What can I do if a contractor files a lien against my property for work that was not done correctly?

Full Question:

What can I do if a contractor files a lien against my property for work that was not done correctly?
03/24/2009   |   Category: Contractors ยป Construction...   |   State: Wisconsin   |   #15744

Answer:

If a contractor is unwilling to remove a lien, , it will be a matter of interpretation for the court based on contract law principles. A claim of defective workmanship may be raised as a defense in foreclosing on the lien. A contractor needs to file a notice of intent to file a lien and may also need to file a pre-lien notice. In an action to foreclose a mechanics’ lien, the burden is on the lienor to prove that he performed the agreement that is the basis of the lien. The lienor must establish his due performance of the contract by a fair preponderance of the evidence, and this burden is not changed by the fact that the lienee asserts a claim for damages due to improper materials and defective workmanship.

Contracts are agreements that are legally enforceable. A contract is an agreement between two parties that creates an obligation to do or refrain from doing a particular thing. The purpose of a contract is to establish the terms of the agreement by which the parties have fixed their rights and duties. A contract may be legally defined as a voluntary, legally enforceable, agreement made by persons with the proper capacity. It should include: 1) an offer; 2) an acceptance; and 3) consideration, or an exchange of value.

A contract may be express or implied. A unilateral contract is one in which there is a promise to pay or give other consideration in return for actual performance. A bilateral contract is one in which a promise is exchanged for a promise. A contract is an agreement between two parties that creates an obligation to do or refrain from doing a particular thing. The purpose of a contract is to establish the terms of the agreement by which the parties have fixed their rights and duties.

An oral contract is an agreement made with spoken words and either no writing or only partially written. An oral contract may generally be enforced the same as a written agreement. However, it is much more difficult with an oral contract to prove its existence or the terms. Oral contracts also usually have a shorter time period within which a person seeking to enforce their contract right must sue. A written contract generally provides a longer time to sue than for breach of an oral contract.

Contracts are mainly governed by state statutory and common (judge-made) law and private law. Private law generally refers to the terms of the agreement between the parties, as parties have freedom to override many state law requirements regarding formalities of contracts. Each state has developed its own common law of contracts, which consists of a body of jurisprudence developed over time by trial and appellate courts on a case-by-case basis.

An unjustifiable failure to perform all or some part of a contractual duty is a breach of contract. A legal action for breach of contract arises when at least one party's performance does not live up to the terms of the contract and causes the other party to suffer economic damage or other types of measurable injury. A lawsuit for breach of contract is a civil action and the remedies awarded are designed to place the injured party in the position they would be in if not for the breach. Remedies for contractual breaches are not designed to punish the breaching party. The five basic remedies for breach of contract include the following: money damages, restitution, rescission, reformation, and specific performance. A money damage award includes a sum of money that is given as compensation for financial losses caused by a breach of contract. Parties injured by a breach are entitled to the benefit of the bargain they entered, or the net gain that would have accrued but for the breach. The type of breach governs the extent of damages that may be recovered.

Restitution is a remedy designed to restore the injured party to the position occupied prior to the formation of the contract. Parties seeking restitution may not request to be compensated for lost profits or other earnings caused by a breach. Instead, restitution aims at returning to the plaintiff any money or property given to the defendant under the contract. Plaintiffs typically seek restitution when contracts they have entered are voided by courts due to a defendant's incompetence or incapacity.

Rescission is the name for the remedy that terminates the contractual duties of both parties, while reformation is the name for the remedy that allows courts to change the substance of a contract to correct inequities that were suffered. In order to have a rescission, both parties to the contract must be placed in the position they occupied before the contract was made. Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds. Specific performance is an equitable remedy that compels one party to perform, as nearly as practicable, his or her duties specified by the contract. Specific performance is available only when money damages are inadequate to compensate the plaintiff for the breach

A primary contractor must give the homeowner a prelien notice at least 30 days before the time deadline for filing the mechanic’s lien, which is 6 months after the contractor last furnished labor or materials to the site, before filing a mechanics lien. If the prime contractor fails to give this notice, or gives it late, you still may be able to file a mechanic’s lien. However, the contractor must 1) pay all the obligations to your subcontractors and suppliers within 6 months of the time they last performed services, and 2) this assumes the time for subs to provide their Subcontractors Identification Notices has lapsed and no lien claimant has given such notice (and therefore no lien rights). If all this applies, you can still record your mechanic’s lien. The owner should also be given a notice of lien rights within 10 days after the first labor, services, materials, plans, or specifications are performed, furnished, or procured for the improvement by or pursuant to the authority of the prime contractor.


The following are WI statutes:

779.02 Notice required to preserve lien rights; exceptions; saving clause;
obligations of contractors.

(1) Exceptions to notice requirement. The notice required to be given by
lien claimants under sub. (2) shall not be required to be given in the
following cases only:

(a) By any laborer or mechanic employed by any prime contractor or
subcontractor.

(b) By any lien claimant who has contracted directly with the owner for
the labor, services, materials, plans, or specifications performed,
furnished, or procured, unless the claimant is a prime contractor subject
to the notice requirement of sub. (2) (a).

(c) By any lien claimant performing, furnishing, or procuring labor,
services, materials, plans, or specifications for an improvement in any
case where more than 4 family living units are to be provided or added by
such work of improvement, if the improvement is wholly residential in
character, or in any case where the improvement is partly or wholly
nonresidential in character.

(d) By any prime contractor who is personally an owner of the land to be
improved, by any corporate prime contractor of which an owner of the land
is an officer or controlling shareholder, by any prime contractor who is an
officer or controlling shareholder of a corporation which is an owner of
the land or by any corporate prime contractor managed or controlled by
substantially the same persons who manage or control a corporation which is
an owner of the land.

(e) By any lien claimant, other than a prime contractor, who performs,
furnishes, or procures labor, services, materials, plans, or specifications
for an improvement on a project on which the prime contractor is not
required to give notice under this section.

(2) Notice to owner, lender, and supplier.

(a) Every prime contractor who enters into a contract with the owner for
a work of improvement on the owner's land and who has contracted or will
contract with any subcontractors, suppliers, or service providers to
perform, furnish, or procure labor, services, materials, plans, or
specifications for the work of improvement shall include in any written
contract with the owner the notice required by this paragraph, and shall
provide the owner with a copy of the written contract. If no written
contract for the work of improvement is entered into, the notice shall be
prepared separately and served on the owner or authorized agent within 10
days after the first labor, services, materials, plans, or specifications
are performed, furnished, or procured for the improvement by or pursuant to
the authority of the prime contractor. The notice, whether included in a
written contract or separately given, shall be in at least 8-point bold
type, if printed, or in capital letters, if typewritten. It shall be in
substantially the following language: "As required by the Wisconsin
construction lien law, claimant hereby notifies owner that persons or
companies performing, furnishing, or procuring labor, services, materials,
plans, or specifications for the construction on owner's land may have lien
rights on owner's land and buildings if not paid. Those entitled to lien
rights, in addition to the undersigned claimant, are those who contract
directly with the owner or those who give the owner notice within 60 days
after they first perform, furnish, or procure labor, services, materials,
plans or specifications for the construction. Accordingly, owner probably
will receive notices from those who perform, furnish, or procure labor,
services, materials, plans, or specifications for the construction, and
should give a copy of each notice received to the mortgage lender, if any.
Claimant agrees to cooperate with the owner and the owner's lender, if any,
to see that all potential lien claimants are duly paid".

(b) Every person other than a prime contractor who performs, furnishes,
or procures labor, materials, plans, or specifications for an improvement
shall have the lien and remedy under this subchapter only if within 60 days
after performing, furnishing, or procuring the first labor, services,
materials, plans, or specifications the person serves a written notice, in
2 signed copies, on the owner or authorized agent at the last-known
post-office address. The owner or agent shall provide a copy of the notice
received, within 10 days after receipt, to any mortgage lender who is
furnishing or is to furnish funds for construction of the improvement to
which the notice relates. The notice to the owner shall be in substantially
the following language, with blanks accurately filled in: "As a part of
your construction contract, your prime contractor or claimant has already
advised you that those who perform, furnish, or procure labor, services,
materials, plans, or specifications for the work will be notifying you.
The undersigned first performed, furnished, or procured labor, services,
materials, plans, or specifications on ______________ (give date) for the
improvement now under construction on your real estate at ______________
(give legal description, street address or other clear description). Please
give your mortgage lender the extra copy of this notice within 10 days after
you receive this, so your lender, too, will know that the undersigned is
included in the job".

(c) If any prime contractor required to give the notice prescribed in
par. (a) fails to give notice as required, the prime contractor does not
have the lien and remedy provided by this subchapter unless the prime
contractor pays all of the prime contractor's obligations to its
subcontractors, suppliers, and service providers in respect to the work of
improvement within the time periods under s. 779.06 and until the time for
notice under par. (b) has elapsed and either none of its subcontractors,
suppliers, or service providers gives notice as a lien claimant under par.
(b) or all of its subcontractors, suppliers, and service providers have
waived all lien rights in full under s. 779.05.

(d) Every mortgage lender making an improvement or construction loan
shall make reasonable inquiry of the owner as to whether any notices
required by this subsection have been given. A lender is not required to
pay out any loan proceeds unless or until the prime contractor has given
any notice required of the prime contractor by this subsection.

(e) If the owner or lender complains of any insufficiency of any notice,
the burden of proof is upon the owner or lender to show that he or she has
been misled or deceived by the insufficiency. If there is more than one
owner, giving the notice required to any one owner or authorized agent is
sufficient. In addition, every prime contractor and subcontractor, at the
time of purchasing or contracting for any materials to be used in any of
the cases enumerated in s. 779.01, shall upon request deliver to the
supplier a description of the real estate upon which the materials are to
be used and the name and post-office address of the owner and authorized
agent, if any. Failure to receive such description and name and address
does not relieve a supplier who asserts a lien from the requirement of
giving timely notice.

(3) Failure to give notice; saving clause. Any lien claimant, other than
the prime contractor, who fails to give a notice as required by sub. (2)
(b) shall have no lien on the land or improvement to which the failure
relates. Any claimant who serves a late but otherwise proper notice on the
owner or authorized agent shall have the lien provided by s. 779.01 for any
labor, services, materials, plans, or specifications performed, furnished,
or procured after the late notice is actually received by the owner. The
burden of proving that labor, services, materials, plans, or specifications
for which a lien is claimed were furnished after that date is on the lien
claimant.

(4) Notice and filing requirements in s. 779.06 unaffected. Nothing in
this section shall be construed to relieve any lien claimant of the notice
and filing requirements under s. 779.06.

(5) Theft by contractors. The proceeds of any mortgage on land paid to
any prime contractor or any subcontractor for improvements upon the
mortgaged premises, and all moneys paid to any prime contractor or
subcontractor by any owner for improvements, constitute a trust fund only
in the hands of the prime contractor or subcontractor to the amount of
all claims due or to become due or owing from the prime contractor or
subcontractor for labor, services, materials, plans, and specifications
used for the improvements, until all the claims have been paid, and shall
not be a trust fund in the hands of any other person. The use of any such
moneys by any prime contractor or subcontractor for any other purpose
until all claims, except those which are the subject of a bona fide
dispute and then only to the extent of the amount actually in dispute,
have been paid in full or proportionally in cases of a deficiency, is
theft by the prime contractor or subcontractor of moneys so
misappropriated and is punishable under s. 943.20. If the prime
contractor or subcontractor is a corporation, limited liability company,
or other legal entity other than a sole proprietorship, such
misappropriation also shall be deemed theft by any officers, directors,
members, partners, or agents responsible for the misappropriation. Any of
such misappropriated moneys which have been received as salary,
dividend, loan repayment, capital distribution or otherwise by any
shareholder, member, or partner not responsible for the misappropriation
shall be a civil liability of that person and may be recovered and
restored to the trust fund specified in this subsection by action brought
by any interested party for that purpose. Except as provided in this
subsection, this section does not create a civil cause of action against
any person other than the prime contractor or subcontractor to whom such
moneys are paid. Until all claims are paid in full, have matured by
notice and filing or have expired, such proceeds and moneys shall not be
subject to garnishment, execution, levy or attachment.

(6) Prime contractors to defend lien actions. Where a lien is filed under
this subchapter by any person other than the prime contractor, the prime
contractor shall defend any action thereon at personal expense, and during
the pendency of the action the owner may withhold from the prime contractor
the amount for which the lien was filed and sufficient to defray the costs
of the action. In case of judgment against the owner, the owner may deduct
from any amount due to the prime contractor the amount of the judgment and
if the judgment exceeds the amount due, the owner may recover the
difference from the prime contractor. This subsection does not apply if the
lien is the result of the failure of the owner to pay the prime contractor.

(7) Wrongful use of materials. Any prime contractor or any subcontractor
furnishing materials who purchases materials on credit and represents at
the time of making the purchase that the materials are to be used in a
designated building or other improvement and thereafter uses or causes them
to be used in the construction of any improvement other than that
designated, without the written consent of the seller, may be fined not
more than $300 or imprisoned not more than 3 months.

(8) Wage payments to laborer apply to earlier work. In any situation
where a laborer or mechanic employed by any prime contractor or
subcontractor has wage payments due and has worked on more than one
improvement for the employer during the period for which the wages are
due, and a payment of less than all wages due is made, the payment is
deemed to apply to the unpaid work in chronological sequence starting
with the earliest unpaid time, unless the laborer agrees in writing that
the payment shall be applied in a different way.

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