Mechanic’s Lien

Joint Checks on Construction Projects

joint check texas construction project lawWhat are joint checks? How are they used on construction projects? Are they a perfect solution?

A joint check is a check made payable to two or more payees in the conjunctive, e.g. “Jane Doe Masonry, Inc. and Good Brick, Inc.” A financial institution should only honor the check if both payees have correctly endorsed it.

A joint check may provide the parties on a construction project an additional level of security. For example, an owner may issue a joint check payable to both the general contractor and the subcontractor. By endorsing this check, both the general contractor and subcontractor will be admitting receipt of payment: the general contractor from the owner, and the subcontractor from the general contractor. By virtue of this fact, the owner has some assurance that the general contractor has paid the subcontractor at least some portion of what the subcontractor is properly owed. Furthermore, the subcontractor will know when and how much the general contractor has been paid.

Joint checks are not foolproof. People and financial institutions can intentionally or carelessly circumvent the security joint checks may offer.

In our Law 101 posts, we define terms, phrases, or concepts with the goal of conveying core information in order to set the stage for more complex discussions.

Overview of Texas Statutory Property Liens

texas statutory property liensIn this post we defined a lien as a legal right or interest that a creditor has in another’s property, lasting usually until a debt that it secures is satisfied. Did you know that Texas has more than twenty different types of statutory property liens? These include:

  1. Judgment Liens
  2. Mechanic’s, Contractor’s, or Materialman’s Liens
  3. Landlord’s and Tenant’s Liens
  4. Hospital and Emergency Medical Services Liens
  5. Mineral Property Liens
  6. Railroad Laborer’s Liens
  7. Farm, Factory, and Store Worker’s Liens
  8. Self-Service Storage Facility Liens
  9. Newspaper Employee’s Liens
  10. Motor Vehicle Mortgagee’s Liens
  11. Broker’s and Appraiser’s Commercial Real Estate Liens
  12. Manufactured Home Liens
  13. Tailor’s and Dry Cleaner’s Liens
  14. Vehicle, Motorboat, and Vessel Worker’s Liens
  15. Stock Breeder’s Liens
  16. Stable Keeper’s, Garageman’s, Pasturer’s, and Cotton Ginner’s Liens
  17. Agricultural Liens
  18. Veterinary Care Liens
  19. Plastic Fabricator Liens
  20. Aircraft Repair and Maintenance Liens
  21. Damaged Fence Liens

In our Law 101 posts, we define terms, phrases, or concepts with the goal of conveying core information in order to set the stage for more complex discussions.

In the News: The “Liening” Museum Tower of Dallas

In the News

Extra! Extra!

In our In the News series, we’ll use an article or topic that has been featured recently in the news as a potential learning opportunity.

For some time now the Dallas Museum Tower and Nasher Sculpture Center have been reported to have a difference of opinion over an alleged problem with light that is reflected from the Museum Tower’s glass exterior into the sculpture center. D Magazine ran an article on it in May 2012. Bloomberg reported on it. The Huffington Post reported on it. The Dallas Morning News even wondered aloud who might be the first to sue. For this reason, a headline in the local news last week caught the attention of many, although not all, Dallasites: “$800,000 in unresolved claims filed against Museum Tower.”

It seems that the Museum Tower hired Austin Building Company (“Austin”) to serve as a General Contractor. Custom Components Company (“CCC”), in turn, was apparently tapped to furnish “exterior glass and metal railings” on the project to or through Austin. According to the news article, more than one mechanic’s lien has been filed against the Museum Tower, and CCC has filed suit to foreclose their lien in the amount of roughly $237,000. A spokesperson for Austin is quoted as saying, “A bond was filed to protect the owner of the project in the event of suit to foreclose the lien. Austin vigorously contests this claim, and is working to resolve this issue.”

CCC’s Original Petition, filed January 7, 2014, confirms that CCC filed a mechanic’s lien against the Museum Tower property in April 2013. CCC is now seeking an order from the 191st District Court of Texas foreclosing the property to satisfy its lien. CCC is also suing Austin for breach of contract and Austin and the Museum Tower for unjust enrichment. These claims are independent and separate from CCC’s mechanic’s lien claim. CCC did not name the surety as a party to the lawsuit.

lien is a “legal right or interest that a creditor has in another’s property, lasting usually until a debt or duty that it secures it is satisfied. Typically, the creditor does not take possession of the property on which the lien has been obtained.” Black’s Law Dictionary 933 (7th ed. 1999). A mechanic’s lien is a lien that “secures payment for labor or material supplied in improving, repairing, or maintaining real…property, such as a building…or the like.” Id. at 935. (Did you know that the word realty is short for real property?) In a future Law 101 post we’ll discuss the meaning and fundamentals of mechanic’s liens in greater detail. If the suspense is killing you, here’s an article on Five Frequently Asked Questions About Texas Mechanic’s Liens. In short, mechanic’s liens turn specific property into collateral that may be judicially foreclosed to satisfy a debt under certain circumstances.

So CCC has filed a mechanic’s lien and is asking the judge to foreclose the collateral to pay for labor/materials for which CCC claims it is still owed. We don’t know what the Nasher thinks about this. But Austin seems to think that a bond that was filed will protect the owner of the Museum Tower from the lien claim. Depending on what type of bond has been filed and when and how it was filed, Austin may be correct.

Chapter 53 of the Texas Property Code contains most of the information concerning Texas statutory mechanic’s liens. Subchapters H and I of Chapter 53 discuss bonds to indemnify against liens and bonds to pay liens, respectively. Think of bonds simply as insurance. Subchapter H allows a person — usually the General Contractor — to obtain and file a bond after a mechanic’s lien has been filed against property, the effect of which is to discharge the mechanic’s lien claim against the property. Subchapter I provides that a General Contractor may furnish a payment bond at any time, the effect of which is that a “claimant may not file suit against the owner or the owner’s property” if the bond meets other statutory requirements. See Tex. Prop. Code sec. 53.201(b). These requirements include, among other things, that the bond be in a certain amount and that it be recorded in the county clerk’s office. Project owners often ask General Contractors to furnish payment bonds before projects commence. If a payment bond has been obtained and recorded at the time an unpaid claimant files its mechanic’s lien, then the law creates a limited window of time in which the claimant may sue on the bond: no sooner than 60 days after the claimant perfects the lien and no later than one year after perfection of the lien claim.

Will Austin utilize Texas’s relatively new motion to dismiss procedure to challenge CCC’s mechanic’s lien foreclosure claim? Will CCC amend their petition to add the surety to the fray? Will the surety intervene into the action on its own volition? Any of these options will have to be pursued relatively soon. And either way, Austin and the Museum Tower will still have to contend with CCC’s breach of contract and unjust enrichment claims. At the end of the day, I’d be willing to wager that the Museum Tower, Austin and CCC all share at least one sentiment: they all want CCC to be paid a fair price for the labor/materials CCC furnished in light of all of the underlying circumstances, many of which we are probably not aware.

Takeaway: Most contractors want to get paid; they aren’t interested in foreclosing if it’s not necessary. Most construction project owners don’t want to lose materials and improvements furnished by contractors. Properly executed bonds are a good way to achieve both ends—they can protect a project owner from foreclosure and contractors from not getting paid.

Photo Credit: Pulpolux !!! via photopincc