In re Cty. Green Ltd. Partnership

• Decision Date: 16 August 1977
• Docket Number: Civ. A. No. 77-0014(C).
• Court: U.S. District Court — Western District of Virginia
• Parties: In re COUNTY GREEN LIMITED PARTNERSHIP, Debtor. CONCRETE READY-MIX OF LYNCHBURG, INC., et al., Appellants, v. COUNTY GREEN LIMITED PARTNERSHIP et al., Appellees.

438 F. Supp. 701

In re COUNTY GREEN LIMITED PARTNERSHIP, Debtor CONCRETE READY-MIX OF LYNCHBURG, INC., et al., Appellants, v. COUNTY GREEN LIMITED PARTNERSHIP et al., Appellees.

Civ. A. No. 77-0014(C).

United States District Court, W. D. Virginia, Charlottesville Division.

August 16, 1977.

COPYRIGHT MATERIAL OMITTED

Robert M. Musselman, Douglas E. Little, Charlottesville, Va., for County Green Limited Partnership.

William J. Strickland, Charlottesville, Va., for First & Merchants Nat'l. Bank.

John E. McDonald, Jr., Richmond, Va., for Lawyers Title Insurance Corp.

Ross W. Krumm, Charlottesville, Va., for Tech-Mod Corp. & Dr. Samuel Messina.

Jack V. Place, Charles F. Barnett, Jr., Roanoke, Va., for Concrete Ready-Mix of Lynchburg.

MEMORANDUM OPINION AND ORDER

TURK, Chief Judge.

This case is before the District Court on the appeal of Concrete Ready-Mix of Lynchburg, Inc., a claimed mechanic's lienor, and twenty other such claimants, from a judgment of the Bankruptcy Court holding invalid their liens on certain property owned by the bankrupt debtor, County Green Limited Partnership. The appellants supplied labor and materials in the construction of an apartment complex being built by the Limited Partnership and financed in part through a secured construction loan by the First and Merchants National Bank. All findings of fact by the Bankruptcy Court are to be accepted unless clearly erroneous. Rule of Bankruptcy Procedure 810.

The Partnership has twenty-five limited partners and two general partners. The two general partners are Dr. Samuel L. Messina and the Tech-Mod Corporation, a Delaware Corporation wholly owned by Dr. Messina. Initially, the property being developed was owned by Tech-Mod. Tech-Mod entered into a contract with Lansingwood Arms, Ltd., whereby Lansingwood Arms, Ltd. would serve as general contractor and construct the apartment complex for $2,141,700.00. Later, Tech-Mod assigned the real estate upon which the apartment complex was being built and its construction contract with Lansingwood Arms, Ltd. to the debtor, County Green Limited Partnership. Because of numerous defaults by Lansingwood Arms it was released from its contract. The Partnership then entered into a contract with the County Green Development Corporation, a Corporation formed for the purpose of acting as general contractor to complete the County Green Apartment Complex. Dr. Messina was the Development Corporation's President, chief executive officer, and sole shareholder, although he subsequently transferred several shares to the Tech-Mod Corporation. The initial capitalization of the Corporation consisted of the proceeds of the sale of ten shares of $10 par value stock for a total paid-in capital of $100.00. The price of the contract between the Development Corporation and the Limited Partnership was $2,051,725.13, but was reduced by the sums either paid or payable under the former Lansingwood Arms' contract for an amended contract price of $1,808,251.13.

The Partnership ran into financial difficulty and after numerous defaults in its construction loan agreement, First and Merchants began foreclosure proceedings under its deed of trust and security agreement. The debtor, County Green Limited Partnership, then commenced proceedings under Chapter XII of the Bankruptcy Act. In an adversary proceeding in the Bankruptcy Court the Bankruptcy Judge found liens which had been filed by the appellant mechanic's lienors to be invalid, and they appealed to the District Court. The issues tried by stipulation in the Bankruptcy Court and the issues now before this Court are:

1. Was there a "contractor" within the meaning of Title 43 of the Code of Virginia, or was County Green Development Corporation a mere corporate fiction and the alter ego of the owner, County Green Limited Partnership?

2. Was there a valid contract between County Green Development Corporation and County Green Limited Partnership?

3. If the answer to No. 2 above is in the affirmative, were the terms of the contract complied with?

4. Whether the owner of County Green Limited Partnership was indebted to the general contractor, County Green Development Corporation, at the time the various subcontractors gave notice to the owner of their respective mechanic's liens' claims.

5. What is the dollar amount of the deficiencies and omissions under the contract between County Green Limited Partnership as owner and County Green Development Corporation as general contractor dated August 1, 1974, as amended by addendum dated August 3, 1976?

The first question stipulated for consideration by the Bankruptcy Court was whether there was "a `contractor' within the meaning of Title 43 of the Code of Virginia, or was County Green Development Corporation a mere corporate fiction and the alter ego of the owner County Green Limited Partnership." Va.Code Ann., § 43-3 (1976) provides in part that all persons performing labor or furnishing material of the value of $50.00 or more for the construction of any building are entitled to a lien if it is perfected in accordance with the Code. A general contractor may perfect a lien for work done and materials furnished by filing in the Clerk's Office of the county or city in which the property constructed is located, a memorandum showing the name of the owner of the property sought to be charged, the name of the claimant, the amount of the claim, when the amount is due and payable, and a brief description of the property upon which he intends to claim the lien; the memorandum must be verified, and it must be filed before 90 days from the time the work is completed or the construction terminates. Va.Code Ann., § 43-4 (1976). A subcontractor may perfect a lien by taking all the steps required for perfection by a general contractor, and, in addition, he must give notice in writing to the owner of the property or his agent of the amount and character of his claim, but the amount of his claim cannot exceed the amount in which the owner is indebted to the general contractor at the time the notice is given. Va.Code Ann., § 43-7 (1976). The limitations of § 43-7 are for the protection of the owner from double liability. "The notice affords protection to the owner who is not in privity of contract with the subcontractor, so that he may not be required to pay twice for the same work and materials." Mills v. Moore's Super Stores, 217 Va. 276, 280, 227 S.E.2d 719, 722 (1976). The terms "general contractor" and "subcontractor" are defined by Va.Code Ann., § 43-1 (Supp. 1977):

As used in this chapter the term "general contractor" shall include contractors, laborers, mechanics, and persons furnishing materials, who contract directly with the owner and the term "subcontractor" shall include all such contractors, laborers, mechanics, and persons furnishing materials, who do not contract with the owner but with the general contractor. . . .

The Bankruptcy Court determined that the County Green Development Corporation was not the alter ego of the debtor, County Green Limited Partnership, and that the Corporation was a general contractor within the contemplation of § 43-1 and that no amount was owed on the general contract. Of course, the net result of this finding is the preclusion of the mechanic's lienors from asserting their liens on the property they improved at the behest of Dr. Samuel Messina, general partner of the owner, sole stockholder of the other general partner of the owner, and major stockholder of the Development Corporation which had but one other stockholder, the other general partner. In reaching its conclusion the Bankruptcy Court, in essence, reasoned that the Corporation was duly incorporated, entered into a formal construction contract with the Partnership, dealt with other persons as contractor, and in its transactions was recognized as contractor. This Court has determined that the Bankruptcy Court's findings that County Green Development Corporation was not the alter ego of the debtor and that the claimed mechanic's lienors did not furnish labor and materials to the owner, are clearly erroneous.

A Virginia corporation begins its corporate existence upon the issuance of a certificate of incorporation by the State Corporation Commission. Va.Code Ann., § 13.1-52 (1973). Once it has a legal existence of its own it will be recognized as a separate entity, functioning through its officer and directors, to which its creditors and other third parties must look for satisfaction of debts or performance of obligations incurred or contracted for in the corporate name. The very purpose of the corporate structure is the advancement of limited liability of investors with an underlying legislative policy directed to the encouragement of investments. Consequently, the corporate structure should never lightly be disregarded. It is not, however, a shield for powerful corporate shareholders to hide behind so as to countenance domination and control which operates to defraud and wrong creditors:

It is well

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