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(A revised version of this article appears in The
Construction Lawyer, Volume 21, No. 2, April 2001, published
by the American Bar Association's Forum on the Construction
Industry.)
March
12, 2001
By John W. Ralls
Howrey LLP
A
contractor and an owner entered into a lump sum oral contract
for the erection of a new building. After a relatively small
amount of progress had been made, a dispute arose between
the owner and the contractor concerning the pricing of certain
changes and extra work. The owner stopped making payments
and terminated the contractor. The contractor filed a construction
lien.
In
an action on the lien, the contractor had sought to foreclose
the lien but did not sue for breach of contract. See Tilt-Up
Concrete, Inc. v. Star City/Federal, 255 Neb. 138, 582
N.W.2d 604 (1998) ("Tilt-Up I"). In that action,
the contractor argued it was entitled to a lien for the
unpaid contract amount, less savings for unperformed work,
based on Nebraska's lien statute. Nebraska's lien law provides
that "the lien of a prime contractor is for the unpaid
part of his or her contract price...." Nebraska Revised
Statutes §52-136 (1) (a). "[C]ontract price"
is defined as "the amount agreed upon by the contracting
parties for performing services and furnishing materials
covered by the contract, increased or diminished by the
price of change orders or extras, amounts attributable to
altered specifications, or breach of contract...."
Id. §52-127 (2).
In
the lien foreclosure action, the trial court determined
that the contractor had a valid lien in the amount of $852,243,
the full amount of the contractor's breach of contract damages,
including lost profit on unperformed work. In Tilt-Up
I, the Nebraska Supreme Court held that when a prime
contractor has not substantially performed a contract, the
contractor is entitled to a construction lien only for the
reasonable value of the labor performed and the materials
furnished. The Nebraska Supreme Court reduced the amount
of the contractor's lien to $235,418. Tilt-Up I,
255 Neb. at 151-156, 582 N.W.2d at 613-615.
The
contractor then filed another action seeking damages for
breach of contract. The owner demurred on the ground that
the action was barred by the four-year statute of limitations.
The trial court sustained the demurrer, and the contractor
appealed. The Nebraska Supreme Court affirmed. Tilt-Up
Concrete, Inc. v. Star City/Federal, Inc., 261 Neb.
64, 2001 Neb. LEXIS 13 (2001)
On
the face of the petition, the contractor's breach of contract
claim was barred by the statute. The contractor claimed
that during the pendancy of the lien foreclosure action,
it was precluded from bringing a breach of contract action,
and therefore, the statute of limitations was equitably
tolled. The court rejected this argument.
The
court found that as a general rule, in Nebraska and throughout
the United States, mechanic's lien foreclosure and breach
of contract damages may be sought at the same time. "[T]he
NCLA [Nebraska Contractors' Lien Act] does not take away
a construction lienholder's common law right to sue for
breach of contract. The only limitation is that any amount
recovered for breach of contract damages would be credited
to satisfy the construction lien when necessary to prevent
double recovery."
The
contractor also argued it was precluded from bringing its
breach of contract action by a supersedeas bond filed by
the owner in connection with the appeal in Tilt-Up I,
which "secured the full amount of the lien and breach
of contract damages...." The court rejected this argument
on the ground that a supersedeas bond serves only to suspend
further proceedings on the judgment or decree appealed from.
"[A] supersedeas bond furnished in one cause will not
operate to suspend or prevent the enforcement of a judgment
or decree rendered in another and different action."
Finally,
the contractor argued that it was barred by the mortgage
foreclosure statutes, Nebraska Revised Statute §§25-2137
through 25-2155, from seeking lien foreclosure and breach
of contract damages at the same time. Under Nebraska's mortgage
foreclosure statutes, after a mortgage foreclosure petition
is filed, "no proceedings whatever shall be had at
law for the recovery of the debt secured by the mortgage"
while the action is pending. The contractor claimed that
its action was similarly limited because Nebraska's construction
lien law provides that "foreclosure [of a construction
lien] may be by any method available for foreclosure of
security interests in real estate...." The court rejected
this argument on the ground that the Nebraska lien law does
not limit the foreclosure proceeding to the mortgage foreclosure
statute "but instead provides that the district court
may utilize any method available for foreclosure, including
but not limited to the mortgage foreclosure statutes."
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-848-3362 or at rallsj@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2001 Howrey LLP
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