Possessory Liens In North Carolina: Retaining Possession of Personal Property For Nonpayment Of Labor And Materials
Suppose you have invested labor and parts in a piece of construction equipment and you have not been paid. The person with whom you contracted for the repair of this equipment is not the title owner; rather, the person who took the equipment to you and asked you to repair it leased the equipment from the owner in order to perform some storm cleanup. (We will refer to this person as the “lessee.”) The job shouldn’t last more than a month, and this lessee is from out of state. Now, you think, you have two problems: (1) you are not dealing with the legal owner of the property; and (2) you realize that once you release the property to the lessee and the lessee still has not paid your bill, you will never see your money again. What should you do? Is it possible that you can keep the equipment or sell it, even if the title owner was not the person who asked you to repair it?
Unfortunately, this dilemma is not unlikely. Many people will lease heavy construction equipment for relatively short jobs, and under the terms of a typical lease contract, the lessee is obligated to keep the equipment in good working condition and must keep the equipment maintained. Halfway through the job, the equipment becomes clogged with ash or debris and requires routine maintenance and service. The lessee needs this equipment back in a hurry. And here is where you come in.
Possessory Liens on Personal Property in North Carolina
North Carolina law provides a means whereby a person who improves, stores, or invests labor or materials in personal property may be entitled to keep the property for a certain length of time, and even sell the property if the bill remains unpaid. These statutes codify the common law principle that a mechanic has a possessory interest in a vehicle left in his care by the owner or legal possessor and in which the mechanic has invested labor and materials. This possessory interest manifests a balancing of the competing interests between ownership rights and the right of a mechanic to have available security for the service rendered. North Carolina=s lien law regarding personal property depends in part upon the nature of the property at issue and the person with whom you are dealing.
Classification of the Property
Chapter 44A of the North Carolina General Statutes sets out different procedures for possessory liens depending on the character of the property at issue. For purposes of this article, only the portions dealing with motor vehicles and property other than motor vehicles will be discussed. Other provisions in this statute deal with persons in the business of operating a hotel or motel, of boarding animals, or leasing nonresidential premises.
Generally, any person who does work on personal property other than a motor vehicle in the ordinary course of business is limited in the amount that may be claimed as a lien. The amount of the lien is limited to the lesser of (1) the reasonable charges for the services and materials; or (2) the contract price; or (3) one hundred dollars ($100.00) if the lienor dealt with someone other than the owner of the property and who is otherwise entitled or entrusted with possession of the property. In other words, if you dealt with the owner of the property, your lien will only be limited to the lesser of the contract price or the reasonable charges for the work you performed and materials you supplied. However, if you dealt with someone other than the owner, your lien will most likely be limited to $100.00, and the property may be quickly recovered through judicial order once that amount has been deposited with the Clerk of Court.
Statutory Definition of Owner
Knowing who exactly is an “owner” under the statute is helpful in determining your legal rights. N.C. Gen. Stat. §44A-1 defines an “owner” as
- any person having legal title to the property; or
- a lessee of the person having legal title; or
- a debtor entrusted with possession of the property by a secured party;
- a secured party entitled to possession; or
- any person entrusted with possession of the property by his employer or principle who is an owner under any of the above.
If you are dealing with the actual owner, a person who leased the property from the actual owner, or any agent or employee of the actual owner or lessee, then your lien is only limited to the lesser of the contract price or the reasonable charges for all of your services. These are generally the people you will deal with on a daily basis. However, one relatively common situation where you will not be dealing with an owner is the situation where you perform services on property pursuant to a subcontract. Therefore, if (1) the property at issue is not a motor vehicle, your lien will be limited to $100 and the property is easily recovered by depositing this amount with the Clerk.
Statutory Definition of Motor Vehicle
Chapter 44A of the North Carolina General Statutes incorporates the definition of “motor vehicle” as set forth in Chapter 20, relating to the Division of Motor Vehicles. “Motor vehicle” is defined as “[e]very vehicle which is self-propelled and every vehicle designed to run upon the highways which is pulled by a self-propelled vehicle” (emphasis added). For illustrative purposes, although trailers and mobile homes are obviously not self propelled, they still meet the definition of being a motor vehicle because they were designed to run on the highway when pulled by another vehicle. A recent North Carolina case emphasized the word “designed” as found in the statute: the Court held that even a mobile home that has been attached to the land is still considered to be a motor vehicle since it was originally designed to run upon the highway.
Most construction equipment is self-propelled and therefore should fit the definition as being a motor vehicle. This definition is not limited to vehicles required to be registered with the Department of Motor Vehicles.
General Procedure for Possessory Liens Against Motor Vehicles
Generally, any person who repairs, services, tows, or stores motor vehicles in the ordinary course of business has a statutory, possessory lien upon that motor vehicle for reasonable charges for such work. In other words, your lien is not limited other than by the amount that is reasonable for the work performed, whether you are dealing with an owner or a legal possessor. This provision also allows you a lien for the full amount of your services if you have performed the work pursuant to a subcontract.
If your bill has not been paid for 30 days, you may enforce the lien by public or private sale. For towing and storage charges only, you only need to wait 10 days. Additional provisions that deal specifically with storage charges are set forth in the statute.
Motor Vehicles Required to Be Registered
You must send notice to DMV that a lien is asserted and a sale is proposed if the property is a motor vehicle that is required to be registered. DMV in turn will send out a notice to the person having legal title to the property, as well as others claiming an interest in the property, within 15 days of your notice of intent to enforce the lien. This notice sets forth specific information as required by statute and informs the recipient that the recipient has a right to a judicial hearing at which time the validity of the lien will be determined before a sale takes place. If the recipient fails to notify DMV by certified or registered mail, return receipt requested, within 10 days of receipt that hearing is desired, the recipient has waived the right to a judicial determination. DMV will notify you in this event, and you may proceed to enforce the lien by public or private sale.
If DMV notifies you that its notice to the recipient has been returned as undeliverable, or if it cannot ascertain the name of the person having legal title to the vehicle and the property is worth less than $800, you may institute a special proceeding for authorization to sell the vehicle. Special proceedings are heard before the Clerk of Superior Court in the county where the vehicle is located.
Motor Vehicles Not Required to Be Registered
In the event the property upon which your lien is claimed is not a motor vehicle required to be registered, you must send a notice to the person having legal title and to the person with whom you dealt if different from the person having legal title. This notice must set forth very specific information as required by statute and failure to comply with the statute may subject you to a one hundred dollar penalty, actual damages, and attorney=s fees. Additionally, the sale of the vehicle will most likely be set aside.
If the recipient fails to notify you within 10 days that a hearing is desired, that right will be waived and a public or private sale may proceed.
Termination of Lien
The possessory lien on personal property terminates when the property is voluntarily relinquished. If the owner or other legal possessor writes you a bad check or otherwise removes the liened property without your permission, you may recover the property from that person by judicial process. If, however, you voluntarily return the property you will lose your right to claim or enforce a lien on the property.
Notice of Sale
The statute requires that certain detailed procedures be followed before a public or private sale of the property takes place. The statute provides that certain items be included in the Notice of Sale, that the sale be advertised if the property is worth more than a specified dollar amount, and addresses who must receive notice of the sale. Additionally, the statute sets forth different requirements for public and private sales. Generally, however, notice must be sent to DMV and to all persons claiming an interest in the property at least 20 days prior to the sale. The sale also must be advertised according to statute unless the property falls into an exception.
The statutory provisions regarding possessory liens on personal property are fairly intricate and therefore, legal advice is recommended to ensure proper compliance. Many creditors realize that collecting a judgment is sometimes a difficult task; having the leverage available to coerce immediate payment from an unwilling debtor is an essential collections tool.
While this article is meant to be as informative as possible, legal advice is recommended since every fact situation raises different legal issues. Therefore, if you have a specific question or a recurring specific set of facts that raises legal questions, legal counsel should be consulted.