Specially Fabricated Goods: When to Lien

by | Mar 31, 2010 | Bonds, Getting Paid, Liens

As a general rule, the limitation period in most jurisdictions for filing a materialman’s lien on a property, assuming all other conditions have been met, begins to run when the materials are delivered to the property. Suppose, however, a contractor or owner order goods to be specially manufactured. These goods can only be used for the project for which they were ordered. Should the materialman be denied its right to lien the project if the owner or contractor wrongfully prevents delivery or incorporation of these specially manufactured goods into the property? As a matter of fairness, the rule should be no – assuming the materialman has otherwise satisfied the conditions for filing a lien.

One condition in many jurisdictions required for filing and allowing a materialman’s lien on a construction project is for the lienor to file and properly serve a notice to the owner. This raises an issue: When does the clock start ticking on the deadline for the materialman who is specially manufacturing the subject goods to provide the required notice to the owner? In most cases, this would be the date on which the materialman first furnished the subject goods. As a rule of thumb, this would the date on which the materials were delivered to the job site or to the owner or contractor. However, this rule will not work in the case of specially manufactured goods. These goods cannot be completed until they are actually manufactured, and the manufacturing process can take some time. Therefore, some courts have ruled that the starting date for the deadline period to file the required notice to owner begins to run when the materialman starts to fabricate the goods.

Specially Fabricated Goods: When to Lien

It can be said that the primary difference between goods that have been specially manufactured as opposed to other goods ordered for a construction project is that the specially manufactured goods are not readily saleable in the marketplace. As a general rule, assuming all other requirements have been met, the deadline for filing a materialman’s lien against a property begins to run on the last day that the subject materials were furnished. This has been interpreted by many courts to mean the last date of delivery. Suppose, however, an owner, for whatever reason, prevents a materialman from delivering goods to a project that otherwise could be purchased over the counter despite the fact that these goods were previously ordered. Should the materialman be entitled to file a lien against the property? The better answer is no. The materialman has the ability to sell these goods in the open marketplace. If the materialman sustains damages such as out of pocket delivery expenses, a suit for damages can be filed against the party that wrongfully prevented delivery.

The Materialmen’s Dilemma

Materialmen who specially fabricate goods for a project are faced with a dilemma not presented to suppliers who merely attempt to deliver goods that can be sold over the counter. There is no ready marketplace for specially manufactured goods. For this reason, many states, when conditions for allowing the filing of a materialman’s lien have otherwise been met, allow materialmen who specially manufacture goods to lien a property – even if the owner or contractor who ordered such specially fabricated goods now decides the goods are no longer needed. Generally, the owner or contractor who ordered the goods must take some act to prevent the delivery or incorporation of these materials into the property. In such case, fairness dictates that the materialman should be entitled to its lien. Many construction lien statutes expressly provide that materialmen who specially fabricate goods are in fact entitled to their lien in such a case.

One final point to ponder – suppose a materialman who specially manufactures goods at the request of an owner or contractor is faced with the situation where the owner or contractor reneges. Assuming all other conditions for filing a materialman’s lien have been met, when does the deadline for filing the lien start to run? In some jurisdictions, this question has not been answered by either the legislature or the courts. In such a situation, the materialman would be forewarned to take a conservative approach. Such an approach would assume that the deadline for filing the materialman’s lien starts to run on the earlier of (1) the date on which the materialman was prevented from delivering the goods to the site, or (2) the date on which the materialman substantially completed the fabrication of such goods. By taking a conservative approach, the materialman would minimize the risk that its lien could be challenged has having been filed in an untimely fashion.

The issues associated with specially manufactured materials for a construction site can often be numerous and complex, and usually require the input of a construction law practitioner.

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