SUPERIOR MECHANICAL PLUMBING & HEATING V INSURANCE COMPANY OF THE WEST

80 Mass App Ct 584 (2012)

FACTS

The Owner, LA Fitness Center hired the General Contractor, PinnCon LLC to construct a sports facility in Saugus. The GC hired Superior as a plumbing subcontractor.

The Owner and GC had a written agreement saying that the GC owed the owner proof that it had paid the subcontractors with the proceeds from the last requisition, before the next payment came due.

The GC sent three monthly requisitions and the Owner had paid the first two. The GC absconded with the second payment, gave none to subs, and went out of business.

The subcontractor had performed $100,000 of work and had submitted four monthly invoices to the GC who had paid none of them.
The subcontractor recorded a notice of contract; it liened the job after the fourth requisition. The Owner received notice of the lien and declared the GC in default four days later. Unless a sub goes on record at the registry of deeds at the start of a job (which this sub had not done), the only property a lien attaches to, is the amount due from the Owner to the GC, when the Owner gets the Sub’s notice.

A new GC came in and agreed to pay the subcontractor’s third and fourth requisitions but not for its first two. The Owner secured a bond to clear title to the building and the Subcontractor released the lien and proceeded against the bond.

The sub sued the out-of-business GC and won a judgment. In resisting the claim against the bond, the surety said  it was liable only for amounts “due or to become due” from the Owner to the GC when the Owner got notice of the lien.

Trial judge awarded the sub its entire claim. The surety appealed.

ISSUE

Was any amount “due or to become due” from the Owner to the GC when the Owner got notice of the lien filing from the Sub – four days before the Owner defaulted the GC off the job?

HOLDING
Sub gets nothing. Summary judgment for the Sub was reversed, summary judgment for surety awarded.

REASONS

The GC’s absconding with the Owner’s payment and failing to pay any subs, ended all obligations of the Owner to make any more payments to the GC. Paying subs was a condition precedent to the GC’s receipt of any further funds from the Owner. The first two requisitions were not “due or to become due” the GC’s conduct amounted to a default ending the Owners obligation to pay any more.

To get more money from the Owner, the GC needed proof that it had paid subcontractors. The Owner had no further legal obligation to the GC, who took money and did not pay its subcontractors. The sub loses – its lien did not attach to any payments due.

Cobb Commentary this result seems unfair to subcontractors. Owners should protect against liens by making all payments explicitly conditioned upon proof that the GC used the last proceeds to pay all the subcontractors.