Tuesday, November 23, 2010

Court dismisses contractor's claim: lien exaggeration counterclaim to proceed

In Remodeling Construction Services v. Minter, a contractor terminated its contract with a home owner after the home owner refused to make payment on the fifth draw payment of a $96,000.00 contract.  The contract payment schedule called for payment in various draws to be made at certain project milestones (a common payment method in residential construction contracts).  The first four were paid but the contractor took the position that the fifth was due and that it would not proceed until the fifth draw was made.  When the home owner refused to pay the fifth draw the contractor terminated the contract, placed a mechanic's lien on the property, and commenced a lawsuit to recover on the lien and for breach of contract. 

The court found that the evidence clearly showed that the contractor had not yet met the project milestones required for the fifth draw.  Accordingly, the court determined that the home owner established entitlement to judgment dismissing the contractor's claim.  Since the contractor was not entitled to the payment, it wrongfully terminated the contract and could not recover for payment that was not yet due. 

Notably, the home owner moved for summary judgment on its counterclaims, including a claim for willful exaggeration of the lien amount.  While the court denied the motion for summary judgment on the counterclaim, the counterclaim is nonetheless an interesting situation to follow.  It is often very difficult to establish willful exaggeration.  However, here, there is already a finding that the contractor was not entitled to payment.  If he was not entitled to payment, will the court find that his mistaken belief rose to the level of an intentional exaggeration?  Stay tuned. 

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com

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