Sub Unable To Show Contractor Should Have Held Its Money In Trust

Thursday, August 30, 2018 6:26 am
September 2018 - Volume 40 Number 9

Breach of Contract --- Payment

C&B Constr., Inc. v. Dashiell, 2018 App. Lexis 381 (Md. July 30, 2018)

A sub was unable to prove that, under Maryland law, a general contractor misappropriated funds that should have been held in a trust for later payment to the sub.

Contractor Temco Builders Inc. (Temco) hired subcontractor C&B Construction Inc. (C&B) to perform work, including drywall installation and ductwork, on six different Maryland construction contracts. Throughout the course of the contract work, Temco received payment from the various project owners. According to C&B, Temco was supposed to put those funds in a trust pursuant to the Maryland Construction Trust Statute; instead, the funds were diverted or misappropriated and never found their way into C&B’s pockets.

C&B filed a breach of contract against Temco and breach of trust against Temco’s owners in October 2015. Temco and C&B entered into a consent judgment for $225,607, but the case against the owners on the trust issue remained outstanding. In July 2016, a circuit court entered judgment for Temco’s owners, and C&B filed an appeal. The Court of Special Appeals of Maryland affirmed the lower court judgment. The Court of Appeals of Maryland also upheld the judgment.

Miller Act and mechanics’ lien law both inapplicable

The Maryland Construction Trust Statute is meant to “protect subcontractors from dishonest practices by general contractors.” Ferguson Trenching Co., Inc. v. Kiehne, 329 Md. 174-5, 618 A.2d 737 (1993). Specifically, the statute requires that any money paid by an owner to a contractor be put in a trust to be distributed to the sub that performed project work or furnished project materials, or both.