New Court Decision Clarifies Mechanic's Lien Valuation Statute

The amount of a mechanic’s lien in California is generally the lesser of: 1) the reasonable value of the work; or 2) the price agreed upon in the lien claimant’s contract. But does the same measure apply if a lien defendant was not a party to the contract? In Appel v. Superior Court of Los Angeles County, 214 Cal. App. 4th 329 (2013), the appellate court clarified that the same measure does apply.

In Appel, a defendant, the developer of a condominium project, admitted it had no assets. Six weeks before trial, however, it settled out of the case by stipulating to a judgment it apparently couldn’t pay and granting a change order to the general contractor plaintiff. The change order purported to raise the contract price from $81 million to $95.5 million. The remaining defendants were condominium owners who were not parties to the general contract. They argued the change order was collusive. They intended to present evidence of what they contended was the “true” contract price. However, the trial court ruled that their contract price evidence was irrelevant and that the amount of the mechanic’s lien would be determined solely on the basis of the reasonable value of the work.

The Court of Appeals in Appel found no statutory prohibition against the use of the “contract price” measure of the mechanic’s lien amount by a property owner who was not a party to the lien claimant’s contract. See Cal. Civil Code § 8430 (previously codified at Cal. Civ. Code § 3123). It also posited a hypothetical in which, under the trial court’s reasoning, a contractor who underpriced the work could unfairly escape its own bad bargain. It ordered the trial court to withdraw its decision to exclude evidence concerning the contract price. Practitioners should note that the Appel court stated that seemingly inconsistent observations from ECC Construction v. Ganson, 82 Cal. App. 4th 572 (2000), are “purely dicta.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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