Greens at Hilton Run I Ltd. Partnership v. Rollin Building Supply Co.

MOYLAN, Judge. The Greens at Hilton Run I Limited Partnership (The Greens) has appealed from a mechanic’s lien established in favor of Rollin’ Building Supply Company, Inc. (Rollin’) in the amount of $17,776 by the Circuit Court for St. Mary’s County. The Greens raises the following issues: 1. Whether the lien releases executed by Rollin’ and the subcontractor released the builder or owner from the mechanic’s lien; 2.

Whether Rollin’ could apply all payments by the contractor on a first in-first out basis to the subcontractor’s only account with Rollin’ for the three projects all parties were involved in; and 3. Whether Rollin’ was estopped from raising non-payment and claiming a lien when it had full control of funds sufficient to satisfy the subcontractor’s account. Rollin’ cross appeals, contending that the court erred in finding that Rollin’ was not entitled to recover the full amount of its lien. ²²³ The Facts The Greens at Hilton Run in St. Mary’s County is one of several separate limited partnerships established to build multifamily housing projects. 1 Case Edwards Development, Inc. is a general partner in each of the limited partnerships. The contractor for the projects, Case Edwards Construction Company, Inc. (Case Edwards), subcontracted with Duane Lundberg T/A Bay Central Installation (Lundberg) to furnish and install the vinyl siding.

Lundberg, in turn, solicited Rollin’ to provide the siding and related materials at $60 per square 2 for the projects. Lundberg had only one account with Rollin’ and all purchases, regardless of the project, were charged to that account. Rollin’ credited all payments, made jointly to Lundberg and Rollin’ by Case Edwards, to the oldest outstanding invoices first. At issue are the 773 squares of siding and materials delivered by Rollin’ to the Hilton Run project, also known as the Lexington Park project, between April 2 and June 15, 1988. 3 On March 31,1988, Lundberg’s account of payments due by it to Rollin’ stood at $66,368.26 for deliveries to the other two projects.

When Lundberg’s account totalled $95,-137.78 at the end of April, Rollin’ requested a meeting with Case Edwards to discuss Lundberg’s arrearage. No payments toward the Lexington Park project had been made prior to the meeting. The May 2 meeting attended by Lundberg, Case Edwards and Rollin’ 4 revealed that Lundberg had misled the other ²²⁴ parties as to his labor costs. He had been receiving checks from Case Edwards for labor (which he allegedly overstated), as well as the joint checks for materials (which he allegedly understated).

Rollin’ was not aware Lundberg had received compensation for his labor costs in a separate check. In order to insure that Rollin’ would receive the full balance due it, and to ensure that Lundberg would continue to provide labor to finish the projects as Case Edwards wished, Rollin’ proposed 1) that the joint checks for labor and materials issued by Case Edwards be given directly to Rollin’ rather than Lundberg, and 2) that Rollin’ would credit itself $60 per square of siding installed, plus $5 per square on the arrearage, and pay Lundberg his labor costs. Although the parties agreed to implement the Rollin’ proposal, each had a different interpretation as to its application. According to Rollin’, it was to pay the third-party labor costs first as presented by Lundberg, and then to credit the rest to Lundberg’s account.

According to The Greens, Rollin’ was to pay itself first, collect the additional $5/square, and then pay the third-party labor costs. Six of the joint checks distributed to Rollin’ related to the Lexington Park project before Lundberg was terminated: Date Check No. Amount 5/03/88 21198 8,164.80 5/12/88 21270 16,329.60 * 5/19/88 21423 10,108.80 5/27/88 21597 9,552.60 6/10/88 21849 6,403.60 6/15/88 22115 14,094.00 64,653.40 Another check, number 22722 dated 7/19/88, in the amount of $7,840.80 was issued to Rollin’ on July 19, 1988, bringing the total disbursed to Rollin’ to $72,494.20. According to Mark Winkler, an officer of Rollin’, the joint checks were distributed by Richard Norton (Norton), then president of the corporation. Norton “would try to ascer ²²⁵ tain how many squares [Lundberg] had done the week before, and how many squares the draws were based on, and pay him.” Winkler further testified: “Lundberg would come in requesting a certain amount of money.

Rick would determine, or try to make a determination how many squares this particular check was based on his applying. And try to base what he gave [Lundberg] on the reasonableness of that figure. And try to get for us no less than sixty dollars a square.” Norton’s uncontroverted testimony corroborated Winkler’s summary. Norton also testified that Rollin’ paid Lundberg’s labor before it paid itself from the first two checks.

Handwritten notations on the check stubs of the next four checks indicate that the Rollin’ paid itself for a certain amount of squares and then gave the balance to Lundberg. The stub of the last check was not in evidence. Five undated, unwitnessed form lien releases were signed by Norton and Lundberg. Norton’s name appeared on the line for “stairwork.” No signature appeared on the owner’s signature line.

All the releases had handwritten notes in the margins indicating “Bay Central,” and two mentioned “Rollin’ Supply.” Three had check numbers written on them, and two releases indicated (according to Norton’s testimony) what had been released: Release 5 Date Check No. Released 1 5/19/88 21473 2 6/10/88 3 6/10/88 21849 Bldg # 7 33 sq Bldg # 10 30 sq 5/27/88 21597 5/27/88 Bldg # 2 16 sq Clubhs 25 sq Norton testified that the purpose of his signature was merely to signify that Rollin’ had received a check. He also ²²⁶ testified that six buildings and a clubhouse had been completed by the time Lundberg was terminated. 6 On December 12, 1988, Rollin’ petitioned to establish and enforce a mechanic’s lien in the amount of $39,516.74 against The Greens. The Greens did not contend that Rollin’ failed to comply fully with the statutory requirements under Md.Real Prop.Code Ann. § 9-104 et seq. (1974, 1988 Repl.

Vol.), and the trial court proceeded as if the lien was perfected. The parties stipulated that Rollin’ received $72,494.20 in joint checks subsequent to the May 2 arrangement. The trial judge determined Rollin’ paid Lundberg $36,694.80 from the joint checks for labor, although the amount is actually $1,000 higher. 7 Of the amount allocated to labor, $28,604 was directly related to the Lexington Park project. The parties agreed that the fair market value of the 773 squares and accessories was $60 to $62 per square; the judge assigned a value of $60 per square, thereby placing a value of $46,380 on the 773 squares.

The court then held that the lien releases were too vague to determine the true nature and extent of any release. Rollin’, therefore, “was entitled to take out all amounts then due it on account of the Lexington Park job, and the other two jobsites as well,” but it could not achieve a lien status greater than that represented by materials incorporated into the Lexington Park jobsite, e.g., $46,380. After determining that Rollin’ had not looked after its financial interests when it paid Lundberg’s labor costs, the lower court credited The Greens ²²⁷ $28,604 and established a lien in the amount of $17,776 in favor of Rollin’. Both parties appealed the judgment.

Standard of Review Although we review the case on both the law and the evidence, we “will not set aside the judgment of the trial court on the evidence unless clearly erroneous.” Md.Rule 8-131; Landover Ass. Ltd. Partnership v. Fabricated Steel Prod. Inc. 35 Md.App. 673, 682 , 371 A.2d 1140 (1977). Lien Releases The Greens urges this Court to find that the trial court erred in determining that the five lien releases executed by Rollin’ with Lundberg were ineffective.

According to The Greens, Rollin’ knew which buildings were released and should be estopped from claiming a lien. Rollin’, on the other hand, contends that the judge was correct in not taking the releases into account. We hold that the trial judge was not clearly erroneous in determining that the lien releases are “probative only of the fact that some portion of the potential lien has been released.” The lower court could not reconstruct what had happened; nor can this Court. The Greens argues that, upon an examination of the totality of the circumstances, “the only possible inference is that Norton executed each release to show receipt of a check for the payment of a certain amount of material.” Lonnie Spraberry, a Case Edwards employee, testified that Lundberg would send an invoice to Case Edwards when a building was completed, specifying the building number.

Case Edwards would then prepare the check and lien release which were sent out simultaneously. Each check stub indicated the project number, the Lundberg invoice number, a date and the amount paid. The person picking up the check was given the lien release. According to Spraberry, a letter was then sent out by the accounting department stating that “you won’t get another check until you sign the ²²⁸ lien release and we have it in our possession.” The Greens notes that Norton released a specific number of squares on two of the forms, and that the testimony showed Norton attempted to determine “how many squares this particular check was based on.” From these facts The Greens concludes that Norton, “personally knew what amount of material was involved,” and that .

Rollin’ is thus estopped from claiming a lien. The trial judge was not clearly erroneous in determining that three of the releases were: “probative only of the fact that some portions of the potential lien had been released, [as] one cannot determine from the document what is the true nature and extent of the release.” It is not readily apparent how a general lien release for a specific project can be effective when the materials paid for, as indicated by the May 12, 1988 check stub, encompassed more than one project. Although the forms provided plenty of space for descriptive detail as to just what was released, The Greens merely inserted the project name; it was Norton who limited two of the releases to a certain amount of material for specific buildings. 8 Seven checks were issued, moreover, but only five releases were signed. Even if we were to find The Greens’ argument persuasive, some portion of the lien was clearly not released. ²²⁹ The property owner has long had the burden of proof to establish the precise scope and extent of any release.

Maryland Brick Co. of Baltimore City v. Dunkerly, 85 Md. 199, 213 , 36 A. 761 (1897). The Greens failed to meet that burden when it did not prove to the trial court which buildings or what materials had been released. Whether or not Rollin’ could “figure it out” is irrelevant. Certainly material providers should ensure the accuracy of any lien release they sign, but the deliberate purpose of the mechanics’ lien law is to establish property owners as a second or “back-up” source of payment for the unpaid material provider since it is the owners who receive the ultimate benefit of the materials, and who, as a practical matter, control the cash.

Hill v. Parkway Indus. Center, 49 Md.App. 676, 678 , 435 A.2d 472 (1981). The trial court correctly maintained the lien against the Lexington Park project. We note, however, that Norton’s testimony reveals that Rollin’ did execute a release on some of the materials delivered: “[Defendant’s Attorney]: Do you know who put that handwriting on [the lien release]? [Norton]: I did.

Q: What did you — why did you put that on there? A: Due to the fact I could not release a lien on that particular building because it was not completed. I could not sign a release of lien on a building that was not completed. Q: You would put down how much you are releasing?

A: Yes. Q: One shows Building [7-33] squares or something like that. Those you are [sic] putting down how much you were releasing? A: Right.” Although the three general lien releases are too vague to have any effect, the releases with Norton’s handwritten notations, combined with his testimony, were specific enough to be effective.

Rollin’ released 66 squares in the ²³⁰ third release and 41 squares in the fifth release, a total of 107 squares. Thus, of the 773 squares delivered to the project, Rollin’ can establish a lien for only 666 squares of siding. Accounting Procedures The Greens next complains that Rollin’ was required to separate the three projects, and to credit the proper project as indicated on the check stub, rather than simply to credit Lundberg’s account on a first-in-first-out (FIFO) basis. Rollin’ maintains that it could allocate the check funds under the FIFO accounting method in the absence of directions to the contrary by the debtor, Lundberg.

The proper allocation of credits to an account in the context of the mechanic’s lien was explained by Judge Collins in T Dan Kolker, Inc. v. Shure, 209 Md. 290, 301-302 , 121 A.2d 223 (1956): “Of course, it is true as a general rule that