Utah Case Law About Fixtures - Mueller v. Cache Valley Dairy

The fact that something is physically attached to a building does not necessarily mean that it is to be considered a fixture for mechanic’s lien purposes. In Paul Mueller Co. v. Cache Valley Dairy Association. 657 P.2d 1279 (Utah 1982), the court said that “mere physical attachment does not necessarily confer fixture status upon what would otherwise constitute personal property.” Id. at 1283. In that case, the court held that equipment connected to the building by ducts, wires, welding and bolting to a concrete floor did not constitute fixtures and, therefore, a mechanic’s lien could not attach for supplying and installing the equipment.

This result seems a bit odd, even when the court’s analysis is reviewed. The court stated a three-part test for determining whether items attached to a building are personal property or fixtures. Quoting State v. Papanikolas, 19 Utah 2d 153, 427 P.2d 749, 751 (1967), the court stated the factors as follows: “(1) [the] manner in which the item is attached or annexed to realty; (2) whether the item is adaptable to the particular use of the realty; and (3) the intention of the annexor to make an item a permanent part of the realty.” Mueller at 1283.

In the Mueller case, the court held that the equipment failed all three parts of the “fixtures” test. According to the court, the equipment was installed so as to be easily removable, the equipment was not adapted to the particular use of the property and the parties involved did not intend that the equipment was to become a permanent part of the realty. With regard to adaptation, the court said that “Equipment is not ‘adapted’ to the use of the real property where the real property itself is adaptable to multiple uses and where it is solely the presence of the equipment itself which determines the purpose served by the real property.” Id. at 1284. And with regard to the parties intentions, the general manager of Cache Valley testified that the type of building constructed was chosen because of its versatility and because it would allow easy removal of the equipment if the need arose.

Utah Case Law on Fixtures

In the case of Metals Manufacturing Co. v. Bank of Commerce, 16 Utah 2d 74, 395 P.2d 914 (1964), a bank obtained a ten-year lease on a building. The bank insisted on a provision which provided that it could “make alterations, attach fixtures and erect additions, structures, or signs” which were to remain the personal property of the lessee and which could be removed from the building by the lessee. Thereafter the bank contracted to have some aluminum railings and gates installed in a place directed by the bank. The bank paid the contractor but the contractor did not pay the material supplier and the supplier brought an action against the bank for failure to obtain a bond under Utah Code section 14-2-1 et seq. The court held that the aluminum railings and gates installed in the bank were “an addition, alteration or repair of a building,” for purposes of protecting a third-party supplier even though the railings and gates could have been removed from the building by removing anchoring group plates, and notwithstanding provisions in the lease agreement to the effect that the railings and gates constituted personal property.

What is a "fixture" versus "personal property."

“Fixtures” are those items of personal property, which are permanently attached to a building or land as an appendage and which are not readily removable. A fixture is something, which has been affixed to the realty so as to become a part of it. Personal Property on the other hand is temporary or movable property which may easily be moved from one property to another. While fixtures, being permanent in nature, are lienable, personal property or services not incorporated into improvements to the property are not lienable under the Utah mechanic’s lien statutes.

It is often difficult to determine whether the property attached to a particular building will be determined to be a fixture or personal property. Relevant factors include the purpose and use of the building or land, whether and how the particular item is attached, the type of property attached, etc. No matter how the parties view the property, the court will ultimately determine whether it is personal property or a fixture.

Improvements to Land - What is included in a lien?

Utah Code section 38-1-3 states that all persons performing any services used to improve any premises shall have a lien upon the property, except as the lien is barred under section 38-11-107 of the Residence Lien Restriction and Lien Recovery Fund Act. Utah Code Ann. § 38-1-3 (Lexis 2005). This particular provision was added by the 1973 amendments to the mechanic’s lien statute. The following cases illustrate the principles involved in defining “improvement to premises.”

Only permanent, physical improvements to real property will give rise to lien rights. This general principle was stated in the case of King Brothers, Inc. v. Utah Dry Kiln Co., Inc., 13 Utah 2d 339, 374 P.2d 254 (1962). The court said that:
In order to qualify under these statutes it is necessary that there be an annexation to the land, or to some permanent structure upon it, so that the materials [or labor or services] in question can properly be regarded as having become a part of the realty; or a fixture appurtenant to it; and this must have been done with the intention of making it a permanent part thereof.
Id. at 13 Utah 2d 342, 374 P.2d 256.

While this general principle receives broad application, there are many services which will not give rise to mechanic’s lien rights. For example, surveying, which is not otherwise part of an improvement project, will not give the surveyor any mechanic’s lien rights. In this regard, there are two Utah cases which at first seem to draw very narrow lines between services which will and will not give rise to a mechanic’s lien.

In Backus v. Hooten, 4 Utah 2d 364, 294 P.2d 703 (1956), an action was brought for failure to obtain a bond against a land owner to recover the value of the rental of machinery and equipment used by a subcontractor in leveling the owner’s land so that it would be more susceptible to irrigation and cultivation. While the case actually involved the Utah bonding statute, Utah Code Ann. § 14-2-1 et seq. (Lexis 2005), it is very similar to Utah Code section 38-1-3 cited above, and the two are often cited as support for each other. The court held that leveling is not an improvement upon the land requiring the owner to comply with the bonding statute, even though the leveling of the land enhanced its value and improved its utility. In making this decision the court referred to an Iowa case which denied a mechanic’s lien for plowing prairie land.

The basic premise is that laborers and materialmen should be protected if they add something permanent to the property. The Utah courts have held that plowing fields and leveling land, while they improve the land, are only temporary. However, in light of other decisions by the court, it seems that a mechanic’s lien right would accrue if the leveling was done in connection with a building or other permanent improvement project.

One such decision was made in the case of Frehner v. Morton, 18 Utah 2d 422, 424 P.2d 446 (1967). A professional landscape architect and his wife, a landscape contractor holding a license from the State of Utah as a specialty contractor, designed and completed the landscaping in connection with a house being built by a general contractor. The property owners refused to pay them and defended the lien foreclosure action on the grounds that landscaping did not fall within the mechanic’s lien statute.

After reviewing the Backus case, the Utah Supreme Court held that the landscape architect and contractor were entitled to a lien for the landscaping work. The court stated:
Now, if leveling land is not within the statute, why should landscaping in this case be so? The distinction is that the leveling of land in the Backus case was not done in connection with any building, structure, or improvement upon the land, while in the instant case the landscaping was done as an integral part of the building of a home. The landscaping was designed to give the same aesthetic qualities to the home as would the paint applied to the building after it was finished. Both are equally inherent in the enjoyment of the constructed home.

We, therefore, hold that where landscaping is done during the construction of a home and as an integral part of the construction...the work done and the materials furnished would be subject to a mechanic’s lien.
Frehner at 18 Utah 2d 427, 424 P.2d 449

As long as the work is done in connection with a permanent, physical improvement, it need not be the type of work which would give rise to a mechanic’s lien by itself. This is apparently the beginning of the idea that surveyors, architects and other professionals are entitled to mechanic’s liens for their services even though those services do not physically improve the property or are temporary in nature.

It is essential that the work, services, materials or equipment for which the lien is claimed go into the improvement of the property involved. In Stanton Transportation Co., v. Davis, 9 Utah 2d 184, 341 P.2d 207 (1959), an action to foreclose mechanic’s liens in connection with the furnishing of services and materials for oil wells was brought by a materialman. The court entered judgment authorizing liens for the rental value of rock drilling bits and labor to erect the drilling rig but refused to allow a lien for other materials, tools, equipment and services which were not used or consumed in the improvement. The court stated, “While it is true that our statutes are to be liberally construed to give effect to their purpose and to promote justice, it is equally true that they should not be distorted beyond the intent of the legislature.” Id. at 9 Utah 2d 188-189, 341 P.2d 210. Therefore, the court held that the delivery and supply costs of equipment used at the site but not directly comprising an “improvement” do not give rise to mechanic’s lien rights. In addition, the court stated that materials, tools and equipment to be lienable must be consumed in their improvement of the real property.

The "Dumbing" of America

Usually my posts are instructional, advising about various aspects of construction topics. Tonight, I thought I would get up on my soapbox for just a minute and complain about a law that bothers me more than just a little - The Fair Debt Collection Practices Act (FDCPA).

Don't get me wrong, I am not against fair collection practices and I am against abuses, but this is an example of a law, a federal law, that not withstanding its good intentions, goes too far. This is a law that in essence causes what I call the "Dumbing of America."

Part of the FDCPA, § 1692e prohibits false or misleading representations. The problem is that violations of the act are judged from the perspective of the "least sophisticated consumer" See, e.g., Jeter v. Credit Bureau Inc., 760 F.2d 1168 (11th Cir 1985.) What?!?!?! What about the reasonable man we all learned about in law school?

Well, apparently the reasonable man has suffered some sort of brain injury and is now the "least sophisticated consumer." Compliance with the act requires that written materials and phone calls to the debtors must be in language so that persons who may not even be competent to contract, can understand. If they can incur the debt, shouldn't collectors be entitled to use "reasonable" language to explain the problems and the remedies available to the Creditor?

But then I guess that "reasonable" is too much of a stretch for congress....

Liens - The Nature of Improvements and Type of Services Rendered

Any person who provides labor or material that is actually incorporated into the real property as part of the “construction, alteration, or improvement of any building or structure or improvement to any premises in any manner” is entitled to a mechanic’s lien, unless they are exempt under the Lien Recovery Fund legislation signed into law in 1994. Utah Code Ann. § 38-11-101 et seq. (Lexis 2005). Some typical alterations, improvements or repairs made on buildings or premises and which are covered under the statute include digging a well, adding or fixing sidewalks and driveways, installing a water system or sewer system or plumbing, building or fixing a retaining wall, adding a room to an existing structure, or refurbishing a house by painting and wallpapering, etc.

Can Unlicensed Contractors lien?

The fact that a person falls within one of the classes of people that are protected by the mechanic’s lien laws does not mean that such a person will be able to enforce those rights. An unlicensed contractor may be barred from enforcing any mechanic’s lien due to a provision in the contractor’s licensing laws.

1. Pre-1981 Common Law
Prior to March 12, 1981, there was no statutory prohibition to an unlicensed contractor suing to recover monies owed for work that required a contractor’s license. However, over the years, the Utah Supreme Court developed a common law prohibition to an unlicensed contractor recovering for services rendered. Exceptions to this common law rule, allowing recovery, were also developed. These exceptions are discussed in more detail below. In developing this common law rule prohibition to recovery, the courts would primarily invoke the rule when the case involved a person who, in the court’s eyes, was a part of the class of people the contractor’s licensing laws were designed to protect, although this principle may have been expanded in recent years.

In performing its common law analysis, a court would determine whether the party dealing with the unlicensed contractor was within a protected class. In other words, the court would determine whether the person dealing with the contractor needed the licensing statute to be protected against inept and financially irresponsible contractors or whether the protection was in fact afforded by other means. Courts considered whether there was an inadvertent lapse in the license such that restoration of licensed status involved no new demonstration of qualification but only payment of a fee. Further, courts considered any professional relationships between the parties prior to the contract to determine the degree of reliance upon representations of competence and expertise by the unlicensed contractor. Courts also considered what performance or payment bonds or other types of assurance were made to ensure adequate and complete performance, without financial exposure beyond the contract price.

2. 1981 Statutory Enactment
In addition to the common law rules noted above, in 1981, new licensing laws became effective including one provision specifically dealing with the prohibition to recovery by an unlicensed contractor. The relevant statute states:
No contractor may act as agent or commence or maintain any action in any court of the state for collection of compensation for the performance of any act for which a license is required by this chapter without alleging and proving that he was a properly licensed contractor when the contract sued upon was entered into and when the alleged cause of action arose.
Utah Code Ann. § 58-55-604 (Lexis 2005).

One unlicensed contractor case since the enactment of the statutory prohibition which applied the statute is Wilderness Building Systems, Inc. v. Chapman, 699 P.2d 766 (Utah 1985). The Utah Supreme Court also commented on the new law in another early case, Loader v. Scott Construction Corporation, 681 P.2d 1227 (Utah 1984). That case involved the pre-amendment licensing laws but stated that the amendments prohibited “a contractor not only from recovering for services, but also from suing for collection of compensation for the performance of any act for which a licensee is required . . . .” Id. (emphasis in original). This seemed to indicate the court’s intent to strictly apply the new provision by refusing to allow an unlicensed contractor to maintain any action for recovery. The apparent effect of this language would be to prevent the unlicensed contractor from being able to take advantage of the many exceptions to the general common law rule of non-recovery.

The Wilderness Building Systems case, however, left some doubt as to how strictly the language of the 1981 statute would be applied. In that case a seller of a “log cabin kit” contracted with the buyers to furnish additional materials and labor to erect the cabin. During erection, the buyers became dissatisfied with the seller’s work, terminated the contract and filed a complaint with the Department of Business Regulation. Upon filing the complaint, the buyers learned that the seller was not a licensed contractor. The seller brought an action to recover for his material and services under the erection contract and the trial court found for the buyers. The Utah Supreme Court affirmed by holding that the seller’s claims were barred by the operation of Utah Code section 58-50-11 (now codified at Utah Code section 58-55-604).

Even though the Wilderness Building Systems Court applied the 1981 statute, it did not deal directly with the issue of whether the exceptions to the common law rule against recovery (mentioned briefly above) still apply to the statutory prohibition to recovery. Some dicta in the court’s opinion briefly discussed the exceptions. However the most recent case involving unlicensed contracting firmly establishes the applicability of the common law exceptions to the statutory prohibition to recovery.

In the case of A.K.&R Whipple Plumbing and Heating v. Aspen Construction, 977 P.2d 518 (Utah Ct. App. 1999) (affirmed at 47 P.3d 92 (Utah Ct. App. 2002)), a subcontractor was attempting to recover from a general contractor for unlicensed HVAC work. After reviewing the common law exceptions to the prohibition to recovery, the court found that none of the exceptions applied to the subcontractor and held that the subcontractor was not entitled to recovery under the statutory prohibition to recovery by an unlicensed contractor. The case is also interesting since the prohibition to recovery by an unlicensed contractor was expanded to cover a general contractor, if the general contractor had no expertise in the field of the subcontractor’s work. Prior to Whipple Plumbing, it was assumed that the prohibition would be applied only to protect an unsophisticated owner.

3. Common Law Exceptions
Since the common law exceptions to the rule against recovery still apply, the remainder of this section will be devoted to exploring the common law exceptions to the prohibition to recovery by an unlicensed contractor.

The Utah Supreme Court had the occasion to rule upon the application of the pre-amendment rule in an action to enforce a mechanic’s lien. The pre-amendment rule prohibited unlicensed contractors only from recovering monies due rather than prohibiting bringing suit at all. In George v. Oren Limited & Associates, 672 P.2d 732 (Utah 1983), a person who had been acting as a general contractor on a subdivision development sued the developer to foreclose a mechanic’s lien for failure to pay for completed work. Although he was licensed previously, the person acting as the general contractor had willfully and purposefully refused to obtain a contractor’s license as required by Utah law. During that time, he had been working and holding himself out as a contractor.

The unlicensed contractor brought suit to enforce the mechanic’s lien he had obtained by timely filing a Notice of Lien and to otherwise collect the sums due. The trial court entered judgment in favor of the unlicensed contractor and the defendant developer appealed. The Utah Supreme Court reversed the judgment and remanded the case to the trial court for dismissal of the unlicensed contractor’s complaint. The court quoted Fillmore Products, Inc. v. Western States Paving, Inc., 561 P.2d 687, 689 (Utah 1977) stating that:

[T]he general rule in this State is that the party who does not obtain a license, but is required to do so, cannot obtain relief to enforce the terms of his contract—including payment thereunder—even though there are other penalties imposed against him expressly by statute including criminal sanctions . . . . George, at 672 P.2d 735.

Applying the general rule, the court barred the unlicensed contractor from enforcing his lien. The case was a bit extreme (and, therefore, the holding may have been extreme) in that the contractor’s failure to become licensed during an eleven year period between 1969 and 1980 was not attributable to inadvertence or neglect but rather to willful disregard of the state’s licensing requirements.

While applied to most situations, the general rule quoted above is not always applied in cases where an unlicensed contractor is seeking to judicially enforce his rights. For example, the George court cited two cases where an unlicensed contractor was allowed to proceed. These cases are Fillmore Products, Inc, v. Western States Paving, Inc., 561 P.2d 687 (Utah 1977) and Lignell v. Berg, 593 P.2d 800 (Utah 1979). The Fillmore case turns on the court’s determination that the person the unlicensed contractor was suing was not part of the class of individuals which the statute was designed to protect.

In the Fillmore case, the unlicensed contractor was a subcontractor and the person being sued was a general contractor. The court said, therefore, the public would be protected from inept workmanship and financially irresponsible subcontractors by the supervision of the general contractor.

"[A] licensed contractor by obtaining his license is, in the eyes of the law,
held to expertise in the contracting business and is therefore informed of the necessity for licensing therein and the purpose behind licensing, viz., the protection of the public. The licensed contractor consequently cannot invoke application of the general rule of denying relief to an unlicensed contractor solely because of the latter’s non-licensing when a contract for construction is struck between them." Fillmore at 690 (emphasis in original); See also Loader v. Scott Construction Corporation, 681 P.2d 1227 (Utah 1984).

However, as mentioned above, the exception allowing a subcontractor to recover against a general contractor may have been diluted by the holding of A.K &R Whipple Plumbing and Heating v. Aspen Construction, 977 P.2d 518 (Utah Ct. App. 1999) (affirmed at 47 P.3d 92 (Utah Ct. App. 2002)) .

In addition to the exceptions to the general rule where the person is not a member of the class of people whom the licensing statute was designed to protect, the Utah courts have sometimes refused to apply the general rule against recovery even when the person seeking protection falls within the protected class. In Lignell v. Berg, 593 P.2d 800 (Utah 1979), an unlicensed general contractor was successful on a counterclaim for breach of contract against the owners of a project regardless of the contractor’s unlicensed status. The court reasoned that since the contractor’s license had only lapsed through inadvertence and could be restored simply by paying a fee, it had not failed to meet the technical or financial requirements for a license. In addition, since the owners had previously worked with the general contractor, they did not rely upon the contractor’s license to determine his qualifications but rather they relied upon their own experience. Also, the general contractor had provided payment and performance bonds which protected the owners’ interests.

The Lignell Court stated that “A litigant is not a member of that [protected] class if the required protection (i.e., against inept and financially irresponsible builders) is in fact afforded by other means.” Id. at 805. The court further stated that “The Owners were infinitely better assured of adequate and complete performance without financial exposure beyond the contract price than they would have been by [the contractor’s] mere compliance with the statute.” Id.; see also Motivated Management International v. Finney, 604 P.2d 467 (Utah 1979).

By Darrel J. Boswick, Darrel is a partner with Bostwick & Price, in Salt Lake City, Utah.

Liens for Mining and Exploration

Until 1987, Utah mechanic’s lien laws covered much more than the traditional construction project. Utah Code section 38-1-3 also covered persons who did work or furnished materials for the prospecting, development, preservation or working of any mining claim, mine, quarry, oil or gas well, or deposit. Utah Code Ann. § 38-1-3(1953 as amended in 1981). However, in 1987, the Utah legislature removed such work from protection under the mechanic’s lien statutes and created a separate lien for work performed or materials and equipment furnished for the prospecting, development, preservation or working of any mining claim, mine, quarry, oil or gas well, or deposit. See Utah Code Ann. § 38-10-101 et seq. (Lexis 2005). This new chapter retained the basic mechanic’s lien format for the required Notice of Lien but it differs in the time periods for filing the Notice of Lien and the time periods for filing oil, gas, and mining lien foreclosure actions. See Graco Fishing, 766 P.2d 1074. Since the time of enactment of the oil, gas and mining lien statute, the mechanic’s lien statutory requirements for the Notice of Lien have been changed significantly. Thus, it is important to carefully note the differences in time periods and Notice of Lien format between the two types of liens.

Those Entitled To A Mechanic's Lien - Equipment Rental

Through the years, there has also been some question as to whether a right to a lien arises for renting materials or equipment on a project to improve real property. The Utah legislature laid the issue to rest by amending the statute. A 1994 amendment to Utah Code section 38-1-3 specifically provides that all persons renting any materials or equipment used in the construction, alteration or improvement of the building shall have a lien for the value of the material or equipment furnished or rented. See Utah Code Ann. §38-1-3 (Lexis 2005). Those who rent material and equipment have the burden of proving that such items were actually used in the project. Therefore, appropriate record keeping and invoicing are of utmost importance in enforcing such lien rights.

Indeed the Utah Supreme Court, in the case of Graco Fishing and Rental Tools, Inc. v. Ironwood Exploration, Inc., 766 P.2d 1074 (Utah 1988), ruled that the old case of Stanton Transportation Co. v. Davis, 341 P.2d 207 (Utah 1959), which precluded mechanic’s lien holders from recovering rental charges under a lien, was no longer good law. The court reasoned that since the Utah legislature had made amendments to the mechanic’s lien statute to specifically include coverage for rental equipment, the Stanton case no longer applied.