Santa Clara Land Title Co. v. Nowack & Associates, Inc.

Citations: 226 Cal. App. 3d 1558; 277 Cal. Rptr. 497; 91 Daily Journal DAR 1133; 91 Cal. Daily Op. Serv. 727; 1991 Cal. App. LEXIS 65Docket: A047094

Court: California Court of Appeal; January 24, 1991; California; State Appellate Court

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Nowack Associates, Inc. appeals a judgment from the Alameda County Superior Court favoring Santa Clara Land Title Company, which was granted summary judgment to quiet title on property in Alameda County against Nowack’s cross-complaint for enforcing a mechanic's lien. The court affirmed that the release signed by Nowack effectively discharged its mechanic's lien, and that the deed of trust recorded by World Savings and Loan Association held priority.

The background includes Nowack contracting with Robert McBain in 1979 to provide engineering services for a residential development, which involved limited on-site work and extensive off-site services. After not receiving payment, Nowack recorded a mechanic's lien for $30,021 on September 5, 1980, and initiated foreclosure proceedings in December 1980. The property was sold in June 1981, and Nowack was paid from the escrow. Later, in August 1981, Blumenthal, representing Interbank Corporation, retained Nowack for further services, leading to a second lien of $14,658.50 recorded on December 5, 1983, after non-payment.

To secure financing from World Savings, which required the removal of all mechanic's liens, Nowack executed a 'Release of Lien' for the December 1983 claim, intending to facilitate payment from Blumenthal for a promissory note. Despite Nowack’s assertion that the release was not meant to waive mechanic's lien rights, the recorded release preceded several key transactions on June 21, 1984, including the transfer of property title and the recording of a $4.1 million construction loan deed of trust by World Savings.

Founders Title Company, acting as escrow for a sale-loan transaction involving World Savings, was tasked with ensuring that World Savings' deed of trust would be a first lien on the property. John Wagnon, a vice-president at Founders, inspected the property on June 21, 1984, and reported no visible construction, labor, or materials present. Following this inspection, Founders Title issued an ALTA lender's policy, confirming the first lien status for World Savings' construction loan deed of trust. 

Nowack, who continued to provide engineering services, recorded a mechanic's lien for $88,760 on October 3, 1985, and subsequently filed a lawsuit for a money judgment and foreclosure of the lien. Notably, World Savings was not named in either complaint. After Ridgecrest Townhomes, Ltd. defaulted on its loan, World Savings recorded a notice of default and, on August 12, 1987, received a trustee's deed following a foreclosure sale. On February 16, 1988, World Savings transferred the property to Santa Clara.

Nowack obtained a judgment to foreclose its mechanic's lien on June 23, 1988, and sought to enforce this judgment against the property. On August 23, 1988, Santa Clara initiated proceedings to quiet title and prevent Nowack from enforcing the lien. Nowack countered with a cross-complaint, asserting that its mechanic's lien related back to 1979 due to previous work performed on the property and that a release executed did not extinguish this lien.

On March 9, 1989, the trial court partially adjudicated that the release did extinguish the mechanic's lien. Following further proceedings, the court ultimately granted a renewed summary judgment in favor of Santa Clara on June 23, 1989, quieting its title against Nowack's claim and permanently enjoining Nowack from enforcing its judgment. The court ruled that Nowack's claim was not senior to World Savings' deed of trust. Nowack timely appealed the judgment.

A motion for summary judgment is granted when all submitted documents demonstrate no triable issues regarding any material fact, entitling the moving party to judgment as a matter of law, as per Code Civ. Proc. § 437c, subd. (c). The aim of summary judgment is to clarify ambiguous language and determine the existence of triable issues through affidavits. 

Mechanics' lien law is rooted in the state constitution (Cal. Const. art. XIV, § 3) and represents a statutory exception to general priority rules. Mechanics' liens have off-record priority over bona fide purchasers, dating from the commencement of work, even if the claim is recorded later. Although the lien arises from the constitution, the claim of lien and foreclosure process are legislative tools for enforcing such liens. All mechanics' liens hold equal priority from the start of work, and they take precedence over any interests recorded after work initiation. Thus, if construction begins before a deed of trust is recorded, that deed's lien is subordinate to the mechanics' liens, regardless of payment status for work performed.

Additionally, courts view mechanics' lien laws as remedial, promoting protection for laborers and material suppliers. 

Regarding Nowack's case, it argued that a lien release did not negate its original personal right to a lien, which originated when boundary pipes were set in 1979, claiming the lien was perfected by a subsequent filing in 1985 and related back to the 1979 work. However, the release explicitly stated that the claim recorded on December 5, 1983, was fully satisfied and discharged, and Nowack acknowledged that World Savings required clearance of all mechanic's liens to release construction funds. As a result, the court disagreed with Nowack's assertion of lien priority over the deed of trust recorded in June 1984.

The release document concerning the December 5, 1983 claim of lien does not indicate an intention to retain any underlying inchoate lien rights. World Savings is presumed to have acted under the belief that the release would fully eliminate the lien, as they would not have disbursed construction funds otherwise. Under Civil Code section 3268, parties are permitted to waive the benefits of mechanic's lien laws unless restricted by other statutes or public policy. Nowack cites Civil Code sections 3154 and 3262 as potential prohibitions against the release. 

Civil Code section 3154 allows property owners to petition for the release of a lien if the lien claimant is unable or unwilling to release it. A court decree based on this section effectively extinguishes the lien, preventing any new claims of lien related to the same work and materials. The statute implies that a mechanic can voluntarily release their lien without requiring judicial intervention, and this provision is only invoked when the lien claimant cannot be located or is uncooperative. In the present case, Nowack willingly executed a release, negating the need for World Savings to seek a court decree. 

Nowack argues that a recent case, Coast Central Credit Union v. Superior Court, supports its claim that the only means to release a mechanic's lien is through a court-issued decree under section 3154. However, the circumstances in Coast Central involved a contractor who failed to timely initiate foreclosure proceedings after recording a lien, which is distinguishable from Nowack's situation.

The court denied the lender's summary judgment and the appellate court rejected the writ sought by the lender. It determined that the contractor's constitutional right to a lien persisted until the lender acted to release the lien under Civil Code section 3154. A timely filed new claim of lien constituted a new lien on the property. The court distinguished this case from Maris Management Corp. v. Assured Drywall, noting that unlike the owner in Maris Management, Coast had not utilized the remedies in section 3154. Coast establishes that failing to initiate timely foreclosure proceedings does not extinguish a mechanic's lien right, although it nullifies the mechanic's lien claim itself. The constitutional right to a lien can still be perfected by meeting statutory prerequisites. Coast does not clarify the impact of a written release of lien, which is relevant to Nowack's situation.

Civil Code section 3262 stipulates that neither the owner nor the original contractor can waive or impair the claims and liens of others, but it does allow a contractor to waive their own claim if it does not affect others' claims. There is no evidence that Nowack's release impaired any other claimants or lien holders, as no other mechanics or material suppliers had worked on the property at the time of the release. World Savings, the lender, took steps to protect its priority by obtaining a release from Nowack, the sole mechanic's lien holder, and secured title insurance after a site inspection for construction activity. Nowack's release was executed to facilitate the construction loan, benefitting both Nowack and World Savings. Thus, the release effectively extinguished both Nowack's prior claim of lien and the underlying constitutional mechanic's lien right.

World Savings's deed of trust held priority over Nowack's mechanic's lien claim dated October 3, 1985, leading to the foreclosure of the deed extinguishing Nowack's interest in the property. The court found no triable issues of material fact, leading to a proper summary judgment in favor of respondent Santa Clara, which was affirmed. Santa Clara is awarded costs on appeal. A petition for rehearing was denied on February 25, 1991. 

Mechanics' lien rights, as outlined in the California Constitution and relevant statutes, allow workers and suppliers to claim a lien on property for unpaid labor and materials. Notably, a mechanic's lien can still attach to a property even if not recorded until after a sale, provided the work commenced before the sale. The current statute protects lien rights from being waived without written consent from all affected parties. 

Although Nowack's mechanic's lien rights were released, the underlying debt remains enforceable through other legal avenues. The court did not need to resolve whether the placement of boundary pipes constituted a valid improvement for lien purposes, nor did it address whether Nowack's omission of World Savings or Santa Clara in the foreclosure action affected his lien rights.