Can the general contractor be considered an authorized agent for the home owner?
QUESTION: [Two similar questions were submitted, one by a subcontractor and one by an attorney, and have been condensed into one] - Under Wis. Stat. § 779.02, in a new home construction project, a sub is required to preserve lien rights by sending a copy of the initial lien notice to the owner or an authorized agent within 60 days of providing labor or services. My question is whether the general contractor can be considered an authorized agent for the home owner if a sub fails to send the notice to the home owner and only sends it to the general contractor?
ANSWER: It is possible to argue that the prime contractor is an authorized agent of the owner for the purpose of receiving service of a subcontractor lien notice, but there is a presumption against agency in my opinion in this instance, and the final answer depends on the scope of the agency as defined within the contract between the owner and the prime contractor. However, even before we get to the agency issue, we have to determine if the 60 day notice language contained within a subcontract is sufficient to accomplish "service" as required under the Lien statutes. I will address both issues in reverse order.
1. Service of 60-day lien notice
Wis. Stat. § 779.01(2)(e) states:
“Serve” or “served” means personal delivery, delivery by registered or certified mail, service in a manner described for service of a summons under s. 801.14, or any other means of delivery in which the recipient makes written confirmation of the delivery; except that in s. 779.15, with respect to serving the state, “serve” or “served” means delivery by registered or certified mail.
As a lawyer or subcontractor, you need to determine whether the method that the subcontract was served conformed to the above language.
2. Agency Relationship between Owner and Prime Contractor
Next, assuming "service" was properly accomplished, we need to address the issue of whether a prime contractor is an agent of the owner for receiving lien notices, and whether service of a lien notice on the prime contractor is binding on the owner for purposes of filing a lien.
Wis. Stat. § 779.02(2)(b), the statute which addresses the notice to owners required to preserve a subcontractor lien, states:
Every person other than a prime contractor who performs, furnishes, or procures labor, materials, plans, or specifications for an improvement shall have the lien and remedy under this subchapter only if within 60 days after performing, furnishing, or procuring the first labor, services, materials, plans, or specifications the person serves a written notice, in 2 signed copies, on the owner or authorized agent at the last-known post-office address.... (emphasis added).
Wis. Stat. § 779.02(b(c) defines the owner and agency issues as follows:
“Owner” means the owner of any interest in land who, personally or through an agent, enters into a contract, express or implied, for the improvement of the land. Agency will be presumed, in the absence of clear and convincing evidence to the contrary, between employer and employee, between spouses, between joint tenants and among tenants in common, but there shall be a similar presumption against agency in all other cases. (emphasis added).
Under Wis. Stat. § 779.02(b(c), there is a presumption against agency between the prime contractor and the owner, because this situation is not specifically identified in the statute. This presumption against a principal-agency relationship puts the burden on the subcontractor to determine whether the prime contractor has the authority to bind the owner and receive lien notices in lieu of the owner prior to entering the subcontract (assuming the lien notice language within the subcontract and the service of the notice is sufficient). Cf. Leismann v. Lovely, 45 wis. 420 (1878). My cursory research in Wisconsin case law, does not yield any case directly on point. However, I did find two cases on point out of Kentucky and Iowa. While not binding in Wisconsin, the Kentucky court held as follows:
[The subcontractor] contends that for purposes of the mechanic's lien statute, a general contractor is the agent of the owner as a matter of law and therefore prelien notice is not required. Kentucky authority is not cited as there is none, and we decline to adopt such other authority which [the subcontractor] cites in support of his “hire the people for me” theory. [Subcontractor's] argument is thus so since it did not send the owner a prelien notice. ... Only if the subcontractor dealt directly with the owner or its agent is [the subcontractor] exempt from the prelien notice requirement. .... We hold a general contractor is not deemed the agent of a property owner as a matter of law. .....
Middletown Engineering Co. v. Main Street Realty, Inc., 839 S.W.2d 274, 275-276 (Ky. 1992) (emphasis added); see also, Schumacher Electric, Inc. v. DeBruyn, 604 N.W.2d 39 (Ia. 1999) (holding the same).
In a Wisconsin case potentially relevant by analogy, the court held:
Because of that limited scope of an architect's authority as a mere special agent for the owner, the courts have held that: “An architect with the usual powers and duties and not specifically authorized to receive notice is not the owner's agent for the purpose of receiving notice of intention to claim a mechanic's lien.” 40 Corp. Jur. 165, § 185 (b), note 51 (d). ..... Consequently, the owner was not chargeable with the notice which [the subcontractor] addressed to the architects, and its claim for lien fails because of noncompliance with the....notice requirement in [the lien statute]. Bates Expanded Steel Truss Co. v. Sisters of Mercy of Janesville, 208 Wis. 457, 459-460 (Wis. 1932). Again, this case deals with an architect and not a prime contractor, and therefore is relevant only insofar as the analogy.
In conclusion, my opinion is that it might be difficult to prove the requisite agency relationship between the prime contractor and owner sufficient that a court would bind the owner based on the prime contractor's receipt of the notice through a subcontract agreement. The Kentucky case suggests that there might be some precedent supporting the agency theory – but I was unable to find this precedent in my cursory search of cases from around the nation and in Wisconsin. Given the policies underlying the lien statute in Wisconsin, I am inclined to believe that a Wisconsin court would follow the Kentucky rationale.
My recommendation would be to request a copy of the contract between the owner and the prime contractor to see if a sufficient principal-agency relationship was created. In my practice, I see many general contract agreements which warn owners that they might receive subcontract lien notices. Thus, in the end, while it might be possible to make the argument that the prime contractor was an authorized agent of the owner for the purpose of receiving the subcontractor notice under Wis. Stat. chp. 779, this argument appears to be a case of first impression in Wisconsin, and in my view would present a costly battle without great odds of success to justify the expense of litigation.
My main concern at this juncture, is that if you determine that the service of the notice was insufficient, the lien is most likely defective on the outset. If the subcontractor has filed a defective lien on the property, thereby encumbering it, the subcontractor could be liable for slander of title and any other damages which might flow from it. Thus, it is very important to either retain an attorney, or if you are a lawyer, to obtain the facts and documents necessary to fully evaluate the service and agency issues, and to assess the risk of liability against the subcontractor if the lien is likely to be defective.
The statutes cited above can be downloaded at the following link:
Thank you to Attorney Chad Koplien for the above answer. Chad practiced in construction law and litigatation for 13 years before committing to service in the Wisconsin National Guard as a judge advocate and in a state government position. Attorney Mark Hinkston, recommended by Chad, is now answering questions submitted by my readers.
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The information on these pages provides legal information about Wisconsin statutes designed to help contractors acquire general background information on construction liens in Wisconsin. It is important to note that legal information is not the same as legal advice. Legal advice is the application of the specific applicable laws to a contractor's specific fact scenario. Although we go to great lengths to make sure our information is accurate and useful, you must retain a lawyer, and enter into an attorney-client relationship if you want to obtain professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.
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