Maryland Construction Subcontractors Beware The Maryland Construction Trust Statute Does Not Apply to Everyone
The Court of Appeals has reaffirmed that subcontractors on construction sites in the State of Maryland have an uphill battle when it comes to holding general contractors accountable under the Maryland Construction Trust Statue. As previously held by the COA, the purpose of the Construction Trust Statute was to protect subcontractors from dishonest practices by general contractors and other subcontractors for whom they might work. In keeping with the purpose to ensure that funds disbursed by an owner or contractor for payment to a subcontractor for work done are paid to the subcontractor, the statute imposed personal liability on the directors, officers, and managing agents of a contractor corporation when they improperly use the funds held in trust for purposes beyond the payment of subcontractors.
However, as defined by the plain language of Real Prop. 9-204(a), which outlines the Application of the Subtitle and acts as a cross-reference to the Maryland Little Miller Act, as well as to the Maryland Mechanics’ Lien Statute, according to COA, highlights that the legislature was very specific, albeit narrow, in its provision for what type of contracts may be considered under the Trust Statute.
In order for the Trust Statute to apply to a contract in Maryland, the contract must either (1) be one with the State of Maryland that falls under the Little Miller Act, or (2) it must be a private contract that meets all the requirements of the Mechanics Lien statute in the State of Maryland.
The COA went on to summarize its holding: The statute operates through three harmonious provisions: Real Prop. 9-201, which creates the statutory duty to hold funds in trust upon receipt; Real Prop. 9-202, which establishes the penalty for a violation of this duty and permits personal liability for corporate debts; and Real Prop. 9-204, which governs the applicability of the previous sections. Together the three sections provide a remedy to those who have been aggrieved by the non-performance of a contract subject to the Little Miller Act or Mechanics’ Lien Statute. In such cases, a party is permitted to seek personal liability against a manager, owner, or director exercising direction or control over the funds held in trust, upon a showing of misappropriation.
The Maryland Trust Statue packs a lot of punch by holding the owners of a contractor or subcontractor company personally liable when they don’t pay their subcontractors, but as the Court of Appeals has made clear, this heightened accountability provided by statute also has heightened requirements if a subcontractor is going to take advantage of its benefits.