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Maryland Construction Trust Statute – Establishing Individual Liability Against an Owner or Director

The Maryland Construction Trust Statute (“Trust Statute”) provides another avenue in which subcontractors can obtain payment for work performed and materials furnished. Essentially, the Trust Statute requires general contractors to remit payment to subcontractors if the general contractor has been paid for the subcontractor’s work by the owner. If found in violation of the Trust Statute, individual liability can be assessed against the officers and directors of the construction company that failed to make payment.

Section 9-202 of the Maryland Real Property Code states “Any officer, director, or managing agent of any contractor or subcontractor, who knowingly retains or uses moneys held in trust under Section 9-201 of this subtitle, or any part thereof, for any purposes other than to pay those subcontractors for whom the money’s are held in trust, shall be personally liable to any person damaged by the action.”

Essentially, once a subcontractor establishes that the contractor has been paid for the subcontractor’s specific work, but diverted the payment to an entity other than the subcontractor, then personally liability can attach. The Trust Statute provides additional protection to subcontractors and another entity in which they may be able to recover.

The Trust Statute, however, does have limitations.  It cannot be applied in projects related to residential dwellings and is only limited to properties that are subject to a Maryland Mechanic’s Lien.  Additionally, the subcontractor must prove that the money paid to the higher tiered contractor was earmarked for payment to the subcontractor. 

General contractors and subcontractors in Maryland should be aware of the Trust Statute when performing construction projects in Maryland.  For additional information related to the Trust Statute or other construction related matters, contact Michael W. Siri at 410-583-2400 or via email at siri@bowie-jensen.com.  

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