BOISE, ID – Best Lawyers® has chosen attorneys Wayne Meuleman, Kimbal L. Gowland, and Geoffrey J. McConnell, partners in the law firm Meuleman Mollerup LLP, for their accomplishments in the fields of construction law and real estate law.  Mr. Meuleman was honored with the additional designation as Idaho’s 2012 Lawyer of the Year in Litigation and Construction. (The Best Lawyers in America® 2012. Copyright 2011 by Woodward/White, Inc., Aiken, SC)

Wayne Meuleman, a founding partner of Meuleman Mollerup LLP, was recognized for his expertise in Construction Law.  He has 37 years experience representing clients throughout the western U.S. involving a variety of public and private projects.  Mr. Meuleman served as the Chair for the Board of Directors of the Idaho Associated General Contractors from 1998-2003, he is the Executive Director of the Idaho State Building Authority, and he served as counsel for the Nevada Real Property Corporation which provides lease-purchase financing of state governmental facilities for the State of Nevada.  Mr. Meuleman, a Martindale-Hubbell AV Preeminent peer-rated attorney and a member of Who's Who in American Lawyers, has been recognized by Best Lawyers® in America annually since 2005 and by Mountain States Super Lawyers since 2007.  

Kimbal L. Gowland has 23 years as a real estate and estate planning attorney with emphasis in commercial real estate and shopping centers.  From 1984 through 1987, Mr. Gowland was a tax consultant at Touche Ross & Co. (now Deloitte), where his duties included research, planning and tax return preparation in areas of individual, corporate, partnership, pension, estate and trust taxation.  Best Lawyers® states that Mr. Gowland is lauded as a conscientious and meticulous attorney.  Mr. Gowland has served on the Boise Chamber’s Boise Valley Economic Development Committee, he is a graduate of the Boise Metro Chamber of Commerce “Leadership Boise” program, and  he is a former member of the Idaho Association of Commerce and Industry’s Tax Committee.  Mr. Gowland, a Martindale-Hubbell AV Preeminent peer-rated attorney, has been recognized by Best Lawyers® in America annually since 2005, and he has also been named by Chambers and Partners USA, America’s Leading Lawyers for Business, since 2004.

Geoffrey J. McConnell was recognized by Best Lawyers® in America for his expertise in Construction Litigation and Government Contracts.  He has 25 years of experience in construction litigation representing general contractors, owners and subcontractors in state and federal courts and before federal boards of contract appeals.  Mr. McConnell earned his Juris Doctorate at the University of the Pacific McGeorge School of Law, and he is licensed to practice law in Idaho, Utah and California. He has also been recognized for his legal expertise in construction law by Mountain States Super Lawyers since 2009, a designation given to only 5% of the lawyers in Idaho.  Mr. McConnell is a member of the American Bar Association Section on Public Contract Law and the American Bar Association’s Forum Committee on the Construction Industry.  Mr. McConnell is an active member in the exclusive lawyer referral organization, LEGUS International Network of Law Firms.

Best Lawyers is based on an exhaustive peer-review survey in which thousands of leading lawyers in the U.S. confidentially evaluate their professional peers.  Because of the rigorous and transparent methodology used by Best Lawyers, and because lawyers are not required or allowed to pay a fee to be listed, inclusion in Best Lawyers is considered an honor.   Corporate Counsel Magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

Meuleman Mollerup LLP is a law firm specializing in the practice of law pertaining to construction law, real estate law, and business law including employment matters, commercial litigation, and estate planning.  Meuleman Mollerup attorneys have served the construction, real estate, and business communities for over 30 years.  Contact us at 208.342.6066 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  More information online at www.lawidaho.com.

Business Law ● Construction Law ● Real Estate Law

Litigation ● Employment Law ● Estate Planning / Probate

Click here to print:  Construction Contract Payment Remedies

By Arnold L. Wagner

(as published in the Idaho Construction Review and the Idaho Business & Law Magazine, March 2011)

Getting paid for work performed on a construction project is obviously one of the most important issues for all parties involved in each project.  As such, before signing a contract one must review and evaluate the contract.  Pay close attention to provisions relating to progress and final payments, retention, withholding payments for defective work, delays, liens or payment bond claims, suspension of work, and termination of the contract.  All of those provisions can, in one way or another, affect when and how much you may be paid under your contract. 

No less important is the question of the financial ability of the party with whom you are contracting to actually make payment in a timely manner as the work progresses.  Contractors should make an appropriate inquiry into the financial worth of the owner/developer and the provisions for the financing of the project.  Responsibility of the owner/developer and the general contractor are also important questions for subcontractors and suppliers to consider before entering into contracts.

The challenge in the construction industry, especially in these trying times, is to be paid for your work as it is performed.  Delays in receiving payment erode profitability and it can mean disaster if the unpaid amount is large and the delay is long.  If you have not been paid for providing work or materials on a construction job, you may have the right to suspend your performance on the job.  Your right to suspend your performance may be specifically set forth in your contract; if not, your right to stop work will be determined under general contract law principles.  Review your contract carefully to see if it addresses your rights upon nonpayment. 

One typical example of contract language allowing an unpaid contractor to suspend performance for nonpayment is found in section 9.7.1 of AIA Document A201-1997.  This type of provision is helpful to the contractor because it eliminates an element of uncertainty regarding the consequences of nonpayment.  The provision specifically grants the contractor the right to stop work, and gives the owner a reasonable period of time (7 days) within which to cure its nonpayment before the contractor may suspend its performance due to nonpayment. 

Most construction contracts permit withholding all or a portion of progress payments for specific reasons such as uncorrected defective work and delays in performance.  An example of this provision is in section 9.5.1 of AIA Document A201-1997.  Similarly, subcontract agreements typically permit a general contractor to withhold payments from subcontractors to the extent any payment is withheld by the owner for reasons attributable to that subcontractor.

Whether or not a legitimate cause exists for withholding a payment is often a matter of serious dispute between the parties.  In the face of such a dispute, refusing to perform further work under the contract as a means for enforcing payment can be risky.  If cause exists for withholding a payment, then a refusal to continue performance may be a material breach of the contract.

Care should also be taken not to confuse a “stop work” provision with a “termination” provision.  Many contracts contain both and they are intended to address different situations.  A “stop work” provision typically allows the contractor to temporarily suspend performance due to nonpayment, but requires the contractor to return to work after payment, if made within a reasonable period.  A “termination” provision, on the other hand, allows the contractor to permanently refuse further performance upon the occurrence of stated events.  One such stated event may be nonpayment, but a nonpayment giving rise to a right to terminate is usually more serious and longer-lasting than a nonpayment giving rise to a right to temporarily stop work.

If a contractor is going to temporarily cease working on the project because of delayed payment, it is important that the contractor makes it clear that the contractor is suspending work temporarily rather than terminating the contract.  An owner who is unable to make payment to a contractor may attempt to characterize the contractor’s action as an improper termination of the contract.  By doing so, the owner creates an argument that the contractor has breached the contract.

If the contract or subcontract does not specifically allow the contractor to stop work upon nonpayment, the contractor’s right to suspend performance is governed by general contract law principles.  In any event, it is important for contractors to read and understand the provisions in their contract.  An experienced construction attorney can answer any questions about the contractor’s rights.  

BOISE, ID - Meuleman Mollerup LLP attorney Jeff R. Sykes presented a no-cost employment law seminar for firm clients titled, "Defending Against an Unemployment Claim."  March 23, 2011.

Recent decisions by the Idaho Supreme Court make it clear that for an employer to defeat an employee’s unemployment insurance claim, the employer must accurately present quality evidence at an unemployment hearing.  Further, the employer must prove that the employee is not entitled to unemployment insurance.  

Clients and invited guests met to discuss Idaho’s unemployment claims process and what an employer must do to expertly defend against an unemployment claim.

Date:  Wednesday, March 23, 2011

Where:  The offices of Meuleman Mollerup LLP, 755 West Front St., Suite 200, Boise ID 83702

INFORMATION:  Although this seminar has already been presented, please contact us if you'd like to be informed of future employment law seminar opportunities:  This e-mail address is being protected from spambots. You need JavaScript enabled to view it   or call 208.342.6066

Jeff R. Sykes is a partner with the law firm Meuleman Mollerup LLP leading the firm’s employment law practice.  He represents businesses and individuals with legal problems and concerns involving contracts, construction, insurance, employment, and real property matters.

Jeff serves on the Board of Directors of the Human Resource Association of the Treasure Valley.  He has served on the Board of Directors of the YMCA Youth Government Program and as a Judge Pro Tem for the YMCA Youth Court.  He is a member of the Order of Barristers, the Downtown Rotary Club, the Boise Metro Chamber of Commerce, Idaho Associated General Contractors, and the Idaho Land Title Association.  Jeff is a 2005 recipient of Idaho Business Review’s “Forty Accomplished Under 40” award.

Meuleman Mollerup attorneys have served the construction, real estate, and business communities for 30 years.  The attorneys of Meuleman Mollerup offer the experience and expertise that come from years of focus on those specific industry groups.  The firm can be reached at 208.342.6066, or on the web at www.lawidaho.com

Real Estate Law ● Construction Law ● Business Matters

 Commercial Litigation ● Estate Planning / Probate ● Employment Law

Building Legal Solutions for your Business

Click here to print: Developing a Proactive Business Succession Plan

by Jason G. Dykstra

(as published in the Idaho Business Review, February 2011)

Those who plan do better than those who do not plan even though they rarely stick to their plan.

- - Winston Churchill.

Particularly in a volatile business climate, the owners of many closely-held construction businesses often find their time monopolized by addressing the crisis of the moment, whether rushing to finish a current project on time or bidding on the next project. 

Such “management by crisis” is often critical to the continued success of a business.  Nonetheless, it is just as important to occasionally take a deep breath and gaze out the window or the windshield and think about the future, for both you and your business.  Decide where you would like to see yourself and your business in both the relative short term and in the decades that lie ahead.  Set some goals and objectives that can become the cornerstone of a business succession plan.  From these goals and ideas you can begin to develop a planned exit strategy from your business.  

Sooner or later, everyone wants to retire.  For business owners, what will happen to their business when they retire presents the paramount issue for business succession planning.  This takes more than just an estate plan.  In the United States, less than half of all small businesses survive to a second generation of ownership.  In the construction industry, the statistics are even lower.  Crafting and implementing a well-considered business succession plan can help ensure a smooth transition of your business into the future. 

The process of creating a business succession plan can provide a great opportunity to reflect on what has made your business a success and to consider how to address the challenges faced by your business.  Moreover, implementing your plan can give you the peace of mind of knowing that while there will be challenges; your business is prepared to transition into the future.   

Ideally, your plan should facilitate a smooth transition between your ownership to the future owners and managers of your business.  This might seem pretty straightforward.  A business succession plan could entail your children taking over the business, a core group of key employees buying the business, or selling the business to a third party.  But even a seemingly straightforward plan can quickly prove challenging and complex. 

First, you must seek to insure the security of your own financial future as part of your plan.  Many business owners’ single largest investment is their business.  Therefore, a business succession plan should seek to minimize post-transition financial risks to the former owner of the business.  For example, an owner would not want to retire and subsequently learn that the new owners cannot make their promised payments under the buy-sell agreement for the purchase of the business.   

Next, a business succession plan may need to address the future management and ownership of the business, which can involve minimizing the potential for future family discord and minimizing the taxable consequences of the business transition.  Accountants and attorneys can provide invaluable advice on how to best value and structure the transition.  For transfers to family members there are many strategies that can minimize the taxes related to the transfer of the ownership of a business.  For sales to key employees, an Employee Stock Ownership Plan (“ESOP”) can provide a business owner with a good way to sell all or a portion of a business.

AREAS OF EXPERTISE

BUSINESS LAW

• Business transactions including new business formation
• Commercial transactions including drafting and reviewing letters of intent, asset sale, and purchase agreements
• Drafting and negotiating construction contracts, collections and liens

 REAL ESTATE LAW

• Real property law including purchase and sale transactions, leases, and easements

ESTATE PLANNING

• Wills, Trusts, Estates, Powers of Attorney, Health Directives

PROFESSIONAL EXPERIENCE

2010 - Present:  Associate, Meuleman Mollerup LLP 

2010 - Spring semester, legal externship, Honorable Tari S. Eitzen, Spokane County Superior Court, Spokane, Washington 

2005-2007  Project Manager for an Idaho commercial development and management firm

Experience in coordination of design and construction teams for project construction and development, and in buying, selling and leasing commercial and residential properties

BUSINESS AND INDUSTRY ACTIVITIES

• Idaho State Bar, Real Property Section and Young Lawyers Section
• Boise Metro Chamber of Commerce, Boise Young Professionals

EDUCATION 

• J.D., cum laude, Gonzaga University School of Law, 2010
• University of Idaho, B.A. English, 2004, minor in Business Administration

AWARDS

• National Society of Collegiate Scholars, Sigma Tau Delta International English Honor Society
• Golden Key International English Honor Society
• Earl and Ada David Scholarship

The Involuntary Landlord - Dealing with Vacancy and Lease Modifications
By Mike Baldner
(Published in the Idaho Business Review in August, 2010)

 As a result of mechanic lien foreclosures and excess space due to downsizing, many contractors presently find themselves in the unfamiliar role of landlord.

Being a landlord is complex in the best of times, but the present state of the economy makes managing tenants even more difficult.  With a glut of space available, it is a tenant’s market when it comes to vacancies.  Existing tenants also have leverage when it comes to lease modifications.  Successfully dealing with vacancy and lease modifications can make or break the value of a property.

With retail, office, and industrial vacancies at all time highs, it is critical for a landlord to be realistic when it comes to setting rental rates.  It is irrelevant what rents used to be.  Depending on the location and type of building, asking rents are often 10-50% lower than they were two or three years ago.  In order to attract tenants, rental rates must be comparable to similarly situated projects.  The best source of information will be a commercial real estate agent.  While it may be tempting for landlords to try to avoid a commission by marketing the space themselves, most landlords lack the expertise or information to market their properties competitively.  Properties that are priced too high may sit vacant for years.  Properties which are priced too low may fill quickly, but the lower rents will have adverse effects on the property’s long term value.  A commercial real estate agent can help establish a competitive rate and market your property so the maximum number of potential tenants see the property.

With the current state of the economy, landlords should be more vigilant in vetting the credit and business plans of potential tenants.  It is to be expected that most tenants’ balance sheets have been battered over the last few years.  However, before offering to construct user-specific tenant improvements, landlords should make certain the tenant has the credit and business plan required to pay the rent required to amortize such costs.  As is always the case, except for the strongest of tenants, a personal guaranty of the owner of the business should be required.

Most landlords would likely rather have the tenant pay for all improvements, but given the economy this may not be realistic.  Landlords may want to consider offering free rent in exchange for the tenant paying for improvements.  At a minimum, landlords should avoid paying for improvements that will have no value to successive tenants.

While the rent outlook is bleak for the short term, it will likely improve over time.  Landlords should avoid locking into long term rates at today’s historic low rates.  Most tenants will accept shorter lease terms which allow the landlord to increase rents when merited by market conditions.  For tenants requiring longer lease terms, the landlord should require periodic increases in rent based upon increases in market or inflation.  Additionally, landlords may consider adding a percentage rent provision to the lease, which requires a percentage of a tenant’s sales be paid as additional rent, increasing the rent as the economy improves.

Of course, the best way to avoid vacancy is to keep existing tenants.  Tenants experiencing difficulty will often approach landlords for lease modifications.  As a threshold matter, the landlord must evaluate whether the tenant can be saved and how much help is required.  Landlords should insist upon detailed financials reporting sales and expenses.  If the tenant appears headed for insolvency no matter how much the rent is lowered, there is no point in making a modification.  If it looks like the tenant could survive with a rent abatement, the landlord should make certain that as sales increase, the rent is increased as well.

The landlord should also get the right to cancel the lease in the event a prospective tenant is willing to pay more for the space during the period of rent reduction.  Finally, the landlord should insist upon an ironclad confidentiality provision related to the modification.  Once the word gets out that rent reductions are possible, even tenants without financial need will line up to ask for a reduction.

In short, when dealing with vacancy, landlords need to keep both a short and long term view in mind.   Short term, landlords should be aggressive about attracting and retaining tenants.  Long term, landlords should make sure they have not locked in rates at the bottom of the market.

Mike Baldner is a partner with the law firm Meuleman Mollerup LLP, practicing in the areas of real estate law and business law.  Mr. Baldner can be contacted at 208.342.6066 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  More information at www.lawidaho.com

(Published by the Idaho Business Review, June 2009)

           In the past, many members of the construction industry have also become real property owners.  Despite its perception in the current economy, real estate may still be a strong long-term investment.  In this market, with many foreclosing lenders and short sales, investors and other bargain hunters have numerous attractive opportunities to acquire distressed real estate.  Due diligence, however, is sometimes only hastily conducted before the purchase agreement is signed, with no opportunity for renegotiation of terms.  Buyers with cash are picking up properties quickly and sorting out the problems later, not realizing what they are really buying into.  

Although due diligence has always been important, comprehensive research and understanding is mandatory in down markets, especially where many investment opportunities are presented as bargains and sellers are in a rush to close deals because of underlying problems, whether financial problems, land use problems, environmental problems, or other distresses.  The goal of the due diligence process is to eliminate unknown risk.  Potential buyers need to ensure that their properties are suitable-legally and from a practical business perspective-for their intended use.  In-depth due diligence is necessary to determine what a property is really worth.   

Buyers must have an understanding of zoning and land use issues.  Upon identifying a property, the potential buyer should determine that a property's intended use is lawful under all applicable land-use laws, codes, and regulations, including zoning ordinances, subdivision requirements, and any local agency's future plans and policies regarding the property.  In addition, buyers should examine whether the property is located in a special financing zone or redevelopment area.  Although normally established to provide financing for revitalization and redevelopment projects, most implementing plans include land-use restrictions.  

The physical condition of the property is also significant.  A licensed engineer's inspection should confirm the property's repair and maintenance needs, both long term and near term, as well as estimates of these costs. There may be a substantial difference between a seller's assessment of these needs and costs are and an engineer's. 

Review of the title and survey of the potential property is vital.  The title commitment and survey may not be prepared for some weeks after the contract has been signed, so it is not unusual for the contract to have a contingency period relating to the review of these materials that is separate from the remaining due diligence period. Usually the purchaser will have some time after receipt of the title commitment, exception documents, and survey to object to matters shown in them; then the seller has a period of time to cure or have the title company insure over the matters.  A purchaser should take the time to determine if any matters adversely affect the value of the property.  There may be easements encumbering the property or easements benefiting the property; there may be a water or sewer pipe that runs across the adjoining owner's property for which an easement has not been obtained; there may be encroachments;  there may be liens; or there may be other covenants and restrictions.   

Another important area to complete due diligence is current contractual obligations.  If the identified property is in the middle of construction, the buyer should review all construction contracts relating to initial construction, determining the assignability of warranties, guarantees, indemnities, and any other rights.  The buyer should review private restrictions, such as reciprocal easement agreements and covenants, conditions, and restrictions.  These so-called CC&R's often include limitations and restrictions that can preclude a desired use or can include obligations for future maintenance costs which could result in substantial future expense to the buyer.  The buyer should also review any service contracts, including any property management agreements, maintenance agreements, and any other service agreements.  It is important to determine whether these agreements will transfer, or whether the buyer can procure new service-providers with (potentially) lower fees.

The current tenant or occupant status is also important.  The purchase of a single family residence, seemingly simple, may turn ugly if the current tenant refuses to vacate the premises.  Retail investments can be particularly risky if the entitlements associated with a specific development are conditioned upon the continued operation of key anchor tenants.  Accordingly, in addition to obtaining and reviewing a summary of the leases associated with the property, a potential buyer should also evaluate the financial status of individual tenants. 

Prospective buyers also must conduct comprehensive environmental due diligence to determine whether environmental liabilities exist, their potential scale, and how and when they may be triggered.  A buyer may want to hire an outside environmental consultant experienced in environmental analysis and engineering and potentially perform a Phase I inspection in order to reduce or completely eliminate certain potential liabilities. In addition, prospective buyers also should review applicable environmental regulations-particularly new regulations related to storm-water management and "green" building-as these regulations may limit future proposed uses or may result in substantial costs and potential liabilities for property owners. 

            To prevent buyer's remorse, be sure to include a specified due diligence period in the purchase agreement and the right to terminate the purchase agreement if the property is unsatisfactory for any reason.  Skipping over proper due diligence of a potential investment property in order to obtain a "good deal" is never a wise idea.  If a deal looks too good to be true, it probably is. 

  Anna Eberlin is an associate with the law firm Meuleman Mollerup LLP, practicing in the areas of real property acquisition, development, finance, and leasing.  Ms. Eberlin had five years of real estate management and investment experience prior to joining Meuleman Mollerup.  Ms. Eberlin can be reached at 208.342.6066 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  More information at www.lawidaho.com.

(Published in the Idaho Business Review, April 2009)

  It is getting harder to collect money owed for goods and services provided.  In the construction industry, owners and contractors are finding creative ways to structure payments and "cut deals."  However, there are certain things that you must continue to do to protect yourself and there are certain pitfalls about which every contractor should be aware when cutting deals to get paid.  

You must continue to get personal guarantees from as many people as you can and keep in mind that it is often better to contract with an individual than a business entity.  Also, try to obtain financial information from guarantors and the other parties to a contract; a guarantee from someone with no assets is not helpful. 

Take action quickly as tardy payments often indicate financial distress.  Sometimes creditors hesitate to lien an ongoing project or one that involves someone the creditor knows well.  However, most people understand that you are just protecting your rights and a lien can easily be released once you have been paid.  If you are not the general contractor on a job, it is often a good idea to notify the general prior to filing, but be careful to not wait so long that you lose your lien rights.  

Often, by filing a lien quickly, while there is still money going into a project, the owner and/or lender will have more incentive to make sure you get paid.  Along those lines, it is generally smart to send a copy of your lien to the lender.  A lender may force the owner or general contractor to pay you before they will disburse any more construction funds. 

When contractors and material suppliers are owed money, debtors sometimes offer a promissory note to avoid an immediate collection action or lien.  Be careful before you accept a note in lieu of payment.  Often those signing the notes have little or no assets and even if they have assets when they execute the note, they may have none by the time they default and you file suit.  

As a result, promissory notes aren't particularly helpful unless they are secured by a pledge of assets.  Security can be in the form of a deed of trust/mortgage on real property or a security interest in equipment, investment accounts, or other assets.  However, assets pledged to secure debt may already be encumbered by other security holders and have no practical value as security.  

Additionally, laws related to how to "perfect" or lock-in those security interests are complicated and if not done right, you may end up with no real security.  Information on security interests in real property is available through the county recorder in the county where the property is located.  For other types of property, check the "UCC filings" with the Idaho Secretary of State.  

Accepting a promissory note can void your lien rights because in the eyes of the law it is the equivalent of getting paid.  Additionally, taking a mortgage or deed of trust in lieu of filing a lien almost always pushes you further down the line of secured parties on a piece of real property.  Also, if multiple parties were obligated to pay (such as guarantors) and you accept a note from only one party, you may not be able seek payment from other contracting parties or guarantors in the event you don't get paid in full.  There is also misconception that one can quickly obtain a judgment in lawsuits to collect under promissory notes.  As a general rule, lawsuits to collect under notes get resolved no quicker than any other lawsuit.  

On a related note, every business owner should understand the legal concept of "accord and satisfaction."  Here is one simple example in the construction context.  A contractor and owner agree the contractor will construct an office building for $100,000.  Upon completion, the owner questions the quality of the work and offers to pay $50,000.  To resolve the dispute the contractor agrees to take $50,000 now, with a promise from the owner to pay $25,000 in three months ($75,000 total).  The two write up a document to evidence their agreement.  The owner pays the $50,000 but refuses to pay the $25,000.  If the contractor did not specifically reserve the right to sue for $100,000 in the event the $25,000 was not paid, the contractor may be limited to sue for only $75,000.  

Another classic circumstance in which this arises is when a check or promissory note is received containing the language "payment in full" or some other similar language.  If you have not agreed to settle for a lesser amount than you are owed, review checks and promissory notes carefully.  If the instrument alludes to "payment in full" or something similar, and you accept it, you may be foregoing your right to collect the rest of the debt.  

Get guarantees, use your lien rights and be wary of pitfalls associated with cutting deals to get paid.  Being flexible with your approach to collections can help you make it through lean times but being careless can be detrimental to your business.

 
Jonathan R. Bauer is a partner with the law firm Meuleman Mollerup LLP.  He focuses his practice in the areas of business law (mergers/acquisitions/sales, financing, general corporate counseling), real estate law, and business succession planning.  Mr. Bauer can be contacted at 208.342.6066 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  More information is available at www.lawidaho.com.

Although the economy seems to be improving, contractors are continuing to struggle to find work.  For those fortunate enough to find work, it is important that contractors protect their financial interests by having the owners of the contracting party personally guaranty the contract.

            The contractor's contract is typically with the owner of the project.  If the owner of the project is a partnership, corporation, or limited liability company, the contractor should get one or more of the partners, shareholders, or members to personally guaranty the contract.  In so doing, the contractor will ensure payment from the partner's assets, shareholder's assets, or member's assets in the event the contracting business entity is unable to pay its bills. While this additional level of payment security is advisable, contractors may consider requiring the spouse of the partner, shareholder, or member to guaranty the contract as well.

            Idaho is a community property state. In general, this permits creditors of a spouse to pursue the separate assets of the party executing the guaranty. Most community property of the spouse may be attached as well, provided the debt was incurred on behalf of the marital community. In a situation where only one spouse executes the guaranty, collection efforts will be complicated by determining whether the property at issue is: 1) separate property of the contracting spouse; 2) separate property of the non-contracting spouse; or 3) community property. Further complicating matters is determining whether the debt incurred was for the benefit of the community.

            It is clear that the separate property of the party signing the guaranty may be pursued to satisfy a judgment. Separate property includes all property owned by the spouse prior to marriage, and property acquired by gift or inheritance during the marriage. Property acquired during marriage (except via gift and inheritance) is presumed to be community property. However, the husband and wife may agree contractually that it is separate property. In many cases there is simply very little separate property held by the contracting spouse to satisfy a judgment. In most cases the bulk of the contracting party's property is held as community property.

            The problem with pursuing community property is the requirement that in order to levy on community property, the debt in question must have been incurred for the benefit of the community. While there is a legal presumption that this is the case, collection efforts will be delayed and typically are more expensive if this fact is contested. In addition, in some cases the wages of the non-contracting spouse may be the best source of community property to satisfy a judgment. However, an Idaho statute prevents the contractor from garnishing the wife's wages in satisfaction of the husband's community debt. 

            When only one spouse executes a guaranty, it is clear that the non-signing spouse's separate property may not be levied upon to satisfy the debt. In some cases there may be little separate or community property of the party to the guaranty available to satisfy the debt. Thus, even when the spouse who did not execute the guaranty has significant separate property, the debt may go unsatisfied. It is not uncommon for wily businesspeople to attempt to transfer community property to a spouse to put the property out of reach of creditors. In many cases these transfers can be challenged, but this adds cost and complexity to collection efforts.

            In short, to increase the odds of collection contractors should consider obtaining guaranties from both the owner of an interest in the company who is the party to the contract and that owner's spouse.  By obligating both spouses, collection efforts are more likely to result in the full and timely satisfaction of the debt. Debt collection efforts are time sensitive in that the debtor's financial condition is likely spiraling downward. Spending time resolving whether property is separate or community, or whether the debt is for the benefit of the community, may be the difference between getting paid or not collecting.

            In the event a guarantor resists having their spouse join in the guaranty, a contractor should give serious consideration as to the guarantor's motives. While there may be legitimate reasons for the objection, it may be an indication that the guarantor has transferred assets to their spouse as separate property in order to render the guaranty useless. In the event a contractor elects to proceed with the guaranty of only one spouse, due diligence should be made to determine if sufficient separate property exists to satisfy the debt and/or that the debt is for the benefit of the community and sufficient community property is available to satisfy the debt. Otherwise, the guaranty of one spouse may not have much value. 

  Mike Baldner is a partner with the law firm Meuleman Mollerup LLP, practicing in the areas of real property law and related business matters, including drafting and negotiating purchase and sale transactions, leases, tax deferred exchanges, restrictive covenants, easements, and litigation relating to real estate development.  Mr. Baldner can be contacted at 208.342.6066 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  More information at www.lawidaho.com

(As Published in the Idaho Construction Review, November, 2009)

Idaho Code§ 45-801 is a seldom used and little known statute which provides that a seller of real property has a vendor's lien for a certain amount of the purchase price that remains unpaid. The Idaho Supreme Court described a vendor's lien as a "latent and secret" lien in Finlayson v Waller, 64 Idaho 618 (1943).  The Court also described it as not a specific and absolute charge on the property, but an equitable right to resort to the property for failure to pay the purchase price.  Estates of Somers v Clearwater Power Co. 107 Idaho, 29 (1984). 

  A vendor's lien is valid against the purchaser who has failed to pay the purchase price and anyone claiming under him except a good faith purchaser or encumbrancer.  To be a good faith purchaser or encumbrancer, the lender or subsequent purchaser must have no knowledge of the vendor's lien.  The majority of Idaho cases relating to vendor's liens are fairly old.  But in these times of economic problems and creative financing, old theories for remedies in the event of nonpayment tend to be revived.

  Recently a district court held that recording a notice of a vendor's lien does not give notice of its existence.  Unlike a mechanic's or materialman's lien, the vendor's lien statutes do not provide any authority for recording a notice or claim of the lien and the general recording statutes do not permit such a recording   The question then becomes, how does a subsequent purchaser or lender have knowledge of the vendor's lien?

  Even though the statutes do not provide for the recording of a notice or claim of a vendor's lien, a construction lender or contractor may have actual knowledge of the lien without realizing it.  That issue may be decided on the testimony of the parties and be based on their credibility to the court. 

  Consider a developer who purchases property under an agreement to pay a portion of the purchase price as a down payment and the balance from a construction or development loan when it is obtained.  The lender will require that the buyer be the record owner in order to obtain the loan and, therefore, the seller executes a deed to the purchaser at closing.  The vendor's lien arises at the time of delivery of the deed. 

   If, during the course of obtaining the loan, the purchaser/borrower tells the lender he still owes a portion of the purchase price to the seller, the lender has actual knowledge of the vendor's lien.  The lender may not remember the conversation and may not understand its significance.  If the court determines from the testimony of the witnesses that the lender had knowledge of the unpaid purchase price, the vendor's lien may have priority over the construction loan. 

  The same is also true if the owner of real property informs his general contractor that he has not paid the entire purchase price.  As a result, if the purchase price is not paid and the seller sues to foreclose its vendor's lien, that foreclosure could extinguish the construction loan deed of trust or the contractor's mechanic's lien.  

  The vendor's lien may also be an issue in connection with future advances under a construction loan.  Generally speaking, future advances have the same priority date as the recording of the deed of trust, even if the lender has knowledge of the vendor's lien, provided the lender is legally obligated to make the advance. 

  Therefore, if the lender became aware of the vendor's lien after recording the deed of trust but prior to making future advances, the lender should be protected if the lender is legally obligated to so.  However, construction loan documents may contain provisions that make the existence of the vendor's lien an event of default and many loan agreements expressly state that the lender is not obligated to make advances upon the occurrence of a default.  In that circumstance, the future advances made after the lender has knowledge of the vendor's lien may be junior.   

             When purchasing, making a loan secured by, or constructing improvements on real property with a party who is in the process of acquiring or has recently acquired the property, lenders, contractors and purchasers would be well served to insure that the purchase price of that property has been paid.  Having no knowledge that the purchase price has not been paid is a defense, however, it may be a question of fact decided by the court. 

 Richard Mollerup is a partner with the law firm Meuleman Mollerup LLP, practicing in the areas of real property law, title insurance and escrow law, and in business matters including formation and operation of corporations, partnerships and joint ventures.     Mr. Mollerup can be contacted by phone at 208.342.6066 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  More information is available online at www.lawidaho.com .