Summary
In Williams Works the Supreme Court held, after extensive review of the mechanics' lien act and prior case law, that regardless of when a lienable act was actually performed the lien does not take priority over a mortgage unless visible, on-site construction which could be said to signal the "commencement" of the building, erection, structure, or improvement has taken place.
Summary of this case from Michigan Roofing v. DuftyOpinion
Docket Nos. 26617, 26618, 26619, 26625, 26626, 26628.
Decided February 22, 1978. Leave to appeal applied for.
Appeal from Genesee, Philip C. Elliott, J. Submitted December 8, 1977, at Lansing. (Docket Nos. 26617, 26618, 26619, 26625, 26626, 26628.) Decided February 22, 1978. Leave to appeal applied for.
Complaint by Williams Works, Inc., against Springfield Corporation for foreclosure of a mechanics' lien, joining as defendants all parties with recorded interests in the property. Judgments of foreclosure were entered in favor of plaintiff and several other mechanics' lienors, and the mechanics' liens were held to be superior to a mortgage held by defendant Kelly Mortgage and Investment Company. Kelly Mortgage and Investment Company and Bristol Square Properties Group, the successor in title to Springfield Corporation, appeal. Affirmed.
Russell, Ward, Hodgkins Heaney, for defendant Kelly Mortgage and Investment Company.
Smith, Miro, Hirsch, Brody Zweig, (by Martin C. Weisman), for defendant Bristol Square Properties Group.
Brownell, Andrews, Philpott Piper, for defendants Garno Brothers Heating and Cooling, Inc., PPG Industries, Inc., and Shank, Coupland Long Company.
Before: R.B. BURNS, P.J., and ALLEN and R.M. MAHER, JJ.
The trial court entered judgments of foreclosure against the owner of an apartment project, appellant Bristol Square Properties Group, in favor of mechanics' lienors and appellees Shank, Coupland Long Co., PPG Industries, Inc., and Garno Brothers Heating and Cooling, Inc., with priority over the mortgage held by appellant Kelly Mortgage and Investment Company. It is argued on appeal that appellees did not comply with the procedural requirements of the mechanics' lien act, MCLA 570.1 et seq.; MSA 26.281 et seq.; that they waived whatever liens they had; that the liens are not entitled to priority; that the act is unconstitutional; and that the award of attorneys fees was excessive. We affirm.
The property which is the subject of foreclosure underwent several changes of ownership during construction of the apartment complex. It was originally owned by Kelly Mortgage and Investment Company with LAW Development Co., Inc., with Springfield Corporation as an optionee. Springfield is a close corporation wholly owned by its president, Robert L. Foote, and was at all times the general contractor on the project. Springfield subcontracted engineering work to Williams Works, Inc., which did the first work on the project in June, 1972. On January 4, 1973, Kelly Mortgage and LAW conveyed the property to Springfield, which in turn executed mortgages to City National Bank and Kelly Mortgage. City National Bank subsequently conveyed its mortgage to Kelly Mortgage. On December 27, 1973, Springfield conveyed the property to Bristol Square Properties Group, a limited copartnership in which Mr. Foote and Springfield Corporation are the sole general partners. Appellees are subcontractors who began supplying labor or materials while the project was owned by Springfield Corporation, and completed their work after Springfield conveyed to Bristol Square Properties Group. At all times they dealt with Mr. Foote. Williams Works, Inc., brought suit to foreclose its mechanics' lien, joining as defendants all persons with recorded interests in the property. See MCLA 570.10; MSA 26.290. The validity of the mechanics' lien of Williams Works, Inc., is not before this Court.
Most of the issues raised on appeal concern the alleged failure of appellees to comply with the procedural requirements of obtaining a mechanics' lien. Appellees argue that the requirements were inapplicable or substantially complied with.
Appellants first argue that Garno Brothers Heating and Cooling, Inc. and PPG Industries, Inc. failed to provide Bristol Square Properties Group with written notice of their intent to claim liens within 90 days of first furnishing labor or materials. MCLA 570.1; MSA 26.281. However, the owner of the property at the time both appellees first started work or supplied materials was Springfield Corporation. Notice is not required where the lien claimants deal directly with the owner. Wallich Lumber Co v Golds, 375 Mich. 323, 328-329; 134 N.W.2d 722 (1965), Mielis v Everts, 264 Mich. 363, 364; 249 N.W. 875, 876 (1933), J Altman Companies, Inc v Saginaw Plumbing Heating Supply Co, 42 Mich. App. 747, 753-754; 202 N.W.2d 707, 711 (1972). In Burton Drywall, Inc v Kaufman, 69 Mich. App. 85; 244 N.W.2d 367 (1976), lv granted, 399 Mich. 875 (1977), a panel of this Court declined to follow the above cases, reasoning that Mielis was wrongly decided. Your author dissented because we are bound to follow Supreme Court precedent. In PHI Construction Co v Riverview Commons Associates, 80 Mich. App. 518; 264 N.W.2d 50 (1978), another panel declined to follow Burton Drywall, also explaining that it was bound by Supreme Court precedent, and observing that it would be inconsistent with the purpose of the act to permit an owner who has actual notice of the claim to defeat a lien on the basis that he did not receive statutory notice. The decision of the Supreme Court in Spartan Asphalt Paving Co v Grand Ledge Mobile Home Park, 400 Mich. 184; 253 N.W.2d 646 (1977), that the act is to be construed liberally as to the determination of whether a lien has attached strengthens the PHI Construction Co analysis, since a basic premise of the Burton Drywall decision was that the act must be construed strictly until the lien has attached. We therefore follow Mielis and Wallich and hold that notice of intent to claim a lien was unnecessary. The fact that ownership of the property changed within the 90-day period within which PPG Industries, Inc., was to provide notice cannot be the basis for defeating the lien, particularly where both of the general partners in Bristol Square Properties Group were themselves dealing directly with appellee. See Williams Works, Inc v Springfield Corp, 76 Mich. App. 541, 549; 257 N.W.2d 160, 164 (1977).
All of the appellees filed their statements of account and lien within 90 days of completing their work. MCLA 570.5; MSA 26.285. However, appellants argue that all appellees failed to properly serve the statements upon the owner, Bristol Square Properties Group. MCLA 570.6; MSA 26.286. The service statute specifically exempts those persons dealing directly with the owner or part owner of the premises. MCLA 570.6; MSA 26.286. Since appellees were dealing directly with Mr. Foote, they were as a practical matter dealing directly also with Springfield Corporation and Bristol Square Properties Group. To fail to hold that appellees were dealing directly with the owner, Bristol Square Properties Group, or the part owners, Mr. Foote and Springfield Corporation, would be to elevate form over substance so as to defeat the purpose of the statute. MCLA 570.27; MSA 26.307; Williams Works, Inc v Springfield Corp, supra.
Appellants next argue that if Springfield Corporation and Bristol Square Properties Group are to be treated as the same entity for the purpose of notice, then Springfield Corporation should be treated as the owner under MCLA 570.4; MSA 26.284. This statute provides that an original contractor who desires to draw money from an owner must give the owner a statement under oath listing his subcontractors and the amounts due them. It is appellants' theory that, if Springfield Corporation is treated as the owner, then appellees are original contractors. This however ignores the fact that Springfield Corporation was wearing two hats throughout much of the construction, as owner and general contractor. Appellees were subcontractors of Springfield Corporation, general contractor. As such they were not original contractors and MCLA 570.4; MSA 26.284 is inapplicable.
During the course of construction Shank, Coupland Long Co. and Garno Brothers Heating and Cooling, Inc., executed waiver forms supplied by Burton Abstract Title Company, disbursement agent for Kelly Mortgage and Investment Company, whenever they received partial payment. These forms provided that appellees waived any claims of lien which they "now have or may have hereafter * * *".
"Before one entitled to a lien under the statute should be declared to have waived it, it ought clearly and unequivocally to appear that he has expressly waived it." Saginaw Lumber Co v Wilkinson, 266 Mich. 661, 665; 254 N.W. 240, 242 (1934), see Williams Works, Inc v Springfield Corp, supra.
The waiver form was ambiguous, and parol evidence was properly admitted to determine the intent of the parties. See, e.g., In re Landwehr's Estate, 286 Mich. 698, 703; 282 N.W. 873, 875 (1938). The trial court's determination that the parties understood the payment and waiver procedure to waive any right to a lien only on work already completed is amply supported by the record. GCR 1963, 517.1. These liens were not waived.
At the time at which each claimant signed waivers, it could be said that the claimant already had a right of lien for the work done, or it could be said the lien claimant had no right to a lien until he thereafter complied with the procedural requirements of the act. Under the former view, the right of lien which the claimant "may have hereafter" would refer to a lien for work subsequently done, whereas under the latter view, it would refer to a lien for work already done but for which the procedural requirements had not been met.
It is next argued that the mortgages held by Kelly Mortgage and Investment Company have priority over the mechanics' liens held by appellees. MCLA 570.9; MSA 26.289 provides that mechanics' liens have priority over all encumbrances recorded subsequent to the "commencement" of building. Appellants argue that "commencement" means actual construction, and actual construction did not start until after Kelly Mortgage and City National Bank had recorded their mortgages. We cannot accept appellants' interpretation. Included within the act are engineering services. MCLA 570.1; MSA 26.281. Unless "commencement" means when engineering services are first performed, engineering firms will not be protected and receive all of the benefits of the act. The act must be liberally construed to carry out its intended purpose of benefiting subcontractors. MCLA 570.27; MSA 26.307; Spartan Asphalt Paving Co v Grand Ledge Mobile Home Park, 400 Mich at 188; 253 N.W.2d at 649. See Bankers Trust Co v El Paso Pre-Cast Co, ___ Colo ___; 560 P.2d 457, 460-461 (1977). Williams Works, Inc. commenced work prior to the recording of the mortgages. Appellees' liens are therefore entitled to priority over the mortgages. MCLA 570.9; MSA 26.289; see Kay v Towsley, 113 Mich. 281, 283; 71 N.W. 490, 491 (1897).
Appellants contend that the mechanics' lien act is repugnant to the due process clauses of US Const, Am XIV and Const 1963, art 1, § 17 for failure to provide for notice prior to filing of a lien and for a hearing prior to or immediately after filing of a lien. See North Georgia Finishing, Inc v Di-Chem, Inc, 419 U.S. 601; 95 S Ct 719; 42 L Ed 2d 751 (1975), Mitchell v WT Grant Co, 416 U.S. 600; 94 S Ct 1895; 40 L Ed 2d 406 (1974), Fuentes v Shevin, 407 U.S. 67; 92 S Ct 1983; 32 L Ed 2d 556 (1972), Sniadach v Family Finance Corp, 395 U.S. 337; 89 S Ct 1820; 23 L Ed 2d 349 (1969). We conclude that the mechanics' lien act is constitutional.
For purposes of analysis, we assume the due process protections of Const 1963, art 1, § 17 are equivalent to those of US Const, Am XIV. See Dow v State of Michigan, 396 Mich. 192; 240 N.W.2d 450 (1976).
We must preliminarily dispose of two sub-issues. First, we find that Bristol Square Properties Group, as owner of the premises, has standing to raise this issue, although Kelly Mortgage and Investment Company, as mortgagee, does not. See Williams Works, Inc v Springfield Corp, supra at 546-548; 257 N.W.2d at 163. Second, we find that placement of mechanics' liens upon the premises involved state action, because mechanics' liens are created, regulated, and enforced by the state. Barry Properties, Inc v The Fick Brothers Roofing Co, 227 Md. 15; 353 A.2d 222 (1976), Connolly Development, Inc v Superior Court of Merced County, 17 Cal.3d 803; 553 P.2d 637; 132 Cal.Rptr. 477 (1976), appeal dismissed, 429 U.S. 1056; 97 S Ct 778; 50 L Ed 2d 773 (1977).
The United States Supreme Court summarily affirmed a decision by a three-judge district court that held the Arizona mechanics' lien act did not deprive a property owner of a significant property interest without due process of law. Spielman-Fond Inc v Hanson's, Inc, 417 U.S. 901; 94 S Ct 2596; 41 L Ed 2d 208 (1974), affirming 379 F. Supp. 997 (D Ariz, 1973). Although a summary affirmance cannot necessarily be read as an affirmance of the reasoning of the lower court, it is nonetheless a resolution on the merits of the issues presented to the Supreme Court and is consequently precedent binding upon lower courts. See Edelman v Jordan, 415 U.S. 651, 670-671; 94 S Ct 1347, 1359-1360; 39 L Ed 2d 662, 677 (1974), Fusari v Steinberg, 419 U.S. 379, 391-392; 95 S Ct 533, 541; 42 L Ed 2d 521, 530-531 (1975) (Burger, C.J., concurring), B P Development v Walker, 420 F. Supp. 704 (WD Penn, 1976). Roundhouse Construction Corp v Telesco Masons Supplies Co, Inc, 168 Conn. 371; 362 A.2d 778 (1975), vacated and remanded, 423 U.S. 809; 96 S Ct 20; 46 L Ed 2d 29 (1975), reaffirmed, 170 Conn. 155; 365 A.2d 393 (1976), cert den, 429 U.S. 889; 97 S Ct 246; 50 L Ed 2d 172 (1976), one of two cases which have held states' mechanics' lien acts unconstitutional, did so because it deduced a standard of due process from Sniadach, Fuentes, Mitchell and North Georgia Finishing, Inc, and found that its state's act did not meet that standard. Its analysis failed to recognize the precedential significance of Spielman-Fond. We need not attempt to derive a standard of due process applicable to mechanics' lien acts from Supreme Court cases dealing with other creditor's remedies if Spielman-Fond is directly on point. Because a summary affirmance does not explicate the reasons for affirmance, our task is to look to the opinion of the lower court and the opinions of other courts which have examined the constitutionality of various states' mechanics' lien acts in order to determine the possible reasons for affirmance, and then to determine whether those reasons apply to the instant case. Cf., B P Development v Walker, supra, In re Thomas A Cary, Inc, 412 F. Supp. 667 (ED Va, 1976), Barry Properties v Fick Brothers Roofing Co, supra. There have been a sufficient number of such opinions that the issues are clearly drawn. We deduce that there can be but two possible reasons for the affirmance in Spielman-Fond.
The first reason is that advanced by the lower court in Spielman-Fond. Unless filing a mechanics' lien constitutes a taking of a significant property interest, the procedural requisites announced by the Supreme Court in Sniadach, Fuentes, Mitchell and North Georgia Finishing, Inc are inapplicable. Although a mechanics' lien clouds title, no disturbance of possession or right of alienation occurs until after a foreclosure action, and the inconvenience of the lien can be ameliorated by bonding. 379 F Supp at 999, accord, In re Thomas A Cary, Inc, supra, Ruocco v Brinker, 380 F. Supp. 432 (SD Fla, 1974), Cook v Carlson, 364 F. Supp. 24 (D SD, 1973), Bankers Trust Co v El Paso Pre-Cast Co, ___ Colo ___; 560 P.2d 457 (1977), Tucker Door Trim Corp v Fifteenth Street Co, 235 Ga. 727; 221 S.E.2d 433 (1975), Carl A Morse, Inc v Rentar Industrial Development Corp, 56 App. Div. 2d 30; 391 N.Y.S.2d 425 (1977), Silverman v Gossett, 553 S.W.2d 581 (Tenn, 1977). Theoretically, the amount of the lien is equivalent to the increase in value of the structure due to the work done, so that there is no actual deprivation overall. Cook v Carlson, supra, Carl A Morse, Inc v Rentar Industrial Development Corp, supra. In effect, a lien is merely notice to others of the existence of a potential foreclosure action, analogous to a notice of lis pendens. Tucker Door Trim Corp v Fifteenth Street Co, supra.
It is the majority view that no significant deprivation occurs upon filing a mechanics' lien, and this may have been the basis for the Supreme Court's affirmance in Spielman-Fond. But see Connolly Development, Inc v Superior Court of Merced County, supra, Barry Properties v Fick Brothers Roofing Co, supra. If so, this rationale would compel affirmance in the instant case.
Assuming that a significant deprivation had occurred, the second possible reason for the affirmance is that the mechanics' lien statute provided sufficient procedural requisites to pass constitutional muster. Due process is a flexible concept not requiring any particular procedural requisites. Dow v State of Michigan, 396 Mich. 192, 204-205; 240 N.W.2d 450, 456 (1976). It may be argued that the taking, while significant, is relatively minor compared to the countervailing interests of mechanics' lienors, and that the procedural requisites in Spielman-Fond were adequate. See Ruocco v Brinker, supra, Cook v Carlson, supra, Connolly Development, Inc v Superior Court of Merced County, supra, Silverman v Gossett, supra. Although this reasoning is subject to attack, primarily because of the absence of the hearing prior to or soon after imposition of a lien that Fuentes, Mitchell and North Georgia Finishing, Inc, appear to require, see Connolly Development, Inc v Superior Court of Merced County, supra, (Richardson, J., dissenting), Roundhouse Construction Corp v Telesco Masons Supplies Co, Inc, supra, those Supreme Court cases are sufficiently inconsistent as to render this rationale for affirmance a substantial likelihood. Barry Properties v Fick Brothers Roofing Co, supra, the second of the two cases which have held mechanics' lien acts unconstitutional, did so because its act did not contain procedural requisites as rigorous as those contained in the Spielman-Fond act. Using a similar analysis, the Court in Connolly Development, Inc v Superior Court of Merced County, supra, found the California act substantially similar to the Arizona act, and therefore constitutional. Accord, B P Development v Walker, supra. Because the Michigan act is substantially similar to the Arizona act, we find Spielman-Fond to be controlling precedent for affirmance in the instant case. See Connolly Development, Inc, supra, B P Development v Walker, supra.
Finally, appellants argue that the award of attorney fees was excessive. The award of attorney fees was within the trial court's discretion, MCLA 570.12; MSA 26.292, and we detect no abuse of discretion.
Affirmed.