Himmighoefer v. Medallion Industries, Inc.

SMITH, Judge. We are here faced with the conflicting claims of purchasers of real estate and a mechanics’ lienor. The purchasers acquired equitable title prior to institution of the suit to establish mechanics’ liens. We shall hold that the purchasers prevail.

The facts are not in dispute and were the subject of stipulation in the trial court. Between May 30, 1981, and September 21, 1981, appellee Medallion Industries, Inc., furnished work and materials on two sites in a subdivision in Prince George’s County known as Canterbury Estates. This was done pursuant to contract with K.R. Yates Builders, Inc. The land was owned by Ridgely Builders, Inc. On November 17, 1981, Ridgely contracted to sell one lot with the improvements thereon to appellants Gary 0. Himmighoefer and wife.

The purchase price was $125,000 with $5,000 being paid down at the time of contract. On November 24, 1981, Ridgely contracted to sell the other lot to appellant Robert B. Holmes for $115,000, of which $2,000 was paid down. These contracts were not recorded. On December 23, 1981, Medallion filed a petition in the Circuit Court for Prince George’s County to establish a mechanics’ lien against each lot.

Ridgely was the only named defendant. On December 31 Ridgely conveyed one lot to the Himmighoefers. The full purchase price was paid. On January 8 the other lot was conveyed by Ridgely to Holmes upon payment of the full purchase price.

Ridgely did not respond to the show cause order on the petition to establish the mechanics’ lien. A default decree was passed on February 2, 1982, entering liens totaling $3,350.00. The appellants acquired knowledge of the mechanics’ liens when their properties were advertised for sale. They filed petitions to intervene, to vacate the decree, and to ²⁷² enjoin the sales.

The trial court held “that once the deed was recorded, the purchasers became a matter of record and must be joined in the case.” It found that the “purchasers were not joined and the Court has no jurisdiction over their interest in their absence.” Hence, they were granted leave to intervene and the order establishing the liens was vacated. No appeal was filed. The matter ultimately came on for hearing on cross motions for summary judgment. The trial court held that appellants had “constructive notice” by virtue of the petition to establish liens.

Accordingly, it passed an order directing that a mechanics’ lien be entered against each property. All proceedings for execution of the liens were stayed for a period of thirty days with the proviso that if an appeal were noted in that time the stay would continue “until conclusion of the appellate process____” An appeal was entered to the Court of Special Appeals. We granted a petition for a writ of certiorari prior to the hearing of the cause in the intermediate appellate court. We suspect that a part of the problem here arises from confusion in the minds of some between the law as it existed prior to our decision in Barry Properties v. Fick Bros., 277 Md. 15 , 353 A.2d 222 (1976), and the law as it exists today.

In Barry Judge Digges traced the prior law for the Court back to Ch. 45, § 10, of the Acts of 1791, applicable “only to that section of the State which was being ceded to the United States to constitute the District of Columbia, and was passed by the Legislature, at the urging of Thomas Jefferson and James Madison, to facilitate the speedy construction of the new capital city of Washington.” 277 Md. at 17 , 353 A.2d at 224 . The “old” law was found in Maryland Code (1974, 1975 Cum.Supp.) §§ 9-101 to -110, Real Property Article. Section 9-101 provided: “(a) Property and debts to which lien attaches.—Every building erected and every building repaired, rebuilt, or improved, to the extent of one fourth of its value, is ²⁷³ subject to a lien 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, including the drilling and installation of wells for the purpose of supplying water, the construction or installation of any swimming pool, the sodding, seeding or planting in or about the premises of any shrubs, trees, plants, flowers, or nursery products of any kind or description and the grading, filling, landscaping, and paving of the premises. “(b) Exemptions.—However, no building or the land on which it is erected is subject to a lien provided in subsection (a), if it is proved by evidence that all the money due for work contracted and material furnished in repairing or constructing the building has been paid to any natural person, firm, or corporation who actually performed the labor or supplied the materials and the building has been granted to a bona fide purchaser for value without notice.” (Emphasis added.) Section 9-103 provided for notice to the owner where the contract was with a person other than the owner. Section 9-105 said that claims should be filed in the office of the clerk of the circuit court of the county.

Under § 9-106 the lien of the debt for which a claim was filed expired at the end of one year from the day on which it was filed. During that time the claimant might bring proceedings in equity to enforce his lien. Up until the bringing of such an action a landowner had no notice of the lien upon his property, unless notice was given under § 9-103. Under this statute a lien, once entered, dated back to the beginning of construction, notwithstanding the actual date of work done or materials delivered.

Section 9-107(b) stated in pertinent part, “A mechanics’ lien has priority over any mortgage, judgment, lien or encumbrance attaching to the building or ground subsequent to the commencement of the building.” The Court said in Barry: “We conclude, therefore, that, because it allows prejudgment seizures without notice, a prior hearing or other ²⁷⁴ sufficient safeguards, and cannot be justified under the extraordinary circumstances exception, Maryland’s mechanics’ lien law is incompatible with the due process clauses of Article 23 and the Fourteenth Amendment.” 277 Md. at 33 , 353 A.2d at 233 . s]c is s}: sfc $ jjs “If it is possible, then, and we think it is, to delete the aspect of the statute which renders it unconstitutional— its taking of property without providing sufficient safeguards—while still preserving enough to have a law capable of fulfilling the principal legislative intent, we must do so. We think that this can be accomplished by excising that portion of the statute which purports to create a lien from the time work is performed or materials furnished to the time a lien is established by judicial determination in a proceeding sufficient with respect to due process. We therefore hold that under the current statute there can be no existing lien on property until and unless the claimant prevails either in a suit to enforce the claimed lien or in some other appropriate proceeding providing notice and a hearing (i.e., a declaratory judgment action).12 What the claimant, be he a general contractor or subcontractor, possesses up to that point in time is a chose in action. Under this ruling, we believe, the statute continues to effectuate the primary legislative intent, yet the owner is not deprived of a significant property interest without due process since the owner’s interest is not impinged upon until after he is provided with notice .and an opportunity for a hearing.

It follows that § 9~107(b), to the extent that it grants mechanics’ liens ‘priority over any mortgage, judgment, lien or encumbrance attaching to the building or ground subsequent to the commencement of the building’ but prior to the time the lien is established by a judicial determination, is also null and void since to hold otherwise would permit contractors to seize with their left hand what we have ²⁷⁵ said they cannot grasp with their right.” 277 Md. at 36-37 , 353 A.2d at 235 (footnote 13 omitted). Footnote 12 stated: “We do not here hold that the Legislature could not enact a mechanics’ lien law permitting general contractors and subcontractors to obtain liens prior to owners being given notice and an opportunity for a hearing if the statute includes safeguards such as those discussed in Mitchell v. W.T. Grant Co., 416 U.S. 600 , 94 S.Ct. 1895 , 40 L.Ed.2d 406 (1974) and North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601 , 95 S.Ct. 719 , 42 L.Ed.2d 751 (1975). Rather, in this case, we only hold that since the present law does not include such safeguards no lien can exist under it until after owners are provided with notice and a chance for a hearing.” 277 Md. at 37 , 353 A.2d at 235 . As Judge Digges put it for the Court in Aviles v. Eshelman Elec.

Corp., 281 Md. 529 , 379 A.2d 1227 (1977): “The General Assembly, being in regular session at the time, reacted to this ruling by enacting Chapter 349 of the Laws of 1976 which, effective May 4 of that year,2 did away with the mechanics’ lien law then set out in the Maryland Code as sections 9-101 through 9-108, 9-111 and 9-113 of the Real Property Article (1974 & 1975 Cum.Supp.), and substituted in its place, without a saving provision, a fundamentally different lien statute.” 281 Md. at 531 , 379 A.2d at 1228 . Footnote 2 noted that Ch. 349 of the Acts of 1976 was enacted by the General Assembly as emergency legislation that consequently became effective when signed by the Governor on May 4, 1976, under the provisions of Maryland Constitution Art. XVI, § 2. The “new” law provides in Code (1974, 1981 Repl. Vol.) § 9-102(a), Real Property Article: “Every building erected and every building repaired, rebuilt, or improved to the extent of 25 percent of its value is subject to establishment of a lien in accordance ²⁷⁶ 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, including the drilling and installation of wells to supply water, the construction or installation of any swimming pool, the sodding, seeding or planting in or about the premises of any shrubs, trees, plants, flowers or nursery products, and the grading, filling, landscaping, and paving of the premises.” (Emphasis added.) Section 9-102(d), contains an exemption, relied upon by the appellants here, to the effect that “a building or the land on which the building is erected may not be subjected to a lien under th[at] subtitle if, prior to the establishment of a lien in accordance with th[at]