Connolly Development, Inc. v. Superior Court

• Decision Date: 31 August 1976
• Docket Number: S.F. 23225
• Citation: 17 Cal.3d 803,553 P.2d 637,132 Cal.Rptr. 477
• Parties: , 553 P.2d 637 CONNOLLY DEVELOPMENT, INC., et al., Petitioners, v. The SUPERIOR COURT OF MERCED COUNTY, Respondent; DIAMOND INTERNATIONAL CORPORATION, Real Party in Interest.
• Court: California Supreme Court

Page 477

132 Cal.Rptr. 477

17 Cal.3d 803, 553 P.2d 637

CONNOLLY DEVELOPMENT, INC., et al., Petitioners, v. The SUPERIOR COURT OF MERCED COUNTY, Respondent;

DIAMOND INTERNATIONAL CORPORATION, Real Party in Interest.

S.F. 23225.

Supreme Court of California,

In Bank.

Aug. 31, 1976.

As Modified Sept. 29, 1976.

Orr, Wendel & Lawlor and Eugene K. Lawlor, Oakland, for petitioners.

Miller, Starr & Regalia, Harry D. Miller and Cecily A. Drucker, Oakland, as amici curiae on behalf of petitioners.

No appearance for respondent.

Norman S. Stimmel, San Francisco, and Russell H. McLain, N. Highlands, for real party in interest.

Munns, Kofford, Hoffman, Hunt & Throckmorton, Gordon Hunt, Ralph W. Hoffman, Pasadena, Galisky & Rubino, Samuel N. Rubino, Los Angeles, Keller & Holt, Edgar C. Keller, San Bernardino, Cox, Castle, Nicholson & Weekes, George M. Cox, Arthur O. Spaulding, Jr., Wct. Stephen Wilson, Los Angeles, McCarthy, Johnson & Miller, P. H. McCarthy, Jr., James E. Miller, San Francisco, Brundage, Beeson, Reich, Pappy & Hackler and Roger Frommer, Los Angeles, as amici curiae on behalf of real party in interest.

TOBRINER, Justice.

This petition for mandate and prohibition challenges the constitutionality of California's mechanics' lien and stop notice laws on the ground that these laws permit the recording of a mechanics' lien and the filing of a stop notice without a prior hearing and without adequate provision for a prompt post-lien hearing. Although we recognize that the imposition of these liens constitutes the 'taking' of a significant property interest by means of state action, we shall point out that the 'taking' permitted by the mechanics' lien and stop notice laws conforms to the requirements of procedural due process.

Following the reasoning of recent United States Supreme Court decisions, we must, in resolving the procedural due process issue in question here, carefully define and analyze the competing interests of the 'debtor,' the 'creditor' and the public generally, in the specific 'taking' encompassed by the statutory provisions; we must determine whether the procedure afforded by the legislative provisions reasonably accommodates the competing interests involved.

As to the interest of the owner whose property is subject to a mechanics' lien, we shall explain that he suffers only a minor deprivation by reason of the lien since he retains possession and use of the land; the owner whose account is subject to a stop notice suffers only the encumbrance of the very funds he has previously allocated for the exclusive purpose of paying construction costs. Moreover, the owner enjoys a variety of measures by which he can protest himself against the impact of such a lien, most notably the requirement that the mechanic must file a preliminary notice before filing or recording his lien, thus affording the owner opportunity to take legal steps against any imposition of an improper lien.

As to the worker whose labor has gone into the property, we point out that he would suffer a major deprivation by the abolition of the lien. Without recourse to prevent the owner from the disposition of the property, or to bar the dissipation of loan funds allocated to the payment of con struction costs, the worker would be left with only an unsecured and potentially uncollectible claim for compensation for labor that has enhanced the value of the property itself.

We explain that the decision of the United States Supreme Court in North Georgia Finishing, Inc. v. Di-Chem, Inc. (1975) 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751, does not control the instant case; that decision is but one of an array of recent decisions holding that identification of the dictates of procedural due process depends upon an accommodation of the governmental and private interests involved. Although North Georgia struck down a Georgia garnishment statute which provided insufficient protection for the interest of the debtor in the seized property, we conclude that because of the unique characteristics of the mechanics' lien and stop notice laws as to both laborer and property owner, and the presence of safeguards in the California laws absent from the Georgia garnishment law, a reconciliation and accommodation of the competing interests in the present case impels the validation of the statutory provisions.

In support of that conclusion we point out that the incursion of the interests of the owner is slight; on the other hand, the loss of the protection of the statutes to the worker would be great. The California Constitution explicitly recognizes the importance of the protection of the claims of the mechanic and materialmen; no other 'creditor remedy' in this state enjoys such a constitutionally enshrined status. Thus, the mechanics' lien and stop notice law comply with the requirements of procedural due process.

1. Derived from the California Constitution, the mechanics' lien is elaborated in detailed statutory provisions; similar provisions set forth the stop notice.

The California mechanics' lien derives from article XX, section 15, of the California Constitution and chapters 1 and 2 of title 15, part 4, division 3 of the Civil Code. Under this statutory scheme, materialmen, contractors, subcontractors, and other persons listed in Civil Code section 3110 ¹ who furnish labor or materials on a work of improvement are entitled to file a mechanics' lien on the property where the improvement is located. To secure a lien, a materialman must file a preliminary notice with the owner, the general contractor and the construction lender within 20 days after furnishing the materials (§§ 3097, 3114), and thereafter record his claim of lien within 90 days of completion of the improvement (§ 3116). If a notice of completion (see § 3093) or notice of cessation of work (see § 3092) has been recorded, the claimant must record his claim of lien within 30 days of such notice. (§ 3116.)

Once recorded, the mechanics' lien constitutes a direct lien (§ 3123) on the improvement and the real property to the extent of the interests of the owner or the person who caused the improvement to be constructed (§§ 3128, 3129). The lien is subordinate to recorded encumbrances antedating the commencement of the work of improvement (Walker v. Lytton Sav. & Loan Assn. (1970) 2 Cal.3d 152, 159, 84 Cal.Rptr. 521, 465 P.2d 497; see § 3134), but takes priority over all subsequent encumbrances (§ 3134). By purchase and recordation of a payment bond, however, the owner or the holder of a subordinate encumbrance may secure priority over mechanics' liens. (See §§ 3138, 3139.) The owner, lender, contractor or subcontractor may also secure the release of any mechanics' lien by purchasing and recording a bond in a sum equal to one and one-half times the amount of the claim. (§ 3143.) The lien terminates unless the materialman initiates a suit to foreclose the lien within 90 days after recording of the claim of lien. (§ 3144.) Sections 3156--3172, which provide for the use of stop notices in connection with private construction, grant subcontractors and materialmen an additional remedy, independent of but cumulative to any right to assert a mechanics' lien. (A--1 Door & Materials Co. v. Fresno Guar. Sav. & Loan Assn. (1964) 61 Cal.2d 728, 732, 40 Cal.Rptr. 85, 394 P.2d 829.) After giving 20 days preliminary notice (§ 3160), the materialman may serve a stop notice upon the owner or the construction lender (§§ 3158, 3159). Upon receipt of such notice, the owner must withhold from the general contractor sufficient money to pay the stop notice claimant. (§ 3161.)

Unlike the owner, the lender may disregard an unbonded stop notice (Miller v. Mountain View Sav. & Loan Assn. (1965) 238 Cal.App.2d 644, 661, 48 Cal.Rptr. 278), but upon receipt of a notice accompanied by a bond equal to one and one-fourth times the amount of claims (§ 3083) the lender must withhold from the unexpended balance of the loan fund a sum sufficient to pay the claim. (§ 3162.) Failure of the owner or lender to withhold money as required by the notice may render him personally liable to the claimant, notwithstanding the absence of privity of contract.

Although the mechanics' lien may provide adequate protection for materialmen when the owner finances the improvement from his own funds, such liens can be wiped out by the foreclosure of a lender's trust deed. The value of the stop notice lies in the fact that its lien attaches to the unexpended balance of the loan, not to the land, and thus survives foreclosure of the trust deed. ² The stop notice claimant also acquires a right to the fund superior to that of any assignee from the owner or contractor (§ 3166), and superior to the lender's contractual right to employ unexpended funds to complete the work of improvement (A--1 Door & Materials Co. v. Fresno Guar. Sav. & Loan Assn., supra, 61 Cal.2d 728, 733--735, 40 Cal.Rptr. 85, 394 P.2d 829; Idaco Lumber Co. v. Northwestern S. & L. Assn. (1968) 265 Cal.App.2d 490, 496--497, 71 Cal.Rptr. 422; Rossman Mill & Lbr. Co. v. Fullerton S. & L. Assn. (1963) 221 Cal.App.2d 705, 710, 34 Cal.Rptr. 644).

The owner and lender can protect themselves against stop notices by securing and recording a payment bond from the general contractor. (See §§ 3161, 3162, 3235.) The owner, lender, contractor or subcontractor may also secure the release of any stop notice by filing a bond equal to one and one-fourth times the amount claimed in the notice. (§ 3171; see Frank Curran Lbr. Co. v. Eleven Co. (1969) 271 Cal.App.2d 175, 185, 76 Cal.Rptr. 753.) The obligation of the owner or lender to withhold funds terminates unless the claimant files suit to enforce the stop notice within 90 days after expiration of the period for recording claims of lien. (§ 3172.)

Of significance in view of the constitutional issues presented here is that no state official scrutinizes the basis for an asserted mechanics' lien or stop notice claim prior to the...