Opinion ID: 2632958
Heading Depth: 1
Heading Rank: 4

Heading: Service Requirements

Text: The Chartrands take issue with the district court's approval of Owen Lumber's notice of the mechanic's lien statement to the Chartrands, as equitable owners, when no formal notice requirements of personal service or service by registered mail were met under K.S.A. 60-1103. With respect to mechanics' liens, K.S.A. 60-1103(c) allows for either personal service or service by restricted mail. The statute specifies, in pertinent part: The claimant shall (1) cause a copy of the lien statement to be served personally upon any one owner, any holder of a recorded equitable interest and any party obligated to pay the lien in the manner provided by K.S.A. 60-304, and amendments thereto, for the service of summons within the state, . . . (2) mail a copy of the lien statement to any one owner of the property, any holder of a recorded equitable interest and to any party obligated to pay the same by restricted mail or (3) if the address of any one owner or such party is unknown and cannot be ascertained with reasonable diligence, post a copy of the lien statement in a conspicuous place on the premises. The provisions of this subsection requiring that the claimant serve a copy of the lien statement shall be deemed to have been complied with, if it is proven that the person to be served actually received a copy of the lien statement. No action to foreclose any lien may proceed or be entered against residential real property in this state unless the holder of a recorded equitable interest was served with notice in accordance with the provisions of this subsection. (Emphasis added.) Notice Sent by First-Class Mail One of the reasons the district court found that Owen Lumber served notice of the mechanic's lien statement on the Chartrands was the evidence that the notice was sent as a backup by first-class mail. The Chartrands denied receiving this notice. Regardless, the Chartrands argue that because this was not a valid method of service pursuant to K.S.A. 60-1103(c), any alleged service by first-class mail did not satisfy the statutory requirements. The district court cited Shriver, 117 Kan. 638, 232 P. 1062, to support its ruling that in Kansas there is a presumption that a letter properly addressed and mailed was received. See also, e.g., State v. Thrash, 267 Kan. 715, Syl. ¶ 4, 987 P.2d 345 (1999) (Kansas Department of Revenue is entitled to rely upon presumption that letters sent by ordinary mail postage prepaid are received by the addressee in ordinary course of mail). Shriver did not involve service of a mechanic's lien and is further distinguishable because it did not involve a statute requiring service by certified mail. As the Chartrands argue, the district court's theory of presumptive receipt of legal service runs at odds with K.S.A. 60-304 (service of process) and the service requirements in K.S.A. 60-1103(c). The theory of presumptive receipt of legal service is a general rule providing that [s]ervice of process by mail is deemed complete when the summons or writ is deposited in the post office, properly addressed, with the proper amount of postage and generally service by mail is complete upon mailing, [therefore] nonreceipt of the papers does not affect the validity of the service. 62B Am.Jur.2d, Process § 212, p. 784. However, [i]f service by mail is to be effective, the statute or rule authorizing such kind of service must be complied with. 62B Am.Jur.2d, Process § 211, p. 783. Moreover, [a] statute allowing . . . service by [certified] mail within the state must be strictly complied with.  (Emphasis added.) 62B Am.Jur.2d, Process § 211, p. 783. In Kopp's Rug Co. v. Talbot, 5 Kan.App.2d 565, 567, 620 P.2d 1167 (1980), the Court of Appeals mentioned the presumption of delivery theory and reasoned as follows: As we understand the purpose of K.S.A. 60-103 [defining restricted delivery] (see author's comment in Gard's Kansas C. Civ. Proc. § 60-103 [1963] cited with approval in Rounsavell v. Tipton, 209 Kan. at 367, 497 P.2d 108), it is that the restricted notice requirement replaces the presumption of delivery with the sureness of proof by the return receipt. The law does not require a useless act that in no way would have changed the notice actually given. More recently, the Chartrand II court emphasized both strict compliance with K.S.A. 60-1103 when dealing with mechanics' liens and actual receipt of a copy of the notice of the lien statement. 276 Kan. at 230, 73 P.3d 753. We conclude that the theory of presumptive receipt of legal service which provides that service of process by mail is deemed complete when the summons or writ is deposited in the post office, properly addressed, with the proper amount of postage does not apply to K.S.A. 60-1103(c) which requires service by restricted mail. Savings Provision Contrary to the Chartrands' argument, however, the district court did not rely on the presumption for proof of service. Rather, the district court used the presumption as a substitute for proof that there had been actual receipt of the lien statement. Actual receipt would trigger the savings provision of K.S.A. 60-1103(c) (The provisions of this subsection requiring that the claimant serve a copy of the lien statement shall be deemed to have been complied with, if it is proven that the person to be served actually received a copy of the lien statement.). The Chartrands attempted to rebut this presumption by testifying that they had not, in fact, received a copy of the lien statement during the 60-day period after the mandate in Chartrand II. The district court discredited this testimony and, presumably, found that the presumption was not rebutted. We need not resolve this duel between presumption and rebuttal, however, because we agree with the district court's alternative finding that the saving provision applied because, in 1997, Owens Lumber properly served the Chartrands a petition to which a copy of the mechanic's lien statement was attached. The Chartrands take issue with the district court's reasoning on this alternative point because of the fact that this court, in Chartrand II, rejected Owen Lumber's contention that the new provisions of the statute were satisfied based upon the Chartrands' admission that they had actual knowledge of and had reviewed the mechanic's lien filed by Owen Lumber prior to accepting a quitclaim deed to the property. 276 Kan. at 228-29, 73 P.3d 753. Even though the Chartrands had knowledge of the lien because of Mr. Chartrand's search of records and from the title insurance report, this court emphasized that [a]ctual notice or knowledge is different from actual receipt of a copy of the lien statement. 276 Kan. at 230, 73 P.3d 753. In this appeal, Owen Lumber does not focus on the actual notice allegation raised in Chartrand II but on the Chartrands' actual receipt of the mechanic's lien statement. The district court accepted the distinction, citing the difference between (1) notice received through the public filing of the lien and through the title insurance report and (2) the Chartrands' receipt of a copy of the lien statement in 1997 when they were served with the original petition. The district court concluded the Chartrands' actual receipt of the mechanic's lien statement triggered the savings clause of K.S.A. 60-1103(c). Presumably to counterattack this application of the savings clause, the Chartrands cite Estate of Norris v. Hastings, 36 Kan. App.2d 479, 141 P.3d 511 (2006), for the proposition that service may be insufficient even after a party concedes to receiving actual notice. In Hastings, a personal injury case, valid service of process was not achieved within the time allowed under the applicable statute, K.S.A. 60-203(a)(1). Similarly, in the present case the formal service methods were not successfully utilized by Owen Lumber within the 60-day time limit set in Chartrand II. However, unlike Hastings, we must apply the savings provision at the end of K.S.A. 60-1103(c). That provision is clear; the service requirements will be deemed to have been met if it is proven that the person to be served actually received a copy of the lien statement. The record supports the district court's conclusion that the lien statement was received. Although the Chartrands never stipulated to receiving the lien statement, the record shows that the statement was attached to the 1997 petition which was served upon the Chartrands as named defendants. Additionally, the Chartrands essentially concede in their appellate brief that they did receive the petition and attachment in 1997. The district court correctly applied the savings provision of K.S.A. 60-1103(c) and correctly concluded that because the Chartrands obtained actual receipt of the mechanic's lien statement, the statutory notice requirement was satisfied. ISSUE 2: Does K.S.A. 60-1103(d) Apply to Limit the Amount Owed by the Chartrands on the Mechanic's Lien? Next, the Chartrands argue that K.S.A. 60-1103(d) limits the total amount owed on the mechanic's lien. The standards of review for this issue are the same as those applied to the prior issue because resolution of the arguments requires construction of the statute and review of the district court's findings of fact and conclusions of law. K.S.A. 60-1103(d) states: (d) Rights and liability of owner. The owner of the real property shall not become liable for a greater amount than the owner has contracted to pay the original contractor, except for any payments to the contractor made: (1) Prior to the expiration of the three-month period for filing lien claims, if no warning statement is required by K.S.A. 60-1103a, and amendments thereto; or (2) subsequent to the date the owner received the warning statement, if a warning statement is required by K.S.A. 60-1103a, and amendments thereto. The owner may discharge any lien filed under this section which the contractor fails to discharge and credit such payment against the amount due the contractor. (Emphasis added.) The Chartrands argue that they contracted with Design Build to pay Owen Lumber a maximum of $59,169.37 for building materials, that Design Build paid Owen Lumber a total of $54,337.85, and that, therefore, only $4,831.52 remains due on the mechanic's lien. In rejecting the Chartrands' argument that they should only be liable for a difference of $4,831.52, the district court found that the Chartrands' contention failed to take into account who the owner was at the time Owen Lumber entered into an agreement to provide materials for use in building the home. See K.S.A. 60-1103(a) (providing any supplier or subcontractor may obtain lien for labor, equipment, material, or supplies provided under an agreement with a contractor, subcontractor, or owner contractor). The district court noted that it was only after Owen Lumber recorded its mechanic's lien that the Chartrands obtained legal title through a quitclaim deed, and the holder of a quitclaim deed does not gain priority over adverse interests that were discoverable by reasonable diligence. See Schwalm v. Deanhardt, 21 Kan.App.2d 667, Syl. ¶ 2, 906 P.2d 167 (1995). Consequently, the district court concluded that any limitation imposed from K.S.A. 60-1103(d) would apply only to a contract entered into between Design Build, the owner at the time the lien was filed, and Owen Lumber. The district court's reasoning  that subsection (d) would apply to Owen Lumber and Design Build  does not fit into the plain language of K.S.A. 60-1103(d) in that Owen Lumber was a subcontractor, not the original contractor. Design Build was the original contractor. A plain reading of the statute involves a limitation of the owner's liability based upon the amount the owner contracted to pay the original contractor, not the amount the original contractor agreed to pay a supplier or subcontractor. There is an ambiguity, however, as to whether the reference to owner in subparagraph (d) includes an owner contractor. If so, then how would one construe the term original contractor? There is also an ambiguity as to whether any limitation applies to equitable owners. The Chartrand I court, although not directly addressing this issue, indicated that the statute should not be construed to limit the equitable owner's liability. The court noted: At the time the mechanic's lien was filed, the Chartrands were not `any party obligated to pay the lien.' The only party obligated to pay the lien was Design Build, as owner of the legal interest in the property. The Chartrands only became a `party obligated to pay the lien' after they took legal interest in the property by quitclaim deed from Design Build. By taking the property by quitclaim deed from Design Build, the Chartrands chose to voluntarily make themselves a `party obligated to pay the lien.' 270 Kan. at 227-28, 14 P.3d 395. This conclusion is consistent with the purpose of requiring service of notice of the lien, which is to advise a property owner of the existence of the lien, afford him opportunity to investigate the claim and determine its validity and to avoid paying the same account twice. Schwaller Lumber Co., Inc. v. Watson, 211 Kan. 141, 145, 505 P.2d 640 (1973); see Chartrand I, 270 Kan. at 219-20, 225-26, 14 P.3d 395. In Dick v. LaVilla Inns, Inc., 212 Kan. 101, 102, 510 P.2d 188 (1973), this court stated that K.S.A. 60-1103(d) [then K.S.A.1972 Supp. 60-1103(b)] sets forth the provisions for crediting payments to subcontractors against claims of the contractor. See also Kan. Att'y. Gen. Op. No. 85-124 (pursuant to K.S.A. 60-1103[d], owner of residential property is subject to double liability for work done on that property only for amount of payments made to general contractor after receipt of required warning statement, or, if no warning statement is required, for payments made prior to expiration of the 3-month period for filing lien claims). Because the Chartrands were aware of the lien before making any final payments contemporaneous with receiving the deed, the limitation would arguably not apply. However, we note that the intent of the statute and the outcome may have been modified by the amendments made by the legislation passed during the pendency of Chartrand I; the legislation broadened the statute to require notice to equitable owners. Considering the effect of the amendments again raises due process and other questions discussed in Chartrand II. We conclude that we need not resolve this morass of issues because even if we accept the Chartrands' interpretation of the statute and substitute the Chartrands for the word owner and Design Build for the term original contractor, the records does not support the Chartrands' argument. The limit of $59,169.37 on which the Chartrands rely is found on a spreadsheet of estimated construction costs which was attached to the contract between the Chartrands and Design Build. Gregory Finkle of Design Build testified that Owen Lumber supplied additional items that were not included as part of the Owen Lumber estimate on the spreadsheet. As the district court noted, there is no evidence in the record of a contract between Design Build and Owen Lumber for a fixed amount or maximum total of $59,169.37. In fact, Robert Maple, Jr., coowner and sales manager of Owen Lumber, testified that the subcontractor had no written contract with Design Build and that Owen Lumber generally supplies the requested lumber and materials and then bills contractors on a monthly basis. The testimony of Finkle also confirmed that Design Build did not have a fixed-sum contract with Owen Lumber for supplying materials for the job; instead, Owen Lumber supplied materials as requested and billed the contractor monthly. According to Finkle, all the requested materials were supplied before the Chartrands obtained legal ownership of the property by a quitclaim deed. More salient to the Chartrands' argument, however, is the lack of any evidence that the Chartrands contracted to pay no more than the $59,169.37 for materials from Owen Lumber. Rather, the figure was reflected as an estimate. The Chartrands do not cite to any other evidence in the record of a contractual limitation. Thus, the record does not support the first premise of the Chartrands' argument that their obligation was contractually limited. Similarly, the second part of the equation  that $54,337.85 should be subtracted from the contract limit  is not supported by the record. The Chartrands contend that Design Build produced cancelled checks totaling the exact $54,337.85 figure, but they fail to cite to any support for this statement in the record. Instead, the record shows that Maple testified that he did not personally total the payments, but he agreed with counsel that $54,000 sounds about right. The Chartrands bore the burden to designate a record showing error, and without such a record, the claim of error fails. See Fletcher v. Nelson, 253 Kan. 389, 392, 855 P.2d 940 (1993). Albeit for different reasons, we agree with the district court's decision to reject the Chartrands' argument that K.S.A. 60-1103(d) should limit the amount owed on the mechanic's lien. The limitation does not apply under the facts of this case. See Drake v. Kansas Dept. of Revenue, 272 Kan. 231, 239, 32 P.3d 705 (2001) (upholding district court's ruling as correct for different reason). ISSUE 3: Did the District Court Err in Awarding Prejudgment Interest? Next, the Chartrands argue that the district court erred in awarding prejudgment interest on the mechanic's lien from February 6, 2005, until the date judgment was entered. They contend that the amount owed on the lien was not ascertainable until the district court made its calculations by journal entry on May 10, 2005. This contention lacks merit.