Walker v. Lytton Sav. & Loan Assn.

Decision Date06 March 1970
Docket NumberS.F. 22711
CourtCalifornia Supreme Court
Parties, 465 P.2d 497 John C. WALKER et al., Plaintiffs and Respondents, v. LYTTON SAVINGS AND LOAN ASSOCIATION OF NORTHERN CALIFORNIA et al., Defendants and Appellants.

Tobin & Tobin and John J. Hopkins, San Francisco, for defendants and appellants.

Lawrence W. Jordan, Jr., Kelso, Cotton, Seligman & Ray, William S. Clark and Rogers, Clark & Jordan, San Francisco, for plaintiffs and respondents.

BURKE, Justice.

In this mechanic's lien case, a deed of trust given defendant Lytton Savings and Loan Association (Lytton), to secure a construction loan, was recorded after plaintiff architects had prepared plans and specifications for the proposed construction, but before any actual physical construction had commenced. The trial court decreed that plaintiffs' mechanic's lien had priority over the deed of trust, and defendant appeals. 1 As hereinafter appears, we have concluded the court erred in its application of the priority rules set forth in section 1188.1 of the Code of Civil Procedure, and that the judgment against Lytton should be reversed.

The facts are without dispute. In May 1963 defendants 1231 Jones, Inc., and the Dunns (hereinafter, 'owners'), who held fee title to certain San Francisco real property, entered into an oral contract with plaintiff licensed architects (which was later reduced to writing), under which plaintiffs were to perform and provide architectural services and materials for the carrying out of a scheme of improvement on the owners' property, and the owners were to pay plaintiffs the reasonable value of such services and materials.

Plaintiffs immediately commenced performance of the contract and by August 1964 had completed surveys, scale details, working drawings, plans, specifications and studies on a 42-unit apartment building, and later, on a modified scheme of improvement, completed work of the same nature for a proposed 67-unit structure.

Financing of the original 42-unit building was provided by Lytton, and in August 1964 negotiations were commenced between the owners and Lytton for the financing of the 67-unit structure. During the course of these negotiations Lytton had actual knowledge of the agreement between plaintiffs and owners, and also had actual knowledge that plaintiffs had provided architectural services under such agreement since its inception in 1963 and that plaintiffs were in the course of modifying the plans and working drawings to provide for a 67-unit building. The owners had submitted to Lytton letters to and from plaintiffs and the owners relating to the manner of payment and the amount of plaintiffs' fees, and had also submitted evidence that certain of such fees had been paid, although Lytton was not aware of the exact amount of money due plaintiffs. No billings were made by plaintiffs to Lytton.

In October 1964 at Lytton's request the plans prepared by plaintiffs for the 67-unit structure were submitted to Lytton, which reviewed and approved them. Thereafter, on December 11, 1964, plaintiffs submitted by letter to Lytton a review made at the owners' request of the cost estimate breakdown and bids which had been submitted to plaintiffs (apparently by the owners) for the construction of the 67-unit building in accordance with the plans and specifications which plaintiffs had prepared. Lytton relied upon this information in making its appraisal for loan purposes.

On December 15, 1964, the owners, in consideration of a construction loan from Lytton, executed a promissory note in Lytton's favor in the amount of $1,609,000 and a deed of trust on the owners' real property as security therefor. The deed of trust was recorded on December 28, 1964, on which date, as declared by the trial court in its findings, no work had been done on the owners' property and no materials had been delivered thereto for the planned construction.

Thereafter, between March and May 1965, in furtherance of the plan to construct the 67-unit apartment building, structures on the owners' property were demolished, the building site was graded and excavated, and an 8-foot high chain fence was erected on the premises. Plaintiffs supervised and inspected such services performed on the property. No further work has occurred at the job site. Fabrication of the structural steel for the 67-unit building was commenced but none thereof was delivered to the site. Plaintiffs secured site approval and excavation and foundation permits, applied for a building permit, and continued to perform and provide architectural services and materials for the planned apartment building until September 15, 1965, on which date they performed the last such service. On November 4, 1965, the owners orally notified plaintiffs to cease work. No building permit was ever issued and the proposed building was never constructed.

On December 29, 1965, plaintiffs recorded a claim of mechanic's lien against the real property.

On February 3, 1966, a trustee's sale was conducted under the deed of trust, and the property was purchased by the beneficiary, Lytton. Thereafter, on March 11, 1966, plaintiffs filed the present action to foreclose their claimed mechanic's lien and filed a notice of lis pendens with the recorder.

In addition to finding in accordance with the above facts, the trial court found and concluded as follows: that Lytton knew of the architectural services rendered and being rendered by plaintiffs and utilized them to some extent prior to recording its deed of trust against the owners' property; that there was 'commencement of the subject work of improvement as required by Section 1188.1 of the Code of Civil Procedure prior to the recordation of' Lytton's deed of trust; that Lytton's deed of trust was not superior to plaintiffs' lien against the property for architectural services, and that the sale under the deed of trust was subject to such lien; that plaintiffs were entitled to judgment for $19,500, plus interest, against defendant owners, and were entitled to a lien in that amount against the real property and to foreclose their lien. Judgment was entered accordingly, and this appeal by Lytton followed.

Architects 'bestowing skill or other necessary services on * * * or * * * contributing to, the construction * * * of, any building, structure, or other work of improvement' are included among those whom section 1181 of the Code of Civil Procedure 2 provides 'shall have a lien upon the property upon which they have bestowed labor * * *.' 3

Section 1188.1 sets forth the general priority rules as between mechanics' and materialmen's liens on the one hand, and other liens or encumbrances on the other. 4 As applied in this case, the question is whether is whether Lytton's deed of trust attached prior to commencement of the structure or work of improvement within the meaning of section 1188.1. If it did, then the deed of trust takes priority; but if it did not, then plaintiffs' lien is preferred over the deed of trust.

Under section 1181 a lien arose in favor of plaintiffs at least as early as the site preparation work which they supervised (demolition, excavation, grading, fencing; see §§ 1182, 1184.1) and which took place between March and May 1965--well after recordation of the deed of trust. 5 However, as between plaintiffs and Lytton the issue is whether plaintiffs are entitled to priority despite the fact that, as the trial court found, Lytton's deed of trust was recorded before any work had been done on the owners' property or materials delivered thereto for the planned construction. We are convinced that under such circumstances it cannot be held that the structure or work of improvement had commenced within the meaning of the priority rules of section 1188.1 or that plaintiffs' preparation of plans and specifications constituted such commencement so as to give their lien priority over the deed of trust.

As plaintiffs point out, section 1182 declares that except as otherwise provided 'work of improvement' means 'the entire structure or scheme of improvement as a whole.' Nevertheless, section 1181, supra, specifies that services giving rise to a mechanic's lien are those bestowed on or contributing to the construction of any building or other work of improvement. Thus the general rule is that such a lien does not attach unless and until Construction has been undertaken by the doing of actual visible work on the land or the delivery of construction materials thereto. (See Design Associates, Inc. v. Welch (1964) 224 Cal.App .2d 165, 173, 36 Cal.Rptr. 341, and cases cited; see also English v. Olympic Auditorium, Inc. (1933) 217 Cal. 631, 637, 20 P.2d 946, 87 A.L.R. 1281 ; Arthur B. Siri, Inc. v. Bridges (1961) 189 Cal.App.2d 599, 602, 11 Cal.Rptr. 322.)

Plaintiffs cite Lamoreaux v. Andersch (1915) 128 Minn. 261, 150 N.W. 908, L.R.A.1915D 204, in which the Supreme Court of Minnesota, construing a lien statute substantially similar to our own, upheld an architect's lien as against a landowner even though no physical change had been effected upon the land; the court noted that the owner had repudiated his contract with the architect and had abandoned the project before any work of construction had commenced, and ruled that 'the owner cannot, in this way, destroy the right to a lien.' Although Lamoreaux has been considered in several California cases (see Nolte v. Smith (1961) 189 Cal.App.2d 140, 148--149, 11 Cal.Rptr. 261, 87 A.L.R. 996; McDonald v. Filice (1967) 252 Cal.App.2d 613, 620--621, 60 Cal.Rptr. 832; Tracy Price Associates v. Hebrad (1968) 266 Cal.App.2d 778, 786, 72 Cal.Rptr. 600), the facts in each case differed from those of Lamoreaux and accordingly in none of them was the court called upon to decide whether the Lamoreaux ruling would be followed in this state. 6

More to the point, however, Lamoreaux did not involve a priority issue between a mechanic's lien claimant and the...

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