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Home / Opinion Digests / Real Property – Lien Priority – Construction Contract – Deed of Trust – Materialman’s Lien – Waivers

Real Property – Lien Priority – Construction Contract – Deed of Trust – Materialman’s Lien – Waivers

Wachovia Bank N.A. v. Superior Construction Corp. (Lawyers Weekly No. 10-15-0403, 17 pp.) (John R. Jolly Jr., J.) N.C. Bus. Ct.

Holding: When the defendant-contractor applied for payment for work performed on a construction project, it included a waiver of “any and all” liens on the project and premises. Since the contractor submitted such a waiver after the deed of trust was recorded, the deed of trust is the superior lien on the property.

Judgment on the pleadings for plaintiff.

By virtue of G.S. § 44A-10, a contractor’s lien for all labor and materials furnished pursuant to a contract is deemed prior to any liens or encumbrances attaching to the property subsequent to the date of the contractor’s first furnishing of labor or materials to the construction site.

The materialman, rather than the mortgagee, should have the benefit of materials that go into the property and give it value.

A bank providing a construction loan in exchange for a deed of trust can cut off the lien rights of the lien claimants in that the bank, with actual or constructive knowledge of the commencement of construction, can require lien waivers. Moreover, a construction lender has the resources and the bargaining power to require the vendee to obtain lien waivers from material suppliers.

Here, the pleadings clearly establish that the contractor executed the waivers in exchange for consideration from lender Wachovia Bank. The court must determine whether, as between Wachovia and the contractor, the scope of the waivers extends to preclude the contractor’s lien on the property as between it and Wachovia.

The contractor and the defendant-surety contend that the waivers only relate to the rights the contractor had with regard to payments for labor and materials it expended on the project. Wachovia contends that the language of the waivers clearly and expressly preclude the contractor’s lien on the property as between it and Wachovia.

The contractor and the surety both argue that, when a claimant signs a lien waiver and accepts partial payment, such payment reduces the amount payable to the lien claimant by the amount of payment received but does not change the property liened or the date of the first furnishing of labor or materials (date of first furnishing). The surety contends, “Interim lien waivers operate only to reduce the amount of the inchoate lien rights, not their reach.”

The construction work referenced in the contractor’s waivers involves discrete activities that relate to and are part of a larger project. Contractors are able to and often do enforce their liens against the whole of a property on which they worked or provided materials.

However, contractors can contract away or waive their lien rights on the underlying property. Indeed, such agreements are anticipated by G.S. § 44A-21(f), albeit in a limited fashion.

If a party chooses lawfully to change its position on a hierarchy of liens, by contractual waiver or otherwise, the party still remains certain and secure of its new position. While making such a business agreement may not be wise in hindsight, the law does not prevent the parties from doing so.

The cases the surety cites in support of its argument, O&M Indus. v. Smith Eng’g. Co., 360 N.C. 263 (2006) and Equitable Life Assurance v. Basnight, 234 N.C. 347 (1951), do not suggest that either the purpose of the materialman’s statutes or the doctrine of relation-back is incongruous with the concept of contracting away such statutory rights and, in doing so, creating a new date of first furnishing.

The contractor further argues that the law has developed subordination of lien agreements to address what it believes should be an unchanging date of first furnishing. Such a document, the contractor argues, allows a bank to take priority over a contractor’s statutory liens without a resetting of the date of first furnishing; and it contends Wachovia should have used such an instrument. The contractor does not cite any authority that would require Wachovia to have used such a document in lieu of an express lien waiver in obtaining lien priority, and its argument in this regard is not persuasive.

The court must construe the waivers to mean what on their face they purport to mean.

The prohibition of G.S. § 44A-12(f) with regard to waivers applies only to those waivers made “in anticipation of and in consideration for the awarding of a contract … for the making of an improvement upon real property.” The pleadings establish that this prohibition does not apply.

Further, the waivers clearly provide that, in exchange for the consideration received, the contractor did “waive, relinquish, surrender and release” “any and all liens, claims or rights to liens” it might have on the project, arising under N.C. law, on account of the work it performed up to and including May 31, 2005.

The words of waiver are clear. The words “any and all” suggest there was no limitation on the contractor’s waiver of its rights. Moreover, the “on account of” language would exclude from the waiver what future rights the contractor would gain upon future provisions of labor and material. Such an interpretation would not be inconsistent with the “any and all” language.

Accordingly, reading the contract as a whole, the court is forced to conclude that the language of the waivers clearly and unambiguously expresses the contractor’s intent, and binding contractual agreement, to waive its existing lien rights, including those arising from its date of first furnishing of labor and materials on the project, in exchange for the consideration provided by Wachovia, up to and including May 31, 2005.

One effect of this contract is a change in the contractor’s date of first furnishing of labor and materials from a date preceding Wachovia’s deed of trust to one after May 31, 2005, thus placing the contractor’s claims behind Wachovia’s in priority. While such a result may seem harsh, the wording of the contract clearly demonstrates the parties’ intent to achieve such a result.

The contractor cannot successfully rely upon the materialman’s statute when it waived the statute’s protections.

The lien on the property reflected in Wachovia’s deed of trust dated May 19, 2005, and recorded in Book 2148 at page 860, Brunswick County Registry, is prior to any claim of lien on said property by the contractor for labor and materials furnished by the contractor before June 1, 2005.


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