Opinion ID: 1897736
Heading Depth: 1
Heading Rank: 6

Heading: Who Bears The Burden And How May It Be Met?

Text: The mechanic's lien law has historically been construed in the most liberal and comprehensive manner in favor of mechanics and materialmen. T. Dan Kolker, Inc. v. Shure, 209 Md. 290, 296, 121 A.2d 223, 226 (1956) and cases cited therein. Indeed, the law itself provides that it is remedial and is to be construed to give effect to its purpose. § 9-112. The need for a liberal construction is particularly important with respect to subcontractors who, though benefitting the owner and enhancing the value of the owner's property by the provision of their labor or materials, have no direct contractual relationship with the owner and therefore cannot otherwise subject the owner's property or assets to the payment of their claims. That bent of the statute in favor of subcontractors has always been subject to the caveat, however, that, as a mechanic's lien was unknown at common law and is purely a creature of statute, it is obtainable only if the requirements of the statute are complied with. Freeform Pools v. Straw-bridge, 228 Md. 297, 301, 179 A.2d 683, 685 (1962); Aviles v. Eshelman Elec. Corp., 281 Md. 529, 536, 379 A.2d 1227, 1231 (1977). Prior to 1976, a mechanic's lien attached automatically as soon as the work was done or the materials were provided. That lien, created by operation of law, lasted for six months and could be extended simply by the contractor or subcontractor filing a claim with the clerk of the circuit court. See Barry Properties v. Fick Bros., 277 Md. 15, 19, 353 A.2d 222, 226 (1976). Upon that ex parte filing, the lien continued for an additional year, subject to the claimant's suing to enforce it or the owner or other interested person suing to compel the claimant to prove the validity of the claim. Theoretically, the lien could exist for as long as 18 months before the claimant was required to prove the underlying basis for it. The only condition, in the case of a subcontractor who did not deal directly with the owner, was that the subcontractor give written notice to the owner within 90 days after furnishing the work or material. The function of that notice was to allow the owner to protect itself by withholding the amount of the claim from what otherwise would be due to the prime contractor, subject to later resolution or adjudication. Barry Properties, supra, at 20, 353 A.2d at 226. As we indicated in Bounds v. Nuttle, 181 Md. 400, 406, 30 A.2d 263, 266 (1943): The theory of it is that the owner gets the benefit of the materials, and he has control of the money. If he negligently and carelessly pays the money out to the contractor without taking precautions to see that it is applied to the payment of the materials which go into the building, then he must stand the loss rather than the material man, who has no opportunity to protect himself once he has delivered the materials. See also Palmer Park Ltd. v. Marvelite, Inc., 255 Md. 121, 126, 257 A.2d 169, 171-72 (1968). As a result of our decision in Barry Properties, finding Constitutional fault with the then-existing statutory approach, the law was promptly and comprehensively rewritten to provide a greater measure of due process to the owner. As we have indicated above, under the current law a lien is not created until it is established by a court, and it may not be established by a court, even on an interlocutory basis, absent a finding of probable cause made after the owner has an opportunity to object. A more focused change, which underlies this appeal, came in 1982, with the enactment of 1982 Md. Laws, ch. 251. The fundamental purpose of that statute, articulated in its title, was to limit[ ] the liability of an owner to a subcontractor for work performed and materials rendered by the subcontractor on a single family dwelling erected on the owner's land for his own residence, to the extent that the owner has rendered payment to the contractor. The expressed intent of the Legislature was clearly remedial, but remedial, in this instance, in favor of the owner, rather than the claimant. The ability under the existing law of an owner, upon receipt of a subcontractor's notice, to withhold the amount of the claim from the prime contractor was obviously not regarded as sufficient protection in the case of a single family residence being built for the owner's own residential use. By the time the notice is received, the owner may already have paid the prime contractor or have accumulated set-offs or credits exceeding what is owed on the contract. The Legislature chose to achieve its intended result in three ways, all of which fit together: (1) by amending § 9-104(a) to add as a condition to a subcontractor's entitlement to a lien for work or materials supplied in such a circumstance that the owner not have made full payment to the contractor prior to receiving the notice; (2) by adding § 9-104(f)(3), to provide that a lien may not exceed the amount of the owner's indebtedness to the prime contractor at the time the subcontractor's notice is given; and (3) by adding a new § 9-114, requiring that the prime contractor, at the time of settlement with or payment in full by the owner, give the owner a signed release from each material supplier and subcontractor who provided materials under the contract. It is often the case with well-intended beneficent legislation that a devil lurks in the unconsidered details, and the 1982 Act is no exception. The statute has produced a number of questions, not the least of which are those now before us. In 1986, the Court of Special Appeals dealt with the meaning of the phrase in § 9-104(f)(3), indebted under the contractspecifically, whether an owner remains indebted under the contract if there are still unpaid funds but, due to an alleged default by the prime contractor, the owner claims offsetting damages. In Ridge Sheet Metal Co. v. Morrell, 69 Md.App. 364, 517 A.2d 1133 (1986), the court held that, if the prime contractor, because of its default, could not enforce an obligation to pay the retainage, the owner was not indebted. The correctness of that ruling is not now before us. We do note, however, that the evidence underlying the ruling came largely from the owner. In Reisterstown Lumber v. Tsao, 319 Md. 623, 574 A.2d 307 (1990), we were required to determine the point at which the owners' intent with respect to occupying a dwelling as their residence was to be determined. The claimant supplied materials for what undisputedly was a single family residence. The question was whether the owners intended the structure to be their residence. The evidence showed that, when the contract was entered into, they did intend to live in the house when it was completed, that, at some point during the construction, they changed their minds and listed the property for sale, but, that after receiving the claimant's notice of intent to claim a lien, they changed their minds again and eventually occupied the house themselves. We did not deal there with a dearth of allegations or evidence but rather with what to make of the evidence that was presented: at what point, given the owners' fluctuating intents, was their intent to be fixed for purposes of determining whether § 9-104(a)(2) and (f)(3) appliedwhen the contract was signed, when the claimant's notice of intent to file a lien was sent, or based on a weighted average of what their intent was at various times during the 21-month construction period? In addressing that issue, we noted the ever-present prospect of owners changing their minds during the construction period, for a wide variety of reasons, and the difficult problem that can cause in applying the statute. We stated, at 631, 574 A.2d at 311: In selecting the standard, `for [the owner's] own residence,' the General Assembly surely did not intend to put on the lien claimant the burden of demonstrating a predominant intent over the entire course of construction in order to avoid the residential exception. Indeed, it is difficult enough to establish intent at the moment of the res gestae in the prosecution of some crimes. A construction of § 9-104(a)(2) which is heavily dependent on subjective intent or tracing, over a long period of time, the conduct of persons with whom the claimant has no privity would not allow liens to be established, or the residential exception to be applied, with relative simplicity. To avoid that uncertainty, we held that the owner's intent is to be determined when the subcontractor commences an otherwise substantially uninterrupted performance of work for, or selling of materials to, the contractor. Although the case did not directly involve the issue of burden of proof, it did point out the need for rules of interpretation that will allow the statute to operate efficiently and not place on claimants a burden so onerous as effectively to frustrate their ability to obtain liens. In F. Scott Jay & Co. v. Vargo, supra, 112 Md.App. 354, 685 A.2d 799, it was undisputed that the claimant, a subcontractor, supplied materials to the prime contractor for use in constructing a single family dwelling intended for the owner's own residence and that $4,343 remained due and owing. Indeed, the subcontractor obtained summary judgment for that amount in its breach of contract action against the prime contractor. The dispute with regard to the mechanic's lien claim was whether the owners were indebted to the prime contractor when the subcontractor's notice was sent. The evidence showed that the prime contractor left the job prior to completion and, a week or so later, went into bankruptcy. At the time of abandonment, the prime contractor had been paid $155,161 on a $230,000 contract. Some work, justifying a further payment, had been done. The owners employed another contractor to finish the work and used most of the remaining funds on the contract to pay the new contractor. On this evidence, the trial court found that the owners had a legitimate set-off against the claim of the prime contractor and therefore were not indebted to that contractor, and the Court of Special Appeals affirmed. With no discussion, the court concluded that, [u]nder the express terms of [§ 9-104(f)(3) ] lack of indebtedness is not an affirmative defense to be proved by the homeowner. Rather, the unambiguous language of § 9-104(f)(3) clearly assigns to the subcontractor the burden of proving indebtedness. F. Scott Jay & Co., supra, 112 Md.App. at 360-61, 685 A.2d at 802. That interpretation, it said, was supported by the general rule placing the burden on the subcontractor to prove its entitlement to a lien. If the Legislature intended to make lack of indebtedness an affirmative defense, the court added, it would have done so by clear and explicit language. The Court of Special Appeals also rejected the argument that, as the owners failed to file an affidavit in opposition to the complaint, a final lien should have been established. The parties had consented to the establishment of an interlocutory lien pending trial on the merits. The appellate court determined that the failure to file an affidavit constituted only an admission of facts contained in the complaint, not an admission that the complaint was legally sufficient. As we observed, those conclusions from F. Scott Jay & Co. formed the basis of the intermediate appellate court's decision in this case. We indicated above that we disagree in part with the conclusions of the Court of Special Appeals. We adhere to the view that, in general, the burden is on the claimant to establish its entitlement to a lien and that the owner bears no ultimate burden to negate that entitlement. We also believe, however, as we held in Reisterstown Lumber v. Tsao, supra, 319 Md. 623, 574 A.2d 307, that the mechanic's lien law should not be construed in such a way as to make the burden on the claimant so difficult as effectively to withdraw the remedy that the Legislature has clearly provided, and that is what the full force of the Court of Special Appeals ruling in this case would do. The intermediate appellate court held that Winkler's petition was not in compliance with the statute because it fails to allege the amount of the indebtedness of the property owners to the general contractor at the time the notice of intent to seek the lien was given.... Jerome v. Winkler, supra, 123 Md.App. at 552-53, 720 A.2d at 4. There are two problems with that ruling. First, § 9-105 and Rule 12-302 specify the information that must be contained in the claimant's complaint, and there is nothing in either the statute or the Rule that requires the complaint to include a statement regarding the owner's indebtedness to the prime contractor. Indeed, the Court of Special Appeals recognized that Winkler's verified complaint was in strict accordance with Md. Rule 12-302(a) and (b). Id. at 556, 720 A.2d at 6. To require that additional information in the complaint would, in essence, amount to amending the statute and the rule, which is not something that ought lightly to be done by judicial fiat. The more significant problem lies in the fact that such a requirement would be virtually impossible, in most instances, to satisfy. A subcontractor, which has no privity with the owner, will likely have no knowledge when it files a complaint, and no practical basis for acquiring knowledge at that time, of whether the owner had paid the prime contractor in full prior to the sending of the subcontractor's notice and, if not, the amount that remained unpaid at that time and whether the owner had any legitimate set-off to that amount. The practical effect of the appellate court's ruling is to make virtually every complaint filed by a subcontractor legally insufficient. It is not a matter, as the court assumed, of the trial court entering an interlocutory lien subject to later proof of the owner's indebtedness to the prime contractor. Under § 9-106(a)(1) and Rule 12-304(b), the court would be required, upon a mere review of the complaint, to determine that a lien should not attach and thus dismiss the complaint without even requiring the owner to answer. If the claimant somehow survives that hurdle, § 9-106(b)(2) and Rule 12-304(e)(1)(B) require that, if the pleadings, admissions, and evidence show that there is no genuine dispute as to any material fact and that the plaintiff, as a matter of law, has failed to establish a right to a lien, which is what the appellate court held, the trial court must enter a judgment denying the lien. In either event, if the plaintiff does not have sufficient information to state under oath whether and to what extent the owner was indebted to the prime contractor when the notice was sent, the case will end at that point, and the plaintiff will have no ability to develop that information. We do not believe that the Legislature intended that result, and we are unwilling to establish a rule that would encourage claimants, in order to avoid that result, to make allegations under oath for which they have no reasonable basis. That would, at the very least, be contrary to Maryland Rule 1-341. We conclude, therefore, that the law does not require the claimant to aver in the complaint whether, at the time the subcontractor's notice was sent, the owner had paid the prime contractor in full. The same practical problem is presented with respect to the production of evidence on that matter. The subcontractor is not likely to have evidence of what, if anything, remained unpaid on the prime contract. Only the owner, the prime contractor, and possibly the owner's construction lender will have that information, and none of them are likely to prove cooperative in sharing it with the subcontractor. A full range of discovery may be possible against the owner, but, unless the prime contractor is a party to the action, it will be far more limited with respect to that person and any construction lender. [7] We believe that the statute, when read in a sensible manner, provides a fair and reasonable balance to the competing interests. The claimant is required to plead the information required by § 9-105 and Rule 12-302. It is significant that, in enacting § 9-104(a)(2) and (f)(3), the Legislature did not amend § 9-105 to require a subcontractor to plead any facts concerning the new provisions. We have followed the general rule in civil actions that, when a particular party has peculiar knowledge of a fact, the burden of alleging and offering evidence of that fact is on that party. See Department of Health v. Phoebus, 319 Md. 710, 718, 575 A.2d 335 (1990), citing Lake v. Callis, 202 Md. 581, 587, 97 A.2d 316, 319 (1953). Applying that principle in District Hgts. Apts. v. Noland Co., supra, 202 Md. 43, 95 A.2d 90, we held that while the burden is on the materialman in a mechanic's lien case to establish the fact that he delivered the materials for which he claims the lien, it will be presumed that all materials which he shipped to the defendant were duly delivered, in the absence of some direct evidence to the contrary, thereby placing the burden on the owner to produce some evidence to the contrary. Id. at 50-51, 95 A.2d at 93-94. See also Grier v. Rosenberg, 213 Md. 248, 131 A.2d 737 (1957) and Maryland Rule 5-301, dealing more generally with the function of presumptions. We believe that approach is a reasonable one to adopt in this situation. As noted, we adhere to our general rule that the overall burden of proving an entitlement to a lien remains with the claimant. If a subcontractor who has supplied labor or material to a single family dwelling properly alleges that which the statute and the Rule require, however, it may be presumed that, at the time the contractor's notice was sent, the owner was indebted to the prime contractor in an amount at least equivalent to the subcontractor's claim. Such a presumption is not pulled from the ether, but is justified by (1) the appropriate inference arising from § 9-114, enacted together with § 9-104(a)(2) and (f)(3), that the owner will not have settled in full with the prime contractor without an assurance that all subcontractors have been paid, (2) the fact that, as between the owner and the subcontractor, any contrary information is peculiarly within the knowledge of the owner, and (3) the fact that the owner has an ample opportunity to raise the issue and present the relevant evidence. If the owner fails to raise the issue and present evidence on it, the court may credit the presumption, as in District Hgts. Apts., in determining whether the plaintiff has met the burden of establishing its entitlement to a lien. If the owner does raise the issue and presents evidence sufficient, prima facie, to establish that, at the time the subcontractor's notice was sent, the owner either had paid the prime contractor in full or was indebted for an amount less than the subcontractor's claim, a question of fact will be created as to which the plaintiff will have the ultimate burden of persuasion. This approach gives full force and effect to § 9-104(a)(2) and (f)(3) without unduly crippling a subcontractor's ability to obtain a lien. Applying this principle to the case at hand, it is clear that the circuit court did not err in establishing the lien. The owners had ample opportunity to raise the issue of their indebtedness to the prime contractor and consistently failed to do so. They ignored the court's show cause order by neither filing an answer nor appearing at the hearing. Even after the lien was established, they failed, in their motion to alter the judgment, to raise the issue. It was not until they moved to stay enforcement of the lien, in October, that they complained of Winkler's failure to prove an indebtedness on their part to Valley Homes, but even then they made no assertion that they were not so indebted. To this day, they have never even alleged, much less offered evidence on, the status of the prime contract when Winkler's notice was sent. There thus being no countervailing evidence before the court, it could properly presume that the owners were still indebted to Valley Homes in the amount of at least $5,760 when they received Winkler's notice. That, coupled with the admissions arising from the owners' failure to respond to the show cause order, sufficed to warrant the establishment of a lien. [8] JUDGMENT OF COURT OF SPECIAL APPEALS REVERSED; CASE REMANDED TO THAT COURT WITH INSTRUCTIONS TO AFFIRM JUDGMENT OF CIRCUIT COURT FOR CARROLL COUNTY; COSTS IN THIS COURT AND IN COURT OF SPECIAL APPEALS TO BE PAID BY RESPONDENTS. ELDRIDGE and CATHELL, JJ., dissent. CATHELL, Judge, dissenting: I respectfully dissent. At page 225, the majority states: As noted, we adhere to our general rule that the overall burden of proving an entitlement to a lien remains with the claimant. As I read the majority's opinion, it does not adhere to the general rule. The majority correctly notes at page 222 that the fundamental purpose of 1982 Md. Laws, Chap. 251, was to limit[ ] the liability of an owner to a subcontractor for work performed and materials rendered by the subcontractor on a single family dwelling erected on the owner's land for his own residence, to the extent that the owner has rendered payment to the contractor. The Court, however, has taken upon itself to minimize the legislative purpose because of the difficulties it perceives subcontractors may have in establishing a lien against an owner's property. The Legislature wanted it to be difficult to establish a lien and it said as much by passing this law. The majority states at page 225 that if the statute is read sensibly (in other words, read as the majority thinks the statute should have been drafted), then it provides a fair and reasonable balance to the competing interests. In essence, the Court substitutes what it perceives to be a fair and reasonable balance for the preferential treatment of homeowners that the Legislature intended. The effect of the majority opinion is to set a course back to the status between subcontractors seeking liens and landowners that existed prior to the 1982 statute and this Court's decision in Barry Properties v. Fick Bros. Roofing Co., 277 Md. 15, 37, 353 A.2d 222, 235 (1976) (holding that the portion of the mechanic's lien statute that created a lien the moment the work was performed or the materials were furnished was unconstitutional because it violated owners' due process rights under Article 23 of the Maryland Declaration of Rights and the Fourteenth Amendment of the United States Constitution). To be fair, the majority discusses at some length the difficulty a potential lien holder will encounter in attempting to ascertain the nature of the ownership, intent to reside, and amount owed by the owner to a general contractor. It bases its bottom line, at least in part, on a perceived difficulty of proof. But at the inception of arrangements between homeowners and general contractors, there is no way, other than constant presence on-site, for an owner to be able to identify the subcontractors or materialmen. Even then, such a determination could be difficult. Furthermore, when a general contractor presents a signed release of liens, there is no way for the owner to know if the release is accurate, complete, or even authentically signed. Matters of proof could be equally difficult. When, however, a complaint (petition) is filed by a subcontractor and service of process obtained, he has the ability to avail himself fully of all the discovery procedures available to any other litigant, including depositions, interrogatories, motions to compel, and requests for admission of facts. A request for admission of facts for the facts the majority emphasizes in this case, if unanswered, would have constituted evidence of those facts. Maryland Rule 2-424(b) specifically states: Each matter of which an admission is requested shall be deemed admitted unless, within 30 days after service of the request or within 15 days after the date on which that party's initial pleading or motion is required, whichever is later, the party to whom the request is directed serves a response signed by the party or the party's attorney. Each of the matters such as ownership, residence, and indebtedness with the general contractor is particularly suited for such a request. The framing of a request for such admissions would not prove difficult. Interrogatories likewise could be used to develop information. Depositions of the owner, general contractor, and even representatives of construction loan lenders could be taken. These people may not like to be deposed; most people do not. Regardless, they will be deposed anyway if litigants perceive that their testimony would be helpful. Barry Properties began the process of protecting property owners from the abuses to which they had been subjected prior to that decision; the 1982 statute continued the trend of affording protection to some homeowners. The majority opinion, in my view, reverts to the time when subcontractors, who could not or chose not to protect themselves against the abuses general contractors sometimes inflicted upon them, held homeowners hostage financially. I decline to promote such a course of action and respectfully dissent. Judge ELDRIDGE has authorized me to state that he joins in the views expressed herein.