Opinion ID: 497965
Heading Depth: 3
Heading Rank: 1

Heading: Nature of property at issue

Text: 23 The case presents the preliminary question of whether a claim to the proceeds of a successful attempt to establish by judicial process a right to a mechanic's lien (the anticipated proceeds of which were assigned to Brooks as security for a loan) is real property or personal property. If it is real property, then to have priority over Brooks, the government's tax lien had to be filed in West Virginia, the situs of the land against which Antone's mechanic's lien was filed and where the lien was enforced. 26 U.S.C.A. Sec. 6323(f)(2)(A) (Supp.1987). If the claim is personal property, however, or a chose in action, as described by the district court, then it could properly have been filed in Pennsylvania, the state where Antone (the corporation initially holding the mechanic's lien and assigning the right to the proceeds thereof to Brooks) resided. Id. Sec. 6323(f)(2)(B). Here, the government filed a tax lien only in Pennsylvania. Therefore, if the district court erred in its ruling that the claim to the proceeds from a mechanic's lien was personal property, the government's claim is ineffective against Brooks. 24 A mechanic's lien has been defined as a claim created by law for the purpose of securing payment of the price or value of work performed and materials furnished in erecting or repairing a building or other structure or in the making of other improvements on land, and as such it attaches to the land as well as to the buildings erected thereon. 53 Am.Jur.2d, Mechanic's Liens, Sec. 1, at 512 (1970) (footnotes omitted). The right to acquire and enforce a mechanic's lien exists solely by positive statutory enactments; there was no mechanic's lien in the common law or in equity. Id. Sec. 2, at 515; Kendall v. Martin, 136 W.Va. 192, 197, 67 S.E.2d 42, 45 (1951); United States Blowpipe Co. v. Spencer, 40 W.Va. 698, 705, 21 S.E. 769, 772 (1895). Antone's lien was filed pursuant to W.Va.Code Sec. 38-2-2 (1985) (lien of subcontractor). 25 A mechanic's lien gives the lienor a right to demand the sale of the property to which the lien attaches if the debt is not paid. 53 Am.Jur.2d, Mechanic's Liens, Sec. 3, at 518 (1970). The lien is described as purely a matter in rem and not in personam. Id. However, this does not mean that the holder of the right to the proceeds from a mechanic's lien holds an interest in real property: 26 While a mechanic's lien is sometimes said to be property, it is not like a mortgage. It is not an interest in land, but operates in the nature of an attachment or garnishment.... 27 Id. 3 Indeed, early cases involving mechanic's liens denied the holder the power to assign his lien to another: 28 There is some early authority which, in the absence of a statute to the contrary, and under the influence of the early common-law rule as to the nonassignability of choses in action, treats a mechanic's lien, even after it has been perfected by the person who performed the labor or furnished the materials, as a personal right which cannot be assigned so as to enable the assignee to prosecute the claim in his own name. 29 Id. Sec. 287, at 823. 4 The concept that the mechanic's lien is a chose in action is supported by early cases, dating from the time when that distinction played a greater role than it plays in modern jurisprudence. One example is Clement v. Reitz, 103 Ill. 315 (1882), where the court ruled that it had no jurisdiction to hear a case involving enforcement of mechanic's liens because no freehold was involved: 30 Payment of the sum ascertained to be due to [the materialmen] would relieve the land entirely from the lien established. How, then, is a freehold any more involved than in a suit to foreclose a mortgage? It has frequently been decided by this court that in a proceeding by bill to foreclose a mortgage a freehold is not involved. No difference in principle is perceived in the cases. In one case the lien is created by mortgage-deed, and in the other it is given by statute, and the proceeding in either case is simply to foreclose the lien. 31 Id. at 316. The same result was reached by the Colorado Supreme Court in Spangler v. Green, 21 Colo. 505, 507, 42 P. 674, 675 (1895) (court lacked jurisdiction because insufficient monetary amount in controversy and proceeding to enforce a mechanic's lien does not involve a freehold). The Supreme Court of Minnesota was even more emphatic: 32 The assertion that the statutory right of a mechanic or a material man to enforce a lien is not an estate or interest in the land on which the work of one or the materials of the other may have been performed or furnished need not be supported by argument or illustration. 33 Burns v. Carlson, 53 Minn. 70, 71-72, 54 N.W. 1055, 1055 (1893). The court held in Burns that because the mechanic's lien was simply a lien and not an interest in real property, [l]ike other lien rights, it may be lost or abandoned or discharged. Id. at 72, 54 N.W. at 1055. The Supreme Court of Oregon articulated a similar view, holding that 34 it is clear that the mere right or privilege of preserving and perpetuating a mechanic's lien upon buildings is not an interest in land. The right may be allowed to lapse, or its duration may be terminated by a payment of the demand without a release; and a written waiver, without the observance of any of the formalities of acknowledgement, etc., required touching instruments affecting land, will constitute an insuperable barrier to the enforcement of a lien thus waived, so that the essential characteristics attending instruments effecting [sic] real property are especially wanting.... 35 Hughes v. Lansing, 34 Or. 118, 124, 55 P. 95, 97 (1898). See, e.g., W.Va.Code Sec. 38-2-34 (1985) (suit to enforce mechanic's lien must be commenced within six months of lien filing). 36 In fact, as at least one court specifically noted, the mechanic's lien holder's claim against the property is secondary, ancillary. Alberti v. Moore, 20 Okl. 78, 86, 93 P. 543, 546-47 (1908). The Oklahoma Supreme Court also noted, The contractor is the primary debtor. If the amount could be collected from him, there would be no resulting claim against the property of the owner. Id. at 86, 93 P. at 546. In that case, where the mechanic's lienor was a subcontractor, the Oklahoma statute required that the contractor be a party defendant in the suit to enforce the lien, so that a judgment could be secured against the contractor for the arrears; the judgment was levied against the property only if the contractor failed to pay the judgment. Id. at 86, 93 P. at 546-47. See Chambers Lumber Co. v. Gilmer, 60 Ga.App. 832, 835, 5 S.E.2d 84, 87 (1939) (As to the contractor the obligation is primary; as to the owner it is collateral only....). 37 It is thus clear from the early cases and from the nature of the mechanic's lien proceeding itself that a mechanic's lien and, a fortiori, a claim to the proceeds of a mechanic's lien is a chose in action, and that an action to enforce a mechanic's lien is substantially an in personam action and not an in rem action. Whether a proceeding is in rem or in personam is determined by its nature and purpose, and by these only. 1 Am.Jur.2d, Actions, Sec. 39, at 572-73 (1962). A mechanic's lien falls within the following definition of in personam action: 38 A proceeding in personam is a proceeding to enforce personal rights and obligations brought against the person and based on jurisdiction of the person, although it may involve his right to, or the exercise of ownership of, specific property, or seek to compel him to control or dispose of it in accordance with the mandate of the court. 39 Id. at 573 (footnotes omitted). By contrast, a proceeding in rem is essentially a proceeding to determine the right in specific property, against all the world, equally binding on everyone. Id. Sec. 40, at 573. A mechanic's lien action merely settles the claim of an unpaid mechanic or materialman, and does not purport to settle or clear title to the property carrying the lien. 40 The policies behind the filing requirements for government tax liens are satisfied by our finding that a mechanic's lien is a chose in action, and that the tax lien filed in Pennsylvania, Antone's state of residence, therefore gives the government priority over a subsequent assignee of the mechanic's lien. If Brooks' assigned interest were in the underlying real property, the land in West Virginia, it is well settled that he should be required to do no more to protect his security interest than properly inspect the land records in West Virginia to establish that the land is otherwise unencumbered. Here, however, Brooks was assigned an interest in a lawsuit that Antone had pending in West Virginia to collect money due for Antone's construction work. The claim made by Antone is tantamount to an effort to collect on unpaid accounts receivable, which certainly involves no interest in real property. The mechanic's lien procedure is merely a remedy provided by West Virginia, and by virtually all other states, to ensure that mechanics and materialmen are able to collect on their accounts receivable. The Supreme Court of Appeals of West Virginia has held that [t]he lien procedure provided for mechanics and materialmen is a cumulative remedy, and independently of the lien, such parties may resort to the ordinary common-law remedies, as by an action to recover a personal judgment. The two remedies may be pursued simultaneously, but there can be only one satisfaction. Woodford v. Glenville State College Housing Corp., 159 W.Va. 442, 225 S.E.2d 671, 675 n. 6 (1976) (citing West Virginia Sanitary Engineering Corp. v. Kurish, 137 W.Va. 856, 74 S.E.2d 596 (1953)). Thus, the special benefit to Brooks of obtaining the assignment of the claim to the mechanic's lien proceeds instead of other accounts receivable, for example, was that the holder of a mechanic's lien has a much greater chance of collecting from the person owing on account than he would have of collecting on such an account ordinarily. This greater likelihood of collecting an overdue account does not also mean that there is a greater likelihood of prevailing over parties holding prior liens against the debtor/assignor, however. It is well established that the assignee steps into the shoes of the assignor, taking it subject to all prior equities between previous parties ... for the holder can only sell and transfer such interest as he has.... Thomas v. Linn, 40 W.Va. 122, 127, 20 S.E. 878, 880 (1894). Here, Brooks' joy at the success of the mechanic's lien action unfortunately must be tempered by the knowledge that he was assigned personal property, and not an interest in real property, so that the government's prior tax lien will take priority over his assignment if the tax lien was properly filed in the state of Antone's corporate residence.