In Appel v. Superior Court of Los Angeles County (2013 WL 870983, Zelon, J.), the Second District Court of Appeal held that Civil Code section 3123 (now Civil Code section 8430) does not limit the value of a lien to the reasonable value of services, equipment, or materials furnished.
In Appel, Webcor Construction (“Webcor”) executed a contract with Wilshire Landmark (“Wilshire”) to construct a condominium development. After completion of the project, the parties disputed the amount of the payment due to Webcor. The original contract established a price of $65.5 million with increases permitted for approved additional work. Webcor performed substantial additional work on the project.
Webcor filed an action for breach of contract against Wilshire and filed a mechanic’s lien against the individual owners of the condominium units. Before trial, Webcor entered into a settlement agreement with Wilshire wherein Wilshire agreed to pay $32 million in a stipulated judgment, provided that the settlement would not serve to offset or credit Webcor’s cause of action for foreclosure of its mechanic’s lien as against the condominium owners. Additionally, Wilshire agreed to adopt a change order which raised the construction contract’s stated price to $95.5 million.
The value of a mechanic’s lien is set by Civil Code section 3123. Section 3123 provided that the amount of a mechanic’s lien is the lesser of the agreed contract price and the reasonable value of the labor, services, equipment, or materials furnished. The parties had not established reasonable value of the work performed, but there was potential for a great disparity in the $95.5 million price and the reasonable value.
After each party brought motions to exclude certain evidence relating to the value of the mechanic’s lien claim, the trial court ruled that there was a case law exception to Civil Code section 3123 when the lien claim involves persons or entities not originally parties to the construction contract. It ruled in those situations, the agreed contract price should be disregarded and the value of the mechanic’s lien should be based solely on the reasonable value of the labor, services, equipment, or materials furnished for the project. The condominium owners sought a writ of mandate, and on appeal, the Second District overturned the trial court’s ruling, holding that any such case law exception would be contrary to the plain language of section 3123 and the statutory scheme altogether. In all cases, in determining the amount of a mechanic’s lien, courts must apply the lesser of the agreed contract price and the reasonable value of the labor, services, equipment, or materials furnished.
The significance of this case is subtle, yet important. When relying on judicially created exceptions, one must exercise caution as another court may choose to disagree with the exception.
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