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Opinion Date: 11/22/2011
e-Journal Date: 12/15/2011
Full Text Opinion

Practice Area(s):   Construction Law
Real Property

Issues: Whether the trial court properly determined that the test wells installed by Alcock Drilling were not "actual physical improvements" to the property; Dressel v. Ameribank; Wilson v. Alpena Cnty. Rd. Comm'n; Michalski v. Bar-Levav; Bates v. Gilbert; The Construction Lien Act (CLA)(MCL 570.1191 et seq.); "Priority" of construction liens; MCL 570.1119(3); Michigan Pipe & Valve-Lansing, Inc. v. Hebeler Enters., Inc.; "First actual improvement" defined; MCL 570.1103(1)
Court: Michigan Court of Appeals (Unpublished)
Case Name: E.T. Mackenzie Co. v. Sutton Place-Raisin Twp., LLC
e-Journal Number: 50223
Judge(s): Per Curiam – Cavanagh, Wilder, and Owens

Holding that the trial court erred when it determined that the test wells that were installed were not "actual physical improvements" to the property, the court held that the trial court erred by granting defendant-United Bank & Trust a first-mortgage lien and priority over plaintiff's construction lien, except for an amount of $43,229.31. The dispute involved real property located in Raisin Township. The property consisted of two parcels, Sutton Place No. 1 and Sutton Place No. 2, which totaled 93 acres. Defendant-Sutton Place-Raisin Twp. wished to purchase the property and develop it into a residential subdivision. Before purchasing the property, Sutton Place had some well testing performed. Alcock Drilling received paperwork from the Lenawee County Health Department for a total of eight wells to be drilled based upon applications made by Sutton Place. Alcock Drilling performed the drilling and testing for the eight wells. The wells were located on eight different lots scattered amongst the 93 acres. When finished, each of the PVC pipes extended approximately five feet above the ground. The work was completed by the end of 8/06. On 9/29/06, Sutton Place granted a mortgage in favor of United Bank for an amount up to $2,000,000. On that same day, Sutton Place purchased the property for $900,000, using proceeds from the United Bank mortgage. On 5/29/07, plaintiff and Sutton Place entered into an agreement, where plaintiff would provide certain services related to the development of the property. This work was to include items such as demolition and removal, clearing and grubbing, soil erosion control, grading, storm sewers, retention basin beds, and on-site road construction. Plaintiff began work on 5/29/07, and concluded on 11/20/07. Sutton Place paid plaintiff $854,951.39 for the work, but plaintiff claimed that it was still owed $325,008.30. As a result, plaintiff recorded a claim of lien for $325,008.30 on 1/7/08, and in 5/08, plaintiff filed suit against Sutton Place. Plaintiff later moved for partial summary disposition as to the issue of priority between its lien and United Bank's mortgage. The trial court found that the mortgage was recorded before the first actual physical improvement because it determined that the Alcock test wells did not meet the statutory definition of an "actual physical improvement." As a result, the trial court found that the mortgage, for the most part, had priority over plaintiff's construction lien. Plaintiff filed its claim of lien under the CLA. "The date of the ‘first actual improvement' is the date that construction liens attach to the property for determining priority among competing liens and encumbrances." United Bank argued that, because the wells were installed for testing purposes only, they did not constitute a "first actual physical improvement." The court recently addressed this precise issue. In Michigan Pipe, a contractor installed a test well in order to obtain a water sample from the aquifer below the subject property. Like the defendant in Michigan Pipe, United Bank maintained that such a test well should fall under the statute's "due diligence" exception to being an "actual physical improvement" because, by its very essence, the well was never intended to be used beyond this initial testing phase. The court rejected this premise. Because the test wells were "readily visible and of a kind that would alert a person upon reasonable inspection of the existence of an improvement," they constituted the "first actual physical improvement," and the trial court erred when it decided otherwise. Since United Bank's mortgage was "recorded subsequent to the first actual physical improvement," plaintiff's construction lien was entitled to priority over the mortgage. Reversed and remanded.

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