Appeal by defendant Duke University Federal Credit Union from
judgment entered 31 October 2001 by Judge Narley Cashwell in Durham
County Superior Court. Heard in the Court of Appeals 30 October
2002.
Burns, Day & Presnell, P.A., by Daniel C. Higgins, for
plaintiff-appellee.
Smith Debnam Narron Wyche Story & Myers, L.L.P., by Byron L.
Saintsing and Caren D. Enloe, for defendant-appellant Duke
Federal Credit Union.
McGEE, Judge.
Meridian Construction Company (Meridian) entered into a
contract with Duke University Federal Credit Union (DUFCU) on 18
November 1998 for general contracting services concerning building
renovations and improvements to property (construction project)
leased by DUFCU, located at 1400 Morreene Road, Durham, North
Carolina (the property). Martin Architectural Products, Inc.
(plaintiff) entered into a subcontract with Meridian to provide
doors, door frames, hinges, locks, finish hardware, toilet
accessories and related hardware materials necessary for the
construction project. Meridian assigned its contract with DUFCU for the construction
project to Incotech, Inc. (Incotech) on 9 March 1999 and thereafter
Incotech served as the substitute general contractor. Plaintiff
first provided materials to the construction project on 16 March
1999. DUFCU served Incotech with a notice of termination of
contract on 8 September 1999. The notice stated that if Incotech
did not cure the listed defaults by 15 September 1999, Incotech
would be in default and DUFCU would deduct from the balance owed to
Incotech all costs to complete the construction project and any
damages associated with Incotech's breach, including attorney's
fees. The project architect for the construction project certified
DUFCU's cause to terminate the contract with Incotech on 24
September 1999 as required by paragraph 14.2.2 of the contract's
general terms and conditions. DUFCU's president, G. Lee Fogle,
stated in an affidavit that a contract balance of $54,752.47
remained due as of 7 July 1999. DUFCU made no further payments on
the contract.
Incotech filed suit against DUFCU seeking the remainder of the
amount due under the contract. In arbitration, it was determined
that Incotech was not entitled to additional payment under the
contract because its contractor's license was limited to
$250,000.00, and Incotech had already been paid for work in excess
of that limit. The arbitrator made no determination as to whether
Incotech was actually in breach of the contract.
DUFCU entered into a separate contract with O.C. Mitchell,
Jr., Inc. (Mitchell) for completion of the improvements to theproperty. Plaintiff claimed that it provided materials to Mitchell
which were used to complete the construction project, and that the
total amount due for labor and materials it provided to the
construction project was $14,895.04. DUFCU admitted that plaintiff
furnished some materials to Incotech for the construction project.
Plaintiff filed a claim of lien and a notice of claim of lien
on funds as to the property on 10 January 2000 and served copies on
DUFCU. The amount of lien claimed was $14,895.04. Plaintiff filed
a complaint against defendants on 12 May 2000 seeking recovery of
$14,895.04 plus interest from defendants for labor and supplies
furnished to the construction project. Plaintiff alleged that
DUFCU was holding sums owed to it under the contract with Meridian
and/or Incotech for services it provided in connection with the
construction project. Plaintiff further alleged that it is
entitled to be paid, to the extent of its claims, any sums owed
under the construction project contract to Meridian or Incotech.
(See footnote 1)
Plaintiff also alleged that Meridian and Incotech have
perfected lien rights against the property pursuant to N.C. Gen.
Stat. §§ 44A-17 et. seq. Plaintiff claimed that it should be
entitled to enforce those liens against the property and that it is
entitled to a judgment directing sale of the property to satisfy
debts to plaintiff to the extent of its claims. DUFCU filed a motion to dismiss, motion to consolidate, and an
answer on 19 July 2000. DUFCU sought to dismiss plaintiff's
complaint pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(2) for
lack of personal jurisdiction, under N.C. Gen. Stat. § 1A-1, Rules
12(b)(4) and (5) for insufficient process and insufficient service
of process, under N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) for failure
to state a claim upon which relief can be granted, and pursuant to
N.C. Gen. Stat. § 1A-1, Rule 12(b)(7) for failure to join necessary
parties. In the alternative, DUFCU requested the trial court
consolidate the present case with Michael S. Williams, dba E & W
Electrical Contracting of Durham v. Incotech, et al., Durham County
No. 00 CVS 00148.
Plaintiff filed a notice of cancellation of lien on 26 October
2000 against the property in Durham County, cancelling its lien
against the property it originally filed on 10 January 2000.
Plaintiff's claim of lien on funds was still pending.
In an order dated 14 November 2000, the trial court denied
DUFCU's motion to dismiss pursuant to N.C.G.S. § 1A-1, Rules
12(b)(2), 12(b)(4), and 12(b)(5). DUFCU filed a second answer on
18 December 2000 and a motion for summary judgment on 24 August
2001. Plaintiff filed its motion for summary judgment on 27
September 2001, seeking judgment on all claims, relying on various
discovery materials.
Following a hearing on plaintiff's and defendants' motions for
summary judgment on 10 October 2001, the trial court granted
summary judgment for plaintiff as to its claims against alldefendants and denied defendants' motions for summary judgment.
The trial court ordered that plaintiff "have and recover of the
Defendants, jointly and severally, the sum of $14,895.04, plus
interest on that sum at the rate of 12% per annum from August 31,
1999, as well as the costs of this action." DUFCU appeals.
I.
DUFCU first argues the trial court erred in granting summary
judgment for plaintiff as to its sixth claim for relief seeking
judgment on a lien against the property by way of subrogation of
Meridian and/or Incotech's liens against the property. DUFCU
argues that plaintiff cancelled its claim of lien against the real
property, and therefore the trial court erred in granting summary
judgment for plaintiff as to its sixth claim for relief. We agree.
"Summary judgment is appropriate only 'if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that any party is entitled to a
judgment as a matter of law.'"
DeWitt v. Eveready Battery Co., 355
N.C. 672, 681, 565 S.E.2d 140, 146 (2002) (quoting N.C. Gen. Stat.
§ 1A-1, Rule 56(c) (2001)). The record shows plaintiff did cancel
its claim of lien against the property, even though it never
dismissed its sixth claim for relief; therefore, there is no
genuine issue of material fact and DUFCU is entitled to judgment as
a matter of law on this claim. We therefore reverse in part the
trial court's grant of summary judgment for plaintiff and remand to
the trial court with instructions to enter an order grantingsummary judgment for DUFCU as to plaintiff's sixth claim for
relief.
II.
In its remaining assignments of error DUFCU argues that the
trial court erred in denying its motion for summary judgment
because there is no genuine issue of material fact and DUFCU is
entitled to judgment as a matter of law; in the alternative, DUFCU
argues the trial court erred in granting summary judgment to
plaintiff because at a minimum there is a genuine issue of material
fact as to whether there are any remaining funds to which
plaintiff's lien on funds can attach.
It is undisputed that on 10 January 2000, plaintiff filed both
a claim of lien and a notice of claim of lien on funds in the
amount of $14,895.04. DUFCU received this notice of claim of lien
on funds whereupon the lien on funds became effective. N.C. Gen.
Stat. § 44A-18(6) (2001) ("A lien upon funds granted under this
section is perfected upon the giving of notice in writing to the
obligor as provided in G.S. 44A-19 and shall be effective upon the
obligor's receipt of the notice."). Upon receipt of such notice,
DUFCU was "under a duty to retain any funds subject to the lien or
liens under this Article up to the total amount of such liens as to
which notice has been received." N.C. Gen. Stat. § 44A-20(a)
(2001). It is undisputed that at the time of the receipt of notice
of plaintiff's lien on funds, DUFCU still owed an amount exceeding
$14,895.04 under the terms of the construction project contract.
Therefore, N.C.G.S. § 44A-20 required DUFCU to retain at least the$14,895.04 claimed by plaintiff upon receipt of notice of the lien.
However, in
Builders Supply v. Bedros, our Court allowed the
amount owed to the subcontractor in that case to be determined in
light of setoffs paid by the owner required to finish the
construction following a breach by the contractor. 32 N.C. App.
209, 212, 231 S.E.2d 199, 201 (1977). DUFCU claims in the present
case that following a breach by Incotech, it was required to spend
an additional $25,846.07 in order to bring Incotech's work into
conformity with the contract specifications. If this cost was
permitted to be setoff against the $54,752.47 contract balance owed
Incotech at the time of its termination, $28,906.40 would remain
due under the contract. Therefore, having not made any additional
payments on the contract, DUFCU should still have retained an
amount in excess of the $14,895.04 claimed by plaintiff.
DUFCU also seeks to include in its setoff costs, the
attorney's fees it claims resulted from the termination of the
Incotech contract. DUFCU claims it incurred $46,046.37 in
attorney's fees and costs as a result of the alleged breach by
Incotech. DUFCU asserts that these expenses were the result of
approximately 340 hours of work by attorneys, as well as other
costs of litigation necessitated by multiple lawsuits and
arbitration filed by Incotech and its subcontractors against DUFCU
following the alleged breach by Incotech. If these attorney's fees
and costs were included in any setoff amount, there would be no
money owed on the Incotech contract, and therefore, no funds to
which plaintiff's lien could attach. As correctly stated by DUFCU, the general rule in North
Carolina is that a party may not recover its attorney's fees unless
authorized by statute.
Bailey v. State, 348 N.C. 130, 159, 500
S.E.2d 54, 71 (1998) (citing
Horner v. Chamber of Commerce, 236
N.C. 96, 97, 72 S.E.2d 21, 22 (1952));
Stillwell Enterprises, Inc.
v. Interstate Equipment Co., 300 N.C. 286, 289, 266 S.E.2d 812,
814-15 (1980);
Harborgate Prop. Owners Ass'n, Inc. v. Mountain Lake
Shores Dev. Corp., 145 N.C. App. 290, 297-98, 551 S.E.2d 207, 212
(2001),
disc. review denied, 356 N.C. 301, 570 S.E.2d 506 (2002).
DUFCU has not cited any such statute, and a review of the North
Carolina General Statutes shows no statute that specifically allows
for recovery of attorney's fees due to the alleged breach of a
construction contract by a contractor.
Hicks v. Clegg's Termite &
Pest Control, Inc., 132 N.C. App. 383, 384-86, 512 S.E.2d 85,
86-87,
disc. review denied, 350 N.C. 831, 538 S.E.2d 196 (1999)
(noting that the General Assembly could have included breach of
contract claims in the General Statutes' exceptions but chose not
to do so, thus refusing to read such a claim into the language of
N.C. Gen. Stat. § 6-21.1);
see also Winston-Salem Wrecker Ass'n v.
Barker, 148 N.C. App. 114, 121, 557 S.E.2d 614, 619 (2001)
("Because statutes awarding an attorney's fee to the prevailing
party are in derogation of the common law, N.C.G.S. § 6-21.5 must
be strictly construed.") (citing
Sunamerica Financial Corp. v.
Bonham, 328 N.C. 254, 257, 400 S.E.2d 435, 437 (1991)).
Furthermore, recovery of attorney's fees, even when authorized by
statute is within the trial court's discretion and will only bereviewed for an abuse of that discretion.
Phillips v. Warren, ___
N.C. App. ___, ___, 568 S.E.2d 230, 236-37 (2002) (citing
Coastal
Production v. Goodson Farms, 70 N.C. App. 221, 226, 319 S.E.2d 650,
655,
disc. review denied, 312 N.C. 621, 323 S.E.2d 922 (1984));
Jones v. Wainwright, 149 N.C. App. 869, 872, 561 S.E.2d 594, 596
(2002).
In contrast, the
purpose of the materialman's lien statute is
to protect the interest of the supplier in
materials it supplies; the materialman, rather
than the mortgagee, should have the benefit of
materials that go into property and give it
value. To implement this purpose, courts
should construe the statute so as to further
the legislature's intent.
Carolina Builders Corp. v. Howard-Veasey Homes, Inc., 72 N.C. App.
224, 239, 324 S.E.2d 626, 629,
disc. review denied, 313 N.C. 597,
330 S.E.2d 606 (1985);
see also Southeastern Steel Erectors v.
Inco, Inc., 108 N.C. App. 429, 432, 424 S.E.2d 433, 463 (1993)
("[T]he primary purpose of a lien statute is 'to protect laborers
and materialmen who expend their labor and materials upon the
buildings of others.'") (citations omitted);
Embree Construction
Group v. Rafcor, Inc., 330 N.C. 487, 492, 411 S.E.2d 916, 920
(1992) ("The purpose of this lien statute is to protect the
interest of the contractor, laborer or materialman."). Considering
the strong public policy in favor of protecting laborers and
materialmen who supply labor and materials to building projects, as
evidenced in the materialman's lien statutes, compared with the
prohibition against awarding attorney's fees in the absence of a
statutory provision, we hold that, assuming there was a breach ofcontract by Incotech, DUFCU could not setoff its attorney's fees
from the amount owed on the contract and thereby defeat plaintiff's
lien. To allow such an action would serve to frustrate the
purposes of the lien laws in North Carolina.
In summary, we reverse the trial court's grant of summary
judgment for plaintiff on its sixth claim for relief and remand
with instructions to grant summary judgment to DUFCU as to that
claim. We affirm the trial court's grant of summary judgment for
plaintiff on its fifth claim for relief.
Reversed and remanded in part; affirmed in part.
Judges HUDSON and THOMAS concur.
Footnote: 1