Most people in construction nowadays perform their work through a corporate entity — either and LLC or a corporation. There are many good reasons to do so, ranging from limitations on liability to tax benefits. But one of the critical limitations of liability that many do not think of when starting a construction company is limiting liability for filing fraudulent liens.
As an initial matter, a contractor can be accused of filing or even found to have filed a fraudulent lien even without intentionally inflating the value of the lien. But that’s a story for another day. The point is that because liability can be imposed even where a contractor just makes a mistake, having a corporation can be critical.
In Bruce Tansey Custom Carpentry, Inc. v. Goodman, a carpenter performed remodeling work for a homeowner. When the work was complete, disputes arose between the two parties and the carpenter filed a lien in the amount of approximately $19,000.00. He signed the lien as follows:
Bruce Tansey Custom Carpentry, Inc.
By: Bruce Tansey, President.
Following trial, the court imposed liability on both the carpenter and his company for filing a fraudulent lien pursuant to Section 713.31, Florida Statutes. On appeal, the appellate court reversed the award against the carpenter individually finding that the carpenter had both executed and filed the lien in his capacity as an officer of the corporation and not as an individual. Accordingly, individual liability was improper. This prevent the carpenter from being liable for a final judgment in the amount of approximately $17,000 plus attorneys fees and costs.
The moral of the story is that there can be many unanticipated benefits of operating your construction company as an LLC or corporation and that you should also take care to make clear that you are executing documents in your corporate capacity to ensure the liability protections are in place. This is true not only for liens, as illustrated by this case, but also for contracts and other legal documents that you enter into as part of your business.