Tracy Price Associates v. Hebard

• Decision Date: 23 October 1968
• Citation: 266 Cal.App.2d 778,72 Cal.Rptr. 600
• Court: California Court of Appeals Court of Appeals
• Parties: TRACY PRICE ASSOCIATES, etc., Plaintiff-Respondent and Cross-Appellant, v. R. T. HEBARD, etc., et al., Defendants-Appellants, in Intervention. Civ. 8675.

Page 600

72 Cal.Rptr. 600

266 Cal.App.2d 778

TRACY PRICE ASSOCIATES, etc., Plaintiff-Respondent and Cross-Appellant, v. R. T. HEBARD, etc., et al., Defendants-Appellants, in Intervention.

Civ. 8675.

Court of Appeal, Fourth District, Division 2, California.

Oct. 23, 1968.

Kelber & Kelber and Bernard, Kelber, Ontario, for appellant Mike kelber.

Swanwick, Donnelly & Proudfit and Howard D. Hanson, Los Angeles, for respondent United California Bank.

Eller & Winton, Los Angeles, and Edward A. Hoffman, Beverly Hills, for respondent Tracy Price Associates.

OPINION

TAMURA, Associate Justice.

The central issue on this appeal is whether a security interest under a trust deed is subject to a mechanic's lien for architectural services, rendered pursuant to a contract with the owner, for preparation of plans for improvements to be constructed on the land where the trust deed was recorded after the architect commenced preparation of plans but where actual physical construction of the contemplated improvements never commenced. A subsidiary question is presented relating to priorities of claims to the proceeds of a trust deed foreclosure sale.

The facts giving rise to the architect's claim may be summarized as follows:

Defendant Hebard was the owner of a 10 acre parcel of unimproved land which he contemplated developing by constructing a service station on a half-acre site and a motel, restaurant and office building complex on the remaining 9 1/2 acres.

Hebard discussed the proposed project with Price, president of plaintiff (Price Associates), a firm engaged in providing architectural services. Following the meeting, Price Associates prepared and submitted a feasibility report and preliminary sketches of the proposed improvements and Price and Hebard discussed the selection of an engineer to be retained to survey the land.

On June 10, 1963, Hebard entered into a contract with Arrowhead Engineering Corporation (Arrowhead) for a property line and topographical survey. Price discussed with Arrowhead the data required by the architects for the preparation of plans. Pursuant to the contract Arrowhead surveyed the 10 acres, placed permanent monuments at each corner of the two parcels, prepared a contour map and set temporary grade stakes.

On June 13, 1963, Hebard entered into a written contract with Price Associates for the preparation of plans and specifications for the motel, restaurant and office building complex and for architectural supervision during its construction. Immediately upon execution of the contract Price Associates commenced its work, all of which was performed in its offices except that on one occasion Price took a protable plane table to the site to ascertain the appropriate heights of certain proposed structures.

In December 1963 Price Associates completed working drawings and submitted a set to the city building department in conjunction with an application for a building permit. A building permit was never issued because Hebard failed to pay the permit fee and post the required bond. By December 1963 Hebard was aware of the fact that the project would never become a reality; he was then 'broke' and other ventures in which he was interested were failing.

Meanwhile a dispute arose between Price and Hebard respecting their rights and obligations under the June 13, 1963, contract, particularly as it related to the payments required to be made by Hebard. To settle their dispute, they executed a new contract on February 20, 1964, which recited that they were entering into it 'as a complete compromise and settlement and for the purpose of a novation' of the previous agreement. The agreement provided that Hebard would use his best efforts to proceed with the contemplated construction 'as soon as possible', that a construction loan would be obtained prior to construction and that upon its recordation Hebard would pay Price Associates a specified sum less any amounts which might have been paid on a promissory note which Hebard and his wife executed contemporaneously with the new contract. The new agreement required Price to furnish Hebard with ten sets of the final plans with all revisions and corrections. On March 6, 1964, Price Associates complied with that requirement but Hebard never obtained construction financing and the project failed.

On May 22, 1964, Price Associates recorded a mechanic's lien against the 9 1/2 acre parcel for an alleged indebtedness of $72,000 for services rendered in the preparation of working drawings and specifications for the proposed project.

The other claims in controversy arose in the following manner:

From the time he acquired the 10 acre parcel Hebard placed a number of succeeding trust deeds on the property, each replacing the prior. On December 30, 1963, a trust deed executed by Hebard in favor of Equity Capital Company (Equity Capital), a Minnesota Corporation, was recorded against the 9 1/2 acre parcel. United California Bank (Bank) was later substituted in place of the original trustee under that deed of trust. By an assignment recorded on July 23, 1964, defendant Kelber acquired the beneficial interest in the Equity Capital Trust deed.

On July 1, 1964, in an unrelated action against Hebard for monies due and owing, the Bank recorded an attachment lien against the subject property. A judgment in favor of the Bank was subsequently entered in that action and a writ of execution was issued.

On July 22, 1964, Price Associates filed the present action to foreclose its asserted mechanic's lien and to recover on the promissory note executed by the Hebards.

Thereafter, defendant Kelber foreclosed on the Equity Capital trust deed and on January 13, 1965, purchased the property at the trustee's sale paying $41,424.99 over and above the indebtedness secured by the trust deed. The Bank retained the excess asserting that it was entitled to do so by virtue of its attachment lien.

Following the foregoing events Price Associates' filed an amendment to its complaint alleging that the Hebards and other defendants claimed some interest in the property but that such claims were junior to its mechanic's lien. The Bank answered and cross-complained for a decree determining that its claim to the excess proceeds of the foreclosure sale was superior to that of Price Associates' or of any other claimant. Defendant Kelber answered, alleging ownership of the property, and filed a 'complaint in intervention' to quiet title alleging that Price Associates' lien was invalid.

Following a non-jury trial the court found that Price Associates began providing architectural services on June 13, 1963, that construction of the proposed project never commenced, that Hebard 'prevented' construction and that Price Associates' interest in the land was superior to those of the other claimants. However, on the Bank's cross-complaint, the court found that by virtue of the attachment lien, the Bank had a prior claim to the excess funds in its possession arising out of the foreclosure sale. The property was ordered sold to satisfy Price Associates' claim and the Bank was decreed to be entitled to the excess funds.

Defendant Kelber appeals from the judgment in its entirety contending (1) that Price Associates' lien was invalid, or (2) that, assuming it to be valid, the lien attached to the excess funds in possession of the Bank and, hence, that portion of the judgment awarding the funds to the bank was erroneous.

Price Associates filed a notice of appeal from the portion of the judgment in favor of the Bank in anticipation of a possible determination by this Court that the February 20, 1964, agreement constituted a true novation. In the latter event Price Associates contends that although its lien rights under the February 20 agreement would be junior to the Equity Capital trust deed, it would be entitled to priority over the bank's attachment lien.

As indicated at the outset, the decisive issue is whether, in the light of the uncontroverted finding that actual construction of the contemplated improvements never commenced, the court erred in concluding that Price Associates' asserted mechanic's lien was superior to the interests of Kelber and the Bank.

In addition to the classes of persons listed in the Constitution (Sec. 15, art. XX, Cal.Const.), the Legislature has extended to others, including architects, performing labor or bestowing skill or other necessary services in the construction of any building, structure, or other work of improvement a lien upon the property upon which they have bestowed such labor, skill, or services. (Code Civ.Proc. § 1181). Mechanic's liens are preferred to any lien, mortgage, deed of trust, or other encumbrances 'which may have attached subsequent to the time when the building improvement, structure, or work of improvement in connection with which the lien claimant has done his work or furnished his material was commenced * * *.' (Code Civ.Proc. § 1188.1.)

Price Associates contends (1) that the 'work of improvement' commenced when Arrowhead performed the engineering work; (2) that the claim for architectural services was lienable despite the fact that actual construction never commenced because construction was prevented through the fault of the owner; and (3) that its asserted lien was entitled to priority over the trust deed because Equity Capital was not a good faith lienor without notice.

Price Associates may not ride on the coattails of Arrowhead. While Arrowhead's work was lienable under the statute (Scott, Blake & Wynne v. Summit Ridge Estates, Inc., 251 Cal.App.2d 347, 356, 59 Cal.Rptr. 587; Nolte v. Smith, 189 Cal.App.2d 140, 11 Cal.Rptr. 261, 87 A.L.R.2d 996), its work may not be deemed commencement of the 'work of improvement' insofar as Price Associates' claim is concerned. Engineering work necessary to survey and subdivide land falls within the class of 'improvements' described in section 1184.1. ¹ (Scott, Blake & Wynne v. Summit Ridge...