Seed company did not prelim and now Owner will not pay Subcontractor
Summary: Can the supplier of a subcontractor file a lien when they didn't do a preliminary notice?
QUESTION: Our company supplied seed to a subcontractor used in a project in which he is saying that the project owner will not pay. We have normal net 30 terms since we are not contractors and do not file Prelims as a normal course of business. The debt is now over 4 months old so my question is whether I can still file a lien? I sent a Prelim but it was months after the 20 day period so I assume that does not have any benefit.
Answer: You have a good understanding of the rules. Unfortunately, your good understanding is correct.
If your contract was with a subcontractor, you would only have lien rights for materials provided after the date that is 20 days prior to the date on which you served the property owner with a preliminary notice.
Luckily, you have rights against the subcontractor. The subcontractor will owe you on the terms of your agreement. Suppliers often are able to dictate the terms on which they sell materials on credit.
Your contract may include service charge terms and an attorneys' fees provision that will be useful with your customer. Your customer cannot avoid paying you on the basis of non-payment by the owner.
Even if you had valid lien rights, you would not be obligated to await the outcome of an expensive lawsuit to foreclose upon your lien. The right to lien is exactly that -- a "right." It's not an obligation and it doesn't impact your right to be paid by your customer on the terms of your agreement with your customer.
Your subcontractor should acknowledge that and then attempt to convince you to forebear from pursuing a lawsuit by demonstrating to you that they are aggressively pursuing payment.
If the subcontractor does ask you to wait, you might consider asking the subcontractor for a promissory note with a payment due date a few weeks or months away. The promissory note would be an easier debt to enforce in court than the invoices for the seed. You would want to make sure the promissory note had favorable terms to maximize its benefit.
Thank you to Dave Barnier for the above response. :) Mr. Barnier is a practicing litigation attorney in San Diego CA and can be reached at 619.682.4842.
The information in this article is based upon California law and is provided for general information, only. The information provided illustrates laws and legal principals in general. Any information or analysis presented in this article is intended solely to educate the reader on general issues. A comprehensive review of facts, documents, and applicable laws is always required before any attorney can competently provide any legal advice regarding any particular situation. In short: Please do not rely on any part of this article when analyzing any specific situation affecting you or your business.