Interiors Contracting Inc. v. Navalco

• Decision Date: 10 June 1982
• Docket Number: 17105,Nos. 17096,s. 17096
• Parties: INTERIORS CONTRACTING INCORPORATED, and Action Fire Sprinkler Company, a Utah corporation, Plaintiffs and Respondents, v. NAVALCO, a Utah corporation, aka Navalco of Utah, et al., Defendant andAppellant. INTERIORS CONTRACTING INCORPORATED; and Action Fire Sprinkler Company, a Utahcorporation, Plaintiffs and Appellants, v. NAVALCO, a Utah corporation, aka Navalco of Utah; John Darrell Tohara; LawrenceLincoln; Terrence Tohara; American Green Acres, aka Green Acres of America; RoyE. Christensen; Carol M. Christensen, Defendants and Respondents.
• Court: Utah Supreme Court

Page 1382

648 P.2d 1382

INTERIORS CONTRACTING INCORPORATED, and Action Fire

Sprinkler Company, a Utah corporation, Plaintiffs and Respondents, v. NAVALCO, a Utah corporation, aka Navalco of Utah, et al.,

Defendant andAppellant.

INTERIORS CONTRACTING INCORPORATED; and Action Fire

Sprinkler Company, a Utahcorporation, Plaintiffs and Appellants, v. NAVALCO, a Utah corporation, aka Navalco of Utah; John

Darrell Tohara; LawrenceLincoln; Terrence Tohara; American

Green Acres, aka Green Acres of America; RoyE. Christensen;

Carol M. Christensen, Defendants and Respondents.

Nos. 17096, 17105.

Supreme Court of Utah.

June 10, 1982.

Roy G. Haslam, Glen M. Hatch, Daniel M. Allred, Barbara K. Polich, Salt Lake City, for defendant and appellant.

Walker E. Anderson, Salt Lake City, Richard Dalebout, Provo, for plaintiffs and respondents.

STEWART, Justice:

This matter involves two consolidated appeals from a judgment entered in an action against the fee owner of certain premises, and from a judgment against the owner's lessee, who is also a sublessor in another action, to foreclose mechanics' liens for labor and materials supplied a sublessee, Hungry Hawaiian Inc. In No. 17105 plaintiffs, Interiors Contracting, Inc. (hereafter "Interiors"), and Action Fire Sprinkler Company (hereafter "Action"), appeal from a summary judgment dismissing their complaint against defendants, Green Acres of America, Inc., the sublessor (hereafter "Green Acres") and Roy E. and Carol M. Christensen (hereafter "Christensens"), guarantors of a note executed by Green Acres in favor of Navalco.

In No. 17096 defendant Navalco, the fee owner, appeals from a judgment entered by the trial court sitting without a jury against Navalco and in favor of Interiors and Action.

Green Acres is the primary tenant under a 10-year lease from Navalco (the "master lease"). Green Acres has an option to renew for an additional 5-year term. The lease was executed January 24, 1975.

On January 17, 1978, Green Acres sent a letter to Navalco informing Navalco of Green Acre's intent to sublet a portion of the building to defendant, Hungry Hawaiian Inc. (hereafter "Hungry Hawaiian") for use as a restaurant. ¹ The letter, in pertinent part, states:

Pursuant to the (master) lease we hereby request your approval of the subtenant (Hungry Hawaiian) and the alternations (necessary to put a restaurant into operation) ....

You may indicate your acceptance of the tenant and the alterations by executing this letter in the space provided below. (Emphasis added.)

The letter was signed and the request accepted by a representative of Navalco on January 31, 1978, and by a written sublease dated February 13, 1978, Green Acres sublet a part of the building to Hungry Hawaiian.

On March 21, 1978, Interiors and Hungry Hawaiian entered into a contract for the finishing of interior walls and ceilings in that portion of the building leased to Hungry Hawaiian by Green Acres. A contract for the installation of a fire sprinkling system was entered into March 1, 1978, between Action and Hungry Hawaiian. Work was performed by Interiors and Action on the Hungry Hawaiian premises until April 29, 1978. Neither Interiors nor Action received full payment for their labor and materials and on June 27, 1978, each filed a notice of lien on the building.

Thereafter, Interiors and Action filed a complaint against numerous defendants. ² On the same day, a document entitled "Notice to Lien Claimants to Appear and Exhibit Proof of Their Liens" was filed as required by Utah Code Ann., 1953, § 38-1-12. ³ The notice required by that section was duly published. On December 18, 1978, the lien claims of Interiors, Action, and other lien claimants were ordered filed, the priority of the lien claimants was established, and additional lien claims were barred.

Green Acres and the Christensens then filed motions to dismiss for failure to state a claim. Green Acres contended it had not given its consent to the improvements made on the portion of the building leased to Hungry Hawaiian and that Hungry Hawaiian had not acted on behalf of Green Acres in contracting for the improvements. On that basis Green Acres asserted that the complaint failed to state a claim upon which relief could be granted. Hungry Hawaiian's claim against the Christensens was based on a guarantee executed by Roy E. Christensen in connection with the lease between Navalco and Green Acres. The Christensens' motion to dismiss alleged that the guarantee was for the benefit of Navalco only and did not apply to improvements made by a subtenant, and that a portion of the guarantee was not in effect at the time the improvements were begun.

Affidavits were submitted both in support of and in opposition to the motions. The court treated the motions to dismiss as motions for summary judgment under Rule 56 and granted judgments in favor of Green Acres and the Christensens.

The trial court concluded that (1) Green Acres had not contracted with Interiors or Action for the alterations; (2) Green Acres did not induce reliance by Interiors or Action on Green Acres; and (3) Hungry Hawaiian was not the agent of Green Acres in contracting to have the improvements made. In addition to dismissing the complaint, the court awarded Green Acres a $1,000 attorney's fee as provided by § 38-1-18.

The complaint was dismissed as to the Christensens for the reasons that (1) defendant Carol M. Christensen had not executed the guarantee upon which her liability was predicated; (2) the guarantee was special rather than general and ran only to Navalco; and (3) the portion of the guarantee relating to the personal performance of Green Acres' obligations under the lease with Navalco had terminated before any work had started on the Hungry Hawaiian premises. The Christensens were also awarded a $1,000 attorney's fee pursuant to § 38-1-18.

The key legal issue under the Utah mechanics' and materialmen's lien laws, is whether liens may be imposed upon a remote lessor and a sublessor for work and material plaintiffs provided a sublessee. Section 38-1-3 provides in pertinent part:

Contractors, subcontractors and all persons performing any services or furnishing or renting any materials or equipment used in the construction, alteration, or improvement of any building or structure or improvement to any premises in any manner ... shall have a lien upon the property upon or concerning which they have rendered service, performed labor, or furnished or rented materials or equipment, for the value of the service rendered, labor performed or materials or equipment furnished or rented by each respectively, whether at the instance of the owner or of any other person acting by his authority as agent, contractor or otherwise. Such liens shall attach only to such interest as the owner may have in the property .... (Emphasis added.)

I. Green Acres

We first address the question whether Green Acres' interest in the property is subject to a lien for work performed and materials supplied in improving the premises for Hungry Hawaiian.

The purpose of the Utah mechanics' lien law is to provide protection to those who enhance the value of a property by supplying labor or materials. First of Denver Mortgage Co. v. Zundel, Utah, 600 P.2d 521 (1979). We construe the lien statutes broadly to effectuate that purpose. See Stanton Transportation Co. v. Davis, 9 Utah 2d 184, 341 P.2d 207 (1959).

Under § 38-1-3 a lessee may be "an owner" within the meaning of the statute and his leasehold may be subjected to a mechanic's lien. Buehner Block Co. v. Glezos, 6 Utah 2d 226, 310 P.2d 517 (1957). The precise issue, therefore, is whether the improvements made for Hungry Hawaiian were made "at the instance of the owner," Green Acres "or any other person acting by (its) authority as agent, contractor or otherwise."

The rule in this State is that the mere existence of a lessor-lessee relationship, without more, does not justify charging the lessor's interest with a mechanic's lien for improvements made on the property at the instance of the lessee. Zions First National Bank v. Carlson, 23 Utah 2d 395, 464 P.2d 387 (1970); Morrow v. Merritt, 16 Utah 412, 52 P. 667 (1898). The statutory language "at the instance of ..." requires either an express or implied contract between the lessor or his agent and the contractor. Zions First National Bank v. Carlson, supra; Eccles Lumber Co. v. Martin, 31 Utah 241, 87 P. 713 (1906); 10 Thompson on Real Property § 5189 (repl. ed. 1957); see also Stroh Corp. v. K & S Development Corp., Iowa, 247 N.W.2d 750 (1976).

A lessee does not become the agent of the lessor simply on the basis that the lessor has knowledge that improvements are being made, or even that the lessor cooperated with the lessee with respect to the improvements, such as by assisting in obtaining necessary zoning changes. Zions First National Bank v. Carlson, supra. However, even though Green Acres sought to protect itself against liability arising as a result of Hungry Hawaiian's actions, ⁴ the lease provisions relied on cannot override the effect of the mechanics' lien law as to persons not a party to the lease. Metals Manufacturing Co. v. Bank of Commerce, 16 Utah 2d 74, 395 P.2d 914 (1964).

In Zions First National Bank v. Carlson, supra, this Court, quoting from Utley v. Wear, Mo.App., 333 S.W.2d 787 (1960), stated that a lessor is subject to a lien for improvements by a tenant if the lease "requires or obligates the tenant to construct improvements which substantially enhance the value of the freehold ...." Id. at 792. For the lease to create an agency between the lessor and the lessee under the mechanics' lien law, the facts of the transaction must be explored:

* * * in order to make such covenant constitute an agency between the lessor and lessee, we are necessarily bound to look at the facts to determine whether there was an agency or not. If, on account of the shortness of the lease, the extent, cost, and...