Opinion
Docket No. 25510.
Decided September 8, 1976. Leave to appeal applied for.
Appeal from Eaton, Richard Robinson, J. Submitted June 3, 1976, at Lansing. (Docket No. 25510.) Decided September 8, 1976. Leave to appeal applied for.
Complaint by Spartan Asphalt Paving Company against Grand Ledge Mobile Home Park, Grand Ledge Ravines, Inc., Jack R. Courshan and others for foreclosure of a mechanic's lien, recovery quantum meruit, or creation and foreclosure of an equitable lien. Summary judgment for defendants on all counts. Plaintiff appeals. Affirmed in part, reversed in part and remanded.
Brown Winckler, for plaintiff.
Farhat, Burns Story, P.C. (by Vittorio E. Porco), for Grand Ledge Mobile Home Park and Jack R. Courshan.
Defendant Grand Ledge Mobile Home Park, a limited partnership, owns and operates a mobile home development in Eaton County. Plaintiff Spartan Asphalt Paving Company supplied paving materials and labor worth in excess of $15,000 to the defendant's general contractor in 1973. When the general contractor failed to pay, Spartan Asphalt filed a suit against the defendant, the general contractor and others. The complaint against defendant sought foreclosure of a mechanic's lien, judgment on a quantum meruit theory, and/or creation and foreclosure of an equitable lien. This appeal follows the trial judge's grant of the defendant's motion for summary judgment on all three counts.
References to the "defendant" in this opinion refer to the limited partnership. The general contractor, Grand Ledge Ravines, Inc., was incorporated and is owned by individuals who were — at least at one time — members of the partnership. The interlocking ownership interests will figure in some of the discussion of possible remedies which follows. The plaintiff has already won a default judgment against the contractor; but all efforts to collect on that judgment have been unsuccessful. The other named defendants are parties in interest because they hold mortgage liens on the defendant's property.
The motion for summary judgment was made under GCR 1963, 117.2(1), i.e., on the ground that the plaintiff had failed to state a claim upon which relief could be granted. In a written opinion, the trial judge indicated that he would grant the motion and enter summary judgment. The correctness of that ruling as to each of the complaint counts is discussed below.
Several months later, but still before final judgment had been entered, the plaintiff filed a motion for reconsideration and a motion to amend Counts II and III of its complaint. The motion for reconsideration argued that the judge had erred in his interpretation of the mechanic's lien statutes. The motion to amend sought to add allegations of possibly fraudulent dealings by the defendant and its corporate general contractor. These allegations included the nature of the interlocking ownership mentioned in footnote 1, infra, and an allegation that the defendant had never paid the general contractor for the materials and services provided by the plaintiff. Although it was not mentioned in the motion to amend the complaint, we note with interest the fact that the defendant's law firm initially appeared on behalf of both the defendant and the general contractor. The appearance on behalf of the contractor was later withdrawn on the ground that it had been a "mistake".
The incorporators of the general contractor were, at one time, both limited and general partners in the defendant. The defendant's brief on appeal states that those individuals have terminated their interest in the limited partnership. However, the timing and motivation for the ownership change have not been explained. Similarly, the defendant's appeal brief denies the allegation that the defendant never paid the general contractor for the paving materials and services. Again, however, no details are mentioned. Recent articles in the Flint Journal report that the two incorporators were recently sentenced to prison by a Federal judge for their participation in a HUD housing scandal in the Flint area. They are presently suing a third associate involved in that venture. Flint Journal, November 19, 1975; March 9, 1976; March 20, 1976; July 3, 1976.
Following a hearing, the trial judge entered a written opinion denying the plaintiff's motion for reconsideration. The opinion mentioned only the mechanic's lien theory. It made no mention of the motion to amend the complaint. However, the judgment entered pursuant to the opinion denied both the motion for rehearing and the motion to amend. The proceedings on the motion for reconsideration and amendment will be discussed later. We first address the initial ruling granting summary judgment for the defendant on each of the three complaint counts.
Count I — Mechanic's Lien
The mechanic's lien statute, MCLA 570.1 et seq.; MSA 26.281 et seq., seems designed to create confusion and frustrate anyone who attempts to meet all of its requirements. Nevertheless, the plaintiff almost succeeded. It served notice of intent to claim a mechanic's lien on the defendant by certified mail within 90 days after beginning work. MCLA 570.1; MSA 26.281. It also recorded a statement of account with the Eaton County Register of Deeds within 90 days after the work was completed. MCLA 570.5; MSA 26.285.
The next step in the perfection of a mechanic's lien is service of a copy of the recorded statement on the property owner. MCLA 570.6; MSA 26.286. The plaintiff's difficulties began at that point.
MCLA 570.6 provides in part:
"Every person recording such statement * * * shall within 10 days after the recording thereof, serve on the owner, * * * if he can be found within the county * * * a copy of such statement or claim; but if [the owner cannot] * * * be found within the county where such premises are situated, then such copy shall be served by posting in some conspicuous place on said premises within 5 days after the same might have been served personally * * *." (Emphasis supplied.)
The underscored language was the basis of the defendant's motion for summary judgment on Count I. After learning that the partners could not be served personally within Eaton County, the plaintiff served a copy of the recorded statement by posting it on the premises of the mobile home park and sending a copy to the defendant by certified mail. The service by posting was accomplished seven days after the statement was recorded. The defendant argued that the service was not effective because the quoted statute requires that the lienor attempt personal service within the county for 10 days before resorting to service by posting if all attempts at personal service are unsuccessful. Under this view of the statute, service by posting may only be used between the 11th and 15th days. Since service in the present case occurred on the seventh day, the defendant argued that the lien had never been perfected. The plaintiff countered that service by posting was appropriate at any time within the first 15 days once it was determined that personal service within the county would be impossible.
The trial judge adopted the defendant's interpretation of the statute. We agree. The statute shows a clear preference for personal service when it is possible. Requiring attempts at personal service for at least 10 days before substituted service may be used enforces that preference for personal service. We believe that was the legislative intent. Spartan Asphalt Paving Co v Tri-Cities Construction, Inc, 68 Mich. App. 305; 242 N.W.2d 565 (1976).
We find that the plaintiff was not in strict compliance with the statutory mandate; but we believe that the plaintiff did substantially comply. As mentioned, several of the other preliminary lien requirements had already been satisfied. There is no suggestion in this record that the defendant could have been served personally in Eaton County within the 10-day limitation. Nor is there any suggestion that the defendant did not receive actual notice by certified mail that the lien documents had been recorded with the Register of Deeds. The plaintiff made an extensive effort to fully comply. We see no possibility that the defendant was prejudiced by the fact that service occurred on the seventh rather than the eleventh day. We conclude that the plaintiff substantially complied with the statutory requirements.
But is substantial compliance sufficient? The trial judge ruled that it was not, citing Zilz v Wilcox, 190 Mich. 486; 157 N.W. 77 (1916). See also Spartan Asphalt Paving Co v Tri-Cities Construction, Inc, supra. Zilz is typical of the cases which hold that the mechanic's lien statute, being in derogation of common law, must be strictly interpreted. The earliest case to that effect cited in Zilz was The Hannah Lay Mercantile Co v Mosser, 105 Mich. 18; 62 N.W. 1120 (1895). That decision relied upon cases from other jurisdictions and a 19th Century mechanic's lien treatise.
Vorrath v Garrelts, 35 Mich. App. 463; 192 N.W.2d 547 (1971), typifies another line of cases holding that the mechanic's lien statute must be strictly interpreted "until the lien attaches" and may be liberally interpreted after that point. See also Burman v Ewald, 192 Mich. 293; 158 N.W. 853 (1916), citing Lacy v Piatt Power Heat Co, 157 Mich. 544; 122 N.W. 112 (1909), citing Smalley v Northwestern Terra-Cotta Co, 113 Mich. 141; 71 N.W. 466 (1897).
But both lines of cases ignore the clear mandate of MCLA 570.27; MSA 26.307:
" This act is hereby declared to be a remedial statute and to be construed liberally to secure the beneficial results, intents and purposes thereof; and a substantial compliance with its several provisions shall be sufficient for the validity of the lien or liens hereinbefore provided for * * *." (Emphasis supplied.)
The original version of our present mechanic's lien act was passed as 1891 PA 179. The quoted language was added to § 27 of the act by 1897 PA 143. Despite the clear statutory language, most of the cases decided since 1897 have insisted on strict compliance. But the majority cases appear to have misinterpreted earlier precedent. We can see no sound legal justification for ignoring the clear legislative mandate.
There have been exceptions. See Fairbairn v Moody, 116 Mich. 61; 74 N.W. 386 (1898), Martin v Trautz, 218 Mich. 51; 187 N.W. 370 (1922), Hurd v Meyer, 259 Mich. 190; 242 N.W. 882 (1932), and, much more recently, Georgia-Pacific Corp v Central Park North Co, 394 Mich. 59; 228 N.W.2d 380 (1975).
The cases typified by Zilz v Wilcox, supra, i.e., those holding that the mechanic's lien act must be strictly construed because it is in derogation of common law, rely upon cases which pre-date the enactment of 1897 PA 143. The post-1897 cases in this group simply ignore the statute.
Cases like Vorrath v Garrelts, supra, are more likely to mention the statute but circumvent it with the rule that the statutory requirements must be strictly interpreted until the lien attaches. The basis for this rule appears to be Smalley v Northwestern Terra-Cotta Co, supra. Smalley does not support Vorrath and the intermediate cases. Lacy v Piatt Power Heat Co, supra, states that Smalley considered the quoted statutory language and still insisted on strict compliance. That is not true. Smalley did opt for a strict interpretation of the mechanic's lien act. But the Court in Smalley was dealing with § 27 of the act [now MCLA 570.27], as it existed before the substantial compliance language was added by 1897 PA 143. Therefore, the subsequent cases have been mistaken in their reliance upon Smalley as authority for disregarding the statutory language.
Vorrath cites Burman v Ewald, supra. The holding in Burman relied upon the interpretation of Smalley in Lacy v Piatt Power Heat Co, supra.
For the reasons stated, we conclude that substantial compliance with the various requirements of the mechanic's lien act was sufficient in the present case. If that were the only issue before us, we would immediately reverse the trial court. However, on appeal, the defendant has raised another objection to the plaintiff's purported mechanic's lien. We reluctantly conclude that this second objection is well taken.
We have already found that the defendant was not prejudiced by the deviation from strict compliance. We reserve for future cases the question which will arise when a minor deviation actually prejudices a property owner.
Bezold v Beach Development Co, 259 Mich. 693; 244 N.W. 204 (1932), held that the protection of the mechanic's lien act does not extend to materials and labor furnished in connection with the construction of "roadways or parking grounds". Bezold is directly on point Supreme Court precedent. Thus we must conclude that the plaintiff cannot claim a mechanic's lien in the present case.
We reach that conclusion reluctantly. The coverage of the mechanic's lien act is described by MCLA 570.1; MSA 26.281. That section's list of materials and services which are covered extends for nearly four pages. Such an extensive effort might have been read as a legislative attempt to include virtually every form of property improvement. However, the Supreme Court has seen fit to limit the statute's coverage to only the items which are expressly mentioned therein.
There are at least two past cases in which liens for similar paving services were discussed without mention of the Bezold problem. See Knapp Transit Mix Co v Highland Greens, Inc, 51 Mich. 719; 216 N.W.2d 84 (1974), and Spartan Asphalt Paving Co v Tri-Cities Construction, Inc, supra. But both were Court of Appeals decisions which did not mention Bezold. Neither authorizes us to disregard Bezold.
Finally, we have considered the possibility that the lien might be preserved on the ground that the plaintiff furnished both lienable and non-lienable materials and services. Chesnow v Gorelick, 246 Mich. 571; 225 N.W. 4 (1929), held that an architect who provided both lienable and non-lienable services was entitled to a mechanic's lien for the total value of his services. However, Bezold v Beach Development Co, supra, speaks directly to this point and contradicts Chesnow.
"`Where a claim includes both lienable and nonlienable items, and by reason of the method of stating them, the nonlienable items cannot be segregated from the general aggregate, the entire lien must fail.'" 259 Mich at 695.
The two cases appear to present an irreconcilable conflict unless each is limited to its facts. Since Bezold, like the present case, involved paving materials and services, we conclude that it controls the present case.
The present Supreme Court may wish to reconsider Bezold; but we are bound by its holding. This matter was discussed in some detail in Hodgkiss Douma, Inc v Woodward Development Co, 70 Mich. App. 298; 245 N.W.2d 725 (1976). The Hodgkiss panel concluded, as we do, that Bezold must be followed.
For the reasons stated, we hold that the plaintiff is not entitled to a mechanic's lien unless the Supreme Court overrules or distinguishes its decision in Bezold v Beach Development Co, supra. Count II — Quantum Meruit
We conclude that the trial judge correctly granted summary judgment on Count II. In his opinion, he stated:
"Count II alleges only that owner-defendant has received the value and benefit of the labor performed and materials furnished by the plaintiff."
This is an accurate summary of Count II in its original form. The allegations were not then sufficient to support a recovery since there was no allegation of unjust enrichment. The original Count II did not exclude the possibility that the defendant had paid its general contractor for the services and materials furnished by the plaintiff. An allegation of unjust enrichment is the basis of a quantum meruit recovery. Dobbs, Remedies, § 4.2, p 237. Thus, the initial grant of summary judgment was correct. The plaintiff's motion to amend its complaint is discussed later in this opinion.
Since the adoption of the General Court Rules of 1963, Michigan recognizes only one form of action which is known as a "civil action". GCR 1963, 12. In holding that Count II would not have supported a quantum meruit recovery, we are actually saying that the factual allegations in Count II did not describe a recognized theory of recovery. In this instance, we measured the allegations against the form of action known as quantum meruit before the adoption of the court rules.
Count III — Equitable Lien
For similar reasons, we conclude that the trial judge correctly granted summary judgment on Count III in its original form. The allegations were not sufficient to permit a finding that the defendant had been unjustly enriched at the plaintiff's expense. As long as the possibility remains that the defendant had already paid its contractor for the value of the plaintiff's materials and services, no known equitable theory would permit the court to shift the burden of the contractor's default from the plaintiff onto the defendant. See generally Kelly v Kelly, 54 Mich. 30; 19 N.W. 580 (1884). Of course, that statement assumes that the partnership (defendant) and corporate (contractor) entities were not deliberately employed as devices to defraud the plaintiff. The plaintiff's motion to amend its complaint alleged precisely that type of improper dealing.
The Motion for Reconsideration
The focus of the motion for reconsideration was Count I. We have already concluded that the plaintiff cannot recover on a mechanic's lien theory. It necessarily follows the trial judge correctly denied the motion for reconsideration.
The Motion to Amend the Complaint
The plaintiff was required to seek leave of the trial court to file its amendment. The court rules provide that leave shall be freely given when justice so requires. GCR 1963, 118.1. While rulings on such motions are entrusted to the discretion of the trial courts, the appellate courts of this state have consistently held that leave should be granted unless unfair prejudice to the opposing party would result. The possibility that the opposing party might lose if the amendment is allowed is not the sort of "prejudice" which will bar amendments. Ben P Fyke Sons v Gunter Co, 390 Mich. 649; 213 N.W.2d 134 (1973).
Our problem on appeal is that we do not know why the trial judge denied the motion. His written opinion did not even mention the motion to amend. The subsequent order curtly denied the motion without explanation.
The judge may have denied the motion to amend because the plaintiff delayed filing the motion for several months after the judge announced that he would grant summary judgment. Undue delay may be a valid reason for denying such a motion if the delay has unfairly prejudiced the opposing party. Ben P Fyke Sons v Gunter Co, supra. Alternatively, the judge may have been convinced that the defendant would win at trial even if the plaintiff were allowed to amend its complaint. Ben P Fyke Sons warns judges to be careful if they deny motions to amend on that basis. Only if the amended complaint is "legally insufficient on its face" may the judge use his opinion on the merits as a reason for denying a motion to amend. 390 Mich at 660.
In Ben P Fyke Sons v Gunter Co, supra, the Supreme Court reaffirmed its earlier holding in LaBar v Cooper, 376 Mich. 401; 137 N.W.2d 136 (1965), that the exercise of judicial discretion in rulings on motions to amend must be supported by a statement of reasons for the ruling.
"To safeguard and implement the policy favoring amendment, this Court has directed that upon denial of a motion to amend `such exercise of discretion should be supported by specific findings as to reasons for the same'." (Emphasis in original.) 390 Mich at 656-657.
Since no reasons were stated in the present case, we must reverse the judgment and remand for further proceedings on the plaintiff's motion to amend.
Proceedings After Remand
It appears that the plaintiff's chances for ultimate success will depend upon substantiation of its amended allegation that the defendant has never paid anyone for the value of the plaintiff's materials and services. Unjust enrichment lies at the heart of both remedies sought by the plaintiff as well as the other possibilities noted below.
If the defendant has never paid its contractor for the plaintiff's paving materials and services, we fail to see why the plaintiff cannot simply initiate garnishment proceedings to execute on its default judgment against the contractor. Depending upon the detailed proofs, the plaintiff's quantum meruit and equitable lien theories may be viable. But neither fit as easily as garnishment into the case law precedent of this state.
Another major obstacle to a quantum meruit recovery is the absence of any direct dealing between the plaintiff and defendant. There obviously was no contract "in fact" between the two; and we have been unable to find any cases which have implied a contract in this type of situation. The problem might be overcome by "piercing the veil" of the separate corporate entity; but that will not be an easy task. Compare Burton Drywall, Inc v Kaufman, 69 Mich. App. 85; 244 N.W.2d 367 (1976), with Brown Brothers Equipment Co v State Highway Commission, 51 Mich. App. 448; 215 N.W.2d 591 (1974).
The equitable lien theory is similarly handicapped by the absence of direct dealing. Tustin Elevator Lumber Co v Ryno, 373 Mich. 322; 129 N.W.2d 409 (1964). Most of the cases also require a written contract since an equitable lien is an interest in real estate. Fredricks Lumber Co v Evans, 266 Mich. 486; 254 N.W. 176 (1934).
If the defendant has made a good faith full payment to the contractor, we can see no possibility of a recovery by the plaintiff unless the Supreme Court overrules Bezold v Beach Development Co, supra. There is no law against the same individuals being involved in separate business entities which deal with each other.
The final possibility is that the defendant has paid its contractor but, because of the interlocking ownership, the only real purpose for the payment was to block plaintiff's recovery. While we have serious doubts about the plaintiff's ability to prove its case on that theory, those doubts of the merits of the case should be tested by a motion for summary judgment under GCR 1963, 117.2(3), not in the context of a motion to amend. Ben P Fyke Sons v Gunter Co, supra.
As we noted in footnote 4, supra, Michigan has abolished the old forms of action and now recognizes only "civil actions". Thus the plaintiff is not limited to its quantum meruit and equitable lien theories if the allegations in its motion to amend would support a recovery on some other recognized theory. 1 Honigman Hawkins, Michigan Court Rules Annotated (2d ed), Author's Comments, Rule 12, p 11. Properly framed, the allegations might support recovery on a fraud theory. The facts also might permit the court to "pierce the corporate veil" in support of any of the recovery theories. See footnote 7, supra.
The complexity of these alternative procedures only serves to emphasize the need for a clarification of the mechanic's lien issues discussed in the first section of this opinion. While precedent required our holding that no mechanic's lien was created, we would welcome an appeal by the plaintiff on that issue.
Affirmed in part, reversed in part and remanded for proceedings consistent with this opinion.
Being of the opinion that Bezold v Beach Development Co, 259 Mich. 693; 244 N.W. 204 (1932), and Hodgkiss Douma, Inc v Woodward Development Co, 70 Mich. App. 298; 245 N.W.2d 725 (1976), control as to the mechanic's lien issue I feel it was unnecessary for the majority to address itself to other phases of that issue, their reasoning and resolution as to which I cannot fully subscribe. As to the balance of the opinion I concur in full.