Posts Tagged ‘residential construction’

Help Me . . . Help You

Most people probably think that “Show me the money!” is the Jerry McGuire quote that best describes lawyers. But that’s not true. The quote that best describes lawyers is “help me . . . help you.” And there are many things that a client can do to help his or her lawyer in a litigation case. Here are some simple, but effective, considerations for a win-win situation. Doing these four things will make your case more efficient, and success more probable.

1. Preserve Evidence. Your lawyer can only defend and prosecute your case with evidence. Also, the failure to preserve evidence can be used against you. Thus, Rule #1: Preserve Evidence. Start by identifying all the potential locations of evidence: Paper format; electronic devices; servers; cloud/online storage; and third party sources. These should be saved to ensure that evidence is preserved. After identifying the sources of documents, help your lawyer by culling and gathering the documents. It is also useful to specifically identify the documents that you think are most relevant to the case. Likewise, identify all potential witnesses and provide your attorney with the last known contact information.

2. Know you’re objective, and what you’re willing to settle for.  At the beginning of the lawsuit, clarify your objectives. Consider the best-case outcomes; consider the worst-case outcomes. And consider the outcomes that you want to achieve. It is also best to consider what you’re willing to concede (or spend), in order to achieve the desired outcome.

3. Understand Risks. Nothing is certain. Nothing is promised. Nothing is guaranteed. Litigation is unpredictable. At least one major fact or witness will turn out completely different than anticipated. The law can be murky, too. An analogy: Imagine that you own a 2007 Honda CRV with a book value of $10,000. Now, imagine that you park the 2007 Honda CRV on the street with a “For Sale Best Offer” sign. What type of offer might you get? Would it matter if your CRV is sold in Lancaster, or Camp Hill, or Gettysburg, or West Chester? The book value might be $10,000; but the reality is that it will be sold on a specific day, at a specific location, with a specific buyer. You might get $10,000 exactly, but probably not. Likewise, the legal books might say that your dispute should be determined one way or another. But the reality is that it will depend on the specific facts of your case, with a specific judge or jury, in a specific location. Just like the sale of the CRV – litigation is not an exact formula.

4. Understand Negotiated Settlement. To avoid unpredictability, and to achieve finality, settlements are wise. But, to get something, you need to give something.

What’s Happening Now . . .

7.5 % Increase

  • Through July 2016, spending on private construction is up 7.5%, compared to 2015.
  • Spending on public construction is up 0.2%.
  • Total construction spending is up 5.6%.
  • Residential construction spending is up 6.5%.
  • Non-residential private construction spending is up 5.1%.

Source: U.S. Census Bureau, July 2016 Construction at $1,153.2 Billion Annual Rate (Sep. 1, 2016).

This article is authored by attorney Jeffrey C. Bright and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice.  Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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In 2012 the Superior Court of Pennsylvania, in the matter of Commerce Bank/Harrisburg, N.A. v. Kessler et al., ruled in favor of a general contractor by finding that the general contractor’s mechanics’ lien had priority over the mortgagee’s lien.  For those outside the construction industry this might not be titillating news, but for members of the industry (and their lawyers) who rely on mechanics’ liens to ensure payment, the holding is welcome news.

The story starts in October 2006 when the general contractor contracted with a couple to build them a luxury home in Harrisburg.  Shortly thereafter, the GC started excavating.  A few months later, in January 2007, the couple got a construction loan from what is now Metro Bank for up to $435,000, which loan was secured by an open-ended mortgage that was recorded that same month.

The home was substantially complete in August 2007.  Unfortunately, the couple was unable to make their mortgage payments and Metro Bank filed a mortgage foreclosure action against the couple and obtained a default judgment against them for $403,994.84 in July 2008.  The couple also failed to make their payments to the general contractor and the general contractor obtained a default judgment against the couple in the amount of $411,304.14 in February 2009.

Thereafter, Metro Bank and the general contractor became entangled in a legal battle over which judgment took priority, in other words, there was a dispute over which party was first in line to collect the proceeds from the sale of the home.  The trial court entered an order holding that the judgment entered in favor of the general contractor took priority over the judgment entered in favor of Metro Bank.  Metro Bank appealed.

Under the 2007 amendments to Pennsylvania’s Mechanics’ Lien Law, Section 1508(c) awards priority to a mortgage over a mechanics’ lien where the mortgage constitutes:

(2) An open-end mortgage as defined in 42 Pa.C.S. 8143(f) (relating to open-end mortgages), the proceeds of which are used to pay all or part of the cost of completing erection, construction, alteration or repair of the mortgaged premises secured by the open-end mortgage.

49 Pa.C.S.A. 1508(c)(2) (emphasis added).  Metro Bank took the position that this section of the Mechanics’ Lien Law gave its mortgage priority over the general contractor’s mechanics’ lien, but the general contractor argued that the open-end mortgage upon which Metro Bank based its lien did not satisfy the requirements of Section 1508.

Indeed, it was undisputed that a portion of the proceeds of the open-end mortgage in this matter paid for expenses other than “completing erection, construction, alteration or repair of the mortgaged premises.”  Rather, some of the proceeds were used to pay costs such as tax claims, closing costs, satisfaction of an existing mortgage on the property, and payment of other judgments and liens.  The general contractor argued that to allow use of funds for reasons other than those expressly set forth in Section 1508(c)(2) would, for example, permit a lender and owner to defeat a contractor’s lien rights by using as little as $1.00 out of $1,000,000.00 for the enumerated purposes set forth in Section 1508(c)(2) and therefore Metro Bank could not rely on Section 1508(c)(2) to subordinate the general contractors mechanics’ lien on the property.

The Superior Court of Pennsylvania agreed with the general contractor finding that Section 1508(c)(2) only extends priority to mortgage loans where the proceeds were used to pay the expenses set forth in Section 1508(c)(2).  The court interpreted the use of the term “the proceeds” to mean all of the proceeds and agreed with the general contractor that any other interpretation of the statute would permit lenders and owners to improperly manipulate the system to defeat lien rights

In ruling in favor of the general contractor, the court also disagreed with Metro Bank’s contention that the mechanics’ lien was invalid on the basis that it allegedly failed to contain the statutorily mandated statement of the kind and nature of materials furnished.  Although the general contractor’s lien claim described the kind and character of the work as “all labor and materials required for the construction of a two story residential dwelling” and referred to the construction contract, Metro Bank argued that because the lien claim failed to attach the drawings and specifications referenced in the contract, the statement of the kind and character of the labor and materials furnished was too vague.  As such, Metro Bank asserted that the mechanics’ lien was invalid.

The general contractor argued that his lien was not invalid because he substantially complied with the requirements of the Mechanics’ Lien Law.  Again, the court agreed with the general contractor noting that multiple Pennsylvania cases interpreting the “contents of the claim” section of the Mechanics’ Lien Law have long held that “in considering a mechanics’ lien claim, it must be kept in mind that substantial compliance with the Act is sufficient” and that the express terms of Section 1503((5) only required a general statement of the kind and character of the labor and materials furnished.  Accordingly the court held that the lien claim sufficiency described the nature of materials furnished.

Lesson Learned:  If all the proceeds of a mortgage were not applied to the cost of completing erection, construction, alteration or repair of the mortgaged premises, a contractor’s mechanics’ lien claim should take priority over the lien of a mortgagee.  Of course, these things can vary depending on the circumstances of an individual case and it is highly recommended that a general contractor consult with a lawyer to ensure that its lien rights are protected to the maximum extent possible.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.






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Superior Court of Pennsylvania Holds Homebuilder Personally Liable

The Superior Court of Pennsylvania recently upheld a York County jury verdict that found a homebuilder personally liable for defective construction work.  In Bennett et al. v. A.T. Masterpiece Homes at BroadSprings, LLC et al., two sets of homeowners who purchased new residential homes from A.T. Masterpiece Homes at Broadsprings, LLC (“A.T. Masterpiece”), sued the limited liability company and its managing member, Grant Colledge, in his individual capacity, for breach of contract, breach of warranty, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) alleging that the defendants engaged in deceptive and dishonest practices during the construction process.

The homeowners alleged that during the construction of their homes they noticed numerous building deficiencies and that Colledge, who was the homeowners’ primary contact during the construction process, made certain assurances to them in the form of statements akin to: “I guarantee it” or “I will take care of it.”  For example, when one of the homeowners noticed that the dormer above his garage did not correspond to building plans and structural design, Colledge assured the homeowner that the dormer had been redesigned and the final product would work fine.  In another instance, a homeowner visited her home to check on its progress and noticed a crack in the foundation.  When the homeowner reported the crack to Colledge, he stated that he “will take care of it and will take care of you.”  Colledge made other guarantees regarding issues with the flooring and repeated his intention to take care of both the specific problem and the homeowner’s general concerns.

After construction finished, the homeowners discovered that their new homes were in various states of disrepair and structural failure.  The dormer that had been an issue on one of the homes was in such bad structural shape that the homeowner had to install temporary bracing to avoid collapse.  There were other alleged deficiencies including nails protruding from sections of drywall, cracked tiles, and floors being so poorly laid that a person could feel the joints move while walking.

The homeowners retained an engineering expert who found similar construction defects and housing code violations in each home.  The deficiencies included:  using poor grade lumber, improperly installing the floor joists, and housing code violations related to the insulation, height clearances, ventilation, plumbing, and electrical systems.

At trial, the jury found Colledge and his company liable for breach of contract, breach of warranty, and violations of the UTPCPL.  The jury further concluded that Colledge’s representations and guarantees regarding the homes exposed him to personal liability and awarded the homeowners double the damages under their UTPCL claims.

Colledge appealed his case to the Superior Court of Pennsylvania arguing that the trial court erred: (1) by permitting the jury to hold him personally liable to the homeowners when he did not specifically agree to assume liability; (2) by holding him personally liable when there was no evidence of fraudulent conduct by him; and (3) by doubling the jury’s award under the UTPCPL when the Court itself did not view Colledge as an absolute crook.

Colledge argued that he should be shielded from personal liability because he was at all times acting only as an agent on behalf of a limited liability company.  Colledge claimed that any statements attributed to him (where he said “I will take care of it” or “I guarantee it”) were simply figures of speech and did not amount to express assumptions of personal liability.  The Superior Court disagreed and found that there was ample evidence presented at trial to lead the jury to find that Colledge had assumed personal liability.

The Court noted that the several occasions where Colledge had reassured the homeowners that he would take care of their concerns and made express promises guaranteeing the quality of their homes did not take place in a vacuum but in the context of recurring building deficiencies which arose during construction of the homes.  The court stated that although the homeowners officially contracted with A.T. Masterpiece, Colledge voluntarily assumed personal liability on the building contract when he guaranteed the final quality of the home because the statements were intended to calm the homeowners about the building deficiencies and to maintain their contracts.

Moreover, the Superior Court found that there was sufficient evidence to support the jury’s finding of liability under the UTPCPL because the jury was not required to find proof of common law fraud to find that Colledge had engaged in misleading conduct under the UTPCPL.  Again, the facts presented at trial showed that Colledge made numerous specific representations to the homeowners regarding the construction and ultimate quality of their homes.  Despite such guarantees, Colledge failed to deliver the quality he promised to the homeowners and the homeowners received brand new homes in need of many thousands of dollars in repairs.  The jury heard this evidence and concluded Colledge’s conduct was deceptive or misleading.  Thus, the court found that the evidence at trial was sufficient to support the jury’s finding.

This case is concerning not only for contractors, but for any business owners who make statements such as “I guarantee it.”  In light of this decision, Pennsylvania small business owners should be particularly careful about the assures that they give to clients or else they may find themselves personally liable.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice.  Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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