Opinion
No. X10-UWY-CV-08-5010927 S
April 7, 2009
MEMORANDUM OF DECISION RE ISSUE OF PRIORITY
Introduction
The Complaint alleges that ThyssenKrupp Elevator Corporation ("ThyssenKrupp") entered into a construction contract with Ashforth Properties Construction, Inc. d/b/a A.P. Construction Company ("AP"), for project entitled Southport Green and located in Southport, Connecticut. Complaint ¶ 4. The Complaint alleges that the total now due and unpaid according to the agreement is $207,724.40. Complaint ¶ 12. To secure the balance due it, ThyssenKrupp caused to be filed a Certificate of Mechanic's Lien with the Town Clerk of the Town of Fairfield claiming a lien on the premises for said sum of $207,724.40. Complaint ¶ 15. The complaint alleges that said Certificate of Mechanic's Lien was released upon substitution of a bond in a foreclosure action, T.D. Banknorth, N.A. v. Southport Village Realty, No. X10-UWY-CV-07-5007641S, wherein the Bank of Scotland is surety. Complaint ¶ 18. ThyssenKrupp claims that it has not been paid the amounts due as set forth in its Mechanic's Lien and it is a proper claimant under the bond provided by the Bank of Scotland. Complaint ¶ 19.
The Defendants have moved, pursuant to General Statutes § 49-37(b)(3), that the lien for which the bond was substituted be declared invalid. The issue before the court is whether the priority of the Plaintiff's mechanic's lien in relation to other encumbrances on the property to which the lien attached, and therefore, the existence of any equity to satisfy the lien, is a proper consideration by the court in determining the lien's "validity."
Discussion
"The mechanic's lien statutes . . . are not to be construed with unreasonable strictness but fairly and reasonably so as to carry out their remedial intent . . . This intent is to give one who, by furnishing services or materials under a contract with the owner of land, has added to its value by constructing a building or buildings upon it, a substantial security for his proper remuneration. To carry out this design it is necessary to give the statute such permissible and reasonable construction as may serve to make a mechanic's lien of some value." Burque v. Naugatuck Lumber Co., 113 Conn. 350, 351 (1931).
When a bond has been substituted for a mechanic's lien pursuant to General Statutes § 49-37, the effect is to shift the lien from the real property to the bond. The statutory provisions are designed to enable the owner of the real property to facilitate the transfer of that property by dissolution of the encumbrance of the lien. Six Carpenters, Inc. v. Beach Carpenters Corporation, 172 Conn. 1, 6 (1976). Furthermore, the legislative intent in enacting General Statutes § 49-37 "was to enable the owner or other person having an interest in the property to obtain release of the mechanic's lien so long as the lienor's rights are not thereby prejudiced. The lienor's rights are considered adequately protected if the landowner demonstrates a good-faith intention to contest the lien and substitutes a bond with surety in its place. Thus, while the statutory provisions are designed to facilitate the transfer of the property by dissolution of the lien, they are also intended to ensure the continued existence of assets out of which the lienor may satisfy his claim if he should later prevail and obtain a judgment on the merits of the mechanic's lien." Id. "The statutory procedure requires, however, that, on a dissolution, the lienor have a viable fund to look to for the payment of his claim. The requirement in 49-37(a) that before such a dissolution is ordered, the judge must also be `satisfied that the applicant in good faith intends to contest such lien' contributes to assuring the attainment of the legislative purpose of this remedial legislation." (Footnote omitted.) Henry F. Raab Connecticut, Inc. v. J.W. Fisher Co., 183 Conn. 108, 116 (1981).
General Statutes § 49-37 provides, in part, that: "(a) Whenever any mechanic's lien has been placed upon any real estate pursuant to sections 49-33, 49-34 and 49-35, the owner of that real estate, or any person interested in it, may make an application to any judge of the Superior Court that the lien be dissolved upon the substitution of a bond with surety . . . If the judge is satisfied that the applicant in good faith intends to contest the lien, he shall, if the applicant offers a bond, with sufficient surety, conditioned to pay to the lienor or his assigns such amount as a court of competent jurisdiction may adjudge to have been secured by the lien, with interest and costs, order the lien to be dissolved and such bond substituted for the lien . . ."
As a result, the lienor's action on the bond is an action to recover what is owed the lienor for its work on the liened property, the payment of which was sought to be secured by the lien. In A. Petrucci Construction Co. v. Alaimo Excavators Blasters, Inc., Superior Court, Judicial District of Ansonia-Milford at Milford, Docket No. CV90032322S (July 9, 1990, Fuller, J.) ( 2 Conn. L. Rptr. 106) where the plaintiff substituted a bond for a mechanic's lien filed by the defendant after claiming that it was not fully paid by the plaintiff for work performed, the court found that: "[T]he action is no longer an action involving land or foreclosure of a lien on real property. The action is a conventional civil action . . . The underlying action is now on a bond, which is a contract obligating a third party to respond in damages if the principal does not do so." Similarly, in NY Conn Corporation v. Southbury Diagnostic Imaging Center, Superior Court of Connecticut, Docket No. 990337528S (April 4, 2000, Moraghan, J.) ( 27 Conn. L. Rptr. 42) where the plaintiff and defendant agreed to substitute a bond for the plaintiff's mechanic's lien, the court found that "the [action on the bond] is no longer an action in which the plaintiff is seeking foreclosure of the mechanic's lien. The present action is essentially contractual because the bond was substituted for the plaintiff's lien." As a result, the effect of a bond substituted for a mechanic's lien is to release the property from the mechanic's lien while providing the lienor security for payment from the parties who undertook the bond agreement. The bond, therefore, is not substituted for the land in the sense that equity may proceed against the bond as it could against the land, but the bond becomes a contract between the parties that is enforceable at common law.
Pursuant to General Statutes § 49-37(b)(3): "If an action on the bond is pending before any court, any party to that action may at any time prior to trial, unless an application under subdivision (1) of this subsection has previously been ruled upon, move that the lien for which the bond was substituted be declared invalid or reduced in amount." (Emphasis added.) General Statutes § 49-37(b)(5) provides that: "Upon the hearing held on the application or motion set forth in this subsection, the obligee on the bond shall first be required to establish that there is probable cause to sustain the validity of the lien. Any person entitled to notice under subdivision (1) of this section may appear, be heard and prove by clear and convincing evidence that the validity of the lien should not be sustained or that the amount of the lien claimed is excessive and should be reduced. Upon consideration of the facts before it, the court or judge may: (A) Deny the application or motion if probable cause to sustain the validity of the lien is established; or (B) order that the bond is void, if (i) probable cause to sustain the validity of the lien is not established, or (ii) by clear and convincing evidence, the invalidity of the lien is established; or (C) order the amount of the bond reduced if the amount of the lien is found to be excessive by clear and convincing evidence." (Emphasis added.) "If the lien itself was invalid, nothing was secured by the bond." (Citation omitted.) Biller v. Harris, 147 Conn. 351, 353 (1960).
The Defendants argue that the Plaintiff's bond is invalid because a construction mortgage on the liened property had priority over the Plaintiff's mechanic's lien, and, as a result, there was no equity in the property to which the Plaintiff's mechanic's lien attached. The Plaintiff argues that priority is not a basis to contest validity pursuant to General Statutes § 49-37(b)(3) because validity is not dependent on priority, but rather upon compliance with the statutory filing requirements. The court agrees.
General Statutes § 49-34 provides that: "A mechanic's lien is not valid unless the person performing the services or furnishing the materials (1) within ninety days after he has ceased to do so, lodges with the town clerk of the town in which the building, lot or plot of land is situated a certificate in writing, which shall be recorded by the town clerk with deeds of land, (A) describing the premises, the amount claimed as a lien thereon, the name or names of the person against whom the lien is being filed and the date of the commencement of the performance of services or furnishing of materials, (B) stating that the amount claimed is justly due, as nearly as the same can be ascertained, and (C) subscribed and sworn to by the claimant, and (2) not later than thirty days after lodging the certificate, serves a true and attested copy of the certificate upon the owner of the building, lot or plot of land in the same manner as is provided for the service of the notice in section 49-35." (Emphasis added.)
"The right to fix a lien for materials furnished or services rendered on buildings and land is created by statute, and the acts required by the statute must be done to entitle a party to the benefit of its provisions." (Citations omitted.) The Lampson Lumber Company, Inc. v. Rosadino, 141 Conn. 193, 196 (1954). "Because the mechanic's lien is a creature of statute, a lienor must comply with statutory requirements in order to perfect his claim." (Citations omitted.) HS Torrington Assoc. v. Lutz Engineering Co., 185 Conn. 549, 553 (1981). Thus the "validity" of a mechanic's lien depends on compliance by the person who performed the work with the requirements of General Statutes § 49-34. Consequently the "invalidity" of that lien should be limited to a determination of whether the lienor has failed to comply with those requirements. "When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature . . . In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply . . . In seeking to determine that meaning, General Statutes § 1-2z directs us first to consider the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered . . ." (Footnote, citations, and internal quotation marks omitted.) Kinsey v. Pacific Employers Insurance Company, 277 Conn. 398, 405 (2006). There is nothing in General Statutes § 49-34 indicating that in order to be "valid" a mechanic's lien must attach to sufficient equity in the property to satisfy the amount of the lien.
A mechanic's lien is invalid when it is filed more than ninety days after the work on the property has ceased. Rollar Construction and Demolition, Inc. v. Granite Rock Associates, LLC, 94 Conn.App. 125 (2006). A mechanic's lien not properly sworn to is also invalid. Louis Gherlone Excavations, Inc. v. McLean Construction, 88 Conn.App. 775, cert. granted, 274 Conn. 909 (2005) (appeal withdrawn Feb. 2, 2006). A mechanic's lien has been held invalid because it did not contain a written oath that it had been sworn to by the signer. J.C. Penney Properties, Inc. v. Peter M. Santella Company, Inc., 210 Conn. 511, 518 (1989). It has been held that a mechanic's lien was invalid because it related to the installation in a building of a heating system, which the parties agreed would remain personal property, and therefore was not covered by our mechanic's lien statute. Hartlin v. Cody, 144 Conn. 499, 508 (1957).
A mechanic's lien may be valid as a matter of law even if it is "worthless as a matter of fact." See, Federal Deposit Insurance Corporation v. Bombero, 236 Conn. 744, 746 (1996). As Judge West held in First Federal Savings and Loan Association of Waterbury v. J.F. Barrett Sons, Inc., Superior Court, Judicial District of Waterbury, Docket No. 120591 (June 14, 1994) [ 11 Conn. L. Rptr. 634]: "Only after the bond has been posted do the principal and surety have an opportunity to test the validity or amount of the liens. Even then, there is no authority for reducing the amount of the lien solely based on priority." But see, PDS Engineering Construction, Inc. v. Double RS, 42 Conn.Sup. 460, 465 [ 6 Conn. L. Rptr. 181] (1992) ("this court interprets `invalid' to mean either legally insufficient absolutely or specifically as to a particular party having an interest in the property. The purpose of § 49-37 is carried out when the lien can be attacked both to declare it entirely invalid or to declare it invalid only as to a party who is adversely affected by it. Consequently, United Bank had the power under § 49-37, if it filed a bond, to assert the priority of its mortgage over the PDS lien").
The Defendants argue that where there is no equity in the property sufficient to satisfy a subsequent lien, the lien is invalid and that the lienor's rights cannot rise higher by substitution of a bond. The Defendants cite Camputaro v. Stuart Hardwood Corporation, 180 Conn. 545 (1980), in support of their claim but there the issue was whether a mechanic's lien for which a bond had been substituted was for work covered by the mechanic's lien statute. The court held that it was not and therefore the plaintiff could not recover on the bond. The Defendants also cite FDIC v. Bombero, 37 Conn.App. 764, appeal dismissed, 236 Conn. 744 (1996), but that case is distinguishable because it dealt with the issue of whether a foreclosing mortgagee was entitled to a court order discharging the lien of a junior judgment lienholder who mistakenly had been omitted from the foreclosure proceedings. In that case the court found that there was no equity to satisfy the lien, and it would have been extinguished during the foreclosure had the lienor been named a defendant in that action. Here the Plaintiff was named as a party to the foreclosure.
"A valid foreclosure of a mortgage terminates all interests in the foreclosed real estate that are junior to the mortgage being foreclosed and whose holders are properly joined or notified under applicable law. Foreclosure does not terminate interests in the foreclosed real estate that are senior to the mortgage being foreclosed." Restatement of Laws 3d Property: Mortgages § 7.1, p. 3388 (2008). Thus in a foreclosure action the court determines who are the "junior" and "senior" encumbrancers, if in dispute. Therefore Practice Book § 23-17 provides that: "In any action to foreclose a mortgage or lien, any party seeking a judgment of strict foreclosure shall file, with the motion for judgment, a list indicating the order in which law days should be assigned to the parties to the action. The order of the law days so indicated shall reflect the information contained in the plaintiff's complaint, as that information may have been modified by the pleadings. Objections to the order of law days indicated on said list shall only be considered in the context of a motion for determination of priorities, which motion must be filed prior to the entry of judgment." In this case, if the Defendants had not sought to substitute the Plaintiff's mechanic's lien with a bond, the priority of that lien in relation to the Defendants' mortgage would have had to be determined in the foreclosure action, and, if the Plaintiff's lien was found to be "junior" to the Defendant's mortgage the judgment of strict foreclosure would have terminated the Plaintiff's interest in the property unless it was able to redeem. "When the debt of a prior mortgage exceeds that of a later encumbrance, the latter is worthless because the property contains no equity to satisfy the later encumbrance." (Citations omitted.) Bankers Trust of California, N.A. v. Neal, 64 Conn.App. 154, 158 (2001). Similarly, if the Plaintiff's lien was determined to be "senior" to the Defendants' mortgage, the Defendants would not have been able to foreclose out the Plaintiff. In addition, the Plaintiff could have pursued its own foreclosure action. General Statutes § 49-33(1) provides that: "Any mechanic's lien may be foreclosed in the same manner as a mortgage."
Lastly, General Statutes § 49-37(b)(5) provides that at the hearing held to consider the validity or amount of the bond, the interested parties may "be heard and prove by clear and convincing evidence . . . that the amount of the lien claimed is excessive and should be reduced." The court, after such a hearing, may "order the amount of the bond reduced if the amount of the lien is found to be excessive . . ." Clearly this language does not relate to the value of the property to which the lien attached but to the "amount of the lien." Pursuant to General Statutes § 49-34 the certificate of mechanic's lien must set forth "the amount claimed as a lien" and that "the amount claimed is justly due." Thus the focus of any reduction to the amount of the lien is on the reasonableness of the amount claimed due the lienor. Nothing in the statute indicates that the court can reduce the bond based on an evaluation of the value of the lien in relation to the equity in the property attached by lien.
Conclusion
For the reasons stated above, the issue of the priority of the Plaintiff's mechanic's lien in relation to other encumbrances on the liened property has no place in the court's consideration of a motion pursuant to General Statutes § 49-37(b)(3) to invalidate the lien.