Ocean Plaza Joint Venture v. Crouse Construction Co.

⁴³⁹ ROSALYN B. BELL, Judge. In this appeal, we consider the effect of an order issued under the mechanics’ lien statute, Md. Real Property Code Ann., § 9-106 (1981, 1983 Cum.Supp.). The Knott Company (Knott) entered into a contract under which it agreed to design and construct the Ocean Plaza Shopping Center in Ocean City, Maryland, in return for a lump sum payment. Knott subcontracted the excavation and grading portion of the project to Crouse Construction Company (Crouse).

This agreement required Crouse to complete the work in accordance with specified plans and drawings contained in the general contract. The subcontract provided for a lump sum payment of $305,000, but the amount could be increased if the general contractor or the owner authorized extra work in writing. Without this prior written authorization, Crouse waived its right to claim additional compensation. Similar modifications of the amount under the general contract required the owner’s written approval of change orders submitted by Knott.

The owner is Ocean Plaza Joint Venture (OPJV). 1 Each contract also provided for retainage: (1) The general contract stipulated a 10% retainage or holdback in payment until the architect executed a certificate of completion; (2) The subcontract provided for a 10% retainage until Knott received final payment from OPJV. Before the excavation began, Knott informed Crouse that, instead of using the fill pit they had specified, Crouse would have to use a pit located two miles further from the construction site. The subcontractor hauled materials to the latter pit between July 27, 1982, and September 1982, but did not obtain a change order, written authorization, or an agreement to extra compensation before or after the ⁴⁴⁰ use. When Crouse filed its claim for the mechanics’ lien, however, it included a claim of $34,841.52 for the extra cost of hauling the greater distance.

According to testimony-relating to the additional hauling required, it was ordinary practice to perform the extra work and submit a change order later. On October 4, 1982, Crouse executed a change order to increase the subcontract amount from $305,000 to $309,500 for “loading” borrow materials. The agreement previously did not include compensation for loading. No mention of extra compensation for hauling the additional four miles per round trip appeared in this change order, nor in the next one submitted on April 7, 1983.

This second order sought to adjust the figure on the prior change order to include additional excavation and grading costs, making the total subcontract amount $315,638.68. On May 9, 1983, Crouse executed a Waiver of Liens against Knott specifically acknowledging payment of the agreed lump sum plus extras as of May 5, 1983, with a remaining balance due of $4,585.88 plus the 10% retainage. This release also noted the total contract figure as “$311,052.80+”. 2 Evidence indicated that an estimate had been submitted to cover the extra hauling, which exceeded the amount ultimately billed. ⁴⁴¹ Upon receipt of the required Waiver of Liens and verified draw form, the lender for OPJV disbursed the requested funds to Knott, the general contractor. Crouse filed this mechanics’ lien action against OPJV in the Circuit Court for Worcester County.

The petition contended that $70,371.27 3 remained due and owing for its work regarding the Ocean Plaza Shopping Center. The claim represented four items: (1) the extra cost of hauling fill material — $34,841.52; (2) the unpaid balance from an invoice dated October 25, 1983 — $4,000; (3) the balance due from an invoice dated March 3, 1983 — $729.75; and (4) the retainage withheld on the entire job — $30,500. These figures appear in Crouse’s records as amounts due. The subcontractor also filed the affidavit of Richard Crouse which described the details of the work done.

OPJV responded stating first that Crouse breached Section 11 of the subcontract, which required Crouse to submit to Knott “on a daily basis, duplicate payroll sheets, material tickets, and a statement, or slips for all other charges when performing additional work____” Also, due to disputes between OPJV, Knott, and Crouse, OPJV had not paid the retainage otherwise due Knott. As a result, the owner requested a dismissal of the petition. In support of its Answer, OPJV filed two affidavits: (1) Frank J. McGinnes, President of Knott, alleged that Crouse failed to furnish the documents required by the subcontractor for performing additional work, and that OPJV did not pay Knott the 10% retainage; (2) Richard M. Singer, a partner of OPJV, stated that the retainage had not been paid to Knott, and that other monies remained unpaid “due to disputes between Crouse Construction Company, The Knott Company and [OPJV].” Nowhere in these pleadings did OPJV assert the defense of waiver of liens. On November 30, 1983, the court conducted a show cause hearing and issued an interlocutory order in the amount of ⁴⁴² $70,371.27 4 and established a mechanics’ lien on the property.

The court also provided for the release of the property upon the owner’s posting bond and directed the scheduling of a hearing on the merits. The trial on the merits occurred on January 31, 1984. At the outset of the trial, the court announced that, because many of Crouse’s allegations remained uncontroverted by OPJV’s answer and affidavits, they were deemed admitted. Thus, the court would only hear two issues.

During these proceedings, two documents — a “General Release of Liens” dated August 31, 1982, and a “Waiver of Liens” dated May 9, 1983 5 — were received into evidence in relation to the amount of the lien, and Crouse did not object. They were offered by OPJV during questioning of the president of Crouse concerning the delay between the actual hauling and the submission of an invoice. He testified that the February 21, 1983, invoice for $34,841.52 on which he based part of his claim covered the cost of the extra distance travelled to the fill pit during July, August and September of 1982. The president admitted that this work was performed before he signed the waiver and, therefore, he could have demanded the extra amount as of September 1982.

But because the figure was not calculated until February 1983, Crouse submitted the invoice instead of seeking approval of the charge as an extra. The cross-examination of Crouse’s corporate secretary revealed that the company had received an additional back charge of $6,600 from Knott shortly before trial for work actually performed by another contractor. The president of Crouse verified that he had agreed to back charges of up to $5,000 for uncompleted work. ⁴⁴³ Singer, a general partner of OPJV, indicated that monies were released to the general contractor only after the owner’s lender received written certification that the subcontractors obtained their draw and executed waivers of liens. He further averred that Crouse had not presented OPJV with an extra based on having to travel a further distance to the fill pit, nor had OPJV authorized one.

Singer then stated that the excavation work by Crouse was one of the reasons Knott could not obtain architectural certification. At this point, because the court had ruled at the opening of the trial that the amount of the lien was not contested, it refused to permit additional testimony designed to prove that Crouse failed to properly perform the contract. To preserve the record, OPJV then proffered the testimony of the engineer, the contractor from whom additional fill was purchased, and the paving contractor. OPJV stated that these witnesses would introduce proof that Crouse did not perform some of the work and completed other work improperly, thereby entitling OPJV to a setoff in the amount of $28,300.

In its opinion and decree, the court recited that it was resolving the case “as if no waivers of liens ... exist” because OPJV neglected to deny in its Answer that monies for extras were due Crouse and that Crouse had waived its lien. The evidence further convinced the court that “Crouse was doing as Crouse was told to do by Knott.” The court also concluded that the project was substantially completed; hence, there was no reason for the continued withholding of the retainage. It, therefore, established the lien sought by Crouse. The circuit court entered a decree establishing the final mechanics’ lien in the amount of $70,141.27 6 and ordering the sale of the property unless the lien was paid on or before April 14, 1984.

OPJV appeals this decision. ⁴⁴⁴ At the outset, we note that the real war is between OPJV and Knott. This produced a fight between Knott and Crouse. For reasons on which we will not speculate, we have here a skirmish between Crouse and OPJV, rather than the three-way battle which would have ensured a full and complete resolution of the disputes. Be that as it may, we are limited to the conflict presented here.

Appellant specifies several issues on appeal: (1) Whether the trial court erred in ruling that appellant was required to assert in its answer that appellee consented to waive liens. (2) Whether the court erred in ruling on the day of trial that appellant admitted appellee performed the work because appellant failed to allege facts in its answer that would have put the issue in dispute, when the court had determined at the show cause hearing that all issues pleaded were in dispute. (3) Whether the trial court erroneously excluded evidence regarding appellee’s performance of the work because appellant did not sufficiently deny the allegation in its affidavit. (4) Whether the court properly reviewed the case as if no waiver of liens existed even though waiver forms had been admitted on another issue during trial.

We hold that the court did not err in requiring appellant to assert affirmatively the waiver of liens in order to rely on that defense. Although we do not agree with some of appellant’s assumptions, the next two issues depend upon the effect of the interlocutory order in a mechanics’ lien case for their resolution. The last is likewise dependent, presenting in addition an evidentiary problem. INTERLOCUTORY ORDER Procedure To establish a mechanic’s lien in Maryland, a claimant “must file a proceeding in the circuit court for the ⁴⁴⁵ county where the land or any part of it lies.... ” Tyson v. Masten Lumber & Supply, Inc., 44 Md.App. 293, 296 , 408 A.2d 1051 (1979), cert. denied, 287 Md. 758 (1980); Md. Real Property Code Ann., § 9-105(a) (1981, 1983 Cum.Supp.). 7 The court does not enter a “final order establishing the lien ... until and unless the petitioner prevails in an appropriate proceeding.” Tyson, 44 Md.App. at 299 , 408 A.2d 1051 ; Residential Industrial Loan Company v. Weinberg, 279 Md. 483, 487-88 , 369 A.2d 563 , cert. denied, 434 U.S. 876 , 98 S.Ct. 227 , 54 L.Ed.2d 156 (1977).

This may be at the show cause hearing or at trial. These proceedings begin when the claimant files a petition and supporting affidavits, which the court then reviews. If a lien appears warranted, the court “directs the owner to show cause” why the lien should not attach. Md. Real Property Code Ann., § 9-106(a), supra', Md. Rule BG73 a.

To controvert the facts presented by the claimant, the owner must “file an affidavit in support of his answer showing cause.” Md. Real Property Code Ann., § 9-106(a)(2), supra. Failure to do so results in an admission of the statements of fact contained in claimant’s affidavit. Id.', Md. Rule BG73 b. Furthermore, failure to plead specially the defense of waiver of liens in the owner’s answer results in the loss of that defense.

See Md. Rules 371 and 342 c. 8 The waiver of liens defense constitutes an avoidance of the claim under the Rule. Because it is not one of the defenses that may be raised at any time, Md. Rule 323 b, 9 it must be asserted in the answer. ⁴⁴⁶ Based on the evidence, the court may conclude that a dispute exists concerning whether the lien should attach or regarding the amount in which it should attach. Upon determining that “there is probable cause to believe the petitioner is entitled to a lien, the court shall enter an interlocutory order____” Md. Real Property Code Ann., § 9-106(b)(3); Md. Rule BG73 d 2. In pertinent parts, this order “(i) Establishes the lien; “(iii) States the amount of the claim for which probable cause is found; “(vi) Assigns a date for the trial of all the matters at issue in the action ...

The owner or any other person interested in the property, however, may, at any time, move to have the lien established by the interlocutory order modified or dissolved.” Md. Real Property Code Ann., § 9-106(b)(3), supra. Effect This Court distinguished the entry of a final order from an interlocutory order establishing a mechanic’s lien in Tyson, supra, by interpreting Md. Real Property Code Ann., § 9-106(a)(3), supra. Preliminarily, the Court noted that the purpose of the show cause hearing is to determine whether “a genuine dispute of a material fact” exists. Tyson, 44 Md.App. at 303 , 408 A.2d 1051 .

In this respect, the court reviews the pleadings in the same way as it evaluates a motion for summary judgment. Only when the evidence presents no conflict does the court enter a final order establishing the lien. Id. at 298 , 404 A.2d 1051 . If the pleadings and affidavits indicate a dispute, however, a final order is inappropriate, and “the judge ... should [pass] an interlocutory order setting out