• Massachusetts: Written Contract for Mechanic's Lien Purposes Defined, "Capping Mechanism" Provision Not Enforced
  • June 19, 2003 | Author: John W. DiNicola
  • Law Firm: Holland & Knight LLP - Boston Office
  • 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 Identification 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.