How to proceed with a mechanics lien if a customer is arguing the owed amount?
A new customer of ours had us fabricate material for their first big job. They would order and we would receive payment prior to delivery. I larger portion of the order (roughly $10,000 of fabricated material) was delivered on 5/12/2019 and their card was charged for roughly half that amount. Over the weekend they noticed that two of the parts were incorrect. Come Monday they held payment off because of the mistake, but our salesman visited the job and determined that the parts were ordered by our customer incorrectly and we provided what was ordered. He explained this to their company owner and their employee at which point the employee asked for us to fabricate the replacement parts PLUS one other large piece that they did not order. The owner called to confirm the delivery of the order, meaning he was aware it was ordered. We called to receive payment on the previously delivered material but were met with problems with their office manager as she said she did not approve the order. She is disputing the invoices and has refused payment. Will this be an issue when filing a lien? What are my options to assure that I get paid?
1703 Answered Questions
Legal Associate Levelset
First, let's look at lien rights for specially fabricated materials. Then, we can look at lien filings when workmanship is in dispute, as well as tools for recovering payment.
When specially fabricated materials are in play, lien rights can get a little tricky. Where materials are fabricated and furnished to the improvement, generally, that material will give rise to lien rights. However, when work is merely ordered, or where work begins on the materials but those materials don't actually improve the project property (like in a situation where materials are ordered but never actually delivered or used), lien rights might not be fully available. A fair rule of thumb is generally that lien rights will likely exist for materials actually furnished, but likely will not exist for materials that don't actually make it to the job site.
As for liens for disputed payments, it's extremely common for lien claims to be filed where the claimant feels they're owed one thing, while their customer believes they're owed some lesser amount. After all, that's what lien claims are for - payment disputes. So, there are generally two principles to consider:
(1) lien claims can be filed even when the amount or workmanship is in dispute; and
(2) California lien claims are limited to the lesser of (a) the price of the work performed, and (b) the value of the work performed.
Keeping the above information in mind - recall that, in the mechanic's lien context, this will generally represent values or prices of work that's actually been furnished to the project site. So, if an owner is refusing to make payment for work that's actually been furnished, a lien claim may be filed even when the amount of payment owed hasn't been settled. Of course, lien claimants must still file their lien in good faith, so it's important to be able to justify any amounts claimed.
Otherwise, even if payment is actually owed to some degree, a claimant could run the risk of their lien being deemed invalid, unenforceable, or even potentially fraudulent.
Finally, it's worth mentioning that many construction payment disputes are resolved without the need for filing a mechanics lien. Often, the mere threat of a lien claim will do the trick. By sending a document like a Notice of Intent to Lien, lien claimants can show their customers, the prime contractor, and the project owner (really, anyone higher in the payment chain) - that nonpayment won't be tolerated. Plus, the threat of a lien claim might result in a customer being pressured by their customers to resolve the dispute. You can learn more about warnings or threats of lien here: Notice of Intent to Lien
Ultimately, though, some payment disputes will require a mechanics lien filing to get payment in hand. For more information about requirements and actually filing a lien itself, these resources should help: (1) How to File a California Mechanics Lien; and (2) Mechanics Lien & Notice Overview.