Allied Building Products Corp. v. United Pacific Insurance

ROSALYN B. BELL, Judge. Allied Building Products Corporation (Allied) appeals from a decision of the Circuit Court for Baltimore City granting cross-summary judgment for United Pacific Insurance Company (United Pacific). Allied is a large supplier of roofing and other building materials. United Pacific was the surety of a payment bond posted by Triangle General Contractors, Inc. (Triangle), guaranteeing payment for labor and materials on a State building project.

Allied filed suit against United Pacific on August 20,1987, alleging that it was entitled to relief from United Pacific due to the nonpayment of a subcontractor, Sain & Son Contractors, Inc. (S & S). We are presented with two issues in this appeal: —Did a joint check agreement operate to extinguish Allied’s right to recover under Maryland’s Little Miller Act? —Was Triangle’s affidavit, alleging that Allied had billed it for more roofing materials than actually delivered, sufficient to withstand Allied’s summary judgment motion? We reverse and remand. The relevant facts are as follows.

Triangle was the general contractor on a State project to construct the Francis Scott Key Elementary-Middle School in Baltimore City. United Pacific, appellee, was the surety for Triangle in accordance with Triangle’s obligations to provide a payment bond pursuant to § 13-501(a)(2) of the Little Miller Act, Md.State Fin. & Proc.Code Ann. (1985). Briefly stated, this section requires a general contractor to post a payment bond in any construction contract awarded by the State which exceeds $50,000 in order to make certain that persons providing building materials are paid. By providing the payment bond, United Pacific guaranteed payment to all persons supplying materials for the school building project ²²³ undertaken by Triangle.

S & S, a construction subcontractor for Triangle, used roofing and other building materials supplied by Allied, which Allied delivered to the job site. After the project was underway, Allied became concerned about receiving its payments on an open account it had provided to S & S. Consequently, Allied, S & S, and Triangle entered into a joint check agreement in November of 1985, pursuant to which Triangle agreed to pay S & S with joint checks made payable to S & S and Allied, thus ensuring that Allied would be paid for the building materials it had supplied to S & S. The agreement provided that Triangle assumed no liability for any materials purchased in excess of $100,000. Nevertheless, Triangle paid out a total of $123,846.74 to Allied under the joint check agreement 1 When S & S did not meet its obligations, Allied gave nc and filed suit on the payment bond underwritten by United Pacific, claiming an unpaid balance of $75,889.18 for building materials delivered to the job site. The trial court granted Allied’s summary judgment motion on November 10, 1987, and United Pacific filed a motion to vacate the judgment, a motion in opposition of the summary judgment, and a cross-motion for summary judgment on November 20, 1987. 2 These motions were heard in an unrecorded hearing in chambers on January 5, 1988.

Judgment was entered in favor of United Pacific on both motions. Because the hearing was unrecorded, we can only assume that the trial court entered judgment for United Pacific based on its pleadings, which asserted, in essence, that the joint check agreement limiting Triangle’s liability ²²⁴ to $100,000 operated as a waiver of Allied's rights under the Little Miller Act. The effect of the joint check agreement is thus the primary issue in this case. We hold that the lack of a specific waiver was fatal to United Pacific’s cross-motion.

The second question involves Allied’s own motion, and for that answer we revisit the problem of the adequacy of an affidavit opposing summary judgment. We hold that United Pacific’s affidavit was sufficient to raise a material factual issue regarding delivery, and as a result, Allied was not entitled to summary judgment. We begin our explanation with a brief history of the Little Miller Act and what it was intended to accomplish. HISTORY Construction projects such as office buildings and factories have increased dramatically.

These projects typically involve large amounts of money; hence, if the contractor’s business failed, suppliers who had extended credit could suffer substantial losses. Since suppliers had no recourse at common law, statutes providing for mechanics’ liens were enacted to address this problem. See Cahn, Contractors’ Payment Bonds in Maryland, 32 Md.L.Rev. 226 (1972). Public projects such as schools, highways and public hospitals were typically exempt from mechanics’ liens, however, and suppliers on State public projects in Maryland had no remedy until 1918, when Maryland adopted its version of a federal law known as the Heard Act, which required contractors to post bonds for State projects. 1918 Md.Laws ch. 127.

In 1959, Maryland replaced this law with a new statute requiring contractors to post payment bonds on State construction projects. This new statute was patterned on a federal act known as the Miller Act. 3 ²²⁵ Although nothing in the legislative history of the Maryland Act explicitly states that it was based on the federal Miller Act, the legislative history does show parallel development and, except for minor variations, the language of the two statutes is essentially the same. Williams Constr. Co. v. Construction Equip.

Inc., 253 Md. 60, 61 , 251 A.2d 864 (1969); Viscount Constr. Co. v. Dorman Elec. Supply Co., 68 Md.App. 362, 363 , 511 A.2d 1102 (1986). In fact, the statute is commonly referred to as the “Little Miller Act.” Maryland State Fin. & Proc.Code Ann. §§ 17-101 through 17-110 (1988) 4 sets out the Little Miller Act in its present form, and provides in pertinent part: “17-103.

Security on construction contracts. “(a) Contracts exceeding $50,000.—(1) Before a public body awards a construction contract exceeding $50,000, the contractor shall provide payment security and performance security that meet the requirements of § 17-104 of this subtitle. “(2) The security shall be: (i) for performance security, in an amount that the public body considers adequate for its protection; and (ii) for payment security, at least 50% of the total amount payable under the contract.” ²²⁶ “17-104. Type of security. “Payment security or performance security required under this subtitle shall be: (1) a bond executed by a surety company authorized to do business in the State____” The purpose of the Little Miller Act is remedial. The Act is intended to protect suppliers on State and other public projects where they would ótherwise have no lien as a result of sovereign immunity. Hamilton & Spiegel, Inc. v. Board of Educ. of Montgomery County, 233 Md. 196, 200 , 195 A.2d 710 (1963).

The Act is to be liberally construed to effectuate this public purpose. Montgomery County Bd. of Educ. v. Glassman Constr. Co., 245 Md. 192, 201 , 225 A.2d 448 (1967). Under the Miller Act, “[t]he liability of the surety is measured by that of the prime contractor for the bond.

The liability of the prime contractor to a project supplier of a subcontractor is governed by the subcontractor’s obligation.” D & L Constr. Co. v. Triangle Elec. Supply Co., 332 F.2d 1009, 1013 (8th Cir.1964). The obligation is one, not of contract, but of statute, and therefore privity is not required.

The liabilities of lower tier subcontractors to their suppliers are passed up the ladder to the surety. For example, in the instant case, it is S & S’s liability to Allied that becomes the benchmark in determining Allied’s damages as against Triangle, and ultimately United Pacific. What is significant about both the federal and the state acts is that, although there have been amendments to both statutes, 5 the basic coverage, purpose and procedures remain substantially the same. Generally, this Court will look to federal decisions construing the Miller Act to provide guidance in interpreting the Little Miller Act.

Vis ²²⁷ count, 68 Md.App. at 366 , 511 A.2d 1102 ; General Fed. Constr., Inc. v. D.R. Thomas, Inc., 52 Md.App. 700, 709, 451 A.2d 1250 (1982); Montgomery County v. Glassman, 245 Md. 192, 201 , 225 A.2d 448 (1967). EFFECT OF THE JOINT CHECK AGREEMENT On appeal, Allied contends that the trial court erred in granting judgment for United Pacific, asserting that at no time did it waive its right to the protection of the Little Miller Act. On the other hand, United Pacific asserts that it had no obligation to Allied because Triangle fulfilled its obligations under the joint check agreement. Since Triangle had no further liability to Allied, United Pacific claims it follows that it had no liability as Triangle’s surety.

We disagree with United Pacific’s position, and explain. Whether the cross motion for summary judgment was properly granted to appellee rests on the claim that Triangle’s liability to appellant under the Little Miller Act was limited to $100,000. The joint check agreement was in the form of a letter from Triangle to S & S dated November 25, 1985. The letter stated in pertinent part: “You have asked us to make checks in payment for your work, under the above referenced contract, payable jointly to you and to Allied Roofers Supply Corporation.

We are willing to do this, and will do so, subject to the following conditions: 5jS % * & * “2 We assume no liability for any materials purchased in excess of the total purchase of One Hundred Thousand Dollars and no/cents. Tax Included, ($100,000.00). Also we assume no liability for any materials not delivered to the job site and signed for by Triangle General Contractor’s job superintendent for verification.” “3. We will require a partial Release of Liens, and a Release of rights against our Payment Bond, from both ²²⁸ you and your supplier as a condition of each payment to you. “4.

Also it is agreed, that all joint check payments will be applied by the Supplier to only S & S Drywall Contractor’s account for the Francis Scott Key Middle School and no other accounts.” The letter was accepted by Triangle, S & S and Allied. The Court of Appeals held in N.S. Stavrou, Inc. and Reliance Insurance Co. v. Beacon Supply Co., 249 Md. 451, 458-59 , 240 A.2d 278 (1968), that the joint check agreement was not intended to guarantee payment in lieu of the contractor’s bond obligation. The joint check agreement in Stavrou imposed a duty on the contractor to pay the supplier for materials not to exceed $20,000. The Court held that the contractor’s conduct had the effect of exceeding this obligation.

Stavrou, 249 Md. at 451 , 240 A.2d 278 . The Court pointed out that the contractor could have protected himself by requiring (in addition to the joint check agreement) the supplier to execute a bond waiver, but this was not done. The Court noted that in order to prevail the contractor “would had to have shown by a fair preponderance of the evidence an express or implied waiver on the part of [the supplier]____” Stavrou, 249 Md. at 458 , 240 A.2d 278 . Thus, the Court implicitly would have required language additional to or more specific than that of the joint check agreement in Stavrou in order to find a bond right waiver.

The Stavrou Court, however, did not elaborate on what sort of language could constitute an express or implied waiver. While the Maryland courts have not considered the question of exactly what would constitute a waiver of rights under the Little Miller Act, there are a number of federal cases regarding waiver of rights. Therefore, we turn to these cases for guidance. In Warrior Constructors, Inc. v. Harders, Inc., 387 F.2d 727 (5th Cir.1967), the Court observed that the right to sue on a Miller Act surety bond is a right created by the ²²⁹ statute.

If a supplier is not paid, his only remedy is suit under the Act. Therefore, a waiver or release is a “drastic curtailment of these rights," and it will not “be read into a general agreement absent clear expression to that effect.” Warrior Constructors, Inc., 387 F.2d at 729 . In United States ex rel. Koppers Co. v. Five Boro Construction Corp., 310 F.2d 701, 703 (4th Cir.1962), the Court held that a supplier had not waived its Miller Act rights by entering into a joint check agreement with the contractor and subcontractor.

The agreement, reached by letter, was entered into after the supplier became apprehensive concerning the subcontractor’s ability to pay for railroad materials delivered for a Navy building project. The Court found nothing in the joint check agreement which indicated that the supplier intended to waive its rights, observing that the supplier had three options when the subcontractor’s ability to pay became questionable. The supplier could have (1) continued supplying materials until the job was completed and then file against the payment bond pursuant to the Miller Act, (2) refused to deliver any more materials, or (8), as happened in Koppers, agreed to deliver supplies pursuant to a joint check agreement. The Court stated: “This insured payment to [the supplier] as the work progressed instead of delay in payment until completion of the job, but a request for and the acceptance of additional security does not indicate an intention to waive the right to that already in hand." Koppers, 310 F.2d at 703 .

United States ex rel. Clark-Fontana Paint Co. v. Glassman Construction Co., 397 F.2d 8 (4th Cir.1968), involved a factual situation similar to that in the instant case. In Clark-Fontana, a paint supplier agreed to supply materials to a subcontractor, but requested the general contractor to make its checks jointly payable to the paint supplier and the subcontractor. Each check contained a notation that the subcontractor and supplier “waived and released to the extent of the full face value hereof any right any of them ²³⁰ may have” to assert a claim under “any bond” given by the contractor.

Clark-Fontana, 397 F.2d at 9 . The supplier then allowed the subcontractor to keep most of the proceeds of these checks because the subcontractor was having trouble meeting his payroll. This subcontractor eventually went bankrupt, and the supplier filed suit under the Miller Act to recover the unpaid balance. The defendants (contractor, insurance company and subcontractor) claimed that the language on the checks constituted a waiver of the supplier’s right to recover under the Miller Act.

Clark-Fontana, 397 F.2d at 10 . The Court held that the notation was not a waiver because its language did not explicitly “say that the material-man [supplier] was obligated to deduct his current due from each check at the peril of losing his statutory rights.” Clark-Fontana, 397 F.2d at 10 . The Court stated: “[W]e do not hold that protection of laborers and materialmen may never be accomplished by other means so as to avoid the general contractor’s statutory obligation. But where that result is attempted by means of express waiver, we think that congressional purpose requires that waiver be clear and explicit____ Absent the clear language of an express waiver, we think that none is to be implied; as we have held in the past, requesting and accepting additional security does not indicate an intention to waive the right to that already in hand.” Clark-Fontana, 397 F.2d at 10-11 (citation omitted).

Clark-Fontana illustrates the approach taken by the federal courts—while it is possible for a