Opinion
Docket No. 53049.
Decided October 7, 1980. Leave to appeal applied for.
Dickinson, Wright, McKean, Cudlip Moon (by Steven E. Dawson), for Continental Mortgage Investors.
Schlussel, Lifton, Simon, Rands, Kaufman, Lesinski Jackier (by Donald B. Lifton and Douglas E. Busbey), for John Casey Development Company.
Before: DANHOF, C.J., and BRONSON and BEASLEY, JJ.
This action presents one claim in a complex suit involving the Woodvale Condominium Project in Southfield, Michigan. John Casey Development Company (Casey), the general contractor, sought to foreclose on its mechanics' lien. Continental Mortgage Investors (C.M.I.) opposed foreclosure on the ground that Casey's lien was unenforceable for failure to comply with the residential builders' act, or, in the alternative, that C.M.I. had a prior mortgage which superseded the lien. The matter was heard on cross-motions for summary judgment, and the trial court granted summary judgment for C.M.I.
MCL 338.1501 et seq.; MSA 18.86(101) et seq.
The matter was appealed to this Court, where a majority held (Chief Judge DANHOF dissenting) that Casey's substantial compliance with the provisions of the residential builders' act was sufficient to allow maintenance of an action to foreclose the lien. On the priority issue, the majority held that because engineering services were performed prior to the giving or recording of the mortgage, the lien took preference under MCL 570.9; MSA 26.289, MCL 570.1; MSA 26.281, as construed in Williams Works, Inc v Springfield Corp, 81 Mich. App. 355, 362-363; 265 N.W.2d 328 (1978). Michigan Roofing Sheet Metal, Inc v Dufty Road Properties, 90 Mich. App. 732; 282 N.W.2d 809 (1979).
C.M.I. sought leave to appeal to the Supreme Court, which ordered the application held in abeyance pending decision by that Court in the Williams Works case. Williams Works was recently decided by the Supreme Court, 408 Mich. 732; 293 N.W.2d 304 (1980), and the instant case has since been remanded for reconsideration in light of that case.
Williams Works was concerned with:
"[T]he sole question whether off-site engineering services rendered before the beginning of actual, on-site construction qualify, pursuant to § 9(3) of the Michigan mechanics' lien law, as `the commencement of said building or buildings, erection, structure or improvement' so as to give priority to mechanics' liens over a mortgage recorded after the provision of such services but prior to the beginning of any visible, on-site construction". Id., 734-735, (footnotes omitted).
It thus appears that the Supreme Court's remand affects only our holding on the priority issue, and we expressly reaffirm our prior holding on the issue of the sufficiency of Casey's compliance with the residential builders' act.
In Williams Works the Supreme Court held, after extensive review of the mechanics' lien act and prior case law, that regardless of when a lienable act was actually performed the lien does not take priority over a mortgage unless visible, on-site construction which could be said to signal the "commencement" of the building, erection, structure, or improvement has taken place. See MCL 570.9 (third); MSA 26.289 (third). The purpose of the visible commencement requirement is to place potential lenders or purchasers on constructive notice that mechanics' liens may exist. The Supreme Court was of the opinion that this purpose would be defeated if mechanics' liens were granted priority as of the date of lienable but off-site services such as the rendering of engineering plans.
"We also believe that our decision, in continuing to key `commencement' into the concept of constructive notice, is based on sound public policy. Were we to adopt appellees' position and rule that the `commencement' of a building, erection, structure or improvement could be triggered by the rendering of off-site, non-visible engineering plans, mechanics' liens could relate back to a long time before any visible signs of construction existed to inform prospective lenders inspecting the premises that liens had attached. Under such circumstances, construction financing would become exceedingly difficult." Williams Works, Inc, supra, 751.
One Michigan commentator has reconstructed the policy considerations behind selection of the date of visible "commencement" as the date for fixing priorities in the following manner:
"But what date? That is a critical question for outsiders, — for example, the bank which lent money on mortgage of this land prior to the completion of the building. Here our lawmakers have split. Most of them have given all contractors, laborers and materialmen liens which relate back to the time the job was begun by visible operations on the land. The rationale is found in certain policy factors. A lien having priority as of a later date would give no assurance to one who was asked to furnish labor or materials at the beginning of the job. Do we want to impose that risk upon them, or repair the `owner's' credit facilities to the extent that they refuse to assume that risk? On the other hand, a lien as of an earlier date would be a wallop for anyone who had dealt with the `owner' on the faith of his title, as yet unencumbered but later subjected to the antedated lien. To give the lien priority as of the date when visible operations began is stiff, but we can at least say that it was possible for anyone dealing with the `owner' to see the operations, and so to understand what was likely to ensue, assuming knowledge of the law. It should be added that prudence requires inspection of the land in any case, by reason of the doctrine of notice from possession. So, by a process of elimination, we come to the date of visible operations. Other statutes, however, have ignored the notice point, and date the liens from the execution of the `owner's' contract, without requiring the contract to be recorded. Apparently there is no way to guard one's self against the hazard created by that type of statute." Durfee, Priorities, 57 Mich L Rev 459, 476-477 (1959).
Although the purpose of selecting the date of commencement as the date for fixing priorities appears designed to give constructive notice to lenders and purchasers of the potential existence of mechanics' liens, the Supreme Court, perhaps curiously, rejected the argument that a mortgagee's actual notice of the prior performance of lienable services was sufficient to accord priority to the lien. Williams Works, Inc v Sprinfield Corp, 408 Mich. 753-754. This rejection seems to be based on the statutory language and longstanding judicial construction requiring a "commencement", leading to reliance by lenders on the date of commencement as the date for fixing priorities regardless of the reasons for selecting that date.
The question that remains is just what sort of activity is sufficient to signal commencement. Although the Supreme Court declined to intimate a specific view on this point, Williams Works, supra, 754, fn 13, guidelines were offered:
"`Commencement', then, as defined by early case law and commentary, required an act of such a character that it was notice to all of the existence of mechanics' liens." Id., 742.
"In short, visible, on-site construction, such that it is obvious from the work done on the premises that a building, erection, structure or improvement is in progress, is still required in order to signal `commencement'." Id., 749. (Footnote omitted.)
Resolution of the instant case depends on whether sufficient visible on-site construction had taken place prior to the mortgage so that the mechanics' lien would take priority. If not, the mortgage would supersede the lien and the trial court would have been correct in granting summary judgment to C.M.I.
The record in the instant case reveals that C.M.I.'s mortgage was granted on May 2, 1972, and recorded on May 26, 1972. Prior to this time, at least by March 17, 1972, labor and construction materials were furnished to the construction site. Although there appears to be a split of opinion in this country over whether such acts are sufficient to signal commencement, Anno: What constitutes "commencement of building or improvement" for purposes of determining accrual of mechanics' lien, 1 ALR3d 822, 835-836, Michigan case law holds that the furnishing of construction materials to the jobsite is sufficient to constitute a commencement. Williams Works, Inc v Springfield Corp, 76 Mich. App. 541, 550; 257 N.W.2d 160 (1977), lv den 402 Mich. 908 (1978). See Wallich Lumber Co v Golds, 375 Mich. 323; 134 N.W.2d 722 (1965). This position has been adopted by other states as well. A unanimous California Supreme Court stated the general rule as follows:
At least two other sorts of on-site work occurred prior to the giving and recording of the mortgage. Beginning on March 7, 1972, soil borings were conducted by Michigan Drilling, a subcontractor. The Supreme Court, however, has held that such activity is insufficient to signal commencement. Williams Works, Inc v Springfield Corp, 408 Mich. 735, fn 2. In addition, on April 13, 14, 16, and 17, 1972, demolition of existing structures on the construction site was accomplished by another subcontractor. There is a split of authority over the question whether such demolition constitutes a commencement, Anno: What constitutes "commencement of building or improvement" for purposes of determining accrual of mechanics' lien, 1 ALR3d 822, 828-829, but no Michigan cases have yet addressed this issue. Because we hold, based on existing Michigan authority, that the delivery of construction materials is a sufficient commencement, there is no need to address the question of whether demolition would also be sufficient.
"`Thus the general rule is that such a lien does not attach unless and until construction has been undertaken by the doing of actual visible work on the land or the delivery of construction materials thereto.'" Walker v Lytton Savings Loan Ass'n of Northern California, 2 Cal.3d 152, 156-157; 84 Cal.Rptr. 521; 465 P.2d 497 (1970) (emphasis in original), quoted in Williams Works, Inc v Springfield Corp, 408 Mich. 750-752. We also believe that the delivery of construction materials to the jobsite satisfies the guidelines of the Supreme Court's decision in Williams Works. When construction materials are visible on a jobsite, it is obvious that a building, erection, structure, or improvement is in progress so that all who happen by the site have constructive notice of the existence of mechanics' liens.
Because the delivery of construction material preceded the giving and recording of the mortgage, the liens take priority over the mortgage. The trial court's grant of summary judgment in favor of C.M.I. is reversed, and the case remanded for further proceedings.
Reversed.
BEASLEY, J., concurred.
I dissent.
Latipac [Latipac, Inc v The Superior Court of Marin County, 64 Cal.2d 278; 411 P.2d 564 (1966)] does not support the majority's finding of substantial compliance in this case. As the majority acknowledges, the finding of substantial compliance in Latipac was based on three criteria. One criterion was that the contractor's qualifications as a licensee had been "officially confirmed" throughout the period of contract performance. A careful reading of the dissent in Latipac shows the Court's reliance on this criterion was a slight extension of California law and was crucial to the decision.
In the present case the contractor seeking recovery has not shown that its qualifications were "officially confirmed" throughout the period of performance of the contract. The majority has not found otherwise. Although the majority concludes the Latipac test has been met in this case, its conclusion is based on the reason that "there is no proof that Casey was not a competent and responsible contractor throughout the term of the contract". This reasoning confuses "license" and "official confirmation" with "qualification in fact". In reality the majority's ruling today is much broader than the holding in Latipac.
The majority's extension of Latipac is contrary to the clear language of the residential builders act. The majority justifies this extension by reasoning that the purposes of the residential builders' act will not be served by exacting a forfeiture from the contractor in this case. These matters, however, may not be considered in an action barred by the clear language of the licensing act. Justice Mosk made this point well in his Latipac dissent. Regarding the California Contractors Licensing Law, he wrote:
"`In each * * * case, how the aims of policy can best be achieved depends on the kind of illegality and the particular facts involved. [Citations.] But we are not free to weigh these considerations in the present case. Section 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and that such deterrence can best be realized by denying violators the right to maintain any action for compensation in the courts of the state [citation].' (Italics added.)" 64 Cal.2d 278, 289 quoting Lewis Queen v N M Ball Sons, 48 Cal.2d 141, 151; 308 P.2d 713 (1957).
Prior Michigan cases are in accord with Justice Mosk's position. See, e.g., Bilt-More Homes, Inc v French, 373 Mich. 693; 130 N.W.2d 907 (1964), and Chilson v Clevenger, 12 Mich. App. 56; 162 N.W.2d 303 (1968).
While I am sympathetic in this case to the equitable claims of the contractor and to the policy concerns of the majority, I believe such claims should be addressed to the Legislature.