York Roofing, Inc. v. Adcock

KARWACKI, Judge. We issued a writ of certiorari in this case, 330 Md. 458 , 624 A.2d 954 , to determine whether, under our Mechanics’ Lien Law, Maryland Code (1974, 1988 Repl.Vol.), §§ 9-101 through 9-114 of the Real Property Article, a potential lienor’s right to establish its lien terminates when the property improved by its labor and materials is sold to a bona fide purchaser within the 180 day period allowed under the law for the potential lienor to file its petition for the lien. We shall hold that such a bona fide purchaser takes free of all mechanics’ liens not established before equitable title passes. I This appeal is from the denial of petitions for a mechanics’ lien by two subcontractors that supplied labor and materials in the construction of a commercial building on property located in Anne Arundel County.

On September 28, 1990, Richard E. Polm, the record owner of the Anne Arundel County property, entered into a contract with Commerce Park, Ltd., a construction company owned and operated by Polm, to construct a new office and warehouse building on that property. Polm had previously entered a lease agreement for that property in July of 1990 with W.W. Adcock Co., Inc., a corporation owned and operated by Dale W. Adcock and Carson Dee Adcock. The lease provided that a building would be constructed on the property and the Adcocks’ corporation would be the sole tenant. The building was to be “built to suit” the specific needs of the Adcocks and their company.

York Roofing, Inc. (York) and Central Air Conditioning Contractors, Inc. (Central Air), the petitioners, were two of the many subcontractors that provided labor and materials in the course of construction pursuant to contracts with the general contractor, Commerce Park, Ltd. ¹⁶¹ York installed a roof, roof insulation, and architectural sheet metal coping for the entire building, according to plans and specifications supplied by Polm or his construction company. The work began on or about November 29,1990, and ended on January 8, 1991. The contract price for the job totalled $56,173.62, none of which was paid at the time of completion. Likewise, Central Air installed an air conditioning system for the entire building, according to plans and specifications supplied by Polm or his construction company.

Its work began on or about November 12, 1990, and ended on January 18, 1991. The total contract price for the job was $31,280, none of which was paid at the time of completion. On December 10,1990, Polm and the Adcocks entered into a contract for the sale to the Adcocks of the property, together with the building, which was still under construction. That contract specifically provided that the building was to be constructed in accordance with the plans and specifications that were initialed by the parties and attached to the contract.

Both York and Central Air completed a portion of their work on the building after the date of that contract. Settlement on the contract took place on February 20, 1991. At settlement, there were nine unpaid subcontractors listed on the memorandum of settlement, whose claims were paid out of the proceeds of the sale. Neither York nor Central Air were on the list.

The parties have stipulated that notices of intent to establish a mechanics’ lien were mailed to the Adcocks by certified mail, return receipt requested. York’s notice was served upon the Adcocks on April 3, 1991; Central Air’s notice was served on April 15, 1991. Petitions to establish and enforce mechanics’ liens were filed in the Circuit Court for Anne Arundel County by York on July 5, 1991, and by Central Air on July 15, 1991. On November 27, 1991, a hearing was held to determine Appellees’ entitlement to their respective mechanics’ liens.

The court denied both petitions for the liens. The Court of Special Appeals affirmed those judgments in an unreported opinion. ¹⁶² II We begin our analysis by reviewing the background of our current Mechanics’ Lien Law. Before 1976, the Maryland Mechanics’ Lien statute operated to create a lien that attached to the property as soon as the work was performed or materials supplied and lasted until the expiration of 180 days after the work had been finished or materials furnished, even if no contract action had been filed in court. Barry Properties v. Fick Bros., 277 Md. 15, 19 , 353 A.2d 222, 225-26 (1976).

If a laborer or material supplier was a subcontractor, however, it was not entitled to a lien unless, within 90 days after furnishing the work or materials, it gave written notice to the owner of its intention to claim a lien. Id. at 19-20 , 353 A.2d at 226 . The purpose of this notice by the subcontractor was to inform the property owner that a lien might be claimed so that the owner could retain from the cost of the building the amount that the owner ascertained to be due to the subcontractor. Id. at 20 , 353 A.2d at 226 .

The statute further provided that if either a subcontractor (who gave the requisite notice) or a general contractor had not been paid and desired to retain a mechanics’ hen, it was required to file -within 180 days a claim with the clerk of the circuit court of the county where the property was located, at which time the lien would be recorded on a special “Mechanics’ Lien Docket.” Id. Once filed with the clerk, the lien subsisted for one year from the date of its filing unless within that period the claimant commenced a proceeding to enforce it, in which case the lien was stayed until the proceeding concluded. Id. During that period, however, the owner of the property subject to the lien, or any other person interested in it, could bring proceedings in equity to compel the claimant to prove the validity of the lien or have it declared void.

Id. In the alternative, -with court approval, the owner could release its property from the lien by posting bond. Id. If a claimant prevailed in proceedings to enforce its lien, the court would order a sale of the property to pay the claimant unless the amount found to be due was paid by a specified date.

Id. at 20-21 , 353 A.2d at 226 . ¹⁶³ In Barry Properties, supra, however, this Court held that the Mechanics’ Lien Law as then formulated was incompatible with the due process clauses of the Fourteenth Amendment and then Article 23 of the Maryland Declaration of Rights. (Re-adopted and renumbered as Article 24, ch. 681 of the Acts of 1977, ratified Nov. 7, 1978). The Court reasoned that the imposition of a mechanics’ lien involves state action, 277 Md. at 22 , 353 A.2d at 227 , and that the lien deprived an owner of a significant property interest. Id. at 24 , 353 A.2d at 228 .

The Court therefore held that the statute allowed prejudgment seizure of significant property interests without notice, prior hearing, or other sufficient procedural safeguards. Id. at 31 , 353 A.2d at 232 . The Barry Properties Court concluded, however, that it was possible to sever the unconstitutional provisions of the Mechanics’ Lien Law, yet still preserve enough of the law to fulfill the legislative intent, stating: “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).

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 ¹⁶⁴ 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 said they cannot grasp with their right.” 277 Md. at 36-37 , 353 A.2d at 235 . (footnotes omitted).

The General Assembly reacted to the Barry decision by enacting emergency legislation that was signed by the Governor on May 4, 1976. Ch. 349 of the Acts of 1976. As now codified, Md.Code (1974, 1988 Repl.Vol.), § 9-102 of the Real Property Article provides in relevant part: (a) Buildings. — 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 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 or fencing, 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] $$$$$$ (d) Exemptions. — However, a building or the land on which the building is erected may not be subjected to a lien under this subtitle if, prior to the establishment of a lien in accordance with this subtitle, legal title has been granted to a bona fide purchaser for value. (e) Filing of petition constitutes notice to purchaser.— The filing of a petition under § 9-105 shall constitute notice to a purchaser of the possibility of a lien being perfected under this subtitle.

Thus, the post-Barry Properties law has preserved the right of a creditor for labor or materials to proceed in rem against the improved property even though there was no privity of contract between the creditor and the owner, nor any personal liability of the owner to the creditor. Himmighoefer v. Me ¹⁶⁵ dallion Industries Inc., 302 Md. 270, 277 , 487 A.2d 282, 286 (1985). The lien law was otherwise radically changed, however. Under the new law, the claimant has no lien until he has gone to court and has made the necessary showing to the court to establish the lien. § 9-106 of the Real Property Article.

In Himmighoefer , we considered the effect of a lien petition filed between the time of the execution of the contract of sale for the property improved by the lien claimant and the conveyance of legal title thereto at settlement on the sale. A subcontractor, Medallion Industries, Inc.