Recent Case Hurts Supplier’s Enforcment of Lien

When a building material supplier has not been paid for labor or materials used on a Georgia construction project, that supplier may place a materialman’s lien against the owner of the improved real property; this is true even if the owner has no contractual relationship with that supplier. Such a lien essentially transfers liability from the party contracting with the supplier (such as the general contractor) to the owner since the supplier’s goods and services improved the value of the owner’s property.

In Hill v.  VNS Corporation d/b/a Choo Choo Lake Oconoee, et al, a case decided earlier this month by the Fourth Division Court of Appeals of Georgia, the plaintiff, a building supply company, sued the property owner to enforce a materialman’s lien against that property, but the court of appeals did not agree with the activities of the trial court and reversed the trial’s court’s decision.

Background & Facts:  The owner had contracted with a custom home-builder general contractor, who in turn purchased materials from the plaintiff for use in constructing a house on the owner’s property. The general contractor failed to pay the supplier for all the materials, which led to several legal claims. The supplier filed a materialman’s lien under the Georgia’s Mechanics and Materialmen’s Lien Law against the real property where the project was located, sued the general contractor and loan guarantor for breach of contract, and sued the property owner on the basis of a materialman’s lien against the property.

Supplier Prevails Against GC and Guarantor:  The plaintiff won a summary judgment against the general contractor and guarantor for payment which included prejudgment interest, and attorney fees pursuant to the building supply company’s credit application’s terms and conditions.

Supplier Prevails Against Project Owner:  The trial court also ruled in favor of the plaintiff in the claim against the owner, granting summary judgment for the materialman’s lien and also making an award for the supplier’s prejudgment interest.

Project Owner’s Appeal:  The owner appealed the lower court’s decision, contending that factual questions remained regarding the amount of the materialman’s lien sought. If there is a genuine issue of material fact, such as the actual amount owed on a lien, summary judgment is improper. The appeals court agreed with the owner that there was an unanswered question of fact, finding that the plaintiff has the burden of proving the lien amount due at the trial court level. The court also noted that a materialman’s lien against the property owner will fail if the owner can show that payments were properly made and applied to the payment of the plaintiff for the labor and materials at issue. The appeals court also reversed the lower court’s award of prejudgment interest, which may not be claimed if the lien amount is not fixed and agreed upon, and attorney fees, which are not lienable items under Georgia law.

Practical Tips For Suppliers and Other Georgia Lien Claimants:

1. File a Timely Lien:  If you as a supplier have not been paid by the party with whom you have a contract, you may place a materialman’s lien against the real property owner if your labor and materials improved that property. This does not require you to have a contractual or any other relationship with the property owner, who has benefited from your materials and work.  Remember that all Georgia construction liens must be filed within 90 days of the last day in which the lien claimant actually worked on or supplied to the project or within 60 days of the date of the lien waiver–whichever deadline is shorter!

2. Document and Prove the Amount Claimed in the Materialmen’s Lien:  If you as a supplier have a valid materialman’s lien against improved property, the amount of the lien must be fixed by agreement or proven in court.

3. Property Owners Should Track Their Payments:  If you are a property owner being sued to enforce a materialman’s lien against your improved property, try to show that you made payments properly to the contractor for the payment of third party supplier’s labor and materials.

4. Interest and Attorneys Fees are Not Includable in Lien Amount:  If you are a defendant in a materialman’s lien suit, note that attorney fees and prejudgment interest are not lienable items under the Georgia lien statutes.