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In
California, an unpaid contractor may record a mechanic's
lien on the property upon which he or she worked. Civil
Code §3123 outlines how to determine the permissible
amount of the mechanic's lien. Subdivision (a) provides
that the lien must be for the lesser of "the reasonable
value of the labor, services, equipment, or materials furnished"
or the contract price. Subdivision (b) provides an exception
that allows the contractor to include amounts due for labor,
services, equipment or materials furnished as a result of
written contract modifications or as a result of rescission,
abandonment or breach of the contract. California case law
provides that if a contractor overstates the lien or includes
amounts for costs other than those specified in §3123,
then the owner may obtain a court order releasing or reducing
the lien. Further, under §3118, if a contractor "willfully"
includes amounts for work not furnished for the property
upon which the lien is placed, the contractor shall "forfeit
his lien."
A
California appellate court has interpreted §3123 to
allow a lien to include an amount over and above the written
contract price. The lien amount included the value of additional
work that the owner demanded be performed before he would
pay the original remaining contract balance. The appellate
court also held that trial courts are not required to automatically
extinguish overstated mechanic's liens and instead have
the authority to reduce them to the proper amount. Basic
Modular Facilities, Inc. v. Ehsanipour, 70 Cal.App.4th
1480, 83 Cal.Rptr.2d 462 (1999).
The
contractor performed work on an owner's property under a
$154,844 written contract. After performing for nine months,
the contractor recorded a mechanic's lien for the remaining
$18,192 contract balance. The owner refused to pay unless
the contractor performed additional work. The contractor
continued to work for one more month, sent a $245,299 bill
and recorded a second lien in that amount. The $245,299
lien amount included: (1) the past due $18,192 plus
interest; (2) "extended overhead" during
the nine-month period totaling $18,891; (3) additional
work directed by the owner totaling $24,319; and (4)
"additional billing incurred resulting from delays/interference
from [owner]" of $183,188.
When
the contractor sued to foreclose on the lien, the owner
moved for an order removing the lien on grounds that the
amount of the lien included monies for work and items that
cannot be the subject of a lien. The owner argued that the
lien could only include the $18,192 balance on the original
contract. At the court hearing, the contractor's attorney
admitted that the lien included amounts that were impermissible
and asked the court to reduce the lien. The owner argued
that the court should strike the lien in its entirety because
it improperly included amounts that were not lienable. After
the hearing but before the court issued its order, the contractor
voluntarily recorded a partial release of lien of $53,237,
reducing the amount claimed to $192,062. However, the court
issued an order striking the lien in its entirety. The contractor
appealed.
The
Court of Appeals considered two issues: (1) Whether
the contractor's lien was limited to the remaining $18,192
contract balance; and (2) Whether the lien should
be entirely stricken or merely reduced if it included improper
amounts.
On
the first issue, the court turned to Civil Code §3123.
Subdivision (a) states that the amount of the mechanic's
lien should be the lesser of the reasonable value of labor,
services, equipment and materials or the contract price.
However Subdivision (b) allows for the lien to include amounts
due for labor, services, equipment or materials furnished
based on a written modification or as a result of rescission,
abandonment or breach of contract. The court concluded that
breach of contract could include oral modifications adding
work for which the owner did not pay. Here, the owner allegedly
refused to pay the remaining balance until the contractor
provided additional work. Such refusal to pay would be a
breach. The resulting damages were the cost of the additional
work. Accordingly, the $192,062 of the mechanic's lien was
valid.
On
the second issue, the court rejected the argument that prior
case law, Lambert v. Superior Court, 228 Cal.App.3d
383 (1991), required that the court strike a lien in its
entirety if only part of it was for work or claims that
were not subject to a lien. The court stated that Lambert
did not deprive the trial court of authority to reduce an
excessive lien to its proper amount. "If we followed
[the owner's] logic to its ultimate conclusion, a lienholder
who included a few dollars for an impermissible item would
lose the entire lien, and we find no authority for that
proposition," the court wrote. Rather, it held that
trial courts may make such reductions. It remanded the case
to the trial court with orders that it restore the contractor's'
lien in the amount of $192,062 and that it determine, as
a fact question, the amount due on the mechanic's lien.
It held that the lien claimant was entitled to utilize the
statutory procedure to recover the amount actually owed
it.
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