Construction lien and amount due

by ocladmin on July 31, 2011

What if the construction lien is incorrect and does not set out the specific amount due? The old rule of law was that mixing lienable and nonlienable charges could result in loss of the entire lien. But the modern trend in the law is to allow good faith mistakes without an unnecessary penalty.

The Oregon case that illustrates this is A-C Construction, Inc. v. Bakke Corporation. The following is from the opinion in that case.

The traditional Oregon rule–known as the “rule of segregation”– is that a lien which commingles lienable and nonlienable charges is invalid if those charges can only be segregated through resort to extrinsic evidence. See, e.g., Smith v. Lichtenthaler, 206 Or 584, 586, 294 P2d 334 (1956). The purpose of the rule is “to allow the owner of the property to identify on the face of the lien the claims that are valid and those that are not so that he may discharge the valid ones before a foreclosure proceeding is commenced * * *.” Robertson, Hay & Wallace v. Kunkle, 69 Or App 99, 104, 686 P2d 399 (1984) (citing Hays, 267 Or at 148). However, as part of the trend in modern lien law “to dispense with arbitrary rules which have no demonstrable value in a particular factual situation,” Cons. Elec. v. Jepson Elec., 272 Or 376, 380, 537 P2d 80 (1975), Oregon courts, in recent years, have declined to apply the rule of segregation woodenly in cases where its application would not advance the purpose for which it was created. See Hays, 267 Or at 148-49 (creating exceptions to rule of segregation).

Relevant to this case, modern Oregon courts have declined to invalidate unsegregated liens where “the owners had sufficient knowledge with which to question the amount of the lien and thus would not have been prejudiced in settlement negotiations prior to the commencement of the suit.” Robertson, 69 Or App at 104 (citing Hays, 267 Or at 148). Further, an unsegregated lien will not be held invalid if the owner can separate lienable from nonlienable charges by asking the lienholder “a simple question.” Hays, 267 Or at 148. When the owner has such knowledge, or can acquire it through simple questioning, “the lien [will] stand with deduction of the nonlienable items.” Alley v. Erbach, 89 Or App 5, 9, 747 P2d 360 (1987).

Here, defendants had such knowledge at all times relevant to this litigation. They knew that the difference in the amount on the face of the lien and the amount they believed they were obligated to pay was the result of the parties’ disagreement concerning the terms of their contract. Given that defendants had such knowledge, we decline to hold that the parties’ good faith disagreement regarding the contract price is sufficient reason to invalidate plaintiff’s lien.

That result is consistent with our recent decisions in similar cases. In Robertson, we held that a lien was valid even though it contained a charge for over $40,000 in materials that had been purchased but never incorporated into the project. 69 Or App at 104. Because the owner knew that some materials had never been incorporated into the construction, we held that he had sufficient knowledge to question the amount of the lien. Id. In Alley, we held that a lien was valid even though it contained an unsegregated charge for 14 percent interest on the contract price. 89 Or App at 9. At trial, the court disallowed that interest charge. Id. Nevertheless, we held that the lien was valid because the lien documents indicated that the lienholder intended to charge interest, and thus the owner had sufficient knowledge to question the amount on the face of the lien. Id. There, as here, the lien was valid even though the owner had to go to court to avoid paying the invalid lien charges. Id. Most recently, we held that a lien was valid even though it included an unsegregated charge for drywall for which the owner already had paid, and for which the lienholder had signed a “lien waiver.” Knez Building Materials Co. v. Bell-Air Estates, 144 Or App 392, 398, 927 P2d 608 (1996), rev den 325 Or 247 (1997). As in Alley, the owner in Knez had to go to court to avoid paying the nonlienable charges. However, because the owner “could have obtained all pertinent information * * * by asking plaintiff a ‘simple question,'” Id. at 397, we held that the lien was valid despite the inclusion of unsegregated, nonlienable charges. Id. at 398.

We conclude that, as in those cases, defendants here had sufficient knowledge to question the amount on the face of the lien and to separate lienable from nonlienable charges. Accordingly, the lien was not invalid because it included charges that the trial court ultimately decided defendants were not obligated to pay. The trial court properly found that the lien was valid and could be foreclosed after deduction of those nonlienable charges.

Do not be careless in filing liens, and attention to detail is the best way to avoid a lawsuit over the lien. More detail can be better in setting out the work done and the price.

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