Ohio’s Mechanics’ Lien Law: Material Provisions for Material Suppliers
Ohio Construction Code Journal March 1, 2005
Material suppliers face a dilemma in addressing payment problems from subcontractors and contractors with past due invoices and lengthy aging reports of accounts receivable. Knowing that a mechanic's lien will protect the material supplier and increase considerably the possibility of collecting the amounts due and owing, the material supplier must be vigilant about the last date when materials were supplied. A mechanic's lien must be filed within 75 days of the last date of work i.e. the last date materials were supplied or delivered. It is, however, often difficult for a supplier to ascertain the progress and/or the status of the project. Additionally, if the material supplier files a mechanic's lien on the project—how will that affect the customer i.e. the contractor/subcontractor—and the customer's customer i.e. the owner. Although these issues have no easy answers, Ohio's Mechanic's Lien law is extremely helpful to material suppliers facing mounting outstanding accounts receivable on construction projects.
In the Ohio Mechanic's Lien statute--a provision entitled "Lien for Material" provides important protections for lien claimants furnishing material to a project. ( O.R.C. § 1311.12). According to this provision, in order to secure a valid mechanic's lien, the material must be furnished with the intent to be used in the course of the improvement. The intent can be evidenced by the contract of sale, the delivery order, or delivery to the job site. O.R.C. §1311.12(A)(1) and O.R.C. §1311.251(A)(1) (public lien material supplier provision mirroring that contained in the private lien statute). The delivery of material to the project "creates a conclusive presumption that the materials were used" on the project. Id. Intent and delivery (creating a conclusive presumption) are pivotal for maintaining these important protections.
Accordingly, a material supplier's intent can be evidenced by the contract of sale, the delivery order, and delivery to the job site. If the material supplier furnished material pursuant to a contractor's purchase order and subsequently provides for delivery of the material to the project per a delivery ticket, the material supplier's intent is manifest. (footnote 1) Once the material supplier delivers the material to the project, the mandated conclusive presumption holds that the material was incorporated into the project. The conclusive presumption may not be rebuttable, although no Ohio court has ruled on this issue. Accordingly, lien rights and the presumption apply even if the material was delivered by someone other than the material supplier. O.R.C. §1311.12(B).
In disputing the validity of the lien, a contractor may contend that the material supplier's furnishing of the material was not in good faith based on the perennial case of Walter v. Brothers (1932), 42 Ohio App. 15. Specifically, on the issue of lack of good faith, this contention can be asserted in several ways as a contractor seeks to dispute the validity of the material supplier's last date of work: (1.) the material was not requested by the owner or contractor for the project; (2.) the material was not needed to finish or incorporated into the project; and (3.) the material delivered on the last date occurred after considerable time elapsed between the purported day the materials in question were provided and the date when the overwhelming majority of equipment had been delivered.
Whether a given act is in good faith is a question of fact and depends on several other factors. A primary factor is that the material was requested by the contractor. In Quality Heating Supply Co. v. Buckeye Loan & Building Co., (1957), 148 N.E.2d 88, the Court considered the mechanic's lien claim of a material supplier requiring resolution of a dispute over last date of work involving "deliveries of certain parts… of small value with a delivery date of November 26, 1954." Id. The contractor disputed the delivery contending that no deliveries were made to the project after November 1, 1954. Id. The material supplier contended that it received an order from the contractor's "employee … in charge of the work, to send the items to him on the premises … and the driver of the [delivery] truck testified that he delivered the items on the premises and took a receipt from [the contractor's] employee," which was introduced into evidence. Id. On this issue, the Court explained that the "statute does not require as a condition of the lien that the material shall be actually fabricated into the building or even that it was actually needed in the construction." Id. Rather, according to the Court, "[t]he only requirement is that the principal contractor order it for said purpose and that the materialman, in good faith, should deliver [the material] at the building supposing it was so needed." Id.
Here, the material supplier will have to supply factual testimony to illustrate that the contractor ordered the materials, the materials were supplied, and the delivery ticket was signed and (valid)—and that the materials were supplied in good faith. (footnote 2) In Coleman v. Hertzman, (1927), 1927 WL 3054, the material was furnished pursuant to a written order of a contractor and delivered to the project; and according to the Court -- the material was furnished in good faith not to extend the lien time. The Court considered the validity of a lumber supplier's lien for material furnished in the construction of several houses. For the last date of work, the lumber supplier "delivered to each of the seven houses a small board used for shelving and certain molding[, and [t]he amount chargeable to each house on this item was forty cents." Id. In response to the owner's claim that the material was furnished only for the purpose of extending the time of filing the mechanic's lien, the Court indicated that "the principal contractor, gave a written order for the furnishing of these items and he testified that they were necessary to the completion of the buildings and were actually used on the buildings." Id. (emphasis added). Accordingly, the Court concluded that the material was "furnished in good faith and not merely to lay the foundation of mechanic's liens which would otherwise have been barred by lapse of time." Id.
In Price Brothers Co. v. P.B. Harris Realty Co. (1953), 129 N.E.2d 204, the Court considered whether a material supplier could seek recovery of the amounts due and owing against the purchasing contractor and foreclose a mechanic's lien against the owner. The plaintiff-material supplier "with the knowledge and consent of the [contractor], furnished brick and cement block for the construction of [the] building upon the order of [the contractor] between March 31 and May 22. Id. "On August 24th," the plaintiff[-material supplier] delivered 27 concrete blocks to the [project], [that were] ordered by [contractor], receipted for by [contractor], and priced at $4.76." Id. The contractor defended based on the contention that the "building was completed prior to August 24 when the last delivery was made and that this material was for extras." Id. Although the Court found that the building was not completed on August 24th, the Court held that "the last material was used in the construction of the building and that the same was delivered by the plaintiff in good faith on its part." Id.
Finally, in Falls Lumber Co. v. Heman (1960), 183 N.E.2d 265, a subcontractor commenced work on the Heman property on or about June 15, 1956—and installed a heating system in 12 houses being built by a builder-contractor. Id. The subcontractor had a shortage of pressure regulators and was only able to install 11 of them leaving only the Heman house without such installation which was required by the local building code. When the pressure regulator was available, the subcontractor went to the Heman house and installed the same on December 28, 1956. Id. The Court held that the subcontractor had to comply with the building code and "because of his inability to secure this item he was unable to complete said installation until December 28, 1956." Id. The Court concluded that the "work [was] necessary to complete in order that there be no violation of the building code and therefore the lien claim is found to be a good and valid one." Id.
Based on the cited caselaw and O.R.C. §1311.12, a material supplier should be able to prove the materials were properly furnished in good faith based on a purchase order. In Quality Heating, Coleman, and Price Bros., supra, the Courts held that material supplied based on the contractor's order is furnished in good faith. In Falls Lumber, supra, the Court held that ordered but unavailable material supplied upon availability is furnished in good faith. Together, the cases can be used to refute the contentions that the material was not requested and furnishing and delivery occurred after considerable time. The time between the order and delivery was minimal; and as illustrated by the caselaw, delivered based on an order from the contractor, not based on the ulterior basis of securing lien rights.
A material supplier's intent to furnish material for use in the course of the improvement is not abrogated even if the contractor eventually claims the material was not used on the project. For example, if the contractor asserts that although the material was delivered to the site, the material was not needed to finish the project. Ohio case law codified in O.R.C. §1311.12(B) and the conclusive presumption eliminate the viability of this argument. Even prior to the 1991 codification of the conclusive presumption, Ohio case law held that a mechanic's lien can be based upon delivery of material to the project, and that actual incorporation into the project was not a prerequisite to the lien. See Quality Heating, supra.
In Franklin Bank v. Cincinnati , 1900 WL 2330 (Super. Ct. 1900), the Court considered the ramifications of a material supplier that furnished material for a sewer project, and filed a lien after he in good faith furnished 1,849,000 bricks under an estimate that 1,900,000 would be required for a certain sewer improvement. Id. According to the Court, "the bricks were delivered and [subsequently] hauled by the contractor to [another project] where [the bricks] were needed for the work." Id. The Court held the material supplier was entitled to a lien for the full amount of his claim, even though 55,000 of the brick, after passing out of the material supplier's possession upon proper delivery, were diverted by the contractor and used in another improvement, even though the material supplier knew that the bricks were so used and made no objection. Id. Accordingly, a material supplier's lien arises when it establishes that the material was delivered to the project despite the fact the material was not utilized.
Finally, a contractor may also assert that the last work or material furnished is of inconsequential value compared to prior contributions or is provided gratuitously, the last work will not extend the time for filing. Ohio cases have held that even though the requested work was minimal in comparison to the whole project if the work is requested by the contractor or subcontractor then the work provides the requisite last date of work for the mechanic's lien. See Quality Heating, Coleman, Price Bros., supra. More importantly, the material supplied over the course of the project in smaller lots of material subject to when it was ordered by the contractor on the project. Accordingly, material was delivered at various times in various quantities throughout the project . Lien rights are preserved regardless of the size of the last delivery so long as the material is responsive to a purchase order. See O.R.C. §1311.12.
Finally, all of the deliveries or the sales, or both, by a lien claimant of material … to or for an improvement, give rise to one mechanic's lien for the unpaid portion of the sales." See O.R.C. §1311.12(D). Therefore, under O.R.C. §1311.12, a material supplier's mechanic's lien can be based on furnishing material with the intent that it be used during the course of the improvement and can establish its intent using a purchase order, the delivery order, and the fact that the material was delivered to the site creating a conclusive presumption. Under O.R.C. §1311.12(A)(1), a contract for sale or delivery to the site establishes that such material was furnished with the intent that material was to be used in the project. Furthermore, the presumption arises if the material were delivered by someone other than the materialman. Id.
Material suppliers must know these provisions and gauge their mechanic's lien rights to reflect a business decision based on future business opportunities with that customer and the owner. If necessary, this powerful provision can assist a material supplier in protecting their outstanding accounts receivable with the most powerful tool in its arsenal – a mechanic's lien.
1 On the issue of whose intent is relevant, the material supplier's or the purchasing subcontractor, §1311.12(A)(1) states that mechanic's lien arises if the material is "furnished with the intent." Because only a material supplier undertakes the act of furnishing, that language of the statute only assigns relevance to the material supplier's intent and not the purchasing subcontractor. If the purchaser's intent was relevant, the statute would have employed the terms "purchased" or "acquired" rather than furnished. Accordingly, a subcontractor's attempt to claim the material was used on another project to abrogate the material supplier's intent is not possible under the statute.
2 According to the court in Walter v. Brothers, supra :
The principal contractor sought foreclosure of the lien; [and] [after completing] the house. The plaintiff claimed that he had returned to the job [some five months later] when he placed some asbestos lining on a pipe in the garage. By that time, the owner had gone into bankruptcy. The court really held that the action of the contractor was not a bona fide attempt to complete a necessary part of his contract, but was, in fact, an attempt to lay a spurious foundation for a mechanic's lien, the time for filing which had expired. We think the court correctly stated the law applicable to the facts in that case. At pages 17 and 18, of 42 Ohio App., on page 555 of 181 N.E. the court said: 'It has been repeatedly held in Ohio and other jurisdictions, that where work or material is in good faith furnished, at the request and with the knowledge of the owner, to remedy defects in the original work, this is sufficient to establish a new period from which the time for filing the affidavit or claim of a lien is to be computed; but, where the work contracted for is completed according to contract, as the contractor believes, and he later discovers defects and voluntarily undertakes, after the time for completing the contract has expired, without authority from the owner, to remedy the trouble, it is held in most cases, especially where the work or material is trivial, that such work does not extend the time for filing a lien.' And at page 18 of 42 Ohio App., on page 555 of 181 N.E.: 'A true test is whether the alleged repairs are a necessary part of the proper completion and performance of the work which the lien claimant undertook to do, and an attempt in good faith to perform the contract, and not merely an effort to extend the time for filing an affidavit for a lien.'