WATSON ELECT. CONST. v. SUMMIT COMPANIES

• Citation: 587 S.E.2d 87,160 NC App. 647
• Decision Date: 21 October 2003
• Docket Number: No. COA02-1366.,COA02-1366.
• Court: North Carolina Court of Appeals
• Parties: WATSON ELECTRICAL CONSTRUCTION CO., Plaintiff, v. SUMMIT COMPANIES, LLC, James L. Hodgin; and Nancy T. Hodgin, Defendants.

587 S.E.2d 87

160 NC App. 647

WATSON ELECTRICAL CONSTRUCTION CO., Plaintiff, v. SUMMIT COMPANIES, LLC, James L. Hodgin; and Nancy T. Hodgin, Defendants.

No. COA02-1366.

Court of Appeals of North Carolina.

October 21, 2003.

Stark Law Group, by Thomas H. Stark, Research Triangle Park, for plaintiff.

Burns, Day & Presnell, P.A., by Daniel C. Higgins and Daniel T. Tower, Raleigh, for defendants James L. Hodgin and Nancy T. Hodgin. WYNN, Judge.

Under Mace v. Bryant Construction Corporation, 48 N.C.App. 297, 303, 269 S.E.2d 191, 194-95 (1980), this Court held, "because the subcontractor is entitled to a lien under G.S. 44A-23 only by way of subrogation, his lien rights are dependent upon the lien rights of the general contractor." In this case, because the the general contractor did not have any lien rights against the owner, the first-tier subcontractor, likewise, had no rights. However, we hold that the evidence creates an issue of fact as to whether the owners gave the subcontractor an oral guaranty, and if so, whether the "main purpose rule" should be applied in this case. Accordingly, we affirm in part and reverse in part the trial court's grant of summary judgment.

The underlying facts tend to show that the owners, James and Nancy T. Hodgins, contracted with Summit Companies, LLC ¹ to serve as the general contractor in the construction of the Rockhaven Dialysis Center in Orange County, North Carolina. In September 1999, Summit hired Watson Electrical Construction Company to replace Port Beacon Electric, the original electrical subcontractor. On 1 December 1999, the Hodgins made their last payment to Summit; in return, Summit waived its lien rights for all labor and materials furnished through 30 November 1999.

In the meantime, after not receiving payment for work performed, Watson Electrical ceased work on the site on 30 November 1999. On 19 January 2000, Watson Electrical filed a Claim of Lien and Lien of Funds for $100,932.10 and initiated an action to perfect the lien on 21 January 2000.

In February 2000, the Hodgins declared Summit in default, terminated Summit as the general contractor on the project, and contracted with another general contractor to complete the project. On 1 March 2000, Summit filed a claim of lien on the project for $495,617.60, and thereafter, filed a complaint against the Hodgins on 8 August 2000. Pursuant to their contract, the parties submitted their disagreement to arbitration which resulted in (1) a determination that since the Hodgins owed Summit $294,000 and Summit owed the Hodgins $575,000, Summit should pay $281,000 to the Hodgins; (2) the dismissal of Summit's claim of lien with prejudice; and (3) a determination that the award was in full settlement of all claims and counterclaims submitted to arbitration. After the arbitration award in the Summit litigation, the trial court for the subject litigation entered summary judgment favoring the Hodgins. Watson Electrical appealed from the summary judgment.²

Upon reviewing this appeal by Watson Electrical, we summarily reject its first argument that the trial court erred by granting summary judgment on its claim for breach of contract because Watson Electrical neither claimed that it had a direct contract with the Hodgins nor produced evidence tending to show that the Hodgins ratified the contract between Summit and Watson. See Simmons v. Morton, 1 N.C.App. 308, 310, 161 S.E.2d 222, 223 (1968)

. Accordingly, we uphold the trial court's grant of summary judgment on Watson Electrical's breach of contract claim.

Next, Watson Electrical argues that the trial court erred by granting summary judgment against its claims for enforcement of lien and a lien on funds. Regarding the claim for enforcement of lien, this Court has long recognized that a lien in favor of a subcontractor may arise either directly under G.S. 44A-18 and G.S. 44A-20 or by subrogation under G.S. 44A-23" Con Co. v. Wilson Acres Apartments, Ltd., 56 N.C.App. 661, 664, 289 S.E.2d 633, 635 (1982). Under Chapter 44, Watson Electrical filed and served a Lien and Notice of Claim of Lien by First-Tier Subcontractor on the Hodgins' real property on 19 January 2000 and filed suit to perfect the lien on 31 January 2000. G.S. 44A-23 provides in pertinent part as follows:

A first 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.... 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.

"This statute grants to a first tier subcontractor a lien upon real property based upon a right of subrogation to the direct lien of the general contractor on the improved real property as provided in G.S. 44A-8. Because the subcontractor is entitled to a lien under G.S. 44A-23 only by way of subrogation, his lien rights are dependent upon the lien rights of the general contractor. Thus, if the general contractor has no right to a lien, the first tier subcontractor likewise has no such right." Mace v. Bryant Construction Corp., 48 N.C.App. 297, 303, 269 S.E.2d 191, 194-95 (1980). The subcontractor is "bound by any defenses available against the contractor." Con Co. v. Wilson Acres Apartments, Ltd., 56 N.C.App. 661, 664, 289 S.E.2d 633, 635 (1982). Moreover, "the subcontractor ... [can] acquire no better right by subrogation than that of the principal.... They may assert only the lien rights which the general contractor has in the project. The general contractor can enforce the lien only for the amount due on the contract, and therefore, [the subcontractor is] similarly limited." Vulcan Materials Co. v. Fowler Contracting Corp., 111 N.C.App. 919, 921-22, 433 S.E.2d 462, 464 (1993).

In this case, after Watson Electrical filed its action to enforce its claim of lien, Summit filed a claim of lien against the real property and sought enforcement of its lien. The Hodgins filed a demand for arbitration and asserted claims against Summit for breach of contract, breach of warranty, negligence and fraud. The arbitrator determined that the Hodgins owed Summit $294,000.00 for work performed and materials provided through 16 February 2000, and Summit owed the Hodgins $575,000.00 for corrected work and uncompleted work; accordingly, the arbitrator ordered Summit to pay the Hodgins the sum of $281,000.00. Thus, the arbitrator ultimately determined that Summit breached the contract, awarded the Hodgins damages, and dismissed Summit's claim of lien. Since the subcontractor is bound by any defenses available against the contractor, see Con Co. v. Wilson Acres Apartments, Ltd., 56 N.C.App. 661, 664, 289 S.E.2d 633, 635 (1982),

we uphold the trial court's grant of summary judgment in favor of the Hodgins on Watson Electrical's claim of lien on the real property.

However, a subcontractor's lien on funds does not arise by subrogation; rather, under G.S. 44A-18(1), "a lien in favor of [the subcontractor can] attach only to funds owed by owner to contractor." Lewis-Brady Builders Supply, Inc. v. Bedros, 32 N.C.App. 209, 231 S.E.2d 199, 200 (1977). In Mr. Hodgin's supplemental affidavit in support of his motion for summary judgment, he stated that the Hodgins had not paid Summit any money in connection with the project since 1 December 1999. Watson's last day on the project was 30 November 1999. Moreover, "the amount owed by owner to the contractor at any particular time must be determined in the light of the existing circumstances and the contract between owner and contractor." Id. at 212, 231 S.E.2d at 201. Due to Summit's breach, the Hodgins were "entitled to set off any amount [they] may have owed [Summit] against the damages caused by [Summit's] breach of contract. Only after these developments could it be determined what amount, if any, [the Hodgins] owed [Summit]." Id. As stated, the arbitrator determined that after the set-off, Summit was indebted to the Hodgins. Accordingly, the trial court properly granted summary judgment in favor of the Hodgins on Watson Electrical's lien on funds.

In Watson Electrical's fourth cause of action, it seeks to recover damages from the Hodgins under the theory of quantum meruit. "Quantum meruit is a measure of recovery for the reasonable value of services rendered in order to prevent unjust enrichment. It operates as an equitable remedy based upon a quasi contract or a contract implied in law.... An implied contract is not based on an actual agreement, and quantum meruit is not an appropriate remedy when there is an actual agreement between the parties. Only in the absence of an express agreement of the parties will courts impose a quasi contract or a contract implied in law in order to prevent an unjust enrichment." Paul L. Whitfield, P.A. v. Gilchrist, 348 N.C. 39, 42, 497 S.E.2d 412, 414-15 (1998). "Unjust enrichment has been described as:

the result or effect of a failure to make restitution of, or for, property or benefits received under such circumstances as to give rise to a legal or equitable obligation to account therefor. It is a general principle underlying various legal doctrines and remedies, that one person should not be permitted unjustly to enrich himself [or herself] at the expense of another.

Furthermore, the mere fact that one party was enriched, even at the expense of the other, does not bring the doctrine of unjust enrichment into play. There must be some added ingredients to invoke the unjust enrichment doctrine." Peace River Electric Cooperative, Inc. v. Ward Transformer Company, Inc., 116 N.C.App. 493, 509, 449 S.E.2d 202, 213 (1994); see also Collins v. Davis, 68 N.C.App. 588, 591, 315 S.E.2d 759, 761 (1984)

(stating recovery under quantum meruit based upon contract implied-in-law is only proper in circumstances such that it would be "unfair" for the recipient...