Bohannan Bros., Inc. v. Lo Jean Dev. Co.

• Decision Date: 31 December 1969
• Citation: 3 Cal.App.3d 200,82 Cal.Rptr. 922
• Court: California Court of Appeals Court of Appeals
• Parties: BOHANNAN BROS., INC., a corporation, Plaintiff and Respondent, v. LO JEAN DEVELOPMENT COMPANY, etc., et al., Defendants and Appellants. Civ. 34170.

Page 922

82 Cal.Rptr. 922

3 Cal.App.3d 200

BOHANNAN BROS., INC., a corporation, Plaintiff and Respondent, v. LO JEAN DEVELOPMENT COMPANY, etc., et al., Defendants and Appellants.

Civ. 34170.

Court of Appeal, Second District, Division 3, California.

Dec. 31, 1969.

Hearing Denied Feb. 25, 1970.

Charles L. Birke, Berris & Seton, for defendants and appellants.

Acret & Perrochet, Los Angeles, for plaintiff and respondent.

COBEY, Associate Justice.

The owner, Lo Jean Development Company, and the remaining defendants, appeal from a judgment of forceclosure of a mechanic's lien of a materialman, Bohannan Bros., a corporate concrete supplier, in the principal amount of $6,814.59, against certain specified lots containing completed residences. The materialman has cross-appealed claiming that it should have had judgment enforcing its stop notice claim against the construction lender, California Federal Savings & Loan Association, and that it should have been awarded prejudgment interest. This litigation was occasioned by the partial default of the concrete subcontractor in the payments due from it to the materialman for concrete used in the construction of these residences.

THE APPEAL

On the appeal the sole question is whether under the circumstances of this case the materialman waived its mechanic's lien rights against these lots of the owner by generally endorsing over to its co-payee, the subcontractor, the owner's checks without retaining any part of their proceeds. These checks bore an endorsement stamp placed thereon by the owner purporting to waive all lien rights of the endorsees for both labor and material. ¹

The trial court expressly found that the materialman had not been paid in full. This finding, however, rests entirely upon its legal conclusion that under the authority of Re-Bar Contractors, Inc. v. City of Los Angeles, 218 Cal.App.2d 134, 32 Cal.Rptr. 607, hear. den., there were no facts justifying a finding of payment.

We disagree. The two cases are readily distinguishable. In Re-Bar the joint checks were drawn by the general contractor instead of the owner and were without any instructions as to how their proceeds should be divided between the materialman and the subcontractor. Under these circumstances the materialman and the subcontractor were privileged to divide the proceeds as they agreed, but the materialman was held estopped to claim nonpayment of that portion of the proceeds of one of the checks which it turned over to the subcontractor in violation of their agreement. (Re-Bar, supra, at 134--136, 32 Cal.Rptr. 607.)

In this case during the course of the job the owner, in lieu of continuing to take lien releases from the subcontractor for materials used on the job, started stamping the quoted waiver of liens endorsement on the checks it issued to the subcontractor. These checks were made payable jointly to the subcontractor and the materialman and when issued there was attached to each a stub showing the specific work of improvement to which the check related and for which it constituted payment. Each check had also stapled to it the subcontractor's billings showing the work of improvement for which the check constituted payment.

The subcontractor, however, removed the stubs and its billings from the joint checks before presenting them to the materialman for endorsement. Instead it presented to the materialman at such times its own check together with invoices of the materialman to the subcontractor which it was paying by means of its own check. The materialman then endorsed the joint check of the owner over to the subcontractor in exchange for the subcontractor's check which, of course, was always less than the owner's check. Joint checks totaling approximately $53,500 were so endorsed by the materialman to the subcontractor. ² This procedure was followed in spite of the fact that the balances owed the materialman by the subcontractor were constantly increasing.

We believe that the materialman was not privileged to deviate in this manner from the payment procedure set up by the owner and thereby render nugatory the protection so provided it by the owner and to rely instead upon its lien rights against the owner notwithstanding the written waiver of such rights which it had repeatedly executed. (See Westwood Bldg. Materials Co. v. Valdez, 158 Cal.App.2d 107, 108--109, 113, 322 P.2d 79 (owner's joint checks endorsed by materialman to subcontractor, held to discharge owner's liability to materialman); Edwards v. Curry, 152 Cal.App.2d 726, 730, 313 P.2d 613, hear. den. (payment by general contractor of subcontractor and materialman by joint checks upheld against materialman though materialman diverted a part of the proceeds of the joint checks to other purposes); cf. Savage v. Nee, 212 Cal.App.2d 417, 418--421, 28 Cal.Rptr. 106, hear. den. (materialman knowingly diverted owner's payments for building materials to other purposes).) It should have retained that portion of the proceeds of the joint checks which represented payments by the owner for concrete supplied by the materialman under billings of the subcontractor referred to in the endorsements. ³ This it did not do. It chose instead to endorse the joint checks of the owner to the subcontractor in return only for the subcontractor's checks. ⁴ The risk of underpayment of the materialman inherent in this change in payment procedure should be borne by the materialman who made the change and by no one else. (See Hunt, Releases, Vouchers And Joint Checks In The Construction Industry (1967) 42 L.A.B.Bull. 465, 486--87; Moss, Joint Checks In Construction Industry (1968) 43 St.B.J. 242, 250--51.)

This is an a fortiori situation when compared to that of Westwood, since in that case the joint checks bore no endorsement or notation thereon to the effect that the proceeds thereof, insofar as necessary, were to be applied by the materialman in payment of the subcontractor's debt to it. (See Westwood, supra, 158 Cal.App.2d at 108, 322 P.2d 79.) Indeed under Westwood the presentation to the materialman of the early checks, those made payable jointly to it and the subcontractor without any endorsement or other notation whatsoever, constituted payment in full of the materialman in the absence of any showing of a contrary intention of the parties or that the total of the joint checks so presented was less than the materialman's total billings to the subcontractor.

THE CROSS-APPEAL

As indicated at the outset of this opinion, the materialman's cross-appeal raises two issues: (1) whether it should have had judgment enforcing its stop notice claim against the construction lender; ⁵ and (2) whether it should have been awarded prejudgment interest.

As regards the first issue, our holding on the appeal is not dispositive of this issue. Stop notice rights are independent of and cumulative to lien rights. (A-1 Door & Materials Co. v. Fresno Guar. Sav. & Loan Assn., 61 Cal.2d 728, 732, 40 Cal.Rptr. 85, 394 P.2d 829.) Our holding on the appeal rests, at least partially, upon a waiver of lien rights; it is not based exclusively on a rationale of full payment of the materialman. (Cf. Keenan Pipe & Supply Company v. Shields (9th Cir. 1956) 241 F.2d 486, 488--490; Ferry v. Ohio Farmers Ins. Co., 211 Cal.App.2d 651, 655, 27 Cal.Rptr. 471, hear. den.)

Counsel agree that the only reason the materialman was denied judgment enforcing its stop notice claim was because the trial court concluded that under Code of Civil Procedure section 1197.1(a) the materialman had filed its enforcement action prematurely. The materialman attacks the soundness of this reason because on October 4, 1965, when it filed the instant suit to foreclose its mechanic's lien and to enforce its stop notice claim, among other things, this subsection read in relevant part: 'No action to enforce the payment of any (stop notice) claim * * * shall be commenced against The owner * * * prior to the expiration of the period within which claims of lien must be filed for record * * *.' (Emphasis added.) The materialman asserts that this subsection must be read strictly and literally and that the protection it provided against the premature commencement of an action to enforce a stop notice claim applied only in favor of the owner and not in favor of a construction lender. In support of this interpretation the materialman points out that this subsection has since been amended (Stats.1967, ch. 542, pp. 1890--91) by adding the following words, 'nor against any of the parties described in subdivision (h) of Section 1190.1.' In short, the materialman's position is that until November 8, 1967, the only class of potential defendants protected against premature suits to enforce stop notice claims were owners and not those against whom claims had been filed pursuant to section 1190.1(h).

We disagree. It is true that what was explicitly barred by the subsection prior to November 8, 1967, was only suits to enforce stop notice claims against owners. But the suit at bench is such a suit. It is, among other things, an action to enforce stop notice claims against both the owner and the construction lender. Consequently, read strictly and literally, the subsection as it existed in 1965 barred this action as...