What Can you Lien and What Can You Not Lien For?

What can you lien and what can you not lien for?


I recently had a discussion with a client about when materials they sell are qualified for a lien against the property and when they are qualified to be repossessed under Article 9 of the UCC.  While there is no bright line which divides these two categories, there is a 1982 case from the Utah Supreme Court which can be helpful.  The case is Paul Mueller v. Cache Valley Dairy Association.  In that case, the Cache Valley Dairy Association was building a whey drying plant.  As part of the construction, they poured a concrete slab, erected a steel building, and then purchased whey drying equipment from Paul Mueller Company.  The whey drying equipment was basically a big furnace with most of the equipment being bolted to the slab outside the building and then hard-wired into the electrical system and ducts went into and out of the building to move hot air from the furnace in and cooler air from the inside back out and through the furnace. 


When the whey drying equipment wasn’t paid for, Paul Mueller Company filed a lien against the property.  Cache Valley Dairy Association defended saying the whey drying equipment was not a fixture on the real property and therefore was not qualified for construction liens.  The case went to the Supreme Court, and the Supreme Court concluded that even though the whey drying machine was hard-wired into the electrical panel and bolted to the slab, it could be unbolted and unhooked and moved to another location.  Therefore, the Court concluded that it was not properly lienable.


So the question from this case for contractors and suppliers is:  What can you lien and what can you not lien for?  For example, can an HVAC supplier lien a property for a furnace?  Can a plumber lien a property for a water heater?  A deeper exploration of the Paul Mueller case is helpful.  There, the Court specifically noted that the steel building in question was also bolted to the slab, and that the entire whey drying facility could easily be moved from one location to another.  So, I think it is likely erroneous to conclude that water heaters and furnaces in homes are not lienable, because the home itself is not moveable.  Thus, the question as to what’s lienable and what’s not involved not only a specific piece of equipment, but also the structure and use to which the equipment and the structure are applied.  To the extent that the total construction project is of a sort that could be movable, then individual parts may not be lienable. 


Another factor to take into consideration is the extent to which the materials or equipment have been specially designed for the property.  Where particular materials or equipment by their dimensions, or other specifications or design features are designed to service specific facilities where they are attached, then the ability of suppliers and contractors to lien for the installation of those items, is increased. 


The best thing for suppliers, manufacturers, and others to do who are selling equipment that could be moved from one location to another, is to protect themselves not only by SCR filings and other filings on Construction Liens, but also to obtain security agreements where possibly and do UCC-1 filings in order to protect Article 9 rights as well.