A recent decision out of a California appellate court upholds the California lien law standard by which a mechanics lien is valued by the lesser of the contract amount or the value of the work performed. Logically this makes sense, but the Appel v. Superior Court, 214 Cal. App. 4th 329 (Cal. App. 2d Dist. 2013) clarified some ambiguity.
While we recently posted a review of the Appel case here on the Lien blog, Mathew R. Troughton of Sheppard Mullin, a California based firm, also posted an article reviewing this recent lien law jurisprudence.
Appel Case Summary
Procedurally, this case is born from a dispute between general contractor, Webcor Construction, Inc., and developer Wilshire Landmark regarding the construction of a condominium complex. There was a payment dispute between the parties and the contractor filed suit against the developer for breach of contract and condominium owners to foreclose on the mechanic’s lien filed on the property.
This is all very standard practice. Where this matter gets a little hairy, is that prior to trial, the developer settled with the contractor for a stipulated judgment. Since the developer was insolvent, it also agreed to a large change order, increasing the amount of the contract.
This set the stage for a battle between the contractor and the condo owners. Since there is no privy of contract between these parties, the mechanic’s lien is the only way for the contractor to collect from the property owners.
The trial court held that the (oddly) adjusted contract amounts were irrelevant and the lien amount shall be based on the value of the work performed since it was less that the obviously inflated post-lien guaranteed maximum price. This decision was then reversed by the Second Appeallate District and remanded back to the trial court to continue toward trial.
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Significance For California Lien Law
The key to this matter is that the standard remains the same. The trial court in Appel tries to apply one prong of the standard without taking into account the other. As a reminder the applicable standard here is:
[A] mechanic’s lien shall be for the lesser of two values: (1) the reasonable value of the services, equipment, or materials furnished or (2) the “price agreed upon by the claimant and the person with whom he or she contracted.” Id at 338.
Even though there is no privy of contract between the contractor and the owners, the trial court was incorrect in omitting evidence regarding the contract. Both numbers need to be take into consideration, the contract and the value of work performed.
I get asked all the time, “how much should I file my lien for?” The Appel case shows that it matters, but it could be subject to change upon judicial review. The safe bet here is to file it for the unpaid contract amount because the value of the services performed is a much more arbitrary number, which experts will ultimately decide.