F. Scott Jay & Co., Inc. v. Vargo

EYLER, Judge. This case involves an interpretation of § 9-104(f)(3) of the Real Property Article of the Maryland Code, which provides that a subcontractor’s mechanic’s lien against a single family residence shall not exceed the amount that the owner is indebted to the general contractor at the time the owner receives notice of the lien. The issue of first impression we now consider is whether the subcontractor or the owner bears the burden of proving the extent of indebtedness of the owner at the time of notice. We hold that the subcontractor bears the burden of proof, and, consequently, we shall affirm the judgment of the trial court.

Appellant, F. Scott Jay & Co., Inc., a subcontractor furnishing materials, claims that the trial court erred in denying its claim for a mechanic’s lien against the property of appellees, John and Debra Vargo. Appellant, in Count One of its complaint, sought to establish a mechanic’s lien in the amount of $4,343.46 plus prejudgment interest and, in Count Two, sought a judgment in the same amount plus attorney’s fees against the principals of Joint Venture Custom Homes, the general contractor, based on their guarantee of the debts of Joint Venture Custom Homes. Appellant alleged that it sold certain specialty wood products to the general contractor for use in appellee’s property, new construction of a single-family residential dwelling; that it was incorporated in the dwelling; and that the claim was for the amount due. The complaint further alleged that a “notice to owner of intention to claim a lien” was sent certified mail, return receipt requested, and received on June 2,1995, pursuant to § 9-104.

Appellant filed an affidavit in support of its petition to establish and enforce a mechanic’s lien, and a motion for summary judgment. By consent, an interlocutory order was entered, dated July 24, 1995, establishing a mechanic’s lien pursuant to RP § 9-106(b)(3). Following a bench trial in the Circuit Court for Anne Arundel County on November 15, judgment was entered in favor of appellees. ³⁵⁸ Prior thereto, on August 23, summary judgment was entered in favor of appellant against the principals of the general contractor in the amount of $4,343.46. The evidence below will be discussed as we deal with the issues presented.

Appellant noted a timely appeal and presents two issues for our consideration: 1. Did the Court err when it found as a matter of law that Ridge Sheet Metal Co., Inc. [1] required the Court to find for [appellees] when the Court acknowledged that [appellees] had not proven the amount in dispute between them and the general contractor? 2. Did the Court err when it failed to find for [appellant] because of [appellees’] failure to file an affidavit in response to [appellant’s] Complaint? Discussion A. Section 9-102 of the Real Property Article, which provides for the establishment of mechanics’ liens, states in pertinent part that “[e]very building erected ... is subject to establishment of a lien in accordance with this subtitle for the payment of all debts, without regard to the amount, contracted for work done for or about the building and for materials furnished for or about the building____” A subcontractor is not entitled to a mechanic’s hen unless it gives the owner notice of the hen within 90 days of doing the work or furnishing the materials. § 9-104(a) and (b).

Further, when, as here, the property involved is a single family dwelhng erected on the owner’s property for use as the owner’s own residence, the notice must be received by the owner prior to the time that the owner has made full payment to the contractor. § 9-104(b). Finally, § 9 — 104(f)(3) provides in pertinent part as follows: Notwithstanding any other provision of this section to the contrary, the hen of the subcontractor against a single ³⁵⁹ family dwelling being erected on the land of the owner for his own residence shall not exceed the amount by which the owner is indebted under the contract at the time the notice is given. It is undisputed that appellant sold materials to the general contractor that were incorporated into appellees’ house, and that appellant was not paid the amount claimed. Appellant acknowledges that the subject property is a single family dwelling constructed for use as the appellees’ own residence.

Accordingly, § 9 — 104(f)(3) applies. Appellant asserts, however, that appellees did not make all of the payments originally contemplated by the building contract. Appellant contends that appellees, by establishing that the general contractor left the job before the work was complete, and that they had to expend additional sums to complete the construction, merely proved the existence of a dispute with the general contractor, and did not produce enough evidence to defeat appellant’s mechanic’s hen. Appellant asserts that the trial court read Ridge Sheet Metal Co., Inc. v. Morrell, 69 Md.App. 364 , 517 A.2d 1133 (1986), to require a finding in favor of the homeowner as a matter of law whenever a dispute between the homeowner and the general contractor exists.

Appellant argues that such a reading of Ridge Sheet Metal is incorrect and that the homeowner must affirmatively demonstrate that he or she was not indebted to the contractor at the time of notice in order to defeat the lien. According to appellant, this burden is not met merely by showing that an amount was not payable under a draw schedule. Appellant’s argument expressly assumes that it was the appellees’ burden to prove that they were not indebted to the general contractor at the time they received notice of appellant’s lien. Before we address this assumption, we will briefly review the holding of Ridge Sheet Metal.

Ridge Sheet Metal, similar to this case, involved a situation in which the general contractor had abandoned the contract prior to completion of construction. Under the express terms of the contract, the homeowners were entitled to keep a ³⁶⁰ twenty thousand dollar retainage. The subcontractor sought to assert a mechanic’s lien up to the amount of this retainage, arguing that the homeowners had received the benefit of the subcontractor’s services and that the homeowners would otherwise be unjustly enriched. We held that, because the homeowners were not indebted under the contract at the time they received notice of the lien, the lien was not valid.

In that case, we interpreted the phrase “indebted under the contract” to mean a legally enforceable obligation against the homeowners. We agree with appellant that a legally enforceable obligation could exist even if a construction draw is not payable, depending on the terms of the contract and all other relevant facts and circumstances. In Ridge Sheet Metal, the evidence regarding the indebtedness of the homeowners was undisputed, and we did not consider which party has the burden of proving the extent of indebtedness. In this case, the extent of the homeowners’ indebtedness is very much in dispute.

In order to address appellant’s implicit claim that appellees have failed to meet their burden of proof, we now turn to that issue and hold that where a subcontractor seeks to establish a lien against a single family residence, it is the subcontractor’s burden to demonstrate the extent to which the homeowner was indebted to the general contractor at the time that the homeowner received notice of the lien. This information would normally be obtained through discovery. A mechanic’s lien is a creature of statute, and there is no entitlement to a hen beyond that created by statute. Caton Ridge, Inc. v. Bonnett, 245 Md. 268 , 225 A.2d 853 (1967); Giles & Ransome, Inc. v. First Nat’l Realty Corp., 238 Md. 203 , 208 A.2d 582 (1965); Freeform Pools, Inc. v. Strawbridge Home for Boys, Inc., 228 Md. 297 , 179 A.2d 683 (1962).

Section 9-104(f)(3) plainly provides that a subcontractor is entitled to a lien only to the extent of the homeowner’s indebtedness to the general contractor at the time the homeowner receives notice of the hen. Under the express terms of the statute, lack of indebtedness is not an affirmative defense to be proven by the ³⁶¹ homeowner. Rather, the unambiguous language of § 9-104(f)(3) clearly assigns to the subcontractor the burden of proving indebtedness. Moreover, our interpretation of this statute is borne out by a discussion of the statute’s history.

It has long been recognized that it is the claimant’s burden to establish the validity of its hen. Continental Steel Corp. v. Sugarman, 266 Md. 541, 548 , 295 A.2d 493 (1972). Cf. RP § 14-203(d) (the Maryland Contract Lien Act, which was modeled after the Mechanics’ Liens Subtitle, expressly provides that the party seeking to establish the lien has the burden of proof).

By contrast, in order to allege a prima facie defense, an owner need only deny the validity of the lien and require the claimant to prove its validity. Id. Moreover, the Court of Appeals long has held that the claimant, as part of its case, must prove that the requisite notice has been given to the owner. See, e.g., Prima Paint Corp. v. Ammerman, 264 Md. 392, 396 , 287 A.2d 27 (1972); Parker v. Tilghman V. Morgan, Inc., 170 Md. 7, 19 , 183 A. 224 (1936).

Lack of notice is not an affirmative defense to the establishment of a mechanic’s lien, but instead, the claimant must affirmatively