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The Almighty Buck

Can Contractors File a Lien for Unpaid Work? 42

Posted by Cliff
from the taking-steps-to-insure-you-get-paid dept.
How About This asks: "Typically contractors are considered unsecured creditors, and if a company is having financial problems it is the unsecured creditors that usually lose out the most, or at least that's my understanding. Is it possible for a contractor that did software design and programming work to file a lien against a company for not paying for work performed? My searches have revealed references to mechanic's liens against land and property, but nothing directly with technology/computer related areas. Anyone have any links to sites or pages with this information? Or references to good (CA) lawyers in this field that can explain things (and has a reasonable initial consultation fee since obviously money is in short supply)."
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Can Contractors File a Lien for Unpaid Work?

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  • Mechanic's lien? (Score:3, Informative)

    by lynx_user_abroad (323975) on Tuesday October 22, 2002 @02:53PM (#4506338) Homepage Journal
    I suspect any rights you have would be under a construction similar to a mechanic's lien.

    See also: http://www.fullertonlaw.com/chapt1.htm#mechlien [fullertonlaw.com]

  • Interesting (Score:4, Interesting)

    by 4of12 (97621) on Tuesday October 22, 2002 @02:57PM (#4506383) Homepage Journal

    <ianal>

    IIRC, mechanics liens are not "active" devices for securing payment, but "passive" devices that prevent the property owner from getting a mortgage or otherwise transferring his asset by sale. A good title search puts the brakes on any kind of transfer, so they have to settle with you before selling assets with recorded titles and deeds like real property.

    I dunno if you need a contractor's licences to file a mechanics lien, but I think there may also be liens designed for suppliers of materials that are left unjustly unpaid.

    </ianal>
    • In my state the builders supply stores have to give you a "notice of intent to lien" or something like that. Basically it says that they are reserving their right to put a lien on your property if you don't pay for your materials. I believe if they didn't give you the notice BEFORE they gave you credit, they're SOL.
  • mechanic's leins (Score:3, Interesting)

    by ender's_shadow (302302) on Tuesday October 22, 2002 @03:00PM (#4506428) Homepage
    you say you've checked out mechanic's leins.

    but you say you want $$$. mech's leins are only on the property that the mech is working on (ie your care, etc). if you're trying to get compensation, i don't think mech's leins are the way to go.
    • by MrResistor (120588)
      A mechanics lein prevents (more or less) the leined property from being sold. If it was purely an internal project then this wouldn't be the way to go. If the project was intended to be marketed, though, the company would have to settle with him before they would be able to sell it.

      I don't know if a lein allows one to take posession of the affected property at any point, but that would certainly up the ante!

    • damn, I thought 3 months of law school had told me everything. guess not ...

      "When a contract debtor defaults, the contractor supplying labor or material can elect to either sue the debtor on the promise to pay or proceed against the property. "

      -from the fullertonlaw article cited above.

      oops.
    • You've fallen prey to the suggestion that legal terminology has any bearing to legal practice. The legal term "Mechanic's Lien" comes from before the era of the automotive mechanic. According to tort law, a Mechanic's Lien is that which is filed against property in posession of the debtor in which the creditor has some stake. It involves titles, etc, as explained by other posters, and is commonly called a "Construction Lien" since it's usually used by contractors.

      You're thinking of an Artisan's Lien, which applies to property of the debtor that is physically in posession of the creditor. This commonly the case with auto mechanics.

      So yes, it's odd -- my business law professor had a field day with this one on the exam :)

  • Check your contract (Score:5, Informative)

    by bwt (68845) on Tuesday October 22, 2002 @03:12PM (#4506562) Homepage

    By default, independent software contractors own the copyright on work they produce. Unless you specifically signed over the rights, you probably still own it. Normally if they pay you, then they can use it (that's what they are buying). If they haven't paid you they may be commiting copyright infringement by using your code after you inform them that you have not authorized them to use it unless they pay. If they have revenue flow tied to the software, you might be able to threaten them with an injunction (but see below).

    Even if you have signed over the rights, if they breach the contract that transfers the rights by not paying you, then the whole contract might be thrown out.

    Unfortunately, if they are in bankruptcy, you usually can't sue them until they come out of it. However, if you send them a C&D letter informing them that you own the copyright and want them to stop using it and they blow you off, then they will be notching it up to "willful" violation which has hefty penalties. It is very rare for a company to completely liquidate, so eventually you have some leverage.

    You absolutely need a lawyer (IANAL). Look up the names of some on some of the filings in the DVD-CCA case -- that was in California.
    • by glenstar (569572) on Tuesday October 22, 2002 @03:25PM (#4506707)
      Also check to see if there is an AAA (American Arbitrator Association) clause in the contract. If that is the case, then you *must* use AAA for any disputes.
      • Even if he's arguing the contract is invalid? Real question, just wondering how that works.

        • by glenstar (569572)
          It depends on the contract. For example, I am looking at one in front of me right now that says, "All disputes regarding this contract are subject to arbitration of the AAA". I don't know if that holds up in court or not... fortunately have never had to test the theory.
          • You realize that doesn't work. Suppose I just go in and doctor the contract to say "All disputes regarding this contract are subject to arbitration of the AAA". My marking up my copy of the contract with a pen doesn't oblige you to abandon the court system... not if what you plan to argue is that the CONTRACT ITSELF is invalid (because my marking up the signed copy doesn't bind you to anything).

            The court system is special, everyone is always subject to the court system, whether they want to be or not. The use of arbitration only applies if both parties agree (or laws specify otherwise). So if the agreement is in dispute, then THAT gets disputed in the courts.
        • Generally from my understanding of contract laws the court have final say on the contract and items in the contract are covered under arbitration. So if you are arguing the contract invalid you should be ok to go to court unless there is a "all parts stand on their own" clause in which case you may be bound to arbitration. Of course if this effects anything important see a lawyer.
    • If they haven't paid you they may be commiting copyright infringement by using your code after you inform them that you have not authorized them to use it unless they pay.

      Yeah, but why in the world would you want to do that? If they are experiencing financial difficulties, don't you want them to use your software to help themselves get out of the financial difficulties? Stopping them from using your software is only shooting yourself in the foot.

      • Stopping them from using your software is only shooting yourself in the foot.

        By not paying you it would be they who are shooting themselves in the foot. If they are still operation there is *some* money around, it's just being allocated to the most important places. If they're dead without paying you, then you've taken over the most important place.

    • IANAL, but its my understanding that in any work for hire the resulting product's copyright is owned by the person or entity that paid for its development unless explicitly written otherwise as in section (b) here. I hope you aren't charging other parties for code you produced under contract for someone else or you're going to be poor soon.
      • That is true and irrelevent.

        This guy stated specifically that he is a contractor, which rules out work for hire. Do a goodle search for CCNV v. Reid if you want Supreme Court precedent to clarify the differnece in the copyright context.
      • IANAL, but its my understanding that in any work for hire the resulting product's copyright is owned by the person or entity that paid for its development unless explicitly written otherwise

        Don't bet on it. "Professional photographers" claim that the copyrights to pictures they take of your wedding are owned by them.
    • IANAL, but its my understanding that in any work for hire the resulting product's copyright is owned by the person or entity that paid for its development unless explicitly written otherwise as in section (b) here. [cornell.edu]

      I hope you aren't charging other parties for code you produced under contract for someone else or you're going to be poor soon.

      • by ScuzzMonkey (208981) on Tuesday October 22, 2002 @05:32PM (#4507855) Homepage
        But if you plumb more deeply, you'll find that a work made for hire [cornell.edu] is not defined so simply as you think. In essence, work for hire is not defined at all by who is paying for it, but by the status of the person producing it and any agreements they've reached with the person paying for it. Works for hire are primarily produced by employees; a work produced by a contractor, except under narrow and mutually agreed upon circumstances, is the intellectual property of the contractor, and he or she can resell it as often as they'd like.

        IANAL either, but I make sure to check the definitions because I know how sneaky they can be. :)

    • Even if you have signed over the rights, if they breach the contract that transfers the rights by not paying you, then the whole contract might be thrown out.

      Nope. In a typical Chapter 11 bankruptcy (a "reorganization," as distinguished from a Chapter 7 liquidation), the court generally reduces the debtor's debts substantially, including debts arising from, say, contracts. These days, a business debtor typically pays just 20 cents per dollar of debt. A bankruptcy court has broad and substantial powers, including the power to reform contracts, but this extraordinary power is generally wielded, if at all, to the benefit of the debtor, not the creditors.

      FWIW, yes, IAAL (now turned technologist), but I have been out of the legal field for years now. Furthermore, I was in taxation and public utility law, not bankruptcy. For self-help, try www.nolo.com (Nolo Press) or a damned good trade association bankruptcy site: www.abiworld.org.

    • If all else fails, do what I do. I call up my buddie Bruno for proffesional assistance (charges 10%). He is about 6,5'', 300 pounds and all muscle. Needless to say, we we both walk in (about the same size as him), they pay me within the hour.
  • by azadrozny (576352) on Tuesday October 22, 2002 @03:32PM (#4506764)
    I am assuming you are asking this question because you are currently in the situation of being owed money by a company that is unable or unwilling to pay you for work that you have completed. What you need is a good lawyer. There may be State or local laws that help protect you. If the company is in bankruptcy you will want to make it know early in the process that they owe you money. You may not get everything you are owed, but perhaps a good chunk of it.

    If you are just getting into the business you will still want to seek advice from a lawyer. Ask about ways you can structure your contracts so that you get what you are owed. I would ask for a downpayment if you think the company may be short on cash. You can also bill them as you go, once or twice a month.

  • by HotNeedleOfInquiry (598897) on Tuesday October 22, 2002 @03:32PM (#4506765)
    Go down to the courthouse (I know, it's harder than posting your question on slashdot) and ask the cleck to show you the lien form. Read it over, determine whether or not signing it would constitute perjury, and do the right thing.
  • What exactly do you want a lien for? Are you afraid that they are going to transfer the rights to your software? It seems to me that's the only angle that's going to work - trying to stop them from transferring rights in your software. The best approach for that probably involves claiming that they don't have the rights in your software to begin with, because they haven't paid, but IANAL so I don't know how productive that argument would be. As you've said, their debt to you is unsecured, so if you're just trying to get your money and they don't have it you have to fight with all the other debtors, and you're pretty much last in line (before the shareholders).
  • Standard disclaimer: you should really see a lawyer regarding your own particular circumstances. This isn't legal advice, just some general information you might be interested in.

    A workman's lien, as others have pointed out, is a proprietary right over an objet that you surrender to a workman for him/her to work on it. In a certain sense, the workman becomes the "owner" of the property you surrender (or, to put it another way, your title and interest in the property is burdened or encumbered by the lien) and the workman has the right to prevent you from taking back the property until you're paid the price of his or her work. It doesn't really apply in contracts for sale or construction of goods.

    In that case, different rules apply. In a contract for the sale of goods, title usually passes the moment the contract of sale is finalized, i.e. when vendor and purchaser agree that the sale should go ahead. If the purchaser goes bankrupt, then all creditors have rights against those goods as the purchaser's property, and the vendor simply has the status of an unsecured creditor through his unsecured right to payment

    The traditional way to get around this is the insertion of a clause into the contract to override the default position and stipulate that title only passes once payment has been made, and that up until that point the purchaser has "only" an unrestricted licence to use and convert the goods as s/he wishes. If the purchaser goes bankrupt, the vendor then has a property right in those goods (provided they're still capable of recovery) over and above the rights of other creditors. In the case of contracts for the production and sale of intellectual property, the default position would be governed by the provisions regarding ownership according to the circumstances when it is related. IIRC, US copyright law provides that copyright always vests with the author unless there is an express contractual term to the contrary. I am unaware of the position for patents, designs, or other forms of IP in the US.

    Bottom line, you should try to have a term included in your contract stipulating that assignment or exclusive licence in the copyright or other IP right will only transfer once you've received payment. That's likely to be difficult, as your employer is likely to be making regulard part payments (through your pay cheque) for your work, and doubtless is expecting to see something for it. Note that you may have trouble doing this retrospectively, especially if the person or compnay who's paying you is in trouble. That's called a voidable preference, and bankruptcy/insolvency law takes a dim view of such attempts of creditors to secure parts of a prospective bankrupt's assets for themselves when it becomes clear that the ship's going down.

  • A friend of mine was working for a small ISP back in '94-'95, and they didn't give him a paycheck for like 3mo. One night, he walked out with several thousand dollars of routers and servers. If you still have physical access to the facility, this is always an option.
    • if the company has serial numbers they can show up on your doorstep with a cop and reclaim it, as well as file theft charges against you

      your best bet so far is to send via certified mail a C&D -- assert your copyrights, and threaten and then absolutely try and file a UCC against them

      it can and will prevent them from obtaining any kind of financing from a bank since it will stick out like a sore thumb
  • I worked this summer as an intern at an Ohio municipal courthouse, and I had the joy of being a substitute baliff in small claims court for a few days (which really is a lot like the TV shows!), so I think I learned a few things. I'm no expert (I just ran the tape machine!), so take this with a grain (or pound) of salt:

    * with small companies, sometimes it can be useful to redefine the target of your suit- I saw a few instances where folks added the individual's name (perhaps the owner), as well as the company name to the list of defendants in order to track somebody down that can be held accountable. I'm not sure if you could change the name of the defendant from a financially insecure company to a finacially secure owner for purposes of collection. I'm also not sure how/if such a thing would work after the case is decided. Obviously, if such a thing were to work, the owner would have to be somehow personably accountable for your debt.

    *What kind of bankruptcy are they filing for? If it's chapter 11, or something like that, I think you could still hit them with bank attachments.

    *If they are not filing for Chapter 7, how about a debtors exam to figure out where you can get your dough? That can be done without an attorney, although it is better if you have one. It gets really fun when they don't show up, and they're is a warrant out for the CEO's arrest!
  • I'm not entirely clear what's going on here, but from the sound of it, you've sold software on credit. If that's so, then you might have what is called a Purchase Money Security Interest, which, although it isn't perfected, could still entitle you to priority over unsecured creditors in the event that the debtor has entered bankruptcy. But you really need to talk to a lawyer. Chris
  • A comp sci teachers assistant (read: grad student) of mine back in my University days told a story about a friend of his who did some contract work for some company. He'd heard that the company didn't pay their bills sometimes, so he left a timebomb in the code he wrote (3 months, stop running).

    Sure enough, he had problems collecting, and sure enough, they called in 3 months when they had problems. He agreed to come in to look providing that,

    1) They have a check waiting for his unpaid invoce

    2) The hours he spent fixing the problem was at an overtime rate and paid onsite. He spent 2 hours playing some UNIX net-game, removed the timebomb, recompiled, and left.

    Knowledge is power, and in certain situations you may have to so something unethical to ensure you aren't screwed over.

One man's constant is another man's variable. -- A.J. Perlis

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