By Benjamin H. Hammond
How many times have you held off on recording a lien because of perceived problems with the technical requirements of the Michigan Construction Lien Act? After this case, you may want to think again.
An excavator’s construction lien was recently upheld by the Court of Appeals even though the excavator failed to serve a notice of furnishing on the owner’s “designee” identified in the notice of commencement, it submitted invoices instead of sworn statements, and it purportedly provided signed full unconditional lien waivers.
In Rogers Excavating, Inc. v Mana Properties, L.L.C., et. al., decided October 24, 2013, Rogers Excavating, Inc. (“Rogers”) contracted directly with the owner, Mana Properties, L.L.C. (“Mana”) to perform initial site work on the project. Mana also hired a construction manager – advisor to oversee the project.
Rogers was not paid approximately $95,000 and recorded a construction lien. In the subsequent lawsuit, Rogers sought to recover from Mana for a breach of contract and to foreclose on its construction lien. Mana and the current holder of its mortgage defended the lawsuit on various grounds. The Court noted that the Michigan Construction Lien Act (“CLA”) is meant to be a remedial statute, should be liberally construed, and that substantial compliance is sufficient to establish the validity of a construction lien in many circumstances. Specifically, the Court held as follows:
First, the lien was valid despite Rogers technically failing to properly serve its notice of furnishing. The notice of commencement clearly indicated that the lender was the “designee” for the owner. While Rogers did not serve the designee, it did serve the owner directly with the notice of furnishing. The Court noted that there was no requirement to serve a notice of furnishing in the first instance because Rogers’ contract was directly with the owner. Nevertheless, the Court concluded that serving the notice of furnishing on the owner substantially complied with the CLA’s notice of furnishing requirement.
Second, Rogers’ lien was valid even though Rogers did not provide any sworn statements throughout the project. Instead, Rogers submitted invoices for the work it performed. In essence, the Court held that these invoices substantially complied with the CLA’s sworn statement requirement even though they were not sworn before a notary. While the invoices were not in the exact form specified in the CLA for sworn statements, they did provide the owner with notice of the amount owing for the material and labor supplied. Moreover, Rogers provided a sworn statement that complied with the CLA shortly after it filed its lawsuit.
Third, Rogers had a valid lien despite the production of full unconditional lien waivers purportedly signed by Rogers. Mana argued that it was entitled to rely on these waivers, particularly since it paid some of Rogers’ invoices to the construction manager who in turn failed to pay those sums to Rogers. Mana presumably argued that it should not be responsible to pay twice for some of Rogers’ work. Rogers claimed the signatures on the waivers were forgeries. We further note that prior case law has held that a forged waiver of lien can be effective if the homeowner makes payment in reliance on it. See DLF Trucking, Inc v Bach, 268 Mich App 306, 707 NW2d 606 (2005). Nevertheless and based on the record in this case, the Court concluded that the waivers could not be attributable to Rogers.
Therefore, the Court held that Rogers’ construction lien was valid. It also found that Rogers was entitled to the full $95,000 from Mana, despite the fact that Mana had paid once for some of this work pursuant to a forged sworn statement.
This case should serve as a warning to owners who contract directly with contractors on projects where they have also employed a construction manager – advisor. The CLA may apply and force an owner to pay twice for some work despite the fact that the construction lien may have technical deficiencies and the owner received full unconditional waivers.
The lesson to contractors is to never give up hope on your lien rights despite some lien irregularities and the fact that you may have signed a full unconditional lien waiver. (In addition to the arguments raised in this case, a lien claimant could argue that since it was not paid there was no adequate consideration for the lien waiver and rescind it. The CLA allows a contractor to withdraw, or rescind, a full unconditional waiver if it was given in exchange for payment and that did not materialize. See MCL 570.1115(6).)