Friday, December 28, 2007

Mechanic's Liens and Permits: A New Court of Appeals Case

An Evansville area contractor lost its lien and its appeal by not getting the building permit in the proper way. Hopper Resources Inc., Construction Div. v. Wendell Webster (PDF format) decided yesterday turned on the way that the contractor obtained the building permit:

On November 25, 2003, Shamo went to the Building Commission office and obtained an Improvement Location Permit for the addition of a bathroom and a porch to Webster’s residence. Shamo completed a “Homeowner Affidavit” stating that “Wendel [sic] Webster” thereby swore that “either [he] or a member of [his] immediate family” would “perform the . . . work” of adding the room and porch at his residence, “for which Building Permit #106771E” was being issued, and that he would not be “subcontracting out any of the work” thereon. (Ex. A). Shamo signed Webster’s name on the affidavit....
Contractor filed suit to foreclose the lien. Contractor lost at the trial court level and appealed. The Indiana Court of Appeals noted that foreclosure is an equitable action and listed several equity maxims: One who seeks equity must do equity, One who comes into equity must come with clean hands, and equity follows the law ( see page 7 of the opinion).

But losing the foreclosure was not all that the contractor lost - the contractor also lost on the breach of contract claim. The Court of Appeals sank the breach of contract claim in this paragraph:
Next, Hopper argues that it “was entitled to recover on breach of contract,” citing “unrefuted evidence” that it “was owed and ha[d] incurred damages” in the amount of $7,500.00 “as a result of Webster breaching the parties’ contract by running Hopper off the job and refusing to pay.” Hopper’s Br. at 29, 30. The evidence was that Webster refused to allow further work by Webster after the inspector found that the work failed to comply with Code. The Homeowner Affidavit expressly provides that “if the Inspector should find the work in the violation of the Code, then [the homeowner] shall employ a master installer of the required trade or craft to change, alter, or repair the work that is in violation.” (Ex. A). Hopper offered no evidence to establish that it held such credentials...Absent a showing that Hopper held credentials to perform the corrective work required by the Homeowner Affidavit, the circumstances here did not require that Webster allow Hopper workers to perform further work. Therefore, Hopper’s breach of contract claims must fail.
Reading the case, I was surprised that the homeowner did not file a counterclaim based on Indiana's home improvement fraud statute. The homeowner filed a counterclaim and asserted an affirmative defense of fraud, but the counterclaim was struck by the trial court. The Home improvement statute says the following about permits:
IC 24-5-11-9
License or permit as prerequisite
Sec. 9. Where a license or permit is necessary for any part of a home improvement, the home improvement contract shall be subject to obtaining the necessary licenses or permits prior to any work commencing.
Considering how the contractor obtained the permit in this case and the type of permit, I think the contractor got lucky in escaping a home improvement fraud suit.