chevron-down Created with Sketch Beta.
October 22, 2015 Practice Points

Contractor’s Lien Rights Take Priority Based on First Date of Work

A contractor who released its lien of record was allowed to re-record the lien and have priority over a lender based on contractor’s first date of work

by Paul R. Cressman Jr.

A recent case illustrates the significant benefits a contractor gains by having lien rights, and having priority dating back to the first date, and time, of work. Shelcon Construction Group, LLC v. Haymond, 187 Wn. App. 878, 351 P.3d 895 (Div. 2, May 27, 2015). The contractor who released its lien of record was allowed to re-record the lien and have priority over a lender based on contractor’s first date of work.

Scott Haymond hired Shelcon Construction Group LLC to perform earthwork, excavation, demolition, clearing, and grading for a real estate development project known as The Farm. On July 5, 2006, at 8:35 a.m., Shelcon marked the property boundaries with fluorescent ribbon to assist Shelcon’s employees in visually determining the boundary lines. Shelcon’s owner testified that he never clears and grubs without first marking the boundary lines. A few days later, on July 10, 2006, Shelcon employees actually cleared and grubbed The Farm.

On July 5, 2006, at 2:14 p.m., on the same day that Shelcon marked the property boundaries, Washington First International Bank recorded a deed of trust against the property to secure a $1,540,000 loan. Shelcon’s work continued, but it was not paid, and on June 20, 2008, it recorded a claim of lien with the Pierce County Recorder for $303,291. The lien reflected work beginning July 5, 2006.

Haymond required additional financing, and sought such financing from Anchor Bank. When Anchor Bank learned of Shelcon’s lien, it told Haymond that it would not lend to him unless the lien was released. Haymond asked Shelcon to release the lien, promising to pay Shelcon with the loan proceeds from Anchor Bank. On July 16, 2008, Shelcon recorded a release of lien that did not indicate it was limited or conditioned in any way.

After the lien had been released, Haymond contacted Anchor Bank and claimed that the lien had been a misunderstanding. He falsely claimed that he owed Shelcon $303,291 for a project unrelated to The Farm, and that he had fully paid that amount.

On August 22, 2006, Anchor Bank recorded a deed of trust on The Farm as security for a $3,900,000 loan, and a release of Washington First’s deed of trust. On September 8, 2008, Shelcon and Haymond amended their scope of work and contract price when Shelcon sent a letter and contract to Haymond. This contract summarized all of Shelcon’s work to date, and all of Haymond’s payments to date. It set out changes in the future scope of work and included new payment terms. These terms provided that Haymond pay Shelcon for future work at cost plus 15 percent, that any overdue payments would accrue interest at 18 percent, and that Shelcon would be entitled to attorneys’ fees for any enforcement action. Neither party signed the contract. Shelcon presented the contract to Haymond, it was discussed, and Haymond never objected to its terms. After the contract was presented, Shelcon began to charge Haymond cost plus 15 percent for work, and Haymond began paying that amount. Shelcon continued to work at The Farm until February 12, 2009.

On May 1, 2009, Shelcon recorded a second claim of lien on The Farm for $309,369. This amount included work Shelcon had initially included in its first lien. On December 31, 2009, Shelcon filed suit against Haymond and Anchor Bank seeking foreclosure of its lien.

Shelcon prevailed against Haymond with the court finding Haymond liable for the principal sum of $245,151, and that Shelcon was entitled to foreclose its lien. The court further found that the September 8, 2008 letter and contract were a written memorialization executed by the conduct of the parties, and that Haymond owed Shelcon 18 percent interest. The trial court further found that Anchor Bank stepped into the shoes of Washington First International Bank for lien priority purposes, as Anchor Bank had paid off Washington First International Bank.

The court of appeals affirmed the trial court, and found that the contract was not barred by the statute of frauds due to part performance by the parties. Part performance is established when: a contract is proven by clear, cogent, and convincing evidence, and part performance unmistakably points to the existence of agreement. The court of appeals found that the parties executed the agreement by their conduct.

The court of appeals further held that when Shelcon marked the boundaries of the property on July 5, 2006, at 8:35 a.m., it was performing professional services for which it was entitled to lien. Professional services are defined by RCW 60.04.011(13) as: “Surveying, establishing or marking the boundaries of, preparing maps, plans, or specifications for, or inspecting, testing, or otherwise performing any other architectural or engineering services for the improvement of real property.”

Because Shelcon performed professional services mere hours before the recording of Washington First International Bank’s deed of trust, Shelcon’s lien had priority over the interests of Anchor Bank in the property.

The court of appeals further awarded Shelcon reasonable attorneys’ fees based both on the attorneys’ fee provision contained in the contract and RCW 60.04.181(3), which provides that the prevailing party in an action to enforce a mechanic’s lien is entitled to attorneys’ fees.

Keywords: mechanic’s lien, lien priority, lien release

Paul R. Cressman Jr. is with Ahlers & Cressman PLLC, Seattle.

Copyright © 2015, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).