Court Opinion

ID: 9854473
Source: CourtListenerOpinion
Date Created: 2023-09-24 06:08:07.591723+00
Date Added: 2024-06-11T09:23:06.116886
License: Public Domain

Justice MARTIN
dissenting.
I respectfully dissent from the majority opinion. The question to be decided is whether a second tier subcontractor is entitled to perfect a lien against the owner of real property under N.C.G.S. § 44A-23 when both the owner and the general contractor, prior to receiving the second tier subcontractor’s notice of claim of lien, have fully discharged all of their obligations to the first tier subcontractor, including payment of debts due for labor and the materials furnished by the second tier subcontractor. The majority has allowed such a lien; in so doing, the majority has erred.
Mechanics’ liens on real property in this State are governed by Article 2 of Chapter 44A of the General Statutes. There are two categories. The first concerns those liens arising from claims based upon direct dealing between the owner of the property and the party claiming the lien. The second concerns the claims of lien by parties who did not deal directly with the owner of the real property. The instant appeal is concerned with the rights of a second tier subcontractor who did not deal directly with the owner, but contracted solely with a first tier subcontractor.
Fundamental to a subcontractor’s right to a lien is whether he has given timely written notice of a claim of lien directly to the owner of the real property, to the general contractor, and to any subcontractor superior to him in the chain of construction. N.C.G.S. §§ 44A-18, -19, -20, and -23 (1989). This actual written notice is the cornerstone of a subcontractor’s lien rights. Until the owner receives notice of a claim of lien from a subcontractor, the owner is free to disburse funds to the general contractor. Likewise, until the general contractor receives notice of a claim of lien from a subcontractor of a given tier, he is free to disburse funds to higher tiered subcontractors. If a notice of claim of lien is provided by a subcontractor, and the owner, contractor, or higher *663tiered subcontractor ignores the notice of claim of lien, that obligor must pay twice for the same material or labor, once to the party to whom he paid funds after receiving the notice and again to the unpaid subcontractor lien claimant.
Thus, it is clear that the purpose of the adoption of Chapter 44A of the General Statutes was to establish a tiered lien system for subcontractors, thereby limiting a subcontractor’s lien rights to those of the parties above him. If, at the time the owner receives notice of the second tier subcontractor’s lien claim the owner no longer owes any funds to the general contractor, then no funds are in the possession of the owner to which such subcontractor’s lien can attach. The subcontractor’s lien rights are limited to the rights of the parties above him. See Mace v. Construction Corp., 48 N.C. App. 297, 269 S.E.2d 191 (1980); Builders Supply v. Bedros, 32 N.C. App. 209, 231 S.E.2d 199 (1977).
However, if a second tier subcontractor has a lien upon funds owed by the owner to the general contractor, the second tier subcontractor is also entitled to a lien upon the owner’s real property to the extent of his lien. If the owner pays the general contractor after the owner receives the second tier subcontractor’s notice of claim against the funds, the owner may also be required to pay the subcontractor. N.C.G.S. § 44A-20 (1989).
In some circumstances, a first, second, or third tier subcontractor may also be entitled to a lien against the real property of the owner by subrogation if the owner refuses to pay for the labor and materials furnished by the subcontractor. N.C.G.S. § 44A-23 instructs how such subcontractor may by subrogation perfect the lien rights of the general contractor against the owner’s real property should an owner become insolvent or refuse to pay the general contractor. In order to perfect such a lien against the property of the owner the subcontractor must have established a lien upon the funds owed by the owner to the general contractor. Then, he must (a) perfect his subrogated lien against the owner’s real property by serving upon all persons above him in the construction chain his notice of claim of lien against the funds, (b) file with the appropriate clerk of the superior court a claim of lien against the real property along with a notice of his claim of lien against the funds, and (c) commence a lien enforcement lawsuit. See N.C.G.S. § 44A-23 (1989). Like all liens created by Part 2 of Article 2 of Chapter 44A, the subcontractor’s subrogation to *664the general contractor’s lien rights against the land of the owner is dependent upon the existence of an underlying claim of lien upon the funds owed to the party above him and with whom he contracted. This is apparent from the plain meaning of N.C.G.S. § 44A-23 wherein it is stated that “[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 . . . .” N.C.G.S. § 44A-23 (1989). The manner of such enforcement is detailed in the section. The key to establishing the claim is the phrase “to the extent of his claim.” Id. In the instant case, the second tier subcontractor was unable to establish any claim upon the funds of the first tier subcontractor because there were no funds available for that purpose.
Even if it is assumed that N.C.G.S. § 44A-23 on its face is not clear, any reasonable interpretation of the statute discloses that it is necessary for the second tier subcontractor to establish its claim on funds before he can establish a lien on the owner’s real property by subrogation.
It is an accepted method of determining the intent of the legislature to examine any legislative history available concerning the legislation in question. See, e.g., Burgess v. Your House of Raleigh, Inc., 326 N.C. 205, 209, 388 S.E.2d 134, 136-37 (1990) (Meyer, J.); Hunt v. Reinsurance Facility, 302 N.C. 274, 295, 275 S.E.2d 399, 409-10 (1981) (“We find especially pertinent, in considering the intent of our Legislature, this statement [of the North Carolina Legislative Research Commission Report to the 1979 General Assembly of North Carolina, Insurance Laws, at 12-13] to the 1979 General Assembly commenting on the 1977 insurance law amendments: . . .”); Greene v. Town of Valdese, 306 N.C. 79, 83-84, 291 S.E.2d 630, 633 (1982) (relying upon Report of the Municipal Government Study Commission to determine legislative intent behind statutory scheme recommended by the Report and subsequently adopted by the Legislature). Cf. generally Stafford, “North Carolina Legislative History,” 38 N.C. State Bar Quarterly 22 (Winter 1991).
The legislative history of N.C.G.S. § 44A-23 discloses that in 1985 the General Assembly ratified an amendment to the lien law contained in House Bill 1144. 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. This session law was later codified, in pertinent part, in *665N.C.G.S. § 44A-23. In a hearing on this bill before the Judiciary III Committee, Representative Boyd explained that the bill clarified the method of filing a notice of claim of lien for a subcontractor, and then recognized Martha Harris, a staff attorney for the North Carolina Legislative Services Office, who had drafted the bill, and who was present to explain the bill further. Minutes, North Carolina House Committee on Judiciary III dated June 11, 1985 (“Rep. Boyd recognized Martha Harris who had drafted [House Bill 1144] to explain it further. A copy of this explanation is attached.”). Ms. Harris spoke to the committee and filed with it a written explanation of the bill. The pertinent parts of this memo read:
RE: House Bill 1144
Note: This discussion focuses on three parties: the landowner, the contractor with whom he dealt, and the subcontractor who dealt with the contractor. The rules that apply to the subcontractor will apply, with some procedural complications, to second and third tier subcontractors as well.
House Bill 1144 clarifies the effect of a subcontractor’s filing a notice of a claim of lien against a property owner with whom he has not dealt directly. Under current law, a subcontractor can perfect a lien against the owner’s real property at any time, even before the work has been done or after the owner has paid the debt in full. The bill provides that, like a contractor who has dealt directly with the property owner, a subcontractor may not perfect a lien against the property unless the owner owes money for the work performed.
Part 2 of Article 2 of Chapter 44A creates several different types of liens in favor of subcontractors who have not dealt with the owner of the property. First, a subcontractor has a lien on funds owed by the contractor with whom he dealt for the improvement on which the subcontractor worked. This lien is perfected by giving notice of the lien to the landowner who owes or will owe the funds to the contractor with whom the subcontractor dealt. This notice may be filed at any time whether or not payment of the funds is yet due.
The subcontractor may enforce this lien on funds by enforcing the lien of the contractor who dealt directly with the owner against the property. Thus, the lien of the subcontractor against *666funds owed to the contractor creates a second lien, against the owner’s property. Unlike the lien in favor of the contractor, however, this lien can be perfected at any time whether or not the work has been performed and whether or not the owner owes anything for the work. By filing the notice of lien, the subcontractor can create a cloud on the owner’s title at any time. In practice, many subcontractors file this notice whenever they begin work on a new project.
House Bill 1144 would provide that the notice of lien filed by the subcontractor perfects the subcontractor’s lien against any funds owed to the contractor but does not perfect a lien against the landowner’s property. A subcontractor could only perfect the lien against the owner’s property in the same way as a contractor: by filing a claim of lien after the owner’s obligation to the contractor become mature. The lien would then relate back to the time the subcontractor first furnished labor or materials at the site.

Memorandum dated May 28, 1985 To Representative Boyd from Martha Harris, Staff Attorney Re: House Bill Ukk.

It is to be noted that the above legislative history is related to the 1985 amendments to N.C.G.S. §§ 44A-19, -20, -18(b), and -23. The amendment to section 23 reads:
Sec. 4. G.S. 44A-23 is amended by adding after the second sentence of that section a new sentence to read: “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.”
1985 N.C. Sess. Laws ch. 702, § 4.
So it is clear that the above legislative history explained the legislative intent as to the meaning of section 23, and other parts of the lien statute, as amended by the 1985 legislature, not the meaning of section 23 as of 1971 as argued by the majority. The statute under review is not the 1971 version of N.C.G.S. § 44A-23, but the 1985 amended statute. The legislative history above stated is most relevant in determining the intent of the legislature. Milk Commission v. Food Stores, 270 N.C. 323, 154 S.E.2d 548 (1967).
This legislative history clearly demonstrates that N.C.G.S. § 44A-23 requires that a subcontractor perfect his claim of lien against the funds due the person with whom he contracted before *667he can establish a lien by subrogation against the real property of the owner. If the majority’s interpretation of N.C.G.S. § 44A-23 were correct, there would be no logical need for the tiered lien system contained in Chapter 44A.
The correct interpretation of N.C.G.S. § 44A-23 is also supported by case law reported since the adoption of the present tiered lien scheme in 1971. In Builders Supply v. Bedros, 32 N.C. App. 209, 231 S.E.2d 199, the Court of Appeals held that if the general contractor had been paid or had released its claim of lien before its subcontractor asserted a lien on funds owed to the general contractor there was nothing for the subcontractor to place a lien on, and no lien could be established against the land of the owner by the subcontractor. Mace v. Construction Corp., 48 N.C. App. 297, 269 S.E.2d 191, holds that where a general contractor had expressly waived its right to claim a lien, the subcontractor had no right to a lien on the real property of the owner pursuant to N.C.G.S. § 44A-23. But cf. N.C.G.S. § 44A-12(f) (1989).
Public policy dictates that the party who has the ability to protect himself from loss should do so, and if he fails to so act in his own behalf it is not appropriate to require an innocent party to pay twice in order to make the negligent party whole. So here, where the second tier subcontractor fails to properly file his claim of lien against funds owed to the first tier subcontractor or the general contractor it would be inequitable to require the owner or the general contractor to again pay the amount claimed by the plaintiff, that sum having already been paid to the defaulting first tier subcontractor. Plaintiff here delayed some five months, from December until May, before giving notice of its unpaid claim. The law as well as equity protects the general contractor and owner in this instance and does not require either to again pay in order to benefit the negligent second tier subcontractor.
For these reasons, the majority opinion erred in allowing the second tier subcontractor to perfect a lien against the owner when the second tier subcontractor had not complied with N.C.G.S. § 44A-18 and had failed to file notice of its claim against funds in a timely fashion to protect its own interest. In short, the majority has simply amended the statute to allow the plaintiff to recover in this instance. This creates both confusion and error in the law, works an inequity upon the landowner and general contractor in *668this case, and establishes a rule of law that will be injurious to contractors and the construction industry generally in North Carolina.
Justice WEBB joins in this dissenting opinion.