Material Suppliers: Proving Incorporation When Filing A Mechanics Lien

While mechanic lien laws are different from state-to-state, one constant among the laws is that a mechanic lien right only arises if your materials are incorporated into the property being liened.

I’ve talked about this in the past in some Scenario posts.  Some of these posts address whether cleaning services, landscaping services, furniture installers, etc. have any mechanic lien rights.  When push comes to shove, it isn’t the type of work involved that necessarily decides the question – it’s whether the work was integrated into the property. When materials or labor results in an incorporated improvement to the property, there are usually lien rights.  When there isn’t any incorporation, there aren’t any lien rights.

Why Material Suppliers Need To Worry About “Incorporation” of Materials

This is an important concept for material suppliers. When materials are on a truck, or in a warehouse, or at the job site but stacked on a slab…there is no right to file a mechanics lien.  The right to file the mechanic lien only arises when the materials are physically incorporated into the project’s property.

An image may best explain this.  Here is a photo I found of a residential construction site. You can see that there is some lumber laying around the site waiting to be used, and other lumber already incorporated into the structure.  The material supplier may have delivered this lumber to the jobsite and have absolutely no idea as to the percentage of its lumber incorporated into the structure, but nevertheless, may feel like it already has valid lien rights. The supplier, however, would be wrong.

In the scenario presented by the below photograph, the material supplier would only have the right to file a mechanics lien on the lumber used in the building.  Insofar as the lumber not yet used and sitting on the ground, there is usually no mechanic lien right on this lumber whatsoever. Further, if the job stalled at this point, the parties went bankrupt, construction was terminated, or something went awry with the installation of the wood, the material supplier would never get a mechanic lien right for this wood.

Lumber That Can Be Liened verus Lumber That Can't Be Liened

The lumber shown in this image already incorporated into the building can be liened by the material supplier. However, the material supplier cannot file a mechanics lien for the lumber sitting on the ground.

There are a lot of possible scenarios whereby a suppliers materials are not actually incorporated into the building at the time of a mechanic lien’s filing.  Since a supplier’s lien rights depend on incorporation, knowing the fate of supplied building materials is worthwhile.  Of course, this can be a tall order, and one would hope that the law creates some logical way for material suppliers to handle this issue.  In most states, the law does.

How To Prove Your Materials Were Incorporated Into The Project’s Property

The issue here boils down to how a material supplier can prove (in court) that its materials were actually used in the property.  The vast majority of states give material suppliers a pass here, and create a presumption in their favor so long as the material supplier can prove the building materials were delivered to the job site.

[pullquote style=”left” quote=”dark”]In plain English, the presumption works like this: If the building material supplier can prove that its materials were delivered to the jobsite, the courts will presume that they were incorporated.[/pullquote] In plain English, the presumption works like this: If the building material supplier can prove that its materials were delivered to the job site, the courts will presume that they were incorporated. Once the material supplier proves the materials were delivered to the job site, the , that party challenging the lien or the supplier’s rights will have the burden of proving that the materials were not incorporated into the property.

Here are some examples of how this presumption is built into state statutes.  Remember, the presumption need not be within a state’s statutory language, many states have this principle outlined as a simple equitable common law test.  This post reviews two examples, one in Hawaii and one in Montana.

First, Hawaii’s HRS 507-41 provides that “The delivery of materials to the site of the improvement…shall be prima facie evidence of incorporation of the materials in the improvement.”  There’s even a presumption that arises if materials are delivered to an off-site area “upon written statement by the general contractor that the materials are for a particular improvement,” which, likely, can be a statement within a purchase order, contract or similar business document.

Second, Montana’s Mont. Code Ann § 71-3-524(2) provides that “the delivery of materials to the site of the improvement, whether by the lien claimant or another, creates the presumption that they were used in the course of construction or were incorporated into the improvement.”

So, what does this mean to material suppliers?  One thing that should jump right out at you is that you may not need to prove that the materials were used in the building’s structure, but you will need to prove the materials were delivered to the job site.  Some type of signed proof of delivery should be obtained by your company in the ordinary course of business, therefore. If an argument is later made that you’re without lien rights because the materials weren’t used, you’ll want to have this signed proof of delivery to whip out to claim your presumption.

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