Mechanic’s liens are created by statute. One type of lien provides security to persons who supply labor or materials for construction or improvement of buildings independent of contractual rights. The lien is against the property upon which the work was performed. Mechanic’s liens can be enforced through a foreclosure of the lien in court. In order to enforce a mechanic’s lien, however, the construction work must have been substantially performed. A lienholder that substantially performs is entitled to the contract price minus the reasonable damages from slight defects in performance.
In this case, the court examined whether the “substantial performance” requirement had been satisfied with respect to the construction of a home. The defendants hired the plaintiff, a homebuilder, to build their home. They agreed to pay the price bid by the homebuilder, and construction began. The agreed upon price, however, included an undisclosed mark-up for materials in the amount of $20,000. When the mark-up was discovered the defendant’s lender refused to pay it and so did the defendants. All payments to the homebuilder stopped, so the homebuilder stopped construction. After walking off the job, the homebuilder filed a mechanic’s lien in the amount of $28,307.50.
The homebuilder filed a petition to foreclose the mechanic’s lien, and a trial was held. At trial, the homebuilder testified that, at the time, most of his duties as homebuilder were complete. The house still required plumbing, drywall, paint, carpet, floor coverings, cabinets, doors, and windows to be complete, but the subcontractors lined up to perform the work only needed to be contacted. The defendants testified they were also acting as general contractors on the house and were supposed to work with the homebuilder to recruit and hire subcontractors to complete the work. The evidence showed that the four-to-five month home-building project could be completed in another five-to-seven weeks after the homebuilder left.
The court held that the homebuilder was entitled to enforce the lien because he had “substantially performed” the contract. The court found that about 80 percent of the work had been finished, which amounted to substantial performance of the contract. The court also found highly persuasive that the defendants were also acting as general contractors who could contact the sub-contractors for completion of the remaining work. The court entered judgment in favor of the homebuilder in the amount of $16,574.75 plus interest. The defendants appealed.
The court of appeals affirmed the decision because the house was “framed, enclosed, roofed, sided [mostly], and the electrical and plumbing were roughed in” and the unfinished parts did not impair the structure as a whole. The defendants sought further review.
On review, the Iowa Supreme Court found that the contractor had not substantially performed the contract. In examining the performance, the court found important that more than “punch-list items” remained to be performed. Although subcontractors had been lined up to finish the house, a significant amount of work still had to be completed, and the house was only 80 to 85 percent completed. The court cautioned that determining substantial performance a per se mathematical rule could not be laid out. The court found that the unfinished work in this case was more than mere technical omissions and affected the actual habitability of the house. Because of this, the Court determined that the lower courts erred in finding that the homebuilder had substantially performed.
The Court also concluded that the defendants agreed to take on some duties of the general contractor, but the homebuilder could not delegate his contractual responsibility to complete the project to the defendants nor benefit from the defendants’ performance of these responsibilities. The Court overturned the trial court’s order and the court of appeals opinion and remanded the case for further review of additional legal issues.
The case makes clear that when a contractor has not fully performed the contract but seeks to enforce a mechanic’s lien, the contractor will have responsibility to show that all but minimal work has been completed. If the contractor is unable to meet this high standard for substantial performance, the contractor will not be able to rely on a mechanic’s lien for protection and recovery. Flynn Builders, L.C. v. Lande, No. 10-1278, 2012 Iowa Sup. LEXIS 56 (Iowa June 1, 2012).