Electric Supply Co. of Durham, Inc. v. Swain Electrical Co.

389 S.E.2d 128 (1990) 97 N.C. App. 479

ELECTRIC SUPPLY CO. OF DURHAM, INC., Plaintiff,
v.
SWAIN ELECTRICAL CO., INC., Davidson and Jones Construction Company, and Winstons Venture I, a North Carolina Partnership, Defendants.

No. 8914SC597.

Court of Appeals of North Carolina.

March 6, 1990.

Pulley, Watson, King & Hofler, P.A. by R. Hayes Hofler, III and Michael J. O'Foghludha, Durham, for plaintiff-appellant.

Manning, Fulton & Skinner by John I. Mabe, Jr., Raleigh, for defendants-appellees.

LEWIS, Judge.

The sole issue on this appeal is whether a second tier subcontractor has a right to a mechanic's lien against the owner's property when the first tier subcontractor has been fully paid but the owner still owes money to the general contractor. The lien rights claimed by plaintiff are governed by Chapter 44A. G.S. § 44A-18, "Grant of lien; subrogation; perfection" provides in pertinent part:

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.

G.S. § 44A-18(2).

Under this statute, a subcontractor's direct lien rights are limited to the amount owing to the entity above him in the construction chain. Id. Thus, if nothing is owing to the first tier subcontractor at the time of the filing of the lien claim, the second tier subcontractor has no right to enforce this lien under the plain language of the statute. Mace v. Construction Co., 48 N.C.App. 297, 304, 269 S.E.2d 191, 195 (1980).

The trial court found as fact that after receipt of the notice of claim of lien, no funds were owing to the first tier subcontractor by reason of the work performed by the latter on the job site. Plaintiff concedes that based on these circumstances, it has no lien rights under G.S. § 44A-18. Instead, plaintiff argues that it may assert its lien under G.S. § 44A-23. G.S. § 44A-23 provides:

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. 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.

Plaintiff argues that this statute affords a separate lien option to tiered subcontractors. Asserting that it is the lien rights of the contractor (Davidson & Jones) that are at issue in § 44A-23, not the lien rights of the first tier subcontractor, payment of the first tier subcontractor is irrelevant when considering the rights of the second tier to assert his claim against the owner. As long as the contractor had lien rights based on its contract with the owner on or after the receipt of the plaintiff's notice, the argument is that the owner should have paid the plaintiff's claim, as the plaintiff was subrogated to the rights of the contractor under § 44A-23. The defendants protest this construction, arguing instead that § 44A-23 only allows a second tier subcontractor to enforce his lien "to the extent of his claim"; his claim being limited by § 44A-18, which restricts the extent of the subcontractor's lien to that of the party above him. We disagree with the defendants' position and reverse.

A basic rule of construction is that statutes dealing with the same subject matters must be construed in pari materia as together constituting one law, and harmonized to give effect to each other. Williams v. Williams, 299 N.C. 174, 180, 261 S.E.2d 849, 854 (1980). "The act must be considered as a whole and none of its provisions shall be deemed useless or redundant if they can be reasonably considered as adding something to the act which is in harmony with its purpose." Id.

Applying the stated rules, Chapter 44A must be construed in pari materia. These statutes are based upon equitable principles intended to benefit a general class of persons supplying labor and materials for the improvement of realty. Miller v. Lemon Tree Inn of Wilmington, Inc., 39 N.C.App. 133, 140, 249 S.E.2d 836, 841 (1978).

The purpose of the materialman's lien statute is to protect the interest of the supplier and the materials it supplies; the materialman, rather than the mortgagee, should have the benefit of materials that go into the property and give it value.

Carolina Builders Corp. v. Howard-Veasey Homes, Inc., 72 N.C.App. 224, 229, 324 S.E.2d 626, 629, disc. rev. denied, 313 N.C. 597, 330 S.E.2d 606 (1985).

While it is true that G.S. § 44A-23 does expressly limit the tiered subcontractor's lien only "to the extent of his claim," we do not read this language to mean "to the extent of his claim as permitted by G.S. 44A-18." G.S. § 44A-23 expressly preserves the rights of a first, second or third tier subcontractor to enforce the lien of the general contractor. This construction is further supported by the inclusion of the language that upon filing of the notice and claim of lien "no action of the contractor shall be effective to prejudice the rights of the subcontractor without his written consent." This language, not found in G.S. § 44A-18, indicates that the legislature intended for the subcontractor to be secured by a mechanic's lien to the full extent of his claim.

It is also significant to note that although the rights of subcontractors of the first and second tier are governed by a number of different strictures, none distinguishes between these two classes of claimants. Significantly, under § 44A-21 claims on the lienable funds are to be apportioned pro rata among all subcontractors without regard to their rank. Furthermore, in all of the reported cases in which subrogation was used to defeat a mechanic's lien claim, it was the general contractor who had no surviving right to which the claimant could be subrogated. See Builders Supply v. Bedros, 32 N.C.App. 209, 231 S.E.2d 199 (1977); Mace v. Bryant Construction Corp., 48 N.C.App. 297, 269 S.E.2d 191 (1980). In order to protect the owner from double payment, the statutes provide and case law confirms that the subrogation theory limits subcontractors to the unpaid claims of the general contractor. Prior payment to intermediary first tier subcontractors does not bar the claims of second tier subcontractors.

Defendants argue that it is inequitable to force the owner to pay twice for the same work. However, the owner has the benefit of the improvement of his real property and can fully protect himself by requiring performance bonds. The inequity to the second tier contractor, who would receive nothing is far greater and is contrary to the purpose of Chapter 44A.

Plaintiff substantially complied with the notice and filing provisions of Chapter 44A. The trial court erred in denying plaintiff's claim and we remand this case to the trial court for consideration of plaintiff's mechanic's lien rights under § 44A-23 in conformity with this opinion.

Reversed and Remanded.

JOHNSON and COZORT, JJ., concur.