Southcoast Builders of Maryland, Inc. v. Potter Heating & Electric, Inc.

MOTZ, Judge. In this action a custom home construction company and the two individuals who were its sole officers and stockholders were sued by one of its contractors. It was asserted inter alia that, in failing to pay the contractor for services rendered, the officers of the construction company committed common law fraud and violated Real Property Art. § 9-201 et seq. Because the judgment of the Circuit Court for Charles County was based on irreconcilably inconsistent findings, we must vacate it and remand the case for a new trial.

(i) From at least 1984, appellant, Southcoast Builders of Maryland, Inc. (“Southcoast”), was in the business of con ¹⁶² structing custom built and “spec” homes. Its sole stockholders and officers were appellants, Michael T. Wyvill 1 and Marvin F. Lewis. Over the years, Southcoast has frequently employed appellee, Potter Heating & Electric, Inc. (“Potter”), as one of its heating, electrical, air conditioning contractors. The usual practice had been that if Southcoast “got behind” on payment to Potter, in order to ensure that Potter would continue to work on Southcoast’s houses, Wyvill and Lewis and their wives would sign promissory notes to Potter and pay off the notes.

In recent years, Southcoast was “in trouble” and Mrs. Wyvill and Mrs. Lewis refused to sign promissory notes. In April, 1988, Southcoast entered into a contract with Paul and Susan Resnick to build a custom house for $209,-000. At Southcoast’s request, Potter provided and installed all heating, air conditioning and wiring for the Resnick house. Potter satisfactorily completed 2 its work by April 26, 1989, but Southcoast failed to pay Potter the balance due it.

Southcoast’s records showed that it received a total of $216,050 from the Resnicks and applied those proceeds as follows: $ 9,664.00 To Southcoast’s employees for labor on the Resnick home. 76,721.00 For materials delivered to the Resnick home. 38,315.97 For subcontractors performing labor on the Resnick home. 2,919.65 For settlement and permit expenses. 1,313.83 For miscellaneous expenses._ $128,934.45 Total ¹⁶³ The approximately $87,000 in unaccounted for Resnick proceeds were used to pay “expenses for previous jobs that had been completed,” administrative and overhead expenses, repayment of a loan to Mrs. Wyvill and salaries to Lewis of $50,585 and to Wyvill of $16,000. Weekly salaries were paid to Wyvill and Lewis, regardless of the financial status of the corporation. On February 2, 1990, Wyvill and Lewis met with Potter’s president, Lawrence Potter. They wanted Potter to complete the work on still another of their houses (the Quail-wood house) on which they owed him $10,855 for work previously done.

Mr. Potter told them that since they would no longer give him promissory notes, he would do no more work for them until he was paid some of the balance owing. Mr. Potter testified that Wyvill and Lewis then each personally guaranteed that Potter would get $10,000 from the proceeds of the Quailwood house at settlement and $5,000 when another house was settled. Relying on those representations, Potter completed the work on the Quail-wood house. The Quailwood house went to settlement and Southcoast received $30,000 net proceeds at settlement; Potter, however, never received any payment from these proceeds. 3 (ii) Potter filed a four count complaint against Southcoast, Wyvill and Lewis.

In Count I, Potter sued Southcoast for services performed on the Quailwood house in the amount of $28,537.28 and interest and costs. The circuit court granted summary judgment to Potter on this count and no party appeals from that portion of the lower court’s order. Count III was dismissed by Potter prior to trial. The case proceeded to trial on the second and fourth counts.

On Count IV, Potter sued Wyvill and Lewis, personally, for services performed on the Quailwood house, in the ¹⁶⁴ amount of $28,537.28, plus attorneys’ fees and punitive damages of $25,000. The basis for this claim was “Wyvill and Lewis personally guaranteed” that Potter would be paid upon settlement of the Quailwood house, and that these representations were false, were made with intent to defraud, were justifiably relied upon by Potter to its detriment, and Potter was damaged thereby. The circuit court awarded judgment for $10,000, plus interest and court costs for Potter against Wyvill and Lewis on this count. This judgment is the subject of the appeal of Wyvill (and originally Lewis, see n. 1).

On Count II, Potter sued Wyvill and Lewis personally for services performed on the Resnick home in the amount of $17,679.01, plus attorneys fees and punitive damages of $15,000. The theory of recovery on this count was Real Prop. Art. § 9-201 et seq. The circuit court granted judgment for Wyvill and Resnick on this count; this judgment is the subject of Potter’s cross appeal.

Thus, two issues are before us. Wyvill appeals, asserting: 1. The trial court erred in awarding punitive damages under Count IV of the complaint because that was a fraud claim and the trial court specifically found that there was no fraud committed? Potter, on cross appeal, asserts: 2.

The prima facie evidence of intent to defraud created by the two officers’ misuse of funds held in trust, as mandated by Section 9-203 of the Real Property Article, was not rebutted by evidence that the two officers used the money to pay their own salaries, to repay a loan to one of their spouses, and to pay other corporate debts not related to the subject project? We cannot reach either claim but, instead, must vacate the judgment and remand for a new trial because the judgment of the trial court was based on inconsistent findings. ¹⁶⁵ (iii) The circuit court granted judgment for the plaintiff, Potter, on Count IV, which was based on common law fraud. In order to prevail on a common law fraud count, a plaintiff must demonstrate: (1) that the defendant made a false representation; (2) that its falsity was either known to defendant or that the misrepresentation was made with such reckless indifference to the truth as to be equivalent to actual knowledge; (3) that it was made for the purpose of defrauding the person claiming to be injured thereby; (4) that such person not only relied upon the misrepresentation, but had a right to rely upon it ...; and, (5) that such person actually suffered damage directly resulting from such fraudulent misrepresentation. Parker v. Columbia Bank, 91 Md.App. 346, 359 , 604 A.2d 521 , cert. denied, 327 Md. 524 , 610 A.2d 796 (1992) (emphasis added).

On the other hand, the circuit court granted judgment for the defendants, Wyvill and Lewis, on Count II, which was based on § 9-201 et seq. of the Real Property Article. Section 9-202 provides inter alia that “any officer” or “employee” of a contractor who “with intent to defraud” retains moneys paid under a owner’s contract “for any purpose other than to pay those subcontractors for whom the moneys are held in trust shall be personally liable to them.” Moreover, the circuit court expressly stated that although Potter made out a prima facie case of intent to defraud under § 9-203, 4 the court thought that the prima facie case “was rebutted” and so it was for this reason that it was granting judgment for Wyvill and Lewis on Count II. Thus, a necessary element for recovery under both Count II and Count IV was intent to defraud. In finding for ¹⁶⁶ Potter on Count IV, the trial court necessarily had to find that Potter had proved Wyvill and Lewis intended to defraud him. 5 Although, it is possible that the circuit court could have found against Potter on Count II because of failure to prove other elements of the statutory offense (e.g., the money was not held “for any purpose other than to pay” contractors).

In fact, however, the circuit court here explained it was because of a failure of proof on the intent to defraud element of the statute that it found against Potter. Accordingly, the findings under the two counts are clearly inconsistent. Moreover, because these inconsistencies were contained in a judge’s