Opinion ID: 1399334
Heading Depth: 1
Heading Rank: 3

Heading: payment defense

Text: Thompson's third assignment of error involves the application of Code § 43-7. That section provides in part But the amount for which a subcontractor may perfect a lien under this section shall not exceed the amount in which the owner is indebted to the general contractor at the time the notice is given, or shall thereafter become indebted to the general contractor upon his contract with the general contractor for such structure or building or railroad. The section also specifically provides that the owner may raise full or partial payment to the general contractor as an affirmative defense to the subcontractor's lien. As a basis for its affirmative defense of payment in this case, Thompson maintained that the construction of the sanitary sewer outfall was covered by a written contract executed on January 20, 1990, and that the work performed by these subcontractors was done pursuant to that contract. The amount due under that contract, $901,232, was paid in full before the owner received notice of the subcontractors' liens, and, therefore, Thompson argues, the property cannot be held liable for the subcontractors' liens. Thompson agrees that it still owes Land Works $153,982. However, Thompson asserts that this debt arose under a separate oral contract for work which did not include the work performed by these subcontractors. The trial court held that Thompson failed to establish its affirmative defense to the subcontractors' liens. The trial court found that the two contracts were so integrated that they should be considered as one, that Thompson was indebted to the general contractor for $153,982 at the time it received notice of the subcontractors' liens, and that the property was subject to the liens in that amount. Thompson asserts that the trial court erred in combining the contracts and holding that Thompson failed to establish its affirmative defense under Code § 43-7. In reviewing the decision of the trial court sitting as the trier of fact, we apply the well-established principle that the trial court's decision is entitled to the same weight as if it were a jury verdict and may be reversed only if it is plainly wrong or without evidence to support it. Carter v. Carter, 223 Va. 505, 508-09, 291 S.E.2d 218, 220 (1982). Furthermore, statutes providing for the enforcement of mechanics' liens are remedial and are to be liberally construed. American Standard Homes v. Reinecke, 245 Va. 113, 119, 425 S.E.2d 515, 518 (1993). The record shows that the parties had anticipated Land Works would be the general contractor for construction of River Ridge's entire water and sewer utility system. Thompson and Land Works executed a written contract on January 20, 1990, for the construction of the sanitary sewer outfall, a part of the subdivision's utility system. In addition to the sewer outfall itself, associated activities such as constructing feeder sewer lines to the outfall and grading and excavation work were necessary to complete the utility system. This associated work was referred to generally as the Section 1 work. No separate written contract was executed covering the Section 1 work. The unit price figures in the written contract, however, were bid based on construction of a water and sewer utility system for the entire subdivision, and were used in billing Section 1 work. Neither Land Works nor Thompson differentiated the work on the basis of separate and distinct contracts. Land Works structured its internal record-keeping system to reflect invoices and payments by job numbers, not by reference to separate contracts. The record indicates that Job 199 referred to work performed through August 15, 1990, and Job 204 referred to work after that date. The sewer outfall was completed by the end of July 1990, which was not coterminous with the period covered by the work designated as Job 199. Thompson's internal cost accounting system differentiated between types of work, such as clearing and grubbing, or siltation and erosion control, necessary for both the outfall and Section 1 work, but did not assign the work to either the written or oral contract. Furthermore, the releases prepared by Thompson all referenced the Project: River Ridge and stated they were for labor and materials supplied to said Building defined as the utilities for the entire subdivision. The record also shows that subcontractors had no indication of separate and distinct contracts, and consequently, did not structure their work or records to correspond to separate contracts. The subcontractors knew the project only as River Ridge, and provided materials and equipment for the water and sewer system as a whole. Construction of the sewer outfall required building access roads, clearing by dynamite, establishing burn pits, and other earth moving activities which were not restricted to the specific easement on which the sewer outfall itself was located. Precast, Vulcan, and A & P provided materials to Land Works which Land Works then incorporated into the project. Based on this record, we reject Thompson's position in the first instance because the evidence reflects that these subcontractors provided goods both for the construction of the sewer outfall and for Section 1 work. More importantly, considering (1) the lack of differentiation between the two contracts in the record-keeping methods utilized by the owner and general contractor, (2) the subcontractors' lack of knowledge and control over the allocation of goods and services to a specific contract, and (3) the language in the release for both the sewer outfall and Section 1 payments that materials were provided for the utilities for the entire subdivision, we find that the trial court did not err in holding that there was only one contract as to the owner and the subcontractors. Thompson argues, however, that the trial court could not combine the two contracts as a matter of law because Code § 43-7 requires that each contract between the owner and the general contractor must be considered separately. None of the cases on which Thompson relies for this proposition, however, involves the type of contracts and construction at issue in this case. None involves contracts and work so intertwined in the construction of a single structure, and, with the exception of a single case, none involves two or more contracts for a single building or structure. The single case cited by Thompson which implicates a second contract involving the same building is Schrieber, Sons & Co. v. Citizens Bank, 99 Va. 257, 38 S.E. 134 (1901). Thompson points to a statement in the Schrieber opinion, that work which is a separate and distinct transaction, outside of and apart from the original building contract should not be considered in connection therewith, to support his argument that separate contracts cannot be combined. Id. at 260, 38 S.E. at 135. Put in the context of the facts and issues presented in Schrieber, this statement does not control the result in the instant case. The issue in Schrieber was the amount that the owner owed the general contractor, thereby establishing the amount available to satisfy the subcontractors' liens. The subcontractors sought to include $1,069 as part of the building contract price. This amount was incurred as a result of the owner's request for extra work on the building by the general contractor. The Court in Schrieber rejected the subcontractors' argument, stating that the work furnished for the $1,069 was not covered or contemplated by the contract and that the work was paid for as it was completed by the general contractor. Id. In contrast to the factual situation in Schrieber, the parties here do not dispute the amount that the owner owes the general contractor. Additionally, as set out above, the oral contract covering the Section 1 work was not a separate and distinct transaction, outside of and apart from the written contract in this case. Under the facts in this case, the holding in Schrieber regarding the treatment of separate contracts is inapposite and does not require that the oral and written contracts here be treated separately. The trial court's decision does not conflict with either Schrieber or with Code § 43-7. As noted earlier, statutory provisions involving enforcement of mechanics' liens are remedial in nature and are to be liberally construed. Section 43-7 is an integral part of the balance struck between the interests of subcontractors and property owners. In circumstances where a general contractor fails to pay for the goods and services provided by the subcontractors, the General Assembly has determined that the subcontractors' should not be required to rely on the general contractor for satisfaction of their liens, but should be allowed to file their liens directly against the property. Under these circumstances, it is not unusual that the subcontractors' liens amount to more than the amounts owed the general contractor by the owner under their contract. To insure that the owner will not have to pay twice for the same work, the General Assembly limited the amount of the subcontractors' recovery to the amount of outstanding indebtedness between the owner and general contractor. The holding of the trial court does not require the owner to pay twice for the goods and services received or to pay more than the amount it owed the general contractor when it was notified of the subcontractors' liens. In summary, we will reverse the trial court's judgment holding that Air Power's mechanic's lien is valid and enforceable against that portion of the property purchased by Virgrum and will affirm the judgment holding that the mechanics' liens filed by A & P, Precast, and Vulcan are valid and enforceable against the property. Affirmed in part, reversed in part, and final judgment.