Can a Subcontractor Collect Payment from a Homeowener in Wisconsin?
Full Question:
Answer:
The answer will depend on all the facts and documents involved. Generally, a bankruptcy will create an automatic stay that prevents a creditor from filing a lawsuit. However, it may still be possible to file a breach of contract suit if the business is a separate entity for the person named in the bankruptcy petition, Typically, creditors are required to be listed in the bankruptcy schedules and they can present their claims to the bankruptcy trustee. Motion for Relief from Stay and Abandonment is one filed under the Bankruptcy code for conditioning, modifying or dissolving the automatic stay imposed by § 362 of the Bankruptcy Code and for abandonment of property under § 554 of the Bankruptcy Code.
The owner of the home is not required to pay the subcontractor if the prime contractor defaults in payments to subcontractors. An assignment of the payments would generally need to be agreed to by the original parties to the contract. It may be possible for the homeowner to withhold payments to the prime contractor until furnished with a statements that the subs have been paid. The prime contractor cannot place a lien unless payment to subs have been made accordingto the statutes below.
WI statutes provide as follows:
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.
Please see the following 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.
779.04 Claims assignable; notice; prior payment.
All claims for liens and right to recover therefor under this
subchapter are assignable. Notice in writing of such assignment may be
served upon the owner of the property affected and all payments made
by the owner before service of such notice shall discharge the debt to
the amount paid. The assignee may file petitions for such liens and
may bring an action in the assignee's name to enforce the same,
subject to the limitations in s. 779.01 (5).
779.03 Lien valid unless waived by claimant personally, or unless
payment bond furnished.
(1) No agreement by other than claimant may invalidate lien. Subject
to s. 779.05, a lien claimant may waive the lien given by s. 779.01 by
a writing signed by the lien claimant, but no action by nor agreement
between any other persons shall invalidate the lien, other than payment
in full to the claimant for the labor, services, materials, plans, or
specifications to which the lien claim relates.
(2) Payment bond may eliminate lien rights. In any case where the
prime contractor, pursuant to agreement with the owner, has furnished
a payment bond under s. 779.035, all liens provided by s. 779.01
except those of any prime contractor do not exist, ss. 779.02 (1) to
(4) and (6) and 779.06 do not apply and all claimants who have no lien
shall follow the requirements and procedures specified in ss. 779.035
and 779.036.
779.035 Form of contract; payment bond; remedy.
(1) To eliminate lien rights as provided in s. 779.03 (2), the
contract between the owner and the prime contractor for the
construction of the improvement shall contain a provision for the
payment by the prime contractor of all claims for labor, services,
materials, plans, or specifications performed, furnished, procured,
used, or consumed, except plans or specifications furnished by the
architect, professional engineer or surveyor employed by the owner, in
making such improvement and performing the work of improvement. The
contract shall not be effective to eliminate lien rights unless the
prime contractor gives a bond issued by a surety company licensed to
do business in this state. The bond shall carry a penalty for unpaid
claims of not less than the contract price, and shall be conditioned
for the payment to every person entitled thereto of all the claims for
labor, services, materials, plans, and specifications performed,
furnished, or procured under the contract and subsequent amendments
thereto, to be used or consumed in making the improvement or
performing the work of improvement as provided in the contract and
subsequent amendments thereto. The bond shall be approved by the owner
and by any mortgage lender furnishing funds for the construction of
the improvement. No assignment, modification or change in the
contract, or change in the work covered thereby, or any extension of
time for completion of the contract shall release the sureties on the
bond.
(2) (a) Except as provided in par. (b), any party in interest may, not
later than one year after the completion of the contract for the
construction of the improvement, maintain an action in his or her own
name against the prime contractor and the sureties upon the bond for
the recovery of any damages sustained by reason of the failure of the
prime contractor to comply with the contract or with the contract
between the prime contractor and subcontractors. If the amount
realized on the bond is insufficient to satisfy all of the claims of
the parties in full, it shall be distributed among the parties
proportionally.
(b) 1. Except as provided in subd. 2., a subcontractor, supplier, or
service provider may maintain an action under par. (a) only if the
subcontractor, supplier, or service provider has notified the prime
contractor in writing that the subcontractor, supplier, or service
provider was performing, furnishing, or procuring labor, services,
materials, plans, or specifications for the construction of the
improvement. The notice must be provided no later than 60 days after
the date on which the subcontractor, supplier, or service provider
first performed, furnished, or procured the labor, services,
materials, plans, or specifications.
2. A notice under subd. 1. is not required if any of the following
applies:
a. The contract for performing, furnishing, or procuring the labor,
services, materials, plans, or specifications does not exceed $5,000.
b. The action is brought by an employee of the prime contractor, the
subcontractor or the supplier.
c. The subcontractor, supplier, or service provider is listed in a
written contract, or in a document appended to a written contract,
between a subcontractor, supplier, or service provider and the prime
contractor.
(3) In any case in which the improvement contract and bond have been
prepared and executed pursuant to sub. (1) upon inquiry by any
subcontractor, supplier, service provider, laborer, or mechanic
performing, furnishing, or procuring labor, services, materials,
plans, or specifications for said improvement, the prime contractor
and the owner shall so advise the person making the inquiry and shall
give the person reasonable opportunity to inspect and examine the
contract and bond.
