J. Propes Elec. Co. v. Dewitt-Newton, Inc.

• Decision Date: 05 May 1980
• Docket Number: INC,Docket No. 77-5173-76,WITT-NEWTO
• Citation: 293 N.W.2d 801,97 Mich.App. 295
• Parties: J. PROPES ELECTRIC COMPANY, a Michigan Corporation, Plaintiff-Appellee, v. De, a Missouri Corporation, et al., Defendants-Appellees, and IDS Mortgage Corporation, a Delaware Corporation, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 801

293 N.W.2d 801

97 Mich.App. 295

J. PROPES ELECTRIC COMPANY, a Michigan Corporation, Plaintiff-Appellee, v. DeWITT-NEWTON, INC., a Missouri Corporation, et al.,

Defendants-Appellees,

and

IDS Mortgage Corporation, a Delaware Corporation, Defendant-Appellant.

Docket No. 77-5173-76.

Court of Appeals of Michigan.

May 5, 1980.

Released for Publication July 11, 1980.

Rehearing Denied July 16, 1980.

Laurence D. Connor, Detroit, for defendant-appellant.

Charles W. Center, Birmingham, for J. Propes Elec. Co.

J. Laevin Weiner, Southfield, for DeWitt-Newton, Inc.

Donald C. Morgan, Plymouth, for Plymouth Twp.

Sidney L. Frank, Troy, for R. A. Cousino Inc.

Edward F. Draugelis, Plymouth, for Bidwell Masonry.

Before MacKENZIE, P. J., and V. J. BRENNAN and WALSH, JJ.

V. J. BRENNAN, Judge.

This is an appeal from the consolidated trial of four cases in which mechanics' liens were asserted against the Thunderbird Hilton Inn by five subcontractors and the general contractor, DeWitt-Newton, defendant-appellee. The lower court entered judgment in favor of all of the lienors against IDS, defendant-appellant, the present owner of the Inn. IDS appeals. Subsequent to judgment and the filing of this appeal, the five subcontractors reached a settlement with defendant IDS. Therefore, DeWitt-Newton is the sole appellee.

This case arose out of a construction project known as the Thunderbird Hilton Inn (hereinafter the Inn). On November 18, 1971, Thunderbird Investment Corporation entered into a construction contract with DeWitt-Newton whereby DeWitt-Newton as general contractor agreed to build the Inn. Construction began in late November of 1971.

Subsequently, Thunderbird Investment Corporation obtained a mortgage loan from IDS Mortgage Corporation in the initial amount of $4,100,000. That amount was increased to $4,300,000 and the mortgage was recorded on April 11, 1972.

As work progressed, it became apparent that the cost of completing the structure was greater than initially planned. In the spring of 1973, there were unpaid claims amounting to $203,000 for extra work authorized by the general contractor and Thunderbird Investment Corporation, as owner, but which were not included in or provided for by the construction loan with IDS.

In April or May of 1973, Thunderbird Investment Company applied to IDS for an increase in the amount of the mortgage loan to cover these bills. This request was refused. Work began to slow down on the project after May of 1973. The general contractor secured the project for the winter and, for such purposes, IDS authorized three construction draws, the last of which was made on or about September 14, 1973.

In the fall of 1973, DeWitt-Newton contracted with A & A Electrical Services. A & A performed work and provided materials until on or about January 2, 1974, at which time DeWitt-Newton was billed approximately $20,000 for these services. In March of 1974, DeWitt-Newton requested that A & A perform assorted electrical services in the bathrooms and on exit signs and to do general clean-up work on the project. The work was done on March 23, 1974, and DeWitt-Newton was billed $328.

On or about May 23, 1974, DeWitt-Newton served Thunderbird Investment Corporation's resident agent with an intent to claim a lien, a statement of account and lien and a document entitled "unpaid bills on Thunderbird Hilton project, Plymouth, Michigan, subject to lien". The statement of account and lien was subsequently recorded in the office of the Wayne County Register of Deeds on June 6, 1974.

The Inn property was purchased April 4, 1974, through the foreclosure sale of the IDS Construction mortgage at a sheriff's sale. The sheriff's deed to IDS was recorded on April 5, 1974 in the office of the Wayne County Register of Deeds.

Following a hearing, Judge John D. O'Hair entered a very thorough and well written opinion in favor of DeWitt-Newton Corporation and the five subcontractors. IDS appeals from two of the trial court's findings. We first address Judge O'Hair's finding that DeWitt-Newton substantially complied with the recording and notice requirements of the mechanics' lien act.

IDS asserts that the trial court's finding was erroneous on two grounds. First, IDS argues that DeWitt-Newton did not comply with M.C.L. § 570.5, M.S.A. § 26.285 ¹ and file its statements of account and lien within 90 days after furnishing the last labor and materials on the project pursuant to its contract with Thunderbird Investment Corporation. DeWitt-Newton mailed its statement of account and lien on or about May 23, 1974. Since the last work on the project was done on March 23, 1974, by A & A Electrical Company, DeWitt contends that the statement of account and lien was timely filed. IDS does not dispute that A & A performed work on the project on March 23, 1974, but argues that the work was not done in good faith but merely to revive DeWitt's lien rights. Whether labor and material furnished within the statutory period but after the contract has been substantially completed were furnished in good faith and for the purpose of completing the contract or to revive the lien is a question of fact. Neely v. International Corn Products Corp., 232 Mich. 81, 86, 205 N.W. 96 (1925). Sacchetti v. Recreation Co., 304 Mich. 185, 190, 7 N.W.2d 265 (1943).

The work done on March 23, 1974, consisted of repair work on the exit lighting and in the second floor bathrooms. This work was done at the request of DeWitt-Newton and was part of A & A's October, 1973 contract. A & A billed DeWitt-Newton $21,889.05 for work done from October, 1973, to January 2, 1974. The bill for the March 23rd work was $328. Although IDS alleges that the work performed after September, 1973, was for the purpose of sale or to avoid bond liability, this allegation is not supported by the record. Rather it appears the work was done to attract additional financiers for the project. Admittedly, the work on the project was slowing down due to lack of money. However, it appears that the Thunderbird Investment Company was seeking new money to bolster the project. A & A's testimony that the March 23rd work was done under the original contract is uncontroverted. There was no allegation that the work was not done, that it did not benefit the project or that it was done in an unworkmanlike manner. Judge O'Hair concluded that:

"The Court is satisfied that the work done at the project in the latter part of March, 1974, was intended to further the project and the construction contract, and was not simply a device to afford DeWitt-Newton the opportunity to record its statement of account and lien within the time period prescribed by M.C.L.A. 570.5. Though the amount of work done at the project was relatively small in comparison to the entire project, it was beneficial and necessary."

We decline to disturb this conclusion since it was clearly supported by the proofs. Tuttle v. Dep't of State Highways, 397 Mich. 44, 46, 243 N.W.2d 244 (1976); Smith v. Michigan State Accident Fund, 403 Mich. 201, 204, 267 N.W.2d 909 (1978).

IDS next asserts that DeWitt-Newton's failure to serve its statement of account and lien upon IDS and to name IDS as an owner on same renders DeWitt-Newton's lien ineffective in light of M.C.L. § 570.5, M.S.A. § 26.285 ², and M.C.L. § 570.6, M.S.A. § 28.286. ³ IDS argues that since it purchased the Inn on April 4, 1974, at a foreclosure sale and obtained a sheriff's deed, its equitable interest in the property, Gerasimos v. Continental Bank, 237 Mich. 513, 519-520, 212 N.W. 71 (1927); Gage v. Sanborn, 106 Mich. 269, 64 N.W. 32 (1895), makes it an "owner" within the meaning of the Mechanic's Lien Act. ⁴ While this argument is persuasive, we do not here determine its merit since resolution of this issue is controlled by the "direct dealing" language of M.C.L. § 570.6, M.S.A. § 26.286 ⁵. It is undisputed that IDS and DeWitt-Newton were in direct dealings regarding the Thunderbird Inn project. As such, if IDS were an "owner" it fell within the statutory direct-dealing exception and DeWitt-Newton was not required to give IDS notice of its intent to claim a lien. Burton Drywall, Inc. v. Kaufman, 402 Mich. 366, 263 N.W.2d 249 (1978).

For the reasons stated we conclude that there was substantial compliance with the various requirements of the Mechanic's Lien Act in the present case.

IDS's final argument is that the trial court erred in finding that DeWitt-Newton's mechanics' lien was superior to IDS's construction mortgage. We disagree.

It is clear that all properly perfected mechanics' liens based upon projects commenced before the filing of a construction mortgage take priority over that mortgage. M.C.L. § 570.9, M.S.A. § 26.289 provides in pertinent part:

"The several liens herein provided for shall continue for 1 year after such statement or account is recorded in the office of the register of deeds, and no longer unless proceedings are begun to enforce the same as hereinafter provided, and such liens shall take priority as follows:

"Third, they shall be preferred to all other titles, liens or incumbrances which may attach to or upon such building, machinery, structure or improvement, or to or upon the land upon which they are situated, which shall either be given or recorded subsequent to the commencement of said building or buildings, erection,...