Recent Lien Law Developments
Kegler Brown Construction Newsletter August 1, 1998
There have been a number of recent cases construing the Modern Mechanic's Lien Law, including what happens when there are problems with a Notice of Commencement ("NOC") or a Notice of Furnishing ("NOF").
What Happens When There is an Error in the Notice of Commencement?
There are two newly reported cases from Franklin County that deal with the issues of a defective NOC and failure to post a NOC on the job site. Jim Morgan Elec. Co. v. Smith (Sept. 19, 1996, Franklin Co. C.P.), 85 Ohio Misc. 2d 45; Jim Morgan Elec. Co. v. Smith (Dec. 10, 1996, Franklin Co. C.P.), 85 Ohio Misc. 2d 53.
In Jim Morgan, the owner filed a NOC but forgot to include the date of contract with the original contractor. The sub, Jim Morgan Electric, did not serve a NOF until forty-eight days after the last day of work (the same day he filed his lien). The sub then initiated a foreclosure action asserting that his duty to serve a NOF was relieved for two reasons: 1) the NOC was defective because it didn't include the date of contract; and 2) the NOC was not posted at the job site.
Judge Travis held that the owner "substantially" complied with §1311.04 and that the failure to include the contract date did not cause the sub any "inconvenience, prejudice, loss, or inability to serve its notice of furnishing in a timely manner."
With respect to the posting issue, Judge Travis held that the sub's duty in regard to serving a NOF is dependent upon an owner's "filing" a NOC, not posting it. As such, failure to post a NOC at the job site will not excuse a sub from having to serve a NOF.
On Jim Morgan Electric's motion for reconsideration, Judge Travis, in denying the motion, added to his previous decision by pointing out that the sub made no effort to determine if a NOC was filed until after he completed his work. Further, Judge Travis gave little weight to the sub's technical arguments with respect to the NOC because the sub obviously didn't lose his lien rights as a result of his reliance. The defect was only discovered by the sub after he had allowed the time to pass for effectively serving a NOF In summary, Judge Travis states that §1311.04(C) "provides that a lienholder's remedies should it discover that a notice of commencement contains incorrect information are available only if the 'loss and expenses incurred are a direct result of the lien claimant's reliance on the incorrect information."
This reliance argument was disregarded by Judge Travis in another case that involved significant and substantial defects in the NOC. In this case, Judge Travis disregarded the fact that the supplier lien claimant could not show reliance upon a defective NOC in that the supplier never even attempted to serve a NOF. RN Bldg. Materials, Inc. v. Huffer Roofing (1997), 85 Ohio Misc. 2d 20. The Court found that the supplier's failure to serve a NOF was excused where the owner failed to file a NOC with the County Recorder which substantially complied with the statute. In RN, the NOC contained many material errors including a misidentification of the owner and lacked a legal description.
While the case law remains unsettled on these issues, certain rules are emerging. First, the failure to post the NOC on the site will not excuse a failure to serve a NOF. Second, a NOC with minor defects but which substantially complies with the statute will not excuse a failure to serve a NOF, particularly where there is no reliance upon the defective NOC. Third, a NOC which fails to substantially comply with Ohio Rev. Code §1311.04 will excuse a failure to serve a NOF. We will have to await further judicial guidance as to which defects are "substantial" and which are not.
What Happens When There is a Failure to Properly Serve a Notice of Furnishing?
A recent decision from a Magistrate in Montgomery County has held that a failure to obtain proper written evidence of receipt of a NOF pursuant to §1311.19 of the Ohio Revised Code defeats a mechanic's lien. In this case, the lien claimant mailed the NOF "first class, postage pre-paid." Further, the owner in its answer to a request for admission, acknowledged receipt of the NOF. Nonetheless the trial court found that failure to secure a written receipt invalidated the lien. Carey Electric Co. v. ABF Freight System, Case No. 97-7764, Montgomery County Common Pleas Court, unreported. The lesson of the case is clear - obtain a written receipt for service of your NOF if you want to maintain lien rights.