recognizing the use of lien waivers, other than in anticipation of and in consideration for the awarding of a contractSummary of this case from Wachovia Bank v. Superior Construction Corp.
Filed 2 May 1991
1. Laborers' and Materialmen's Liens 3 (NCI3d) — tiered subcontractors — subrogation to contractor's real property lien In light of the plain language of the statutory provisions, their structure, and the policy sought to be achieved by the legislature, N.C.G.S. 44A-23 provides first, second and third tier subcontractors a separate right of subrogation to the contractor's lien on the real property distinct from the lien on funds contained in N.C.G.S. 44A-18.
Am Jur 2d, Mechanics' Liens 17-25, 67, 70, 263 et seq.
2. Statutes 5.6 (NCI3d) — legislative intent — legislative committee records — commentaries in General Statutes In determining legislative intent, the appellate court does not look to the record of the internal deliberations of committees of the legislature considering proposed legislation. Even commentaries printed with the General Statutes, which were not enacted into law by the legislature, are not treated as binding authority.
Am Jur 2d, Mechanics' Liens 17-25; Statutes 169 et seq.
3. Laborers' and Materialmen's Liens 3 (NCI3d) — subcontractor — subrogation to contractor's real property lien A subcontractor may assert whatever lien the contractor who dealt with the owner has against the owner's real property relating to the project. Therefore, even if the owner has specifically paid the contractor for the labor or the materials supplied by the specific unpaid subcontractor who is claiming the lien, that subcontractor retains a right of subrogation, to the extent of his claim, to whatever lien rights the contractor otherwise has in the project. However, until the subcontractor commences the action, the contractor may prejudice the subcontractor's rights through waiver of the lien or acceptance of payment.
Am Jur 2d, Mechanics' Liens 67, 70, 263 et seq., 296.
ON discretionary review of a decision of the Court of Appeals, 97 N.C. App. 479, 389 S.E.2d 128 (1990), reversing a judgment entered by Battle, J., in the Superior Court, DURHAM County, on 23 February 1989, declaring that the plaintiff had no claim against defendants by way of lien or subrogation and remanding the case to the trial division. Heard in the Supreme Court 12 December 1990.
Pulley, Watson, King Hofler, P.A., by R. Nayes Hofler and Michael J. O'Foghludha, for plaintiff-appellee.
Manning, Fulton Skinner, by John I. Mabe, Jr., for defendant-appellants Davidson and Jones Const. Co. and Winstons Venture I.
Johnston, Taylor, Allison Hord, by James W. Allison and Greg C. Ahlum, for Carolinas AGC, Inc., amicus curiae.
Weinstein Sturges, P.A., by L. Holmes Eleazer, Jr., and Fenton T. Erwin, Jr., for American Subcontractors Association, Inc., amicus curiae.
Justice MARTIN dissenting.
Justice WEBB joins in this dissenting opinion.
In 1986, defendant-appellant Winstons Venture I (hereinafter the "Owner") hired defendant-appellant Davidson and Jones Construction Company (hereinafter the "Contractor") to build a Comfort Inn motel in Durham. The Contractor in turn hired Swain Electrical Co., Inc. (hereinafter the "First-tier Subcontractor"), to install electrical systems in the project. The First-tier Subcontractor subcontracted with the plaintiff-appellee, Electric Supply Co. of Durham, Inc. (hereinafter the "Second-tier Subcontractor"), to supply electrical materials for incorporation into the construction project. See generally N.C.G.S. 44A-17 (1989) (statutory definitions).
Beginning 9 December 1986 and continuing through 5 May 1987, the Second-tier Subcontractor supplied materials to the First-tier Subcontractor valued at $20,718.11, for which no payment was ever received. Meanwhile, due to the First-tier Subcontractor's failure to perform its obligations with the Contractor, disputes arose between the Contractor and the First-tier Subcontractor. On 18 May 1987, having not received payment for the materials supplied, the Second-tier Subcontractor filed and served on all defendants a notice of claim of lien and a claim of lien in the amount of $20,718.11. See N.C.G.S. 44A-12, -19 (1989). At that same time, the First-tier Subcontractor abandoned the job. The First-tier Subcontractor was owed no money by the Contractor for work related to the Comfort Inn project. In fact, the Contractor has a claim against the First-tier Subcontractor (who at the time of trial was under the jurisdiction of the United States Bankruptcy Court) for breach of contract.
Finally, on 2 October 1987, the plaintiff Second-tier Subcontractor commenced enforcement of its claim of lien by filing suit as required by statute within 180 days of the Contractor's last furnishing of materials. See N.C.G.S. 44A-13 (1989). Plaintiff filed this suit claiming any and all liens to which it is entitled under N.C.G.S. ch. 44A. On that same day, the Contractor posted a bond pursuant to N.C.G.S. 44A-16 (6), thereby canceling certain of plaintiff's liens.
Since plaintiff's only viable claim is by way of subrogation to the Contractor's rights, it is the Contractor's actions which are the pertinent inquiry here. See N.C.G.S. 44A-23 (1989). The record and briefs of the parties address only the dates materials were last furnished by the Second-tier Subcontractor. It can be assumed in this case that as long as the Second-tier Subcontractor was furnishing materials for the job, they were being furnished on behalf of the Contractor.
The Contractor completed the project in late 1987 and sometime thereafter received a final payment from the Owner.
The trial court held that the plaintiff Second-tier Subcontractor's lien was limited to amounts owed by the Contractor to the First-tier Subcontractor at the time the plaintiff filed its lien, effectively denying plaintiff any relief. The Court of Appeals reversed, holding that N.C.G.S. 44A-23 provides first-, second-, and third-tier subcontractors a right of subrogation to the lien of the contractor who dealt with the owner, regardless of any lien on funds. We agree.
The matter under review is the proper statutory interpretation of portions of article 2 of chapter 44A of the North Carolina General Statutes entitled "Statutory Liens on Real Property." The relevant statutory provisions at issue are N.C.G.S. 44A-18 and -23.
N.C.G.S. 44A-18 provides:
44A-18. Grant of lien; subrogation; perfection.
. . . .
(2) A second tier subcontractor who furnished labor or materials at the site of the improvement shall be entitled to a lien upon funds which are owed to the first tier subcontractor with whom the second tier subcontractor dealt and which arise out of the improvement on which the second tier subcontractor worked or furnished materials. A second tier subcontractor, to the extent of his lien provided in this subdivision, shall also be entitled to be subrogated to the lien of the first tier subcontractor with whom he dealt provided for in subdivision (1) and shall be entitled to perfect it by notice to the extent of his claim.
N.C.G.S. 44A-18 (2) (1989) (emphasis added). Since nothing was owed to the First-tier Subcontractor at or after the time that the Second-tier Subcontractor filed its lien claim, it is undisputed that, on the facts here, the Second-tier Subcontractor has no lien rights upon funds under N.C.G.S. 44A-18.
N.C.G.S. 44A-23 provides:
44A-23. Contractor's lien; subrogation rights of subcontractor.
A first, second or third tier subcontractor, who gives notice as provided in this Article, may, to the extent of his claim, enforce the lien of the contractor created by Part 1 of Article 2 of this Chapter. The manner of such enforcement shall be as provided by G.S. 44A-7 through 44A-16. The lien is perfected as of the time set forth in G.S. 44A-10 upon filing of claim of lien pursuant to G.S. 44A-12. Upon the filing of the notice and claim of lien and the commencement of the action, no action of the contractor shall be effective to prejudice the rights of the subcontractor without his written consent.
N.C.G.S. 44A-23 (1989) (emphasis added).
The first issue that we must decide is whether the General Assembly, in adopting N.C.G.S. 44A-17 to -23 in 1971, intended to carry forward in N.C.G.S. 44A-23 the previously well-settled right of a subcontractor to a lien by subrogation to the lien rights of the contractor in the real property. Again, it is undisputed that N.C.G.S. 44A-18 granted a new lien right to the subcontractor on certain funds and provided the subcontractor a right of subrogation to the rights of the contractor in specific circumstances. See N.C.G.S. 44A-18 (2), (3), (6) (1989). After examining the entire statutory scheme, we hold that the legislative intent was to continue the subcontractor's separate right in N.C.G.S. 44A-23 to a lien by subrogation to the contractor's lien on the real property created by N.C.G.S. 44A-8 (the contractor's lien).
From 1880 until 1971, essentially the following statute was in effect: 44-6. Lien given subcontractors, etc., on real estate. — All subcontractors and laborers who are employed to furnish or who do furnish labor or material for the building, repairing or altering any house or other improvement on real estate, have a lien on said house and real estate for the amount of such labor done or material furnished, which lien shall be preferred to the mechanic's lien now provided by law, when notice thereof shall be given as hereinafter provided which may be enforced as other liens in this chapter and in chapter 44A, except where it is otherwise provided; but the sum total of all the liens due subcontractors and materialmen shall not exceed the amount due the original contractor at the time of notice given. N.C.G.S. 44-6 (Supp. 1969), repealed by 1971 N.C. Sess. Laws ch. 880, 2 (effective 1 October 1971) (emphasis added). This Court consistently construed this mandate to allow the subcontractor a right of subrogation to the lien of the contractor who dealt with the owner, regardless of whether funds were owed to the party with whom the subcontractor dealt. Powder Co. v. Denton, 176 N.C. 426, 432-33, 97 S.E. 372, 374-75 (1919); Brick Co. v. Pulley, 168 N.C. 371, 375, 84 S.E. 513, 514 (1915); Powell v. Lumber Co. 168 N.C. 632, 638, 84 S.E. 1032, 1035 (1915); see also Supply Co. v. Motor Lodge 277 N.C. 312, 316, 177 S.E.2d 392, 394 (1970).
In matters of statutory construction, our primary task is to ensure that the purpose of the legislature, the legislative intent, is accomplished. Hunt v. Reinsurance Facility, 302 N.C. 274, 288, 275 S.E.2d 399, 405 (1981). Legislative purpose is first ascertained from the plain words of the statute. See Burgess v. Your House of Raleigh, 326 N.C. 205, 209, 388 S.E.2d 134, 136 (1990). Moreover, we are guided by the structure of the statute and certain canons of statutory construction. See, e.g., Media, Inc. v. McDowell County, 304 N.C. 427, 430-31, 284 S.E.2d 457, 461 (1981) ("statutes dealing with the same subject matter must be construed in pari materia"); Builders, Inc. v. City of Winston-Salem, 302 N.C. 550, 556, 276 S.E.2d 443, 447 (1981) ("It is presumed that the legislature intended each portion to be given full effect and did not intend any provision to be mere surplusage"). Courts also ascertain legislative intent from the policy objectives behind a statute's passage "and the consequences which would follow from a construction one way or another." Campbell v. Church, 298 N.C. 476, 484, 259 S.E.2d 558, 564 (1979). "A construction which operates to defeat or impair the object of the statute must be avoided if that can reasonably be done without violence to the legislative language." State v. Hart, 287 N.C. 76, 80, 213 S.E.2d 291, 295 (1975). An analysis utilizing the plain language of the statute and the canons of construction must be done in a manner which harmonizes with the underlying reason and purpose of the statute. See In re Nardy, 294 N.C. 90, 96, 240 S.E.2d 367, 372 (1978).
When, after analyzing the text, structure, and policy of the statute, we are still in doubt as to legislative intent, we also examine the history of the legislation in question. See Cab Co. v. Charlotte, 234 N.C. 572, 576, 68 S.E.2d 433, 436 (1951). Changes made by the legislature to statutory structure and language are indicative of a change in legislative intent and therefore provide some weight in our analysis. Id. Amicus for Carolinas AGC, Inc., urges this Court to consider an attachment to the minutes of a House Committee on Judiciary III meeting held on 11 June 1985 as evidence of the legislature's intent in 1971. House Bill 1144, to which the minutes refer, is entitled "An Act to Clarify Filing Requirements for a Claim of Statutory Lien by a Subcontractor Dealing with One Other than the Owner of the Property." 1985 N.C. Sess. Laws ch. 702. A memorandum, written by the attorney who drafted the 1985 amendments to the statute contained in the bill, was attached to the minutes and may have been discussed in the meeting of the House Committee. The memorandum purports to describe the complete statutory scheme of N.C.G.S. 44A-17 to -23 and suggests a legislative intent consistent with amicus' argument.
In determining legislative intent, this Court does not look to the record of the internal deliberations of committees of the legislature considering proposed legislation. Indeed, we have declared affidavits of members of the legislature who adopted statutes in question not to be competent evidence of the purpose and intended construction of the legislation.
While the cardinal principle of statutory construction is that the words of the statute must be given the meaning which will carry out the intent of the Legislature, that intent must be found from the language of the act, its legislative history and the circumstances surrounding its adoption which throw light upon the evil sought to be remedied. Testimony, even by members of the Legislature which adopted the statute, as to its purpose and the construction intended to be given by the Legislature to its terms, is not competent evidence upon which the court can make its determination as to the meaning of the statutory provision.
Even the commentaries printed with the North Carolina General Statutes, which were not enacted into law by the General Assembly, are not treated as binding authority by this Court. See State v. Hosey, 318 N.C. 330, 337-38 n. 2, 348 S.E.2d 805, 809-10 n. 2 (1986); State v. Kim, 318 N.C. 614, 620 n. 3, 350 S.E.2d 347, 351 n. 3 (1986). Even if we were willing to consider the attachment to the legislative committee proceedings in question, and we are not, we would be unpersuaded that the memorandum, submitted nearly fourteen years after the passage of the statute under review, would be sufficiently persuasive to overturn what, prior to 1971, was a well-settled right of the subcontractor of subrogation to the contractor's lien.
Plaintiff argues that a plain reading of the language of N.C.G.S. 44A-23 creates a separate lien for tiered subcontractors on the real property by way of subrogation. One must focus on the language of the statute which indicates that the tiered subcontractor "may, to the extent of his claim, enforce the lien of the contractor created by Part 1 of Article 2 of this Chapter." N.C.G.S. 44A-23 (1989) (emphasis added).
Defendants and amicus Carolinas AGC, Inc., contend that the language "to the extent of his claim" does not create an alternate lien on the real property in favor of the tiered subcontractor, but rather, "the extent of [the subcontractor's] claim" means the extent of the subcontractor's lien against funds, as provided for by N.C.G.S. 44A-18. Defendants essentially argue that had the legislature intended a separate lien by subrogation in N.C.G.S. 44A-23, it would have said so explicitly.
The plain reading of the statute is not dispositive, and we therefore turn to an analysis of the structure of the statute to ascertain legislative intent. Plaintiff notes that N.C.G.S. 44A-18 and 44A-23 were both grouped by the legislature under article 2, part 2 of chapter 44A. Part 2 is entitled "Liens of Mechanics, Laborers and Materialmen Dealing with One Other Than Owner." Plaintiff argues that such a statutory structure evinces a legislative intent that N.C.G.S. 44A-18 and 44A-23 create separate liens available to certain tiered subcontractors.
In construing the statutory provisions in pari materia, defendants and amicus make a number of compelling arguments. Essentially, defendants' position is that the legislature intended the "to the extent of his claim" language of N.C.G.S. 44A-23 to be dependent upon the existence of a lien on funds created in N.C.G.S. 44A-18. First, they point out that a subcontractor's right of subrogation is expressly articulated only in N.C.G.S. 44A-18 and note that N.C.G.S. 44A-18 (6) refers to N.C.G.S. 44A-23 when it provides: "The subrogation rights of a first, second, or third tier subcontractor to the lien of the contractor created by Part 1 of Article 2 of this Chapter are perfected as provided in G.S. 44A-23." Defendants' and amicus' argument is that N.C.G.S. 44A-23 only established a means to perfect the lien created in N.C.G.S. 44A-18. Defendants infer significance from the legislature's use of the language "entitle[ment] to a lien" in section 44A-18 (2) and contrast it with the language "to the extent of his claim" in section 44A-23. We note further that the legislature used the phrase "extent of his claim" in N.C.G.S. 44A-18 (2) and (3) to describe the subcontractor's lien by subrogation to the rights of parties ahead of it. In that context, consistent with defendants' interpretation of N.C.G.S. 44A-23, the extent of the claim was restricted to the subcontractor's lien on funds. However persuasive, the arguments are not decisive here, and we now turn to an analysis of policy objectives.
In considering the policy objectives that the legislators sought to achieve in enacting the statute, we note that a constitutional mandate is directly on point. The North Carolina Constitution states:
The General Assembly shall provide by proper legislation for giving to mechanics and laborers an adequate lien on the subject-matter of their labor.
N.C. Const. art. X, 3. An adequate lien is intended to foster the construction industry, which operates largely on credit. Suppliers, including architects and surveyors, among many others, provide labor and materials to contractors and subcontractors who perform their portion of the work on a project. Since the contractor or subcontractor is generally not paid until the job, or a portion of it, is completed (and is probably unable to pay until it, in turn, is paid), their suppliers extend labor and materials to them on credit. An adequate lien is necessary to encourage responsible extensions of credit, which are necessary to the health of the construction industry. See, e.g., Carolina Builders Corp. v. Howard-Veasey Homes, Inc., 72 N.C. App. 224, 229, 324 S.E.2d 626, 629, cert. denied, 313 N.C. 597, 330 S.E.2d 606 (1985); Miller v. Lemon Tree Inn, 39 N.C. App. 133, 140, 249 S.E.2d 836, 841 (1978).
Plaintiff argues that defendants' construction of the statute would abrogate the purpose of the constitutional mandate requiring an "adequate lien." We note that the constitutional mandate specifically refers to a lien on the "subject-matter of [the subcontractor's] labor" (emphasis added) and contrast it with defendants' interpretation of legislative intent, which creates a lien system based largely on funds. Moreover, plaintiff contends that the General Assembly enacted N.C.G.S. 44A-18 to provide additional protection to subcontractors by establishing a lien on funds for a subcontractor, even if the contractor had specifically agreed with the owner not to place any lien on the owner's property, thereby circumventing the lien created by N.C.G.S. 44A-23. See, e.g., 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); Mace v. Construction Corp., 48 N.C. App. 297, 303-04, 269 S.E.2d 191, 194-95 (1980).
Defendants and amicus point out that while the owner's property is subject to sale in a lien enforcement under N.C.G.S. 44A-23, construction contracts, as a standard practice, call for the contractor who deals directly with the owner to indemnify the owner. This means that, as a practical matter, such contractor essentially bears the economic burden that arises when the first-tier subcontractor abandons the project while owing monies to lower-tiered subcontractors. They further argue that if such contractors required their first-tier subcontractors to post payment bonds, the costs of construction would rise and small subcontractors would be driven from the industry.
Plaintiff and amicus American Subcontractors Association, Inc., respond that the burden of a defaulting first-tier subcontractor is better borne by the contractor who hired it. Moreover, by exercising greater supervisory responsibility over the first-tier subcontractor, the contractor who dealt directly with the owner can avert or at least minimize losses. If such contractor requires additional assurances, he can require payment bonds. See N.C.G.S. 44A-26 (1989). Together, plaintiff and amicus note that better supervision by such contractors and the relatively infrequent occurrence of a first-tier subcontractor becoming insolvent during construction will minimize the need for payment bonds, which concededly increase the costs of construction. In addition, we note that the use of lien waivers, used other than in anticipation of and in consideration for the awarding of a contract, may also minimize liability by contractors who deal with the owner. See N.C.G.S. 44A-12 (f) (1989).
We hold that, in light of the plain language of the statutory provisions, their structure, and more importantly, the policy sought to be achieved by the legislature, N.C.G.S. 44A-23 provides first-, second-, and third-tier subcontractors a separate right of subrogation to the lien of the contractor who deals with the owner, distinct from the rights contained in N.C.G.S. 44A-18.
Having established that the subcontractor has a separate lien right by way of subrogation to the contractor's lien on the real estate, we must next examine the extent of the lien that plaintiff asserts. The contractor's lien is described in N.C.G.S. 44A-8, found in part 1 of article 2, entitled "Liens of Mechanics, Laborers and Materialmen Dealing with Owner." (Emphasis added.) It provides:
44A-8. Mechanics', laborers' and materialmen's lien; persons entitled to lien.
Any person who performs or furnishes labor or professional design or surveying services or furnishes materials 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 lien on such real property to secure payment of all debts owing for labor done or professional design or surveying services or material furnished pursuant to such contract.
N.C.G.S. 44A-8 (1989) (emphasis added).
In construing the subcontractor's subrogated interest to the contractor's lien, we first hold that, in light of the policy behind the passage of N.C.G.S. 44A-23, 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. See Powell v. Lumber Co., 168 N.C. 632, 638, 84 S.E. 1032, 1035 (1915). Therefore, even if the owner has specifically paid the contractor for the labor or materials supplied by the specific unpaid subcontractor who is claiming the lien, that subcontractor retains a right of subrogation, to the extent of his claim, to whatever lien rights the contractor otherwise has in the project. However, N.C.G.S. 44A-23 also provides that:
Upon the filing of the notice and claim of lien and the commencement of the action [by the subcontractor], no action of the contractor shall be effective to prejudice the rights of the subcontractor without his written consent.
N.C.G.S. 44A-23 (1989). As a result, until the subcontractor commences the action, the clear statutory language indicates that the contractor may prejudice the subcontractor's rights through waiver of the lien or acceptance of payment. See Mace v. Construction Corp., 48 N.C. App. 297, 303, 269 S.E.2d 191, 195; see generally Urban Miles, Mechanics' Liens for the Improvement of Real Property: Recent Developments in Perfection, Enforcement and Priority, 12 Wake Forest L. Rev. 283, 376 (1976).
In conclusion, we note that plaintiff has not established a lien on funds paid by the Owner to the Contractor. A lien on the real property by way of subrogation may or may not exist, depending upon the timing of the Owner's final payment to the Contractor relative to the commencement of this action. The record is unclear as to the timing of this final payment. We therefore affirm the decision of the Court of Appeals and remand to that court for further remand to the Superior Court, Durham County, for a determination of this issue and a full determination of this case consistent with this opinion.