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).
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