The requirements that must be met prior to filing a valid mechanics liens can be complex. These requirements range from sending the appropriate preliminary notices, to filing the lien within a specific time period, to serving the lien on the necessary parties by the mandated method. All of this presupposes, however, that the mechanics lien claimant is a party entitled to file a mechanics lien in the first place. That determination generally comes down to the specific work performed, but other factors may play into the decision, like whether or not the party performing the work, or even the general contractor, was licensed.
Contract Required for Arkansas Mechanics Lien
One specific requirement for a valid mechanics lien in Arkansas, is that the work giving rise to the lien must be performed pursuant to a contract. A.C.A. § 18-44-101 holds that:
Every contractor, subcontractor, or material supplier as defined in § 18-44-107 who supplies labor, services, material, fixtures, engines, boilers, or machinery in the construction or repair of an improvement to real estate . . . by virtue of a contract with the owner, proprietor, contractor, or subcontractor, or agent thereof . . . shall have, to secure payment, a lien upon the improvement…
This is not a requirement unique to Arkansas, but a recent case provides some additional interesting insights specific to that state. Specifically, what may or may not constitute a “contract” for the purposes of filing a valid mechanics lien.
Recent Case Provides Mechanics Lien Contract Guidance
In Ondrisek v. Hoffman, 2014 U.S. Dist. LEXIS 28856 (W.D. Ark. Mar. 6, 2014), the United States District Court for the Western District of Arkansas deemed mechanics liens filed by five individuals to be invalid. Each of the liens was determined to be invalid on the basis that there was none of the individual lien claimants entered into a contract to be compensated for the services that they provided.
Each of the liens was determined to be invalid on the basis that there was none of the individual lien claimants entered into a contract to be compensated for the services that they provided. While some of the lien claimants testified that they never entered into any contract for the specific work performed, one of the claimants noted that he had entered into an oral contract, but that it was not for a “specific amount”. The court determined that because the contract was not for a specific amount it was unenforceable – in order to be an enforceable contract under Arkansas law, “a contract must be definite and certain”. Given this determination by the court, however, the requirement outlined by A.C.A. § 18-44-101 should apparently be read as “by virtue of an enforceable contract” (emphasis added).
Should this be the case, however? What if a contract is unenforceable for other reasons, would that void any future mechanics liens, as well? Besides being definite and certain, there are other requirements for a valid contract. If any one of these is not followed, the contract could be determined unenforceable, and thus, not give rise to a subsequent mechanics lien right. Notwithstanding that aspect, however, why should the enforceability of the contract have a bearing on the mechanics lien at all?
By denying the right to file a valid mechanics lien if the contract giving rise to the lien is unenforceable, the court shot down two distinct avenues for recovery by the lien claimant: 1) no mechanics lien; and 2) no breach of contract claim. The only option for the lien claimant, at this point, would be something like an unjust enrichment claim against the party who benefited from the work performed. It was not said that there was no expectation of compensation for the work performed in this case, merely that there was no “specific amount” outlined by the purported oral contract at issue. One point of mechanics liens is to shift the financial burden of non-payment up the chain to the property owner – allowing a laborer to be taken advantage twice (non-enforceable contract as unspecific even though payment may have been expected, and the dis-allowal of the subsequent mechanics lien) seems to run counter to that concept.
While there were other problems in this case for the mechanics lien claimants, the fact that the court focused on the enforceability of the contracts provides useful guidance to future lien claimants in Arkansas. If you want to file a mechanics lien, make sure you can enforce the contract pursuant to which the work was performed.