Utah Construction Law: Recovery for Nonpayment

• Publication year: 1996
• Pages: 8

Utah Construction Law: Recovery For Nonpayment Vol. 9 No. 5 Pg. 8 Utah Bar Journal May, 1996

Michael W. Homer and David J. Burns, J.

I. INTRODUCTION

"Construction" can be a towering new building by I.M. Pei or a more modest project to replace a roof. Whatever the scale of a project, however, "construction law" is most concerned with the relationships created to complete it. The relationships extend from the owner of the property to the financial institution(s) advancing money for purchase of the property or for construction, the architects, engineers and consultants advising the owner, the general contractor, subcontractor, the suppliers and their sales representatives, and the sureties that bond the contractors. Construction law governs each of these relationships, and for this reason it is not a discrete area of the law but rather a hybrid drawn from many sources.

The principal source of construction law is the parties' agreement. The most common standard form contracts often used in place of customized construction contracts are prepared by the American Institute of Architects (AIA) and the Associated General Contractors (AGC). Statutory sources include the Utah Uniform Commercial Code (U.C.A. § 70A-1-101, et seq.), Occupations and Professions provisions (U.C.A. § 58-1-101, et seq.), Lien provisions (U.C.A. § 38-1-1, et seq.), Contractor's Bonds (U.C.A. § 14-2-1, et seq., Private Contracts; U.C.A. § 63-56-36, et seq., Public Procurement), and federal enactments such as the Miller Act (40 U.S.C.A. § 270a-d). Case law is also a source of construction law. This body of law is notable for its practical approach to the construction enterprise. Mindful of the courts' approach, we review the following construction law issue: What do you do if you don't get paid for construction work?

II. RECOVERY FOR NONPAYMENT

A. Right to Stop Work

When a contractor has a right to progress payments as opposed to a right to payment only upon completion or substantial completion of the project, the contractor may stop work for nonpayment. If the contract is based on the AIA's General Conditions of the Contract for Construction ("GCCC")^[1] or fails to provide for a stop work right and the architect refuses to issue a certificate of payment, then the contractor may stop work until the amount owed is received but only after the contractor provides written notice allowing the owner to bring current the amount owing. GCCC § 9.7.1.^[2] The contract time is extended and the contract sum increased by the amount of the contractor's reasonable costs of shut-down, delay, and start-up. However, if the contractor stops work when he is not entitled to payment, then it will be liable for any resulting damages. Id. The owner may also stop work if the contractor fails to correct any deficiencies provided for in the contract. GCCC §2.3.1.

B. Mechanics' and Materialmens' Liens:

The Utah Mechanics' Liens statute,

Utah Code Ann. § 38-1-1, et seq., protects mechanics (laborers) or materialmen (suppliers) "performing any services or furnishing or renting any materials or equipment used in the construction, alteration, or improvement of any building or structure or improvement to any premises in any manner. . . ." U.C.A. § 38-1-3.^[3] The statute is designed to prevent an owner from benefiting from an increase in the value of her property at the expense of a mechanic or materialman.^[4]

Mechanics or materialmen may lien the property upon or concerning which they have rendered service, performed labor, or furnished or rented materials or equipment for the value of the service rendered, labor performed, or materials or equipment furnished or rented by each respectively.^[5] U.C.A. § 38-1-3. The amount of the lien attaches only to such interest as the owner may have in the property. U.C.A. § 38-1-3. Nevertheless, they may not lien "any public building, structure or improvement." U.C.A. §38-1-1.

The mechanics' liens statute includes a relation back provision. All liens filed on a project "shall relate back to, and take effect as of, the time of the commencement to do work or furnish materials on the ground for the structure or improvement." U.C.A. § 38-1-5. All liens thus relate back to the first work performed on the ground for any given project.

All mechanics' liens filed for "work and labor done or material furnished" are upon "an equal footing, regardless of date of filing the notice and claim of lien and regardless of the time of performing such work and labor or furnishing such material." U.C.A. § 38-1-10. The equal footing doctrine is a natural outgrowth of the relation back doctrine. As a result, the last contractor on a construction project performing punch list items enjoys the same priority as the excavator.

Should "the commencement to do work or furnish materials on the ground for the structure or improvement" occur before a lending institution records its mortgage or deed of trust, all the mechanics' liens have priority over the lender. This is true even if the deed of trust or mortgage was executed prior to the commencement of work but "was unrecorded at the time the building, structure or improvement was commenced, work begun, or first material furnished on the ground." U.C.A. § 38-1-5. Visible evidence of work on the property and the presence of building material is sufficient constructive notice to any interested party that work has commenced.^[6] Moreover, the constructive notice provided by a mechanic's lien defeats a claim for equitable subrogation.^[7]

The mechanics' liens statute provides only two bases for establishing the priority of competing lien claims: (1) commencement to do work, or (2) delivery of materials. U.C.A. §...