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2. Liens--materialman-_validity--incorrect last date of furnishing
The trial court did not err by concluding that plaintiff materialman's lien was valid based on
an incorrect last date of furnishing and the alleged listing of the wrong owner of the property,
because: (1) N.C.G.S. § 44A-12(d) provides that a claim of lien on real property may be cancelled
by a claimant or the claimant's authorized agent or attorney and a new claim of lien on real property
substituted therefor within the time provided for original filing; (2) although plaintiff erroneously
used the date of the last invoice on plaintiff's first two claims of lien filed on the property and in the
original complaint, plaintiff corrected its mistake by cancelling the first two claims of lien and filing
a corrected claim of lien within 120 days of the last furnishing of materials; (3) plaintiff instituted
this action to enforce the lien within 180 days of the last furnishing of materials to the property
which related back and had priority from 18 March 2003; and (4) contrary to defendants' assertion,
plaintiff did not list the incorrect owner for purposes of the claim of lien.
3. Appeal and Error--preservation of issues--failure to plead affirmative defense--estoppel
Although defendants contend that plaintiff should be estopped from enforcing its claim of
lien, this assignment of error is dismissed, because: (1) estoppel is an affirmative defense that must
be pled in a responsive pleading; and (2) defendants failed to plead estoppel in their answer or
amended answer.
Appeal by defendants National Bank of Commerce d/b/a Central
Carolina Bank (“CCB”) and Southland Associates, Inc. from the order
entered 10 June 2005 by Judge Abraham Penn Jones in Durham County
Superior Court. Heard in the Court of Appeals 8 March 2006.
Bugg & Wolf, P.A., by William J. Wolf, for plaintiff-appellee.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by James
C. Adams, II, for defendant-appellants.
JACKSON, Judge.
National Bank of Commerce d/b/a/ Central Carolina Bank (“CCB”)
and Southland Associates, Inc. (collectively referred to as
“defendants”) appeal from the trial court's entry of summary
judgment, granting West Durham Lumber Company (“plaintiff”) a
judgment lien in the amount of $77,625.51 plus post-judgment
interest. The sole property at issue is Lot Number 7064 in Phase
4 of Dunleith Subdivision at Wakefield Plantation as described in
Deed Book 9998, Page 1637 of the Wake County, North Carolina
Registry, and also known as 12460 Richmond Run Drive, Raleigh,
North Carolina 27614-6414 (the “Property”). This case involves
competing security interests of a materialmen's lien and a
construction loan and purchase money deed of trust on the Property.
The facts are alleged as follows: prior to February 2003,
Meadows Custom Homebuilders, Inc. (“Meadows”) arranged withpotential homeowners to build a house on the Property. In February
2003, Meadows contacted CCB about a possible loan to purchase the
Property from the owner, Sandler at Wakefield, L.L.C. On 25
February 2003, CCB issued a commitment letter to Meadows for
$560,000.00. On 7 March 2003, Sandler at Wakefield, L.L.C.
conveyed the Property to Meadows with a special warranty deed. On
18 March 2003, plaintiff furnished their first materials to the
Property. On 25 March 2003, Meadows executed a deed of trust in
favor of CCB, and recorded the deed from Sander at Wakefield,
L.L.C. and the deed of trust in favor of CCB the next day. CCB
closed the loan, and made an initial advance of $112,000.00 to
Meadows, which Meadows used to purchase the Property. The deed of
trust provided that $112,000.00 of the loan was secured by the
Property. The deed of trust also secured additional obligatory
advancements to Meadows, which advancements, when added to the
amount allotted for the purchase of the Property, totaled
$560,000.00.
On 11 July 2003, plaintiff furnished its last materials to the
Property. Meadows defaulted on the deed of trust, and, on 12
August 2003, CCB began foreclosure proceedings. Between CCB's
closing on the deed of trust and foreclosure, CCB had advanced
$524,000.00 to Meadows, all secured by the deed of trust.
Including interest, the total due as of the time of foreclosure was
in excess of $527,000.00. CCB properly foreclosed on the Property
and on, 2 October 2003, CCB purchased the property at the
foreclosure sale for $425,000.00. On 14 October 2003, plaintiff filed a claim of lien on the
Property pursuant to North Carolina General Statutes Chapter 44A,
Article 2, Part 1, stating that plaintiff furnished materials first
on 18 March 2003, and furnished materials last on 11 July 2003, and
that Meadows, CCB, and Southland Associates, Inc. owed plaintiff
$77,625.51 plus interest and attorneys' fees as allowed by law.
On 6 October 2003, plaintiff brought this action to enforce
its claim of lien. Before defendants filed their answer, plaintiff
filed an amended complaint on 23 October 2003. Defendants answered
both the original complaint and the amended complaint. Both
plaintiff and defendants filed motions for summary judgment, and
the parties' motions were heard on 8 June 2004 before the Honorable
Abraham Penn Jones in Durham County Superior Court. The trial
court entered an order granting plaintiff's motion and denying
defendants' motion. Defendants appealed to this Court.
On appeal, defendants argue three issues: the trial court
erred (1) in granting plaintiff a lien senior to defendants' lien
when plaintiff's lien had been extinguished through foreclosure;
(2) in concluding that plaintiff's lien was valid; and (3) by
enforcing plaintiff's claim of lien because plaintiff should have
been estopped from enforcing it.
[1] First, we address the issue of whether the trial court
erred in granting plaintiff a lien senior to defendants' lien when
plaintiff's lien had been extinguished through foreclosure.
Summary judgment is appropriate “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
judgment as a matter of law.” N.C. Gen. Stat. . 1A-1, Rule 56(c)
(2005). In deciding a motion for summary judgment, a trial court
must consider the evidence in the light most favorable to the non-
moving party. See Summey v. Barker, 357 N.C. 492, 496, 586 S.E.2d
247, 249 (2003). If there is any evidence of a genuine issue of
material fact, a motion for summary judgment should be denied.
Howerton v. Arai Helmet, Ltd., 358 N.C. 440, 471, 597 S.E.2d 674,
694 (2004). We review an order allowing summary judgment de novo.
Summey, 357 N.C. at 496, 586 S.E.2d at 249.
“The North Carolina Constitution mandates that the General
Assembly 'shall provide by proper legislation for giving to
mechanics and laborers an adequate lien on the subject-matter of
their labor.'” O&M Indus. v. Smith Eng'r Co., 360 N.C. 263, 266,
624 S.E.2d 345, 347 (2006) (quoting N.C. Const. art. X, . 3). “To
satisfy this mandate the legislature enacted statutes which are now
codified in Chapter 44A of the General Statutes.” Id. Pursuant to
North Carolina General Statutes, section 44A-8,
[a]ny person who performs or furnishes labor
or professional design or surveying services
or furnishes materials or furnishes rental
equipment pursuant to a contract, either
express or implied, with the owner of real
property for the making of an improvement
thereon shall, upon complying with the
provisions of this Article, have a right to
file a claim of lien on real property on the
real property to secure payment of all debts
owing for labor done or professional design or
surveying services or material furnished or
equipment rented pursuant to the contract.
N.C. Gen. Stat. § 44A-8 (2005). “Claims of lien on real property
may be filed at any time after the maturity of the obligation
secured thereby but not later than 120 days after the last
furnishing of labor or materials at the site of the improvement by
the person claiming the lien.” N.C. Gen. Stat. . 44A-12(b) (2005).
“An action to enforce the lien must be instituted within 180 days
of the last furnishing of materials or labor.” Dalton Moran Shook
Inc. v. Pitt Development Co., 113 N.C. App. 707, 711, 440 S.E.2d
585, 588 (1994) (citing N.C. Gen. Stat. . 44A-13). “A claim of
lien on real property granted by this Article shall relate to and
take effect from the time of the first furnishing of labor or
materials at the site of the improvement by the person claiming the
claim of lien on real property.” N.C. Gen. Stat. . 44A-10 (2005).
In the present case, plaintiff furnished materials to
defendants' Property pursuant to an open account agreement for the
construction of the residence on the Property. Plaintiff furnished
materials first on 18 March 2003, and last on 11 July 2003.
Plaintiff properly filed its claim of lien within 120 days after
the last furnishing of materials at the site of the Property.
Furthermore, plaintiff instituted its action to enforce the lien
well within 180 days of its last furnishing of materials to the
Property. Plaintiff's claim of lien on the Property relates to and
takes effect from 18 March 2003 because plaintiff first provided
materials at the site of the Property on that date. Therefore,
plaintiff has a valid materialmen's claim of lien. We now consider whether the trial court erred in granting
summary judgment in favor of plaintiff pursuant to the doctrine of
instantaneous seisin and our holding in Dalton Moran Shook Inc. v.
Pitt Development Co., 113 N.C. App. 707, 440 S.E.2d 585 (1994).
Our jurisdiction recognizes that “[t]he doctrine of
instantaneous seisin is a legal fiction which provides that when a
deed and a purchase money deed of trust are executed, delivered,
and recorded as part of the same transaction, the title conveyed by
the deed of trust attaches at the instant the vendee acquires title
and constitutes a lien superior to all others.” Dalton, 113 N.C.
App. at 712, 440 S.E.2d at 589 (citing Supply Co. v. Rivenbark, 231
N.C. 213, 56 S.E.2d 431 (1949). It is well established that “'a
deed and a mortgage to the vendor for the purchase price, executed
at the same time, are regarded as one transaction.'” Id. (quoting
Supply Co., 231 N.C. at 214, 56 S.E.2d at 432). “The title does
not rest in the vendee but merely passes through his hands, and
during such instantaneous passage no lien against the vendee can
attach to the title superior to the right of the holder of the
purchase money mortgage.” Id. (citing Supply Co., 231 N.C. at 214,
56 S.E.2d at 432). Pursuant to this doctrine, a previously
existing materialmen's lien would be subordinated to the lien of
the purchase money deed of trust. Id. (citing Carolina Builders
Corp. v. Howard-Veasey Homes, Inc., 72 N.C. App. 224, 324 S.E.2d
626, disc. review denied, 313 N.C. 597, 330 S.E.2d 606 (1985)).
The doctrine is “equally applicable where a third party loans the
purchase price and accepts a deed of trust to secure the amount soloaned.” Slate v. Marion, 104 N.C. App. 132, 135, 408 S.E.2d 189,
191 (quoting Pegram-West, Inc. v. Hiatt Homes, Inc., 12 N.C. App.
519, 525, 184 S.E.2d 65, 68 (1971)), disc. review denied, 330 N.C.
442, 412 S.E.2d 75 (1991).
In the present case, defendant contends that the doctrine of
instantaneous seisin applies because Meadows purchased the Property
from Sandler at Wakefield, L.L.C. and Meadows mortgaged the
Property with CCB as part of the same transaction. Plaintiff does
not argue whether or not the execution, delivery, and recordation
of the deed and deed of trust were part of one transaction.
Rather, plaintiff contends that the doctrine of instantaneous
seisin is an affirmative defense that is not properly before us
pursuant to North Carolina General Statutes, section 1A-1, Rule
8(c). Rule 8(c) provides:
a party shall set forth affirmatively accord
and satisfaction . . . and any other matter
constituting an avoidance or affirmative
defense. Such pleading shall contain a short
and plain statement of any matter constituting
an avoidance or affirmative defense
sufficiently particular to give the court and
the parties notice of the transactions,
occurrences, or series of transactions or
occurrences, intended to be proved.
N.C. Gen. Stat. § 1A-1, Rule 8(c) (2005). This jurisdiction has
not extended the affirmative defense of avoidance to include the
doctrine of instantaneous seisin, and we decline to do so in this
instance.
In Dalton, this Court carved out an exception to the
application of the doctrine of instantaneous seisin. In Dalton,
the development company executed a note and a deed of trust infavor of the bank, and the documents were recorded simultaneously.
Dalton, 113 N.C. App. at 709, 440 S.E.2d at 587. The deed of trust
secured not only the purchase price of the property, but also
certain additional obligatory advancements. Id. This Court agreed
with the materialmen's argument that “if the doctrine [of
instantaneous seisin] is applicable where the deed of trust
securing the purchase price also secures additional advancements
for development or construction purposes, a materialmen's lien
should be subordinated to the deed of trust only to the extent that
it secures the purchase price.” Id. at 713, 440 S.E.2d at 589.
Thus, when a loan is made to both purchase the property and to
develop the property, the doctrine of instantaneous seisin only
applies to protect the amount used to purchase the property. Id.
Therefore, a deed of trust securing the purchase price of property
as well as construction or development loans is superior to a
previously existing materialmen's lien only to the extent that the
deed of trust secures the purchase price of the property. Id. at
714, 440 S.E.2d at 590.
In the case sub judice, Meadows used $112,000.00 of the loan
from CCB towards the purchase price of the Property. Therefore,
$112,000.00 of the loan from CCB is protected by the doctrine of
instantaneous seisin, and has priority superior to a previously
existing materialmen's lien. See Slate, 104 N.C. App. at 135, 408
S.E.2d at 191 (a deed of trust is a purchase money deed of trust
“if it is made as part of the same transaction in which the debtor
purchases land, embraces the land so purchased, and secures all orpart of its purchase price”). Thereafter, the balance on CCB's
$560,000.00 deed of trust was not used towards the purchase of the
Property, and therefore it does not fall within the protection of
the doctrine of instantaneous seisin.
As a result of our application of the holding in Dalton to the
present case, lien priority rules under Chapter 44A of the North
Carolina General Statutes apply to plaintiff's claim of lien. As
discussed supra, plaintiff filed a valid claim of lien on 14
October 2003 within 120 days after the last furnishing of materials
to the site, which occurred on 11 July 2003. Plaintiff filed a
timely action to enforce the claim of lien on 23 October 2003, well
within the 180 days after the last furnishing of materials to the
site. Therefore, plaintiff had a valid claim of lien that related
back to the date of the first furnishing of materials, which was 18
March 2003. Plaintiff's materialmen's lien of $77,615.51 that
attached to the property on 18 March 2003, has priority over the
balance of CCB's deed of trust that Meadows did not use to purchase
the Property, as the materialmen's lien attached prior to the
recordation of CCB's deed of trust on 26 March 2003. However,
plaintiff's materialmen's lien remained junior to the portion of
CCB's portion of the deed of trust which was used to secure the
purchase of the property. Therefore, when CCB foreclosed upon the
property, CCB's foreclosure sale of the property extinguished
plaintiff's materialmen's lien which was junior to the loan for the
purchase of the property. See, Dixieland Realty Co. v. Wysor, 272
N.C. 172, 175, 158 S.E.2d 7, 10 (1967) (it is settled law thatforeclosure of a lien with priority eliminates all liens junior to
the lien foreclosed upon).
Thus, as plaintiff's materialmen's lien was extinguished upon
the foreclosure sale, plaintiff was then required to initiate a
claim upon surplus funds from the foreclosure sale that were
received in excess of CCB's initial $112,000.00 loan amount. When
a claim of lien has been filed pursuant to section 44A-12, and
surplus funds exist from the foreclosure sale of the encumbered
property, the surplus funds stand in place of the encumbered
property. Lynch v. Price Homes, Inc., 156 N.C. App. 83, 86, 575
S.E.2d 543, 545 (2003) (citing Merritt v. Edwards Ridge, 323 N.C.
330, 335, 372 S.E.2d 559, 563 (1988)). An individual claiming a
lien upon surplus funds “must meet the requirements of [section]
44A-13 to enforce a perfected lien on the surplus funds, in the
same manner required to enforce a perfected lien against the
property.” Id. In addition,
Any surplus remaining after the application of
the proceeds of the sale as set out in
subsection (a) shall be paid to the person or
persons entitled thereto, if the person who
made the sale knows who is entitled thereto.
Otherwise, the surplus shall be paid to the
clerk of the superior court of the county
where the sale was had--
. . .
(3) In all cases when the mortgagee, trustee
or vendor is, for any cause, in doubt as
to who is entitled to such surplus money,
and
(4) In all cases when adverse claims thereto
are asserted.
N.C. Gen. Stat. § 45-21.31(b) (2003). Therefore, in order to claim
a right to a portion of the surplus funds from the foreclosure
sale, plaintiff should have filed a notice of a claim with the
clerk of court. Plaintiff failed to do so. Thus, plaintiff failed
to take the steps necessary to perfect its claim to the surplus
proceeds which resulted from the foreclosure sale.
[2] We now turn to defendants' second argument as to whether
the trial court erred in concluding that plaintiff's lien was
valid.
Defendants argue that the trial court erred in concluding that
plaintiff's claim of lien was valid because plaintiff's claim of
lien listed an incorrect last date of furnishing and the wrong
owner of the Property. We recognize that “[a] claim of lien on
real property may be cancelled by a claimant or the claimant's
authorized agent or attorney and a new claim of lien on real
property substituted therefor within the time herein provided for
original filing.” N.C. Gen. Stat. . 44A-12(d) (2005).
In the present case, plaintiff erroneously used the date of
the last invoice on plaintiff's first two claims of lien filed on
the Property, and in the original complaint. However, plaintiff
corrected its mistake by cancelling the first two claims of lien,
and filing a corrected claim of lien within 120 days of the last
furnishing of materials. Furthermore, plaintiff instituted this
action to enforce the lien within 180 days of the last furnishing
of materials to the Property. Therefore, plaintiff had a validclaim of lien, and plaintiff's claim of lien related back and had
priority from 18 March 2003.
Defendant also argues that the trial court erred in holding
that plaintiff had a valid claim of lien because the claim of lien
listed the incorrect owner. North Carolina General Statutes,
section 44A-7 defines the “owner” for lien purposes as
a person who has an interest in the real
property improved and for whom an improvement
is made and who ordered the improvement to be
made. “Owner” includes successors in interest
of the owner and agents of the owner acting
within their authority.
N.C. Gen. Stat. § 44A-7(3) (2005). Here, the deed of trust
executed on 7 March 2003 lists Meadows Custom Homebuilders, Inc. as
the grantee. Additionally, the purchase money deed of trust
recorded on 26 March 2003 lists Meadows as the grantor and CCB as
the grantee. Plaintiff correctly lists Meadows, CCB, and Southland
Associates as the owners for purposes of the claim of lien, and
plaintiff does not list the incorrect owner. Therefore,
defendant's argument is without merit.
[3] Finally, we turn to defendants' argument that plaintiff
should have been estopped from enforcing plaintiff's claim of lien.
Estoppel is an affirmative defense that must be pled in a
responsive pleading. N.C. Gen. Stat. . 1A-1, Rule 8(c) (2005).
Defendants failed to plead estoppel in their answer or amended
answer. Therefore, defendant waived the affirmative defense of
estoppel and may not assert estoppel on appeal.
In conclusion, we hold that although plaintiff had a valid
claim of lien that attached to the Property on 18 March 2003, and
such lien was superior to the balance from the deed of trust thatMeadows did not use to purchase the Property, plaintiff's lien was
junior to a portion of CCB's deed of trust. Therefore, when CCB
foreclosed on the property, the foreclosure sale instituted to
satisfy the purchase money loan extinguished plaintiff's junior
materialmen's lien. As plaintiff failed to take the steps
necessary to perfect a claim to the surplus proceeds from the
foreclosure sale, plaintiff did not have a valid and effective lien
upon such funds. Accordingly, we hold the trial court's entry of
summary judgment in favor of plaintiff was in error. This matter
is remanded to the trial court for entry of partial summary
judgment in favor of defendant on this issue.
Reversed and remanded.
Judges STEELMAN and LEVINSON concur.
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