An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Proced ure.

NO. COA02-993

NORTH CAROLINA COURT OF APPEALS

Filed: 15 July 2003

SHERRILL LUMBER INDUSTRIES, INC.,
a North Carolina corporation,
    Plaintiff-Appellee,

v .                         Iredell County
                            No. 01 CVS 2757
WILLIAM ROBERT ESTES and wife,
GERRY C. ESTES,
    Defendants-Appellants.

    Appeal by defendants from order and judgment dated 8 May 2002 by Judge Kimberly S. Taylor in Superior Court, Iredell County. Heard in the Court of Appeals 17 April 2003.

    Albert F. Walser, for plaintiff-appellee.

    Pope McMillan Kutteh Simon & Privette, by William H. McMillan and Charles A. Schieck, for defendants-appellants.

    McGEE, Judge.

    William Robert Estes and Gerry C. Estes (defendants) entered into a contract (the residence contract) on 1 August 1997 with licensed general contractor Spruce Hart (the general contractor) for construction of a single family residence. The contract price was $238,000.00, which the parties acknowledged was above the appraised value of the residence to be constructed. The project had an estimated time of construction of four months.
    Sherrill Lumber Industries, Inc. (plaintiff) furnished materials for work performed from 29 November 1997 to 2 September 1999 under the residence contract, "including, but not limited to,framing lumber, exterior sheathing, roof decking, sub-flooring, sheet rock, exterior trim materials, interior trim materials (including moldings), exterior and interior door units, [and] stair parts . . . ." Defendants terminated the residence contract on 1 August 1999 as a result of the general contractor's refusal to provide an estimated time of completion. The general contractor had completed seventy-six percent of the contract and had been paid in excess of seventy-six percent of the contract price. The general contractor claimed defendants still owed him in excess of $38,000.00 at the time of the contract termination. According to plaintiff's claim of lien on funds, plaintiff was owed $20,715.02 for materials furnished as of 3 August 1999. Under the construction loan agreement between defendants and the State Employees' Credit Union, there was approximately $58,000.00 remaining in the contract draw account at the time of the termination of the residence contract.
    Plaintiff sent a notice of claim of lien on funds in the amount of $20,715.02, plus interest at 1.5 percent per month and attorney's fees, by certified mail, return receipt requested, to defendants, which was delivered and signed for on 15 September 1999. Other claims arising from the construction of the residence included: (1) subcontractor Lowe's Home Centers, Inc. filed a claim of lien for $5,426.38 on 20 August 1999, later filed suit to perfect its claim of lien, and dismissed its claim on 11 May 2000; (2) subcontractor David Yountz, d/b/a Eddie Yountz & Sons Grading & Septic Tank (Yountz) filed suit on 13 December 1999 to perfect apreviously filed claim of lien against property for $7,369.46; (3) subcontractor Jimmy McCoy, d/b/a Do-It-Right Tile Co. (McCoy) filed suit on 14 December 1999 to perfect a previously filed claim of lien against property for $22,838.20; (4) subcontractor George W. Hines, d/b/a Hines Guttering Service (Hines) filed suit on 21 December 1999 to perfect a previously filed claim of lien against property for $3,424.00; and (5) subcontractor Jerry D. Souther and Anita C. Souther, d/b/a North Carolina Cabinet Shop (Souther) filed suit on 14 January 2000 to perfect a previously filed claim of lien against property for $8,049.00. The total amount paid to these subcontractors to release their liens against defendants' residence was $17,387.00 as of August 2001. No additional amount was paid directly to the general contractor. Yountz, McCoy, and Hines filed voluntary dismissals of their claims on 31 August 2001 and Souther filed a voluntary dismissal on 11 September 2001.
    Plaintiff filed a complaint against defendants on 11 October 2001. Both plaintiff and defendants moved for summary judgment. The trial court held a hearing on both motions and entered an order and judgment on 8 May 2002 granting plaintiff's motion for summary judgment and denying defendants' motion for summary judgment. The trial court awarded $17,387.00, plus interest and costs to plaintiff. Defendants appeal.
    In reviewing the grant of a motion for summary judgment we must determine whether, taking the evidence in a light most favorable to the non-moving party, there exists a genuine issue of material fact, and whether plaintiff is entitled to judgment as amatter of law. Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d 829, 835 (2000).

I.

    Defendants assign as error the trial court's finding that a claim of lien against funds for the materials furnished in the construction of defendants' home was filed by plaintiff, as evidenced by a United States Postal Service return receipt. N.C. Gen. Stat. § 44A-19 (2001) requires that a lien claimant provide the obligor with adequate notice of its claim of lien. Plaintiff's complaint alleged that it provided such notice by mailing the notice of claim of lien to defendants by certified mail. Plaintiff argues that the return receipt, addressed to defendants, which has a signature affixed to it and is dated 15 September 1999, indicates the notice was received. The trial court found as fact that defendants had received the notice of claim of lien as evidenced by this return receipt. Defendants dispute receiving notice of the claim of lien and argue that the signature on the receipt is indecipherable and thus should not be attributed to defendants.     In Contract Steel Sales, Inc. v. Freedom Construction Co., 84 N.C. App. 460, 353 S.E.2d 418, aff'd, 321 N.C. 215, 362 S.E.2d 547 (1987), this Court stated,
        [t]he notice of claim of lien filed by plaintiff is for the purpose of giving the owner obligor notice. The notice is not intended to protect innocent third parties and does not affect the title to the real property being improved. Plaintiff's notice of claim of lien fulfilled the purpose of G.S. 44A-19.

Contract Steel Sales, Inc., 84 N.C. App. at 470, 353 S.E.2d at 424. That case dealt with the sufficiency of the form of the notice of a claim of lien, not whether the obligor ever received the notice. Id. In fact, N.C.G.S. § 44A-19(b) specifically allows for compliance by using a notice form "substantially" like the one provided in the statute. We note, however, that N.C.G.S. § 44A- 19(d), which provides for service of a notice of claim of lien in person or by certified mail, does not specifically allow for a "substantial" compliance exception. N.C.G.S. § 44A-19(d) states, in pertinent part, that "[n]otices under this section shall be served upon the obligor in person or by certified mail in any manner authorized by the North Carolina Rules of Civil Procedure." Therefore, we focus on the effectiveness of the notice under the North Carolina Rules of Civil Procedure.
    N.C. Gen. Stat. § 1A-1, Rule 4(j)(1)(c) (2001) permits service upon a natural person "[b]y mailing a copy of the summons and of the complaint, registered or certified mail, return receipt requested, addressed to the party to be served, and delivering to the addressee." N.C. Gen. Stat. § 1A-1, Rule 4(j2)(2), which outlines the requirements for proof of service by certified mail provides, in pertinent part:
        Before judgment by default may be had on service by registered or certified mail . . ., the serving party shall file an affidavit with the court showing proof of such service in accordance with the requirements of G.S. 1-75.10(4) . . . . This affidavit together with the return or delivery receipt signed by the person who received the mail or delivery if not the addressee raises a presumption that the person who received the mail or delivery and signed the receipt was an agent of the addressee authorized by appointment or by lawto be served or to accept service of process or was a person of suitable age and discretion residing in the addressee's dwelling house or usual place of abode. . . . Service shall be complete on the day the summons and complaint are delivered to the address.

The presumption that arises upon the filing of the return receipt and required affidavit is a rebuttable presumption. See Goins v. Puleo, 350 N.C. 277, 280-81, 512 S.E.2d 748, 750-51 (1999).
    The required affidavit "shall" state
        (a) That a copy of the summons and complaint was deposited in the post office for mailing by registered or certified mail, return receipt requested;

        (b) That it was in fact received as evidenced by the attached registry receipt or other evidence satisfactory to the court of delivery to the addressee; and

        (c) That the genuine receipt or other evidence of delivery is attached.

N.C. Gen. Stat. § 1-75.10(4) (2001).
    The verified complaint contains the required elements of N.C.G.S. § 1-75.10 and has a return receipt attached. Defendants argue, however, that the signature on the return receipt is indecipherable and thus plaintiff should not be entitled to the presumption of service under N.C.G.S. § 1A-1, Rule 4(j2)(2). N.C.G.S. § 1A-1, Rule 4(j2)(2), by its terms, does not require the signature of the actual addressee, and despite the failure of the actual addressee to sign the return receipt, allows the presumption of service to arise if the return receipt is signed and filed with the appropriate affidavit. Thus, despite the allegedly illegible signature in the present case, plaintiff is entitled to thepresumption of service.
    Defendants argue that plaintiff did not properly serve them with its notice of claim of lien; however, they presented no affidavit, evidence, or testimony to the trial court in an attempt to rebut the presumption of service that arose under N.C.G.S. § 1A- 1, Rule 4(j2)(2). See Hocke v. Hanyane, 118 N.C. App. 630, 633, 456 S.E.2d 858, 860 (1995). Therefore, plaintiff is entitled to the presumption of service at this stage of the proceedings. We overrule defendants' first assignment of error.
II.

    Defendants argue that the trial court erred in granting summary judgment for plaintiff in that there is a genuine issue of material fact as to whether defendants owed any additional money to the general contractor at the time plaintiff filed and perfected its claim of lien. We note that this is a key issue for two reasons. First, as more thoroughly discussed below, if no money was owed to the general contractor, the general contractor had no right to pursue a lien, and thus there would be no right of subrogation on the part of the subcontractors. See Electric Supply Co. v. Swain Electrical Co., 328 N.C. 651, 661, 403 S.E.2d 291, 297 (1991) ("the subcontractor may assert whatever lien that the contractor who dealt with the owner has against the owner's real property relating to the project"). Second, and more important in this case, if the general contractor was owed no additional money, there can be no lien on funds pursuant to N.C. Gen. Stat. § 44A- 18(1) (2001). Mace v. Construction Corp., 48 N.C. App. 297, 306,269 S.E.2d 191, 196 (1980) ("The first tier subcontractor's lien upon funds contemplated by G.S. 44A-18(1) is a lien upon funds 'which are owed,' and not upon funds which might have been owed had the contract been completed."). This issue is critical for the determination of whether plaintiff has a valid claim of lien and may recover from defendants.
    Upon review of the record there are conflicting affidavits as to whether any additional money was owed to the general contractor by defendants. The general contractor stated in his affidavit that defendants owed his company approximately $38,000.00 for construction costs of defendants' residence. Defendant William Estes stated in his affidavit that at the time the residence contract with the general contractor was terminated, the general contractor had been paid in full for his services, and no additional money was owed to him. These conflicting affidavits create a genuine issue of material fact, and summary judgment is therefore inappropriate. Dalton v. Camp, 353 N.C. 647, 650, 548 S.E.2d 704, 707 (2001).
III.

    Defendants next argue that the trial court erred in determining that defendants made payments to subcontractors from funds against which a lien had been filed. We agree. We note that the appropriate inquiry is whether defendants made payments from funds against which plaintiff's lien was effective. See N.C.G.S. § 44A-18(1). While plaintiff did file a notice of claim of lien on funds, that lien was only effective as to funds which "are owed"to the general contractor, not as to funds which "might have been owed" to the general contractor had the contract been completed. Mace, 48 N.C. App. at 306, 269 S.E.2d at 196. As discussed above, there is a genuine issue of material fact as to whether any funds were owed to the general contractor. If no funds were owed, there were no funds to which plaintiff's lien could attach. Id. Therefore, it was error for the trial court to conclude at this point that defendants had made payments from funds against which a lien existed.
IV.

    Defendants next assign error to the trial court's conclusion that "subcontractors['] lien claims were possible only through their subrogation rights under the general contractor and if nothing was owed to the general contract[or], under the theory of subrogation, nothing would have been owed to the subcontractors." We note that a subcontractor may assert a lien on real property by way of subrogation of the general contractor's rights pursuant to N.C. Gen. Stat. § 44A-23 (2001). A first tier subcontractor may assert whatever lien the general contractor has against the owner's real property relating to the project. Electric Supply Co., 328 N.C. at 660-61, 403 S.E.2d at 297. However, "[i]f a subcontractor attempts to perfect a lien by subrogation, he is bound by any defenses available against the contractor." Con Co. v. Wilson Acres Apts., 56 N.C. App. 661, 663, 289 S.E.2d 633, 635, cert. denied, 306 N.C. 382, 294 S.E.2d 206 (1982). If the general contractor is not entitled to a lien on the real estate, the firsttier subcontractor would not be entitled to enforce such a lien by subrogation. Electric Supply Co., 328 N.C. at 661, 403 S.E.2d at 297; see N.C. Gen. Stat. § 44A-8 (2001) (statute allowing creation of a lien on real property in favor of a contractor to secure "all debts owing"); Lowe's v. Quigley, 46 N.C. App. 770, 772, 266 S.E.2d 378, 379 (1980) ("There can be no lien in the absence of an underlying debt") (citation omitted). Thus, the trial court's conclusion in this matter was correct.
    However, payment by defendants to the other subcontractors in settlement of claims filed by the subcontractors cannot be used on a motion for summary judgment as an admission that funds were owed to the general contractor. The inference that defendants settled the other subcontractors' claims simply to avoid the time and expense of litigation is as probable as the inference that such payments showed defendants still owed money to the general contractor. However, since all inferences are to be taken in the non-moving party's favor on a motion for summary judgment, Dobson, 352 N.C. at 83, 530 S.E.2d at 835, defendants are entitled to the more favorable inference, that they settled such claims simply to avoid the time and expense of possible litigation with the other subcontractors.
V.

    Defendants argue that it was error for the trial court to conclude that payment by defendants to other subcontractors, who had perfected liens against the real property to settle their causes of action, obligated defendants to pay plaintiff. N.C. Gen.Stat. § 44A-20 (2001) states, in pertinent part:
            (a) Upon receipt of the notice provided for in this Article the obligor shall be 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.

            (b) If, after the receipt of the notice to the obligor, the obligor shall make further payments to a contractor or subcontractor against whose interest the lien or liens are claimed, the lien shall continue upon the funds in the hands of the contractor or subcontractor who received the payment, and in addition the obligor shall be personally liable to the person or persons entitled to liens up to the amount of such wrongful payments, not exceeding the total claims with respect to which the notice was received prior to payment.

    This provision required defendants to retain any funds subject to the lien of plaintiff upon notice of the claim of lien, which as discussed above, occurred on 15 September 1999. See id. If defendants paid funds to a contractor or subcontractor "against whose interest the lien or liens are claimed," defendants became personally liable to plaintiff for "the amount of such wrongful payments." Id. However, there must first be funds subject to the claim of lien. Plaintiff filed a claim of lien on funds pursuant to N.C. Gen. Stat. § 44A-18(1), entitling it only to a lien upon funds "which are owed to the contractor." Therefore, the language of N.C.G.S. § 44A-20(a) requires defendants to retain any money still owed to the general contractor, as those funds would be the only funds "subject to the lien." See N.C.G.S. § 44A-20(a). If defendants owed no money to the general contractor, they would be under no duty to retain any funds, as there would be no funds towhich plaintiff's lien could properly attach. See N.C.G.S. § 44A- 18(1). As discussed above, there is a genuine issue of material fact as to whether funds were owed to the general contractor. Therefore, summary judgment for plaintiff was inappropriate.
    In summary, because there is a genuine issue of material fact as to whether defendants owed funds to the general contractor under the residence contract, the trial court erred in granting plaintiff's motion for summary judgment. The critical questions in this case will be determined based upon whether the general contractor was owed funds, and thus we must reverse the trial court's grant of summary judgment for plaintiff and remand this issue to the trial court.
    Reversed and remanded.
    Judges McCULLOUGH and LEVINSON concur.
    Report per Rule 30(e).

*** Converted from WordPerfect ***