Tuesday, January 20, 2015

Texas Trial Courts Are Required to Foreclose on Properly Perfected Mechanic’s Liens

A Texas Court of Appeals reversed a trial court’s statutory interpretation of Texas’s Mechanic’s Lien foreclosure statute, holding that a trial court must foreclose on a mechanic’s lien if the lienholder is entitled to recover damages for unpaid labor and materials and has properly perfected the lien. Crawford Services, Inc. v. Skillman Intl. Firm, L.L.C., 444 S.W. 3d 265 (Tex. App.—Dallas 2014, pet. filed).

The dispute arose out of a breach of contract claim by a subcontractor, Crawford (the “Subcontractor”), against a general contractor, Skillman (the “General Contractor”). The Subcontractor contracted with the Subcontractor to replace and repair the air-conditioning system in the General Contractor’s building. After the General Contractor breached by failing to pay the Subcontractor approximately $140,000, the Subcontractor sued the General Contractor for breach of contract and sought to foreclose on their mechanic’s lien.

After a bench trial, the trial court found that the Subcontractor was entitled to damages for unpaid work and materials, and that it had followed all of the proper procedures to perfect the lien. Having properly perfected, the Subcontractor sought a judgment foreclosing on its lien. However, the trial court refused, interpreting the lien statute to grant it discretion to deny the request. Texas Prop. Code § 53.154.

On appeal, the Subcontractor argued that the lien statute did not grant any discretion to deny foreclosure of a properly perfected mechanic’s lien. Specifically, the Subcontractor asserted that the language “may be foreclosed” should be understood as part of the phrase “may only.” When read in context of the lien statute, “may” means that the only way to foreclose a mechanic’s lien is through a court order. Further, Texas courts have liberally construed the lien statutes to protect laborers and materialmen. See Strang v. Pray, 35 S.W. 1054, 1055 (Tex. 1896) (reaffirmed by the Dallas Court of Appeals).

The Dallas Court of Appeals agreed, reasoning that “may” in the mechanic’s lien statute was purposefully constructed in the passive voice to show that the legislature did not intend for the trial court to be the implied actor. Simply, the only way a lienholder may foreclose a mechanic’s lien is through a judgment of a court of competent jurisdiction foreclosing the lien and ordering a sale of the party subject to the lien. See Lippencott v. York, 24 S.W. 2d 275, 280-81 (Tex. 1983). Thus, once the subcontractor had proven that it was entitled to a judgment for damages and that its lien was perfected, the trial court had to issue a judgment awarding the damages and foreclosing on the lien.

The general contractor filed a petition for review with the Texas Supreme Court, which is pending as of the date of this post.

Thanks to Ian Fullington at Griffith Davison& Shurtleff, P.C. for assistance with preparing this post.

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