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Owner liability once GC has been paid

Tennessee

If an Owner has paid a GC for materials, but the GC never paid the material supplier, can the material supplier still file and enforce a lien against the Owner thereby requiring the Owner to, in effect, pay for the materials twice in order to remove the lien? In this instance the GC has has filed for bankruptcy so there is no ability to recover against the GC despite the presence of lien waivers.

3 replies

Aug 16, 2019
Tennessee is what's considered an "unpaid balance" state. That means, in Tennessee, the mechanics liens of sub-tier lien claimants (those hired by someone other than the owner) are limited to the amount that the owner hasn't paid the project's GC. And, in a situation where an owner has fully paid their GC, a subcontractor might not be able to recover under a mechanics lien at all. For example: If a TN owner has underpaid their GC by $5,000, and if that GC's sub is unpaid to the tune of $6,500 - that sub could only file a lien claim for up to $5,000. Note, though, that even in a situation where a lien claim might not be available, other legal claims against an owner, such as, potentially, an unjust enrichment claim, might be avaialble.
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Aug 16, 2019
Thanks for the response Matt! Could you direct me to case law or a particular statute that is used for the basis of categorizing TN as an "unpaid balance" state? The lawyer I've discussed this issue with was unfamiliar with TN's standing as an "unpaid balance" state and I would love to be able to point him in the right direction so we can determine the validity of the lien. Thanks again!
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Aug 19, 2019
Happy to help! I'll admit that since I'm not licensed in Tennessee and don't practice there, a Tennessee attorney might be privy to information or caselaw I may not be aware of. If their research points to the contrary - please let us know! We want all information on the site to be as accurate as possible. However, based on 66-11-120 of Tennessee's mechanics lien statute, "The claims secured by lien for work, labor, materials, equipment, services, machinery, overhead and profit, shall not exceed the contract price and extras in the contract between the owner and the prime contractor." So, functionally - if an owner pays their GC, but if the GC's subcontractor files a claim that exceeds what their GC was underpaid, that amount would then seemingly exceed the contract price between the owner and the prime contractor. Note, though, that there's some cloudiness as to whether amounts already paid to toward the contract price should enter this calculation when payment hasn't actually reached the parties who are filing lien claims. Tennessee courts have differed a bit in the past on how exactly that calculation should be made. Specifically - they've differed somewhat on how payments made to a direct contractor but not passed all the way down the payment chain should be calculated. While they aren't a model of clarity, Standard Glass & Supply Co. v. Sheley; BEACON4, LLC v. I & L INVESTMENTS, LLC; and Richmond Screw Anchor Co. v. EW Minter Co. all discuss how TN lien claims should be calculated.
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