Contractor May File Mechanic's Lien When Contract is Terminated Prematurely by Owner.

Howard S. Wright Construction Co., v. BBIC Investors, LLC (2006) __ Cal.App.4th ___.

The case of Howard S. Wright Construction Co., v. BBIC Investors, LLC presented an interesting twist to the usual judicial decisions involving mechanic's liens. Rather than discussing the last day by which an original contractor could timely file a mechanic's lien, the Wright court explored the issue of the earliest time an original contractor may timely record a mechanic's lien under California Civil Code § 3115. InHoward, the California Court of Appeal held that a contractor "completes its contract" for purposes of Section 3115 not only when it substantially performs its contractual obligations, but also when the contract is terminated prematurely by the owner, or when the contractor is discharged from any further obligations under the contract by the owner's material or anticipatory breach.

In this case, Howard S. Wright Construction entered into a contract with 360 networks to perform certain construction work at 360's lease space in a building owned by BBIC Investors, LLC. The parties entered into a written Design-Build agreement. Wright began work under the contract in March 2001 and only a few months later, it was learned that 360 was in serious financial trouble. In May 2001, 360's project manager asked Wright immediately to "put on hold" the construction project, and to do what was necessary to leave the site "safe, secure, and in compliance with all applicable codes." This "closeout" work was to be billed separately and completed by June 26, 2001. However, on June 18, 2001, 360 advised Wright's CFO that no further payments would be made to Wright for the closeout work being performed at the site. On June 19, Wright's CFO sent correspondence to 360 confirming 360's intent to "breach the terms" of the agreement. The next day, Wright's laborers and tradesman left the construction site and a mechanic's lien was recorded on June 20, 2001. Subsequently, at BBIC's request, Wright's project superintendent and project manager moved some duct work that was being stored on the second floor of the project to the first floor.

A short time later, Wright filed a lawsuit against BBIC to foreclose on its mechanic's lien. BBIC argued that Wright's mechanic's lien was recorded prematurely, because Civil Code § 3115 allows a mechanic's lien to be recorded only after a contractor "completes his contract," and under Civil Code § 3086, "completion" occurs 60 days after cessation of work on the project. BBIC contended that, because Wright's mechanic's lien was filed on June 20 (one day after its workers left the site), it was premature. BBIC also argued that the June 20 recordation was premature because Wright performed some duct work at the site between June 21 and June 26. BBIC prevailed in the trial court and Wright filed this appeal.

The Court of Appeal determined that Wright's lien was not premature. The court examined Section 3086 and noted that it was not applicable in this case because Section 3115 refers to completion of a "work of improvement" only in the context of the latest date a party may record a lien, while for the earliest date for recording, it refers to completion of the "contract." The court relied on basic contract principles in stating that a contractor is deemed to have completed its contract "upon substantial performance of its obligations." However, the court noted that it would be nonsensical to require a contractor to perform all work under its contract as a condition precedent to recording a mechanic's lien, where "by some event before full performance, [the contractor] no longer has any obligations under the contract." The court reasoned that "if a contract could never be deemed complete under Section 3115 unless all of the work was performed, a contract cut short by mutual termination or the owner's material breach would never be complete, the contractor could never timely record its claim of lien, and its lien could never be enforced." As such, the Court of Appeal held that "a contract is complete for purposes of commencing the recordation period under Section 3115 when all work under the contract has been performed, excused, or otherwise discharged."

The Court of Appeal found that 360 had anticipatorily breached its agreement with Wright when it advised that it had no intent to make any further payments. As a result of this breach, the court found that Wright was discharged from its obligations and had "completed its contract" for purposes of Section 3115 at the time of the breach. The court refused to accept BBIC alternative contention that the subsequent duct work after June 20 rendered the mechanic's lien premature. The court deemed this work trivial and noted that it was done at no charge to BBIC. As such, Wright's time to file a mechanic's lien began to run on June 19, and its filing on June 20 was, therefore, not premature.

The Wright opinion demonstrates that courts generally make decisions that connect to the real world and do not accept technical maneuvers that result in injustice, when the effect of the maneuver leaves the aggrieved party without an adequate remedy.

- Anthony K. Brown