Notes from the chair
Dunn D. Hollingsworth, Esquire
Robertson & Hollingsworth, Charleston

On April 18 I had the pleasure of moderating a seminar for the Construction Section held at Kiawah Island entitled “200 Years of Legal Wisdom.” The seminar was well attended, and it featured excellent and experienced speakers from the world of construction litigation discussing a wide range of interesting topics. Additionally, the facilities were first class, the food was delicious and the weather was spectacular! Simply put, it was a seminar which attendees enjoyed attending. I want to thank everyone who participated in and helped organize the seminar, and I hope our Section's next seminar is as successful.

Mechanics Lien Waivers in South Carolina
Lawrence C. Melton, Esquire
Nexsen Pruet, LLC, Columbia

A February 27 bench opinion of Hon. Michael Baxley, Presiding Judge of the 15th Judicial Circuit (Horry County), has attracted considerable attention from the South Carolina construction bar. The case, ETW Development Company, LLC v. Bovis Lend lease, Inc., et al., Case No. 2007-CP-26-7572, involved a petition by a condominium developer for relief from liens filed by the general contractor and a number of subcontractors and suppliers. The court granted the plaintiff/developer’s request that the total amount of the lien be reduced to amounts owed to the general contractor, that the general contractor be deemed to have waived its lien rights on condominium units already sold, and that the total amount of the lien be prorated to the remaining unsold units and bonded off individually. While each of the court’s rulings is controversial, and all have been appealed, the conditions under which the court found that the general contractor waived a right to file a mechanics lien raises questions that many construction law practitioners thought had been settled and potentially opens the door to a variety of claims that a contractor or subcontractor has waived the statutory right to a mechanics lien by agreement or action.

The court in ETW relied on the 1880 case of Murray v. Earle, 13 S.C. 87, to hold that a subcontractor who, before the work begins, agrees with the owner to look only to the contractor for payment has waived its right to file a mechanics lien. The ETW decision did not mention that the ruling in Murray v. Earle was carefully limited to an agreement that occurred before the subcontractor began any work on the project:

It seems that before any work was done by Murray [subcontractor], the [owner], by her agent, gave him verbal notice that she would not be responsible for any labor he might perform upon the building whereupon the petitioner expressly agreed, before the commencement of his work “to look to the contractor Hudson, for his pay and to no other source,” and the agreement the Circuit judge held “was a waiver of any right to a lien upon the building which the law might otherwise have given to the petitioner.” (13 S.C. 87)

In Earle v. Murray, the S.C. Supreme Court carefully distinguished the Maryland case, Sodini v. Winter, 32 Md. 130, on which the subcontractor relied as applying only to a waiver of the lien that took place after the work began. 13 S.C. 887. The reliance of the ETW court on Murray v. Earle for the broad proposition that a subcontractor’s waiver of rights under the mechanics lien statutes is valid was therefore misplaced.

Going beyond the misapplication of a 128-year-old case, however, there are statutory issues that the ETW court apparently overlooked. S.C. Code § 29-5-30 provides that an owner “other than the person by whom or in whose behalf a contract for labor or materials has been made” may give written notice to the persons providing labor and material to the project that they will not be responsible for the cost of the improvements. This apparently applies to a landlord or other “owner” of the property being improved who is not the person consenting to the improvements. There is no statutory provision for a valid notice of non-responsibility between the owner consenting to the improvements and the persons providing labor and material. Under § 29-5-30, the owner’s statement as made in Murray v. Earle (“verbal notice that she would not be responsible for any labor he might perform upon the building”) would not have been enforceable even if agreed to by the subcontractor. Other than § 29-5-30, the South Carolina Mechanics Lien Statute does not address waivers. If one reads § 29-5-30 as the exclusive statutory method by which an owner may defeat the right to file a mechanics lien, then waivers by agreement or action of the persons providing labor and material would not be enforceable.

S.C. Code § 29-7-20(2) states that: “an agreement to waive the right to file or claim a lien for labor and materials is against public policy and is unenforceable unless payment substantially equal to the amount waived is actually made.” Many construction law practitioners read this as an absolute bar to the enforcement of an agreement to waive the right to file a mechanics lien except as to payment received. This is the position expressed in my book. L. Melton, South Carolina Construction Law, §13.7 (2005). See also, Weldon R. Johnson and Robert T. Strickland, “South Carolina,” 50 State Construction Lien and Bond Law, § 41.03[E] (§ 29-5-70 is listed as the only statutory provision for the pre-construction waiver of the protection afforded by the lien law). Title 29, Chapter 7 pertains to liens on the contract price rather than liens on the property to which the labor and material are supplied (Title 29, Chapter 5). One could, therefore, argue that § 29-7-20(2) applies only to liens on the contract price. The language of § 29-7-20(2) is, however, broadly conceived and is not specifically limited to liens on the contract price. Moreover, liens on the contract price are not “filed” in a way that the statute seems to contemplate.

The 2007 case of Taylor, Cotton & Ridley, Inc. v. Okatie Hotel Group, LLC, 641 S.E. 2d 459 (S.C. App. 2007), discussed a waiver issue and held there was no waiver due to failure of consideration, but the court did not mention § 29-7-20(2).

22 South Carolina Jurisprudence, “Mechanics Liens, §23 (1994) relied on Murray v. Earle to say that the statutory right to a mechanics lien can be waived. The S.C. Jur. article has been updated to include a pocket part reference to the Taylor, Cotton & Ridley case, but it does not mention § 29-7-20(2). If § 29-7-20 (2) applies to mechanics liens arising under Title 29, Chapter 5 of the S.C. Code, then the court in ETW incorrectly ruled that Bovis waived its right to file a mechanics lien on units sold before final project completion.

If § 29-7-20 (2) does not apply to mechanics liens arising under Title 29, Chapter 5, then many practitioners are misreading the Code, and subcontractors may need to revise their approach to contract language that could be read as a waiver of lien rights without receiving payment.

This is an important issue to the construction industry as a whole. If you have relevant experience that has not been reported, please comment.

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