Paykar Const., Inc. v. Spilat Const. Corp.

Decision Date21 September 2001
Docket NumberNo. B143603.,B143603.
Citation92 Cal.App.4th 488,111 Cal.Rptr.2d 863
CourtCalifornia Court of Appeals Court of Appeals
PartiesPAYKAR CONSTRUCTION, INC., Plaintiff and Respondent, v. SPILAT CONSTRUCTION CORPORATION, Defendant and Appellant.

Baker, Olson, LeCroy & Danielian and Eric Olson, for Plaintiff and Respondent.

KITCHING, J.

Plaintiff Paykar Construction, Inc. (Paykar), a subcontractor, sued defendant Spilat Construction Corporation (Spilat), the general contractor, for breach of contract and a common count for book account. The jury found that Spilat owed Paykar $259,813. The court entered judgment for Paykar in that amount and denied Spilat's motion for judgment notwithstanding the verdict. Spilat appeals the denial of its motion, contending it is entitled to judgment in its favor as a matter of law based on several grounds arising from Paykar's prior settlement with and judicial foreclosure action against the property owners and also based on the statute of limitations. We conclude that Spilat has not shown error and affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND
1. The Construction Subcontract

Spilat was the general contractor on a construction project owned by G. David Bedrosian and others. Paykar agreed to perform concrete work as a subcontractor under a contract with both Spilat and the owners, jointly and severally, dated May 25, 1990 (the subcontract). The subcontract provided for Spilat and the owners to make progress payments as Paykar completed the work. The total amount to be paid under the subcontract was $630,000.

2. The Mechanic's Lien

Paykar submitted a series of invoices to Spilat for work performed through April 1991, and recorded a mechanic's lien in July 1991 stating that $173,816.60 remained to be paid. On or after May 24, 1991, Spilat acknowledged the debt in a signed writing.

3. Prior Actions

In September 1991, Paykar sued Spilat and the owners alleging causes of action against all defendants for foreclosure of the mechanic's lien, negligence, and a common count for work performed, and a cause of action against Spilat for breach of contract. In October 1991, Paykar settled with the owners, released the mechanic's lien, and in November 1991 dismissed the entire action without prejudice. Under the terms of the settlement, the owners executed a $190,000 promissory note to Paykar secured by deeds of trust on other properties, and agreed to pay $40,000 immediately and $150,000 within six months.

In August 1992, Paykar sued the owners again for judicial foreclosure of the two trust deeds, but did not name Spilat as a defendant. In December 1993, the court awarded Paykar a judgment ordering the sale of one of the properties to satisfy the $150,000 debt outstanding under the promissory note, plus interest and late charges, and declaring the owners personally liable for any deficiency. The property was sold for only $200. On September 5, 1997, Paykar moved to determine the fair value of the property and for a deficiency judgment, but the court denied the motion as untimely. Paykar appealed the denial, and the Court of Appeal affirmed in Paykar Construction, Inc. v. Bedrosian (1999) 71 Cal.App.4th 803, 84 Cal.Rptr.2d 135.

4. The Present Action

On May 24, 1995, Paykar sued Spilat again in the present action, alleging causes of action for breach of contract and a common count for book account. The complaint alleges that Spilat failed to pay $173,816.60 due under the contract in 1991, and that the amount due later was liquidated at $190,000 of which only $40,000 had been paid. Spilat asserted various affirmative defenses in its answer, but did not assert the one form of action rule of Code of Civil Procedure section 726 as an affirmative defense. The court granted leave to amend the answer to assert an affirmative defense based on Code of Civil Procedure section 726 shortly before trial.

In March 2000, the case proceeded to a jury trial. The record on appeal does not include a reporter's transcript of the trial proceedings. The jury returned special verdicts finding that Spilat executed the contract with Paykar, there was a substantial breach of the subcontract as of July 9, 1990, Spilat acknowledged its debt under the subcontract on or after May 24, 1991, Paykar maintained a book account showing that the last payment was made on or after May 24, 1991, and Paykar suffered $259,813 in damages caused by the breach of contract.

Spilat moved for judgment notwithstanding the verdict or a new trial. It argued that both its debt to Paykar and the owners' debt to Paykar were based on the same obligation to pay for work performed under the subcontract, and that therefore when the owners provided a promissory note in lieu of their original debt Spilat's debt was "merged" into the promissory note and extinguished. It argued further that the one form of action rule (Code Civ. Proc., § 726) precluded an action against Spilat based on the same debt that was the subject of the prior judicial foreclosure action against the owners, and that the judgment in the judicial foreclosure action conclusively determined all of Paykar's rights arising from the subcontract and precluded Paykar's claims against Spilat in the present action under the doctrine of res judicata or collateral estoppel. Spilat also argued that the four-year limitations period for breach of contract began to run upon the first substantial breach in July 1990, as determined by the jury, and that the jury's finding that Spilat had acknowledged the debt within four years before the complaint was filed was moot because the complaint did not allege a written acknowledgement.

The court denied the motion. Spilat appeals the denial of its motion for judgment notwithstanding the verdict.

CONTENTIONS

Spilat contends it is entitled to judgment in its favor as a matter of law because (1) its debt under the subcontract was "merged" into the owners' promissory note to Paykar, which caused a novation and extinguished Spilat's debt; (2) Civil Code section 3152 allows Paykar to enforce Spilat's obligation only if the action is simultaneous with an action against the owners to foreclose a mechanic's hen securing the same debt, and not after an action against the owners; and (3) the one form of action rule (Code Civ. Proc., § 726, subd. (a)) precludes an action against Spilat based on the same debt that was the subject of the prior judicial foreclosure action against the owners. We address Spilat's other contentions in the unpublished portion of this opinion.

DISCUSSION
1. Standard of Review

A party is entitled to judgment notwithstanding the verdict only if there is no substantial evidence to support the verdict and the evidence compels a judgment for the moving party as a matter of law. (Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 877-878, 151 Cal. Rptr. 285, 587 P.2d 1098.) The trial court must view the evidence in the light most favorable to the verdict, disregard conflicting evidence, and indulge in every legitimate inference to support the verdict. (Ibid.)

On appeal, we determine de novo whether there is substantial evidence to support the verdict and whether the moving party is entitled to judgment in its favor as a matter of law. (Shapiro v. Prudential Property & Casualty Co. (1997) 52 Cal.App.4th 722, 730, 60 Cal. Rptr.2d 698.) Since Spilat does not contend there is no substantial evidence to support the jury's findings of fact, our review is limited to legal questions concerning whether the evidence establishes a complete defense as a matter of law notwithstanding the jury's findings.

2. Novation

A novation is the substitution of a new obligation for an existing obligation. (Civ. Code, § 1530.) It involves either the substitution of a new obligation between the same parties with the intent to extinguish the old obligation, substitution of a new debtor for the old debtor with the intent to release the old debtor, or substitution of a new creditor for the old creditor with the intent to transfer the rights to the new creditor. (Civ.Code, § 1531.) A novation is made by contract and is governed by contract law. (Civ.Code, § 1532.)

Spilat contends Paykar's settlement with the owners, acceptance of the promissory note in lieu of the owners' original debt, and release of the mechanic's lien compel the conclusion as a matter of law that Paykar intended to substitute the promissory note not only for the owners' obligation to pay the amount due for work performed under the subcontract, but also for Spilat's obligation to pay the amount due under the subcontract.

We see no indication in the record on appeal that Paykar intended to extinguish Spilat's obligation, let alone evidence that would compel that conclusion. There is no document stating that Spilat's obligation is extinguished or excused in any manner, and the events surrounding the settlement do not establish as a matter of law that Paykar intended to excuse Spilat's debt. Of particular note is the fact that upon settling with the owners, Paykar dismissed its first action against Spilat and the owners without prejudice, thereby preserving its rights against Spilat.

3. Civil Code Section 3152

Civil Code section 3152 states that the statutes governing mechanic's liens and stop notices for works of improvement do not affect the right of a claimant to obtain and enforce a judgment against the person personally liable for the debt either in an action to foreclose the lien or in a separate action, and that any money collected on a personal judgment must be credited against the lien.1

Spilat contends Civil Code section 3152 preserves a mechanic's lien claimant's right to enforce a personal debt only if the action to enforce the personal debt is simultaneous with an action to foreclose the lien.

There is nothing in Civil Code section 3152 to suggest that a mechanic's...

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