Source: https://www.nhconstructionlaw.com/blog/archives/02-2016
Timestamp: 2019-04-25 12:50:23+00:00

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When two parties enter into a contract to define their respective performances, they generally expect that those performances will not be handed off to others. In the case of a construction contract, the reality is that contractors don’t care who pays them; money is fungible, and if it comes from an equally solvent third party rather than from the original owner, so be it. But contractors are not as interchangeable as dollars; owners generally want the particular contractor they hired, even if most of the work ends up being subbed out.
The law reflects this common-sense expectation. In the absence of a contract provision prohibiting assignment without the other party’s consent, assignments of contractual rights and duties are usually allowable. But “when rights arising out of a contract are coupled with obligations to be performed by the contractor and involve such a relation of personal confidence that it must have been intended that the rights should be exercised and the obligations performed by him alone the contract including both his rights and his obligations cannot be assigned.” Town of Hampton v. Hampton Beach Improvement Co., 107 N.H. 89, 95 (1966) (quoting 4 Corbin, Contracts, s. 865).
All of these provisions concern assignments of an entire contract (or what may be left of it), and deal with scenarios in which future performances are still required on both sides, i.e., an assignment of both rights and duties. It is also possible to assign a right without the corresponding duty, for example the right to payment. If part performance by one party has triggered the other’s obligation to pay, an assignment of that payment right must be honored by the payor upon notice of the assignment. In the construction setting, that assignment will often be to a surety or to the contractor’s bank (or both, in which case the owner can simply pay the money into court and let the two assignees fight it out – perhaps with a side wager on the surety, American Employers Ins. Co. v. School District of Town of Newport, 99 N.H. 188 (1954)). At that point the contractor is likely in trouble – and if the owner didn’t contract for retention of sufficient funds to complete punch list items or for a warranty holdback, it may be in trouble too.
#38: Are Attorneys' Fees and Interest Lienable?
When a plaintiff sues for money damages, he often seeks a lien or “attachment” on the defendant’s property – real estate being a particular favorite – as security for a judgment. In New Hampshire, RSA 511-A:4 authorizes attachments “to the extent reasonably necessary to secure any judgment or decree which the plaintiff is likely to obtain” including “allowable interest and costs.” Such attachments are typically granted in an amount that will cover any contractual right to interest and attorneys’ fees.
Mechanic’s liens are perfected by attachments too. What if the plaintiff’s contract includes the right to collect interest and attorneys’ fees? Will the amount of his mechanic’s lien attachment include those things? Our Supreme Court has yet to address this, but my answer is No ―although I’ve seen it happen a few times when overreaching plaintiffs and inattentive judges crossed paths.
Ideally, a mechanic’s lien statute should tell us what triggers the lien, what property is subject to the lien, and what debts it secures. New Hampshire’s statute, RSA 447:2, is explicit on only first two of these: “If any person shall perform labor, provide professional design services, or furnish materials to the amount of $15 or more for erecting or repairing a house or other building or appurtenances, or for building any dam, canal, sluiceway, well or bridge, or for consumption or use in the prosecution of such work, other than for a municipality, by virtue of a contract with the owner thereof, he or she shall have a lien on any material so furnished and on said structure, and on any right of the owner to the lot of land on which it stands.” Compare Massachusetts’ lien statute, G.L. c. 254 § 2, which gives general contractors a lien “to secure the payment of all labor, including construction management and general contractor services, and material or rental equipment, appliances, or tools which shall be furnished,” and G.L. c. 254 § 4, which gives subs and suppliers a lien “to secure the payment of all labor and material, which he is to furnish or has furnished.” This answers the third question. See National Lumber Co. v. United Casualty & Surety Ins. Co., 440 Mass. 723, 802 N.E.2d 82, 86 (2004) (“our inquiry is limited to whether a mechanic’s lien recorded pursuant to G. L. c. 254, s. 4, includes contractual interest and reasonable attorney’s fees in addition to the amount claimed for labor and materials. We conclude that it does not.”).
In the absence of express statutory language, the clincher for me is the underlying “value added” theory behind mechanic’s lien statutes. When real estate is improved by labor and materials, it is presumed to increase in value, as measured by the price of the labor and materials. It is fair to give the providers of labor and materials a lien to that extent because the owner is no worse off when his property is liened for the price of those unpaid goods and services. The lien accomplishes a transfer of value from benefited owner to unpaid contractor or supplier in recognition of the value they added to the property. Attorneys’ fees and interest, however, add no value to the property. They are tools for making the contractor and supplier whole, but not for transferring a benefit realized by an owner back to the provider of the benefit.
Admittedly the presumption that property values increase by the contract price of improvements does not always hold. I could have a piece of land worth $100,000 and hire you to build me a house at a price of $400,000 in the hope of having a $500,000 property when you’re done―but if you hit ledge digging the foundation hole and spend an extra $50,000 to remove it, I’ll owe you the extra $50K yet my home won’t be worth a penny more. Justice Stevens’ observation is apt here: “As in every rule of general application, the match between the presumed and the actual is imperfect,” but aberrations are “so unlikely to prove significant in any particular case that we adhere to the rule of law that is justified in its general application.” Arizona v. Maricopa County Medical Society, 457 U.S. 332, 344, 351 (1982).

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