Bayland Buildings, Inc. v. Spirit Master Funding VIII, LLC

• Decision Date: 07 June 2017
• Docket Number: Appeal No. 2016AP1807
• Citation: 377 Wis.2d 149,900 N.W.2d 94,2017 WI App 42
• Parties: BAYLAND BUILDINGS, INC., Plaintiff-Appellant, v. SPIRIT MASTER FUNDING VIII, LLC, Defendant-Respondent, Citibank, NA, Defendant.
• Court: Wisconsin Court of Appeals

377 Wis.2d 149

900 N.W.2d 94

2017 WI App 42

BAYLAND BUILDINGS, INC., Plaintiff-Appellant,

v. SPIRIT MASTER FUNDING VIII, LLC, Defendant-Respondent,Citibank, NA, Defendant.

Appeal No. 2016AP1807

Court of Appeals of Wisconsin.

Submitted on Briefs: April 12, 2017

Opinion Filed: June 7, 2017

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Alex R. Ackerman of Gerbers Law, S.C., Green Bay.

On behalf of the defendant-respondent, the cause was submitted on the brief of Timothy H. Posnanski of Husch Blackwell LLP, Milwaukee.

Before Reilly, P.J., Gundrum and Hagedorn, JJ.

REILLY, P.J.

¶1 This appeal addresses "constructive notice" under Wisconsin's construction lien law. Bayland Buildings, Inc. (Bayland) appeals the circuit court's conclusion that Bayland had constructive notice that Siren Saukville, LLC (Siren) sold its entire interest in the property to Spirit Master Funding VIII, LLC (Spirit Master) after construction began. Given the remedial nature of Wisconsin's construction lien law, we conclude as a matter of law that Siren's notice to Bayland that it was bringing in an "investor" did not constitute constructive notice that Siren no longer had any ownership interest in the property. We reverse the circuit court's grant of summary judgment and remand for further proceedings consistent with this decision.

Wisconsin's Construction Lien Law

¶2 Wisconsin's lien laws "are remedial in character and are to be liberally construed to give effect to the legislative intent of protecting the claims of tradesmen, laborers and materialmen for work and materials supplied."

Wes Podany Constr. Co. v. Nowicki , 120 Wis.2d 319, 324, 354 N.W.2d 755 (Ct. App. 1984). Wisconsin's lien law provides that "[a]ny person who performs, furnishes, or procures any work, labor, service, materials, plans, or specifications, used or consumed for the improvement of land" may file a lien against the real estate if he or she does not receive payment. WIS. STAT . § 779.01(3) (2015-16).¹ Construction liens are statutory creatures, and if a lien is properly perfected, it becomes an encumbrance against the real estate in the same manner as a mortgage or a judgment lien.² See Goebel v. National Exchangors, Inc. , 88 Wis.2d 596, 606, 277 N.W.2d 755 (1979) ; see also Wes Podany , 120 Wis.2d at 324, 354 N.W.2d 755 ; STEVEN W. MARTIN & BRIDGET M. HUBING, WISCONSIN CONSTRUCTION LIEN LAW HANDBOOK § 1.29 (4th ed. 2014).

¶3 In order to comply with the statutory requirements under WIS. STAT . ch. 779, a lien claimant must give written notice to the owner of the property prior to filing a lien claim. WIS. STAT . § 779.06(1), (2). "Owner" is defined in the statute as "the owner of any interest in land who, personally or through an agent, enters into a contract , express or implied, for the improvement of the land." WIS. STAT . § 779.01(2)(c) (emphasis added). A lien claimant is under no continuing duty to review the records of the property to confirm the ownership status as "the critical date, insofar as the lien claimant's duty to check the records in the office of the register of deeds is concerned, is the first date on which he furnishes labor or materials because the right to a lien of a supplier of labor or materials arises on that date." Duitman v. Liebelt , 17 Wis. 2d 543, 548-49, 117 N.W.2d 672 (1962). "[A] contractor does not lose his lien rights if, after he commences work, the owner with whom he contracted conveys the property to another, provided the contractor has no actual or constructive notice of the conveyance, and further provided that he complies" with the notice provisions of § 779.06(2). Wes Podany , 120 Wis.2d at 326, 354 N.W.2d 755.

¶4 While Spirit Master acknowledges that Bayland was not given actual notice that Siren no longer had any ownership interest in the property, it argues that constructive notice imputes such knowledge upon Bayland. Bayland counters that while it knew that Spirit Master was coming into the project as an "investor," it did not know that Siren was no longer an owner.

Standard of Review

¶5 The standard of review for determining whether a contractor received constructive notice under Wisconsin's lien law is one of first impression. "Constructive notice" is a policy determination which "under certain circumstances" treats a person or entity as if it had actual notice. Thompson v. Dairyland Mut. Ins. Co. , 30 Wis.2d 187, 192, 140 N.W.2d 200 (1966). Constructive notice exists when a person without knowledge of a fact is subjected on grounds of public policy to knowledge of that fact, as well as the liabilities associated with that knowledge.

Bump v. Dahl , 26 Wis.2d 607, 613, 133 N.W.2d 295 (1965). The law assumes that if the person had exercised a reasonable degree of care he would have acquired the knowledge.³ Id. ; 58 AM. JUR. 2 D Notice § 6 (2012) ("A person is chargeable with constructive notice of any fact that would have been disclosed by a reasonably diligent inquiry if circumstances are such as to indicate to a person of reasonable prudence and caution the necessity of making inquiry to ascertain the true facts, and he or she avoids such inquiry.").

¶6 Our supreme court has found that the standard of review for constructive notice of an "unsafe condition" under the safe-place law is a question of law if the facts are not in dispute. Megal v. Green Bay Area Visitor & Convention Bureau, Inc. , 2004 WI 98, ¶ 20 n.2, 274 Wis. 2d 162, 682 N.W.2d 857. In Megal , our supreme court agreed with this court's conclusion that constructive notice is a question of law:

The distinction between propositions of fact and conclusions of law is this: Propositions of fact are descriptive; conclusions of law are dispositive. Propositions of fact state history; conclusions of law assign legal significance to that history. When there is but one account of what happened [however the account is determined], and the application of acceptable rules of law to that account is problematical, a question of law results. A conclusion of law results when legal effects are assigned to events. A conclusion of law stands for more than the happening of events; it is at least a step in the legal disposal of events. If a rule of law is applied before a conclusion is reached, that conclusion is one of law.

Megal v. Green Bay Area Visitor & Convention Bureau, Inc. , 2003 WI App 230, ¶¶ 12, 14, 267 Wis.2d 800, 672 N.W.2d 105, overruled on other grounds by Megal , 274 Wis. 2d 162, ¶ 20 n.2, 682 N.W.2d 857 (alteration in original; citations omitted).

¶7 Like the safe-place statute, we conclude that constructive notice under Wisconsin's construction lien law calls for the assigning of legal effects to established facts. "Constructive notice is a legal inference from established facts and, like other legal presumptions, does not admit of dispute." 58 AM. JUR. 2 D Notice §§ 6, 7 (2012). Accordingly, whether a party had constructive notice in a construction lien law setting is a question of law which we review de novo.

Background

¶8 In August 2013, Bayland, as general contractor, and Siren, as owner, entered into an agreement for the design and construction of a building in Saukville, Wisconsin, at a cost exceeding $3 million. On September 30, 2014, Siren conveyed the property to Spirit Master Funding IX, LLC.⁴ In the days prior to the sale, e-mails were exchanged between Bayland and Siren. Spirit Master claims these e-mails, as well as a modified warranty, provided Bayland with constructive notice that Siren no longer was an "owner" under WIS. STAT . § 779.01(2)(c). The "established facts" for our purposes are the e-mail exchanges and the modified warranty. In the first e-mail, Siren states,

Thank you, [Bayland]. Even with that assurance, the investor that we are closing on this, this morning with, needs [Varco-Pruden Buildings] to acknowledge that the warranty is in place and can be transferred, as outlined in the letter I emailed. It is the only thing holding up the closing. We have no paperwork that shows that Bayland is authorized to execute [Varco-Pruden Building's] warranty on [Varco-Pruden Building's] behalf.

Later that same day Siren contacted Bayland again with concerns about the warranty:

[Bayland], we are running into a deadline with the title company (we only have another hour and 15 minutes to close). And, worse, if we miss it, and cannot close today, that will put us into the next quarter and the investor will back out, because this was earmarked as an investment for this quarter , only. I don't think that either of us want that to happen, since I can't imagine the possible repercussions from Bayland not having a required building Warranty in place for us , and, therefore, blocking the transaction. That's not a threat, that's a genuine concern.

(Emphasis added.)

¶9 The modified warranty provided:

We refer to AIA Document A141-2004 (Standard Form of Agreement between Owner and Design-Builder), between Bayland Buildings, Inc., as Design-Builder and Siren Saukville, LLC ("Siren"), as Owner (the "Agreement"). The Agreement pertains to the project known as Camping World and located at 800 E. Green Bay Road, Saukville, Wisconsin (the "Project"). The Agreement contains warranties in favor of Owner, including but not limited to those referenced in Section A.3.5.1 (the "GC Warranty"), CWI. Inc. and Camping World RV Sales, LLC (jointly and severally, "Tenant") is the user of the Project.

Design-Builder consents to the assignment of the GC Warranty from Siren to Spirit Master Funding IX, LLC ("Spirit") and its successors and/or assigns and agrees that the GC Warranty shall also extend to Siren and Tenant and their respective successors and/or assigns.

(Emphasis added.) The e-mails clearly reference Spirit Master as an "investor" making an "investment" in the project and express that the building warranty be modified so it is in place for "us." There is no inference in the e-mails or warranty that Siren would no longer have any ownership...