement Action
• Keep good records and give appropriate notice
– Job reports, photographs, correspondence
– Notify of circumstances/events that could affect right
to payment/payment amount
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Changes in the scope of the work
Delays
Directives regarding means and methods of construction
Codes violations
• Experts
– Not required, but often helpful
– Independent assessment
– Earlier the better
Winning an Enforcement Action
• Client assistance
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Prepare to spend more time than anticipated
Prepare to spend more money than anticipated
Prepare to be more annoyed than anticipated
Prepare to feel more at risk than anticipated
• Settlement
– Parties control outcome
– Cost savings
– “You can’t always get what you want, but if you try
sometime, you just might find, you get what you
need.”
Foreclosing the Lien
• Governed by Tenn. Code Ann. §§29-6-101, et seq.
• Lien extinguished by foreclosure of superior lien
– Leftover funds are divvied up according to priority and parity
rules
• Priority and parity, Tenn. Code Ann. §66-11-107
– Laborer’s liens have priority over all other liens
– All other liens on a parity
• Parity determined by proportion of claim to contract price
– Total contract price / total lienable claims (paid and unpaid)
– Apply percentage to each outstanding claim
Bankruptcy Issues
Perfection
• 11 U.S.C. 362(a)(4): stays any “act to create, perfect, or
enforce any lien against property of the estate.”
• 11 U.S.C. 362(b)(3) exception to automatic stay for “any
act to perfect, or to maintain or continue the perfection
of, an interest in property…”
– Because lien relates back to visible commencement, trustee
cannot avoid lien
– 90 day period for recording lien not tolled by automatic stay
• The holder of an unperfected lien may serve and record
the notice of lien post-petition without violating the
automatic stay
• Because the automatic stay does not prohibit service
and recording of a notice of lien, the lien claimant must
serve and record its notice of lien
Bankruptcy Issues
Enforcement
• Action to enforce lien is stayed by bankruptcy filing
• 11 U.S.C. 108(c) tolls time to file suit to enforce until later
of: statute of limitations or 30 days after notice of
termination of automatic stay
• 11 U.S.C. 546(b)(2), where seizure of property or
commencement of action required to maintain interest in
property, and such action has not occurred before
bankruptcy petition, interest perfected and maintained by
claimaint giving notice to bankruptcy court
• Lien claimant has 30 days after automatic stay lifted to
enforce lien, provided lien claimaint gave notice to
bankruptcy court under 11 U.S.C. 546(b)(2)
What if the Lien Claim Fails?
• Prime contractors: may still have claims for breach of
contract and/or unjust enrichment against owner
• Remote contractors: may still have claims for breach of
contract and/or unjust enrichment against prime
contractor, and claim for unjust enrichment against
owner
• Unjust enrichment claim not very strong
– “[I]f the land owner has given any consideration to any person
for the improvements, it would not be unjust for him to retain the
benefit without paying the furnisher.” Paschall’s, Inc. v. Dozier,
407 S.W.2d 150, 155 (Tenn. 1966) (emphasis added)
DEFENSES AGAINST LIEN
CLAIMS
Is the Project Lienable?
• Three types of projects immune from liens
– Public property
• Including quasi-governmental entities
– Residential real property in some cases
– Property that is protected by a performance
bond for 100% of prime contractor’s price
Is the Project Lienable?
Residential Real Property
• Two definitions
• Tenn. Code Ann. §66-11-146(a): “a building
consisting of one (1) dwelling unit in which the
owner of the real property intends to reside or
resides as the owner’s principal place of
residence…”
– Includes buildings consisting of up to 4 dwelling units
so long as owner resides in one of the units
• Only prime contractors have lien rights for this
type of property
Residential Real Property
• Examples of residential property immune from a
remote contractor’s lien under §66-11-146:
– Custom built house
– Residential remodeling project
• Examples of residential property not immune
from a remote contractor’s lien under §66-11146
– Speculative home
– Pre-sold home
– Vacation home
Is the Project Lienable?
Residential Real Property
• Tenn. Code Ann. §66-11-146(b)(1)(A): a building
constructed “consisting of one (1) dwelling unit
intended as the principal place of residence of a
person or family”
– No requirement that owner intends to live there
• §66-11-146(b)(2): where owner and general
contractor are one and the same (or entities
controlled by same person), only persons who
contracted with the general contractor have lien
rights
Is the Project Lienable?
Performance Bond
• Tenn. Code Ann. §66-11-124(c) bars liens
by remote contractors where:
– Owner or owner’s agent provides payment
bond equal to 100% of prime contractor’s
contract price
– Bond must be in favor of remote contractors
– Must be issued before work begins
– Must be recorded
Are all Amounts of the Claim
Lienable?
• Lien secures contract price
• “Contract price” is the amount agreed
upon by the parties for the work, labor,
services, equipment, etc.
– Includes overhead and profit
– Increased by price of extras
– decreased by damages from breach of
contract
Limits on Lien Amount
• Following not lienable:
– Cost of repairing defective workmanship or materials (Tenn.
Code Ann. §66-11-101(2))
– Interest (Tenn. Code Ann. §66-11-102(e))
– Service charges (Id.)
– Late fees (Id.)
– attorneys’ fees (Id.)
– Any other amount that does not result in an improvement to the
property (Id.)
• Limits on profits, Tenn. Code Ann. §66-11-102(f):
– If lienor is prevented from completing work, entitled to lien for
contract price (including profit) for proportion of work actually
performed
– Not entitled to lien for work (and profit) not performed
Has the Claimant Fulfilled all Statutory
Requirements?
• Lien law to be liberally construed to secure
benefits of the lien
– Substantial, not strict, compliance required
– No appellate authority as to what constitutes
substantial compliance
– Effective so long as nonprejudicial errors or omissions
• Use checklist for all requirements for Notice of
Nonpayment (§145), Notice of Lien (§§112,
115), Apportionment (§118), and Complaint
(§§106, 126)
Statutory Requirements
Notices of Nonpayment
• Tenn. Code Ann. §66-11-145
– Did remote contractor serve notice of nonpayment?
• Served within 90 days of last day of each month work was performed?
– To whom sent?
• Owner
• Prime contractor who contracted with claimant
– How sent?
• Certified/registered mail, return receipt requested
• Hand delivery with sworn statement
• Overnight commercial delivery
– Contain correct information?
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Name and address of claimant
General description of work/services/material provided
Amount owed
Date claimant last performed work or provided services/materials
Description of property
Statutory Requirements
Notice of Lien
• Tenn. Code Ann. §66-11-115
– Serve notice of lien in accordance with §6611-112?
• Sworn statement of amount owed
• Description of property
• Served on owner of property,
– via certified/registered mail, return receipt requested
– Hand delivery with sworn statement
– Overnight commercial delivery
– Served within 90 days of project’s completion
or abandonment?
Statutory Requirements
Apportionment
• Tenn. Code Ann. §66-11-118, must apportion
lien where:
– Work performed on multiple lots, tracts, etc. under
same contract, but improvement not to be operated
as a single improvement
• Separate notice of lien required for each lot, tract, etc.
– Multiple buildings on a single or continguous property
that are not to be operated as a single improvement
• Separate notice of lien required for each building
– If improvement to be operated as a single
improvement across multiple lots, tracts, etc., no
apportionment required
Statutory Requirements
Complaint to Enforce Lien
• Format of complaint, Tenn. Code Ann. §66-11126
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Sworn statement
Amount due
Describe property
Seeking an attachment
Attachment issued?
• Was complaint timely?
– Prime contractors: one year from substantial
completion (Tenn. Code Ann. §66-11-106)
– Remote contractors: 90 days from date of service of
lien (Tenn. Code Ann. §66-11-115)
Cutting off Liens:
Notices of Completion
• Tenn. Code Ann. §66-11-143, cuts off lien rights if notice of
completion recorded and contractors do not timely record liens
– Liens for residential property (up to four units) must be served within 10
days of recording notice of completion
– Liens for all other property served within 30 days of recording of notice
of completion
• Improvement must be 100% complete, Davis v. Smith, 650 S.W.2d
47 (Tenn. Ct. App. 1983), or notice of completion ineffective
– Substantial completion not acceptable
• Must be served:
– Upon any lien claimant that served a notice of nonpayment
– Upon the prime contractor, unless the owner acts as the general
contractor
Cutting off Liens
Waivers
• Tenn. Code Ann. §66-11-124(b):
– Any contract provision that purports to waive any right
of lien under this chapter is void and unenforceable
as against the public policy of this state.
• AG Opinion 05-184:
– Prohibits waivers in contracts as a condition to being
awarded the contract
– Does not prohibit waiver when work already
performed at time of payment, or other circumstances
that are free from duress
Protecting Property
Bonds
• Tenn. Code Ann. §66-11-136
• Owner has right to demand bond after
made payment to prime contractor
– If owner pays remote contractor on lien claim,
has judgment for that amount on the bond
– Prime contractor has right to contest
legality/amount of claim before prime
contractor liable
Collateral Attack
• Lien is only a form of security rather than right to
payment
• No lien rights if claimant not entitled to amount
due
• Contract defenses:
– Defective construction
– Deviation from contract documents
• Licensure defenses
– Unlicensed contractor entitled only to actual
documented expenses