Commencing a Lien Foreclosure Action as a Condition Precedent to Suing the Prime Contractor

Andrew Richards
Co-Managing Partner(LI),
Kaufman Dolowich Voluck,
Attorneys at Law
Legal Counsel, STA

Many prime contracts require a subcontractor to commence a mechanic’s lien foreclosure action and bring that action to a conclusion prior to commencing an action directly against the prime contractor for sums owed for work performed.  This clause was “invented” after the courts held that a “pay if paid” clause that states that the subcontractor gets paid only if the owner pays the prime contractor is void and unenforceable.  This rule of law was determined because the shifting of the risk of payment would constitute a waiver of the subcontractor’s lien rights under section 34 of the Lien Law.  Prime contractors inserted the clause requiring the lien foreclosure action in order to circumvent the fact that the “pay if paid” clause is void and unenforceable.

However, the requirement to bring a foreclosure action to conclusion prior to commencing an action against the prime contractor poses other problems which should render this condition precedent clause void and unenforceable.

First, what if the prime contractor was not paid by the owner for reasons other than the work of the subcontractor.  While the owner would have a defense in the foreclosure action that there is no sum due and owing to the prime contractor for the work of other subcontractors, the subcontractor still is owed money from the prime contractor.  It would be fruitless for the subcontractor to commence the lien foreclosure action and spend years litigating only to find out whether or not the owner owes money to the prime contractor that could satisfy the subcontractor’s lien.

Second, courts do not allow parties to contractually extend the statute of limitations to bring an action.  If a subcontractor has to wait several years until the resolution of the lien foreclosure action, it may not be able to bring a breach of contract action against the prime contractor before the expiration of the statute of limitations.  As a result, the condition precedent for a subcontractor to bring a lien foreclosure action prior to suing the prime contractor should be void and unenforceable.