Filed 9/12/14 Certified for Publication 9/30/14 (order attached)

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

MOOREFIELD CONSTRUCTION, INC., D065464

Plaintiff, Cross-Defendant, and Respondent, (Super. Ct. No. RIC539252) v.

INTERVEST-MORTGAGE INVESTMENT

COMPANY et al.,

Defendants, Cross-Complainants, and Appellants.

APPEAL from a judgment of the Superior Court of Riverside County, Ronald L.

Taylor, Judge. Reversed with instructions.

Early Sullivan Wright Gizer & McRae, Eric P. Early and Bryan M. Sullivan for

Defendants, Cross-Complainants and Appellants.

Mahoney & Soll, Paul M. Mahoney and Richard A. Soll for Plaintiff, Cross-

Defendant and Respondent.

Defendants and cross-complainants Intervest-Mortgage Investment Company and

Sterling Savings Bank (together Intervest) appeal a judgment in favor of plaintiff and cross-defendant Moorefield Construction, Inc. (Moorefield). The parties' dispute arises

from an uncompleted medical office building development in San Jacinto, California.

Moorefield was the general contractor for the development, and Intervest was the

construction lender. The developer, DBN Parkside, LLC (DBN), encountered financial

difficulties toward the end of the project. As a result, DBN did not fully pay Moorefield

for its construction services and defaulted on its construction loan from Intervest.

Moorefield filed a mechanic's lien against the development property, and Intervest took

title to the property in a trustee's sale under the construction loan.

Moorefield's complaint against Intervest sought foreclosure of its mechanic's lien

on the property. Intervest's cross-complaint against Moorefield sought a declaration of

the relative priority of the lien, equitable subrogation to a priority position over the lien,

quiet title, and judicial foreclosure. Following a bench trial, the court entered judgment

in favor of Moorefield on the complaint and cross-complaint, declared Moorefield's

mechanic's lien was superior in priority to Intervest's construction loan deed of trust, and

ordered foreclosure and sale of the property to satisfy Moorefield's mechanic's lien.

Intervest appeals, contending (1) the court erred in finding Moorefield's agreement

to subordinate its mechanic's lien to the construction loan deed of trust was

unenforceable; (2) the court should have applied the doctrine of equitable subrogation to

give Intervest partial priority over Moorefield's mechanic's lien; (3) substantial evidence

does not support the court's finding that Moorefield commenced work prior to the

recording of Intervest's deed of trust; and (4) substantial evidence does not support the

court's finding that Moorefield's mechanic's lien was timely filed following completion of

2 construction. We conclude Moorefield's agreement to subordinate its mechanic's lien to

the construction loan deed of trust is enforceable and therefore reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In 2006, DBN purchased the San Jacinto property with a $4.7 million loan from

BankFirst. DBN planned to construct on the property a medical office complex, known

as Parkside Medical Center (Parkside), consisting of two buildings, a parking lot, and

related infrastructure. DBN and its principal, Steve Delson, had worked with Moorefield

on prior construction projects, including a retail center in San Jacinto. Moorefield

understood it had a good chance of working on the Parkside development as well. At

Delson's request, Moorefield erected a temporary chain link fence on the property.

The next year, in anticipation of construction beginning in earnest, a DBN

construction manager asked Moorefield to "clear and grub" the Parkside project site, then

vacant land with heavy vegetation. Clearing and grubbing consists of methodically

"scarifying" or tilling the soil on a construction site to remove vegetation, roots, and other

undesirable material. Holes and indentations in the land are smoothed out. Later that

month, DBN and Moorefield entered into a construction contract for the Parkside project

on the property. Two weeks later, Moorefield cleared and grubbed the Parkside site

again.

DBN sought funding for the Parkside project from Intervest. Intervest agreed to

provide a construction loan secured by a deed of trust on the property associated with the

project. The construction loan agreement was concluded, and the deed of trust recorded,

approximately a month after Moorefield's construction contract was signed. As part of

3 the loan, Intervest paid off DBN's earlier debt to BankFirst. Intervest intended its deed of

trust to be first in priority on the property and would not have made the construction loan

to DBN otherwise.

In connection with the construction loan agreement, Intervest required DBN to

assign its rights and remedies under the construction contract (but not its obligations) to

Intervest. Moorefield was required to consent to the assignment. Both DBN and

Moorefield did so. Moorefield's consent provides:

"[Moorefield] hereby consents to the above Assignment and each and every term thereof, and as an inducement to Lender to make, and in consideration of Lender making the loan (the 'Loan') to Borrower under the Loan Agreement described above, agrees as follows:

"1. In the event of default by [DBN] under any instrument, document or agreement relating to the Loan, [Moorefield], at Lender's request, will continue performance on behalf of Lender under the Contract in accordance with the terms thereof, provided that [Moorefield] shall be reimbursed in accordance with the Contract for all work, labor and materials rendered pursuant to the Contract. [¶] . . . [¶]

"6. [Moorefield] acknowledges that there presently exist no unpaid claims due to [it], its agents or assignees, arising out of its performance under any agreement heretofore executed . . . and that [Moorefield] has no present claim against or lien upon the property or the improvements now existing or to be constructed thereon arising out of its performance under the Contract. [Moorefield] hereby further agrees and acknowledges that any and all payments made or payable to it pursuant to the Contract shall remain subordinate to the Loan at all times during the term of the foregoing assignment, and that any and all liens for labor done and materials and services furnished pursuant to the Contract or otherwise shall be subordinate to the lien of the Deed of Trust."

4 A Moorefield executive testified at trial that he was familiar with similar consent

agreements and had signed them in connection with past construction projects. He had

"no issues" with the consent at the time it was executed.

Before Intervest's deed of trust was recorded, Intervest's title insurance company

sent an inspector to the Parkside project site to determine whether any construction had

begun. The inspector took photographs of the site from multiple perspectives. The

inspector noted Moorefield's temporary fence but did not identify any other evidence of

construction. He described the property as vacant land with no signs of construction. At

trial, however, Moorefield personnel testified that the inspector's photographs showed

dirt patterns, called "windrows," indicative of a clearing and grubbing operation.

Intervest's deed of trust was recorded the same day as the title insurance company

inspection.

The next month, in anticipation of a groundbreaking ceremony for the Parkside

project, Moorefield cleared and grubbed the site a third time. Later, the site was cleared

and grubbed an additional time by Moorefield's grading subcontractor.

During construction of the project, Moorefield submitted pay applications to DBN

to request payment. The pay applications included an itemization of the work performed,

the percent of work completed in various categories, and a certification from Moorefield.

DBN provided the pay applications to Intervest, which approved and funded the

payments pursuant to DBN's construction loan agreement. Moorefield did not

communicate directly with Intervest. Each pay application included a conditional waiver

and release from Moorefield, on a statutory form, regarding its mechanic's lien rights up

5 to the date of that application. (See former Civ. Code, § 3262, subd. (d)(1).)1 After

Intervest funded a payment, Moorefield submitted an unconditional waiver and release,

also on a statutory form. (See § 3262, subd. (d)(2).)

The first 16 pay applications were submitted and funded. Moorefield received

approximately $7.2 million for these pay applications. Moorefield submitted two

additional pay applications, totaling approximately $2.2 million, for its work on the

project. Around the time of the last two pay applications, however, DBN defaulted on its

construction loan agreement with Intervest. Moorefield did not receive payment for its

final two pay applications.

DBN recorded a statutory notice of completion, although Moorefield was not

aware of its filing at the time. Moorefield continued to work on the project. This work

included landscaping, painting, concrete patching, traffic signal installation, street

improvement, and miscellaneous punch list work. Some punch list work was identified

by the City of San Jacinto. Delson, DBN's principal, testified at trial that some of

Moorefield's work, particularly off-site work, was not complete at the time DBN filed its

notice of completion.

Three weeks after completing the punch list work, Moorefield filed a mechanic's

lien against the Parkside property for $2.2 million, consisting of the two unpaid pay

1 Further statutory references are to the Civil Code, unless otherwise specified. Effective July 1, 2012, California's mechanic's lien statutes were repealed, reorganized, and recodified with technical and substantive changes. (Stats. 2010, ch. 697.) The recodified statutes appear at sections 8000 through 9566 of the Civil Code, but because the former statutes govern this dispute, the statutory references are to the Civil Code sections in effect at the relevant time. 6 applications. Soon afterwards, Moorefield filed the instant lawsuit. Moorefield initially

sued DBN and a number of fictitiously named defendants for breach of contract,

foreclosure of its mechanic's lien, and other claims. Intervest-Mortgage Investment

Company and Sterling Savings Bank were added as defendants, although Moorefield

pursued only foreclosure of its mechanic's lien against them.

Intervest denied Moorefield's claims and filed a cross-complaint seeking a

declaration that its deed of trust was superior to Moorefield's mechanic's lien, and for

equitable subrogation, quiet title, and judicial foreclosure. While the litigation was

pending, Intervest-Mortgage Investment Company assigned its deed of trust to Sterling

Savings Bank, its parent company. Sterling Savings Bank then foreclosed on the

construction loan deed of trust and took title to the property at the subsequent trustee's

sale with a bid of $6 million.

At the outset of trial, Moorefield dismissed its claims against DBN without

prejudice. The trial, held without a jury, lasted six days. Following trial, the court issued

a written statement of decision. The court found Moorefield's mechanic's lien was valid,

timely recorded, and had priority over Intervest's deed of trust. In the court's view,

construction commenced on the Parkside project when Moorefield first cleared and

grubbed the property, and the mechanic's lien had priority as of that date. Construction

was not completed until the end of Moorefield's punch list work. Moorefield thus had 90

days from that date to record its mechanic's lien. (See § 3115.) Because DBN filed its

notice of completion before construction was actually complete, the notice was

ineffective. The court further determined the subordination clause contained in paragraph

7 six of Moorefield's consent to DBN's assignment to Intervest was unenforceable and the

doctrine of equitable subrogation did not apply.

Intervest objected to the court's statement of decision on various grounds; the court

overruled those objections. The court entered judgment in favor of Moorefield on the

complaint and cross-complaint, declared Moorefield's mechanic's lien had priority over

Intervest's deed of trust, and ordered foreclosure and sale of the Parkside property to

satisfy Moorefield's lien. Intervest appeals.

DISCUSSION

I

Intervest first argues the trial court erred in finding the subordination clause in

Moorfield's consent to DBN's assignment of its rights under the construction contract

unenforceable. The trial court's statement of decision addressed this issue as follows:

"The Court concludes that such a subordination clause, according to applicable case law, amounts to a violation of public policy because it would deprive [Moorefield] of its mechanic's lien priority right that is a guarantee to them (as a contractor) under the California Constitution.

"Moreover, [former] California Civil Code § 3262(d) provides that any waiver of rights given by way of a mechanic's lien claimant shall be null, void and unenforceable unless it substantially follows the language in Paragraphs (d)(1) through (4) of [former] § 3262. There was no evidence introduced during the trial that indicated the required language was included in the Subordination Clause or anywhere else in the contract. Therefore, the Court concludes that because the required statutory language was not included in the contract the Subordination Clause is invalid.

"Finally, even if the Court were to conclude that the subordination clause was valid and not contrary to public policy, nevertheless, the defendants['] failure to make the final two payments to [Moorefield]

8 (pay applications 17 and 18) would amount to a material breach of the contract."

Intervest argues the constitutional basis of California's mechanic's lien statutes does not

render the subordination clause unenforceable. Intervest suggests public policy, as

reflected in those statutes, allows a general contractor like Moorefield to waive or

subordinate its mechanic's lien rights. (See § 3268.) Intervest argues section 3262

protects only subcontractors and material suppliers, not general contractors. Intervest

further contends the agreement the trial court found was breached did not impose an

obligation on Intervest to make payments to Moorefield under the circumstances and thus

cannot invalidate the subordination clause.

Moorefield responds that section 3262 protects general contractors as well. Under

that section, Moorefield argues, a contractor's mechanic's lien rights may not be waived

or impaired prior to performance and payment for the contractor's work. Moorefield

further contends the subordination clause was contingent on Moorefield's receipt of

payment for its work. Because Moorefield did not receive payment, it argues, the

consent to DBN's assignment was breached and the subordination clause is

unenforceable.

Interpretation of California's mechanic's lien statutes and of California's public

policy regarding subordination and waiver of mechanic's lien rights presents questions of

law we consider de novo. (See Tesco Controls, Inc. v. Monterey Mechanical Co. (2004)

124 Cal.App.4th 780, 789 (Tesco Controls); see also Lamar Center Outdoor, LLC v.

Department of Transportation (2013) 221 Cal.App.4th 810, 821 ["The interpretation of a

9 statute is a question of law which we review de novo."].) In the absence of conflicting

extrinsic evidence, we review the trial court's interpretation of the relevant agreements,

including the subordination clause, de novo as well. (Parsons v. Bristol Development Co.

(1965) 62 Cal.2d 861, 865.) We review the trial court's factual findings for substantial

evidence. (Tesco Controls, at p. 789.)

II

A

"Our state Constitution provides: 'Mechanics, persons furnishing materials,

artisans, and laborers of every class, shall have a lien upon the property upon which they

have bestowed labor or furnished material for the value of such labor done and material

furnished; and the Legislature shall provide, by law, for the speedy and efficient

enforcement of such liens.' (Cal. Const., art. XIV, § 3.) As [the Supreme Court] has said,

'The mechanic's lien is the only creditors' remedy stemming from constitutional

command and our courts "have uniformly classified the mechanics' lien laws as remedial

legislation, to be liberally construed for the protection of laborers and materialmen."

[Citation.]' [Citation.] '[S]tate policy strongly supports the preservation of laws which

give the laborer and materialman security for their claims.' " (Wm. R. Clarke Corp. v.

Safeco Ins. Co. (1997) 15 Cal.4th 882, 888-889.) However, " '[a]lthough mechanic's lien

laws should be liberally construed to protect those who have contributed skills, services

or materials, towards the improvement of property, it has been recognized that lien laws

are for the protection of owners as well as mechanic's lien claimants.' " (Walker v. Lytton

Sav. & Loan Assn. (1970) 2 Cal.3d 152, 158.)

10 California's mechanic's lien statutes place limits on the ability of certain persons to

waive or otherwise impair mechanic's lien rights. Section 3262, subdivision (a), provides

in relevant part as follows: "Neither the owner nor original contractor by any term of a

contract, or otherwise, shall waive, affect, or impair the claims and liens of other persons

whether with or without notice except by their written consent, and any term of the

contract to that effect shall be null and void. Any written consent given by any claimant

pursuant to this subdivision shall be null, void, and unenforceable unless and until the

claimant executes and delivers a waiver and release."2 Subdivision (b)(1) of the statute

further provides: "No oral or written statement purporting to waive, release, impair, or

otherwise adversely affect a claim is enforceable or creates any estoppel or impairment of

a claim unless either: [¶] (A) It is pursuant to a waiver and release prescribed in this

section. [¶] (B) The claimant had actually received payment in full for the claim."

(§ 3262, subd. (b)(1).) Moreover, unless a waiver or release substantially follows the

statutory forms set forth in former section 3262, "[t]he waiver and release given by any

claimant pursuant to this section shall be null, void, and unenforceable . . . ." (§ 3262,

subd. (d).)

The parties dispute how section 3262 applies to an original or general contractor

like Moorefield. By its terms, section 3262 prevents an owner or original contractor from

waiving or impairing "the claims and liens of other persons" without their written

2 "One who contracts directly with the owner is an original contractor." (Scott, Blake & Wynne v. Summit Ridge Estates, Inc. (1967) 251 Cal.App.2d 347, 357.) Other terms for such contractors include general, direct, and prime contractors. 11 consent. (§ 3262, subd. (a).) Courts have recognized section 3262 reflects the

Legislature's concern that owners and original contractors may use their superior

bargaining power to extract lien waivers from subcontractors and material suppliers.

(See Bentz Plumbing & Heating v. Favaloro (1982) 128 Cal.App.3d 145, 148-150 (Bentz

Plumbing).) Historically, therefore, original contractors have been burdened, rather than

benefited, by the statute.

In Bentz Plumbing, the court considered an earlier version of section 3262 that did

not allow for written consent. The statute at issue in Bentz Plumbing provided in relevant

part: " '[N]either the owner . . . nor the original contractor shall by any term of their

contract, or otherwise, waive, affect, or impair the claims or liens of other persons

whether with or without notice, . . . and any term of the contract to that effect shall be

null and void . . . .' " (Bentz Plumbing, supra, 128 Cal.App.3d at p. 148.) Bentz

Plumbing interpreted the statute to prohibit an owner or original contractor from

requiring a subcontractor to consent to a mechanic's lien waiver. "To require a

subcontractor to consent to a lien waiver to secure payments due a prime contractor at the

least 'affect[s]' and probably 'impair[s]' the lien by the threat of resulting nonpayment to

the subcontractor. As such, it was 'null and void' under [former] Civil Code section 3262

and the lien waivers secured thereby are similarly invalid." (Id. at p. 150.)

The court in Santa Clara Land Title Co. v. Nowack & Associates, Inc. (1991) 226

Cal.App.3d 1558 (Santa Clara Land) considered the same statute in the context of an

original contractor, rather than a subcontractor. (Id. at p. 1561.) The original contractor

performed civil engineering work on a multi-unit residential property. (Ibid.) After

12 encountering difficulties securing payment, the contractor recorded successive

mechanic's liens against the property. The first lien was paid out of escrow when the

property changed ownership. (Id. at p. 1562.) After the second lien was recorded, the

contractor executed a "Release of Lien" stating the second mechanic's lien was "hereby

fully satisfied, released, and discharged," although the contractor had not yet received

payment. (Ibid.) The contractor executed the release to entice a construction lender to

advance funds from which the contractor hoped to be paid. The construction lender

required the release to ensure that the security for its construction loan would be first in

priority on the property. (Ibid.) After the contractor executed the release, the

construction loan successfully funded. The contractor was subsequently paid. (Ibid.)

The contractor then recorded a third mechanic's lien for further engineering

services. (Santa Clara Land, supra, 226 Cal.App.3d at p. 1563.) The owner also

defaulted on its construction loan, and the lender took title to the property in a trustee's

sale. (Ibid.) The lender sought to quiet title as against the contractor's mechanic's lien,

and the contractor sought foreclosure. (Ibid.) The contractor argued its third mechanic's

lien related back to the beginning of its work on the project and had priority over the

lender's security interest. The lender countered that the contractor's release extinguished

the prior lien rights. (Ibid.)

The Santa Clara Land court held that "[u]nder Civil Code section 3268, the parties

may waive or release the benefits of the mechanic's lien laws, unless otherwise prohibited

by statute or public policy." (Santa Clara Land, supra, 226 Cal.App.3d at p. 1566, fn.

omitted; see also Aetna Cas. and Sur. Co. v. United States (Ct.Cl. 1981) 655 F.2d 1047,

13 1057-1058 (Aetna).) Section 3268 provides as follows: "Except where it is otherwise

declared, the provisions of the foregoing titles of this part, in respect to the rights and

obligations of parties to contracts, are subordinate to the intention of the parties, when

ascertained in the manner prescribed by the chapter on the interpretation of contracts; and

the benefit thereof may be waived by any party entitled thereto, unless such waiver would

be against public policy." Under this provision, any contractor may therefore waive or

impair its mechanic's lien rights unless such a waiver would otherwise be prohibited.

The Santa Clara Land court concluded section 3262 did not prohibit an original

contractor from waiving or impairing its own mechanic's lien rights. "By its terms this

section limits the ability of the original contractor to waive or impair the claims and liens

of other persons. The clear implication is that the contractor may waive or release his

own claim, when doing so does not affect or impair the claims or liens of other laborers

or subcontractors." (Santa Clara Land, supra, 226 Cal.App.3d at p. 1568; see also Aetna,

supra, 655 F.2d at p. 1058 [general contractor is not prohibited from waiving its own lien

rights under § 3262].) Under Santa Clara Land, an original contractor like Moorefield

may validly waive or impair its own mechanic's lien rights.

Moorefield argues Santa Clara Land is factually distinguishable. Moorefield

points out the contractor in that case executed its release after it had completed the

portion of the work that gave rise to the released mechanic's lien. (Santa Clara Land,

supra, 226 Cal.App.3d at p. 1562.) Moorefield contends Santa Clara Land did not

approve prospective waivers such as the subordination clause at issue here. Although

Moorefield is correct that Santa Clara Land considered a retrospective release, the court's

14 reasoning is not so limited. Under Santa Clara Land, section 3262 simply does not apply

to waivers and releases by original contractors. Pursuant to section 3268, an original

contractor is empowered to waive or release its mechanic's lien as it so chooses--

including prospectively. (See Santa Clara Land, at pp. 1566, 1568; see also Aetna,

supra, 655 F.2d at pp. 1057-1058.)

Moorefield also points out the contractor in Santa Clara Land was paid for the

work that gave rise to the mechanic's lien that was released. (Santa Clara Land, supra,

226 Cal.App.3d at p. 1562.) The payment, however, was made after the release was

executed. (Ibid.) The contractor's release was not contingent on payment. Instead, the

contractor executed the release to allow the owner to secure a construction loan that

would provide funds for payment. (Ibid.) Nothing in Santa Clara Land suggests an

original contractor's waiver or release is valid only if payment is subsequently received.

(Id. at p. 1568; see also Tesco Controls, supra, 124 Cal.App.4th at p. 797 [statutory form

"waive[s] mechanic's lien rights . . . for services rendered and materials provided up to

the date stated on the receipt, even if those services and materials were not compensated

by the progress payment"], italics added.) The factual distinctions urged by Moorefield

are unpersuasive.3

3 Moorefield's reliance on this court's decision in Koudmani v. Ogle Enterprises, Inc. (1996) 47 Cal.App.4th 1650 is misplaced. Koudmani considered whether a subcontractor may validly release its inchoate mechanic's lien right by releasing a particular claim of lien. (Id. at p. 1653.) In that context, it distinguished Santa Clara Land. (Koudmani, at p. 1659.) Section 3262 was not at issue. " '[C]ases are not authority for propositions not considered.' " (People v. Superior Court (Zamudio) (2000) 23 Cal.4th 183, 198.) 15 B

Moorefield further argues Santa Clara Land's interpretation of section 3262 was

incorrect. Moorefield claims section 3262 should be read as creating two prohibitions:

first, the owner may not waive or impair another person's mechanic's lien; and, second, an

original or general contractor may not waive or impair another person's mechanic's lien.

In construing a statute, we look first to the language of the statute itself. (People

v. Statum (2002) 28 Cal.4th 682, 689-690; MacIsaac v. Waste Management Collection &

Recycling, Inc. (2005) 134 Cal.App.4th 1076, 1082.) The plain language of the statute

does not contain the dual prohibitions Moorefield has identified. It contains a single

prohibition: neither owners nor original contractors may waive or impair the liens of

other persons without their written consent. (§ 3262, subd. (a).) The "other persons"

referenced in the statute are persons other than owners and original contractors.4

4 Contrary to Moorefield's contention, the statute's use of the term "claimant" does not compel the conclusion that original contractors are protected by section 3262. The relevant portion of the statute reads as follows: "Any written consent given by any claimant pursuant to this subdivision shall be null, void, and unenforceable unless and until the claimant executes and delivers a waiver and release. That waiver and release shall be binding and effective to release the owner, construction lender, and surety on a payment bond from claims and liens only if the waiver and release follows substantially one of the forms set forth in this section . . . ." (§ 3262, subd. (a).) Even if "claimant" may generically refer to an original contractor as well, the claimants at issue here are circumscribed by the language of the statute. Only those claimants whose consent is governed by this statute are referenced by this provision. (See ibid. ["Any written consent given by any claimant pursuant to this subdivision . . . ."], italics added.) Original contractors may give consent other than "pursuant to this subdivision" and therefore are not part of the class of claimants covered here. (See ibid.; see also § 3268.)

16 Even were the language of the statute ambiguous, the history of the statute

confirms this interpretation. (See MacIsaac v. Waste Management Collection &

Recycling, Inc., supra, 134 Cal.App.4th at p. 1083 [interpretation may be aided by

extrinsic aids].) Section 3262 descended from a similar provision first enacted in 1885.5

(Bentz Plumbing, supra, 128 Cal.App.3d at p. 149, fn. 2.) The 1885 statute resolved "a

conflict in authority whether an owner and prime contractor could by a provision of their

contract waive the rights of subcontractors and materialmen." (Ibid.) "The statute settled

the conflict by requiring a lien waiver by the written consent of the subcontractor."

(Ibid.) The statute stood largely unchanged until 1972, when the Legislature amended

the statute to remove the provision allowing written consent. (Stats. 1972, ch. 1319, § 1,

p. 2627; see also Bentz Plumbing, at p. 149.) "[T]he object of the 1972 amendment was

to protect subcontractors and materialmen from being forced to consent in writing to

impairment of their lien rights in order to get the job or to get paid." (Bentz Plumbing, at

p. 149, fn. 3.) The focus of the statute was the protection of subcontractors and material

suppliers, not original contractors.

Although a proper interpretation of the 1972 amendment, the decision in Bentz

Plumbing "dried up construction loans and plunged construction lending in California

into chaos." (Halbert's Lumber, Inc. v. Lucky Stores, Inc. (1992) 6 Cal.App.4th 1233,

5 The 1885 statute provided as follows: " 'It shall not be competent for the owner and contractor, or either of them, by any term of their contract, or otherwise, to waive, affect, or impair the claims and liens of other persons, whether with or without notice, except by their written consent, and any term of the contract to that effect shall be null and void.' (Former Code Civ. Proc., § 1201, added by Stats. 1885, ch. 152, § 7, p. 146.)" (Bentz Plumbing, supra, 128 Cal.App.3d at p. 149, fn. 2.) 17 1248, fn. omitted.) "[L]enders typically require releases of existing lien rights before

they will make progress payments on construction [loans]" (ibid.), and the Bentz

Plumbing decision prohibited that practice. As a consequence, the Legislature amended

section 3262 into substantially the form that governs this dispute. (See Stats. 1984, ch.

185, § 1; see also Halbert's Lumber, at p. 1248.)

The amendment restored the ability of "other persons" to waive their mechanic's

lien rights in writing, established mandatory forms for those waivers, and confirmed

those waivers are only valid if the forms were used or payment was in fact made.

(§ 3262.) The amendment did not remove the distinction between owners and original

contractors, on one hand, and "other persons," on the other. (§ 3262, subd. (a).) As the

Santa Clara Land court noted, the amended statute retained its focus on the protection of

subcontractors and material suppliers: "Effective January 1985, the current statute

prohibits an owner or original contractor from waiving, affecting or impairing the claims

or liens of others except by their written consent. In addition, the statute specifies in

detail the form for such waivers by subcontractors or other claimants." (Santa Clara

Land, supra, 226 Cal.App.3d at p. 1568, fn. 4; see also Halbert's Lumber, Inc. v. Lucky

Stores, Inc., supra, 6 Cal.App.4th at pp. 1248-1249 [describing the legislative history of

the amended statute].)

Judicial decisions since that amendment, including by our Supreme Court, support

this interpretation. (See Wm. R. Clarke Corp. v. Safeco Ins. Co., supra, 15 Cal.4th at

p. 889 ["By law, a subcontractor may not waive its mechanic's lien rights except under

certain specified circumstances."]; Tesco Controls, supra, 124 Cal.App.4th at p. 790 ["By

18 law, any waiver of a subcontractor's mechanic's lien rights is null and void unless the

lienholder expressly waives his rights pursuant to a form prescribed by [statute]."].)

Secondary sources likewise recognize the limited scope of section 3262. (See Bruner &

O'Connor, Construction Law (2014) § 8.151 [statute "restrict[s] a general contractor's

ability to waive the lien rights of its subcontractors and suppliers"]; see also Cal.

Mechanics Liens and Related Construction Remedies (4th ed. 2013) § 8.32, p. 712

["Direct contractors, however, may waive or release their own claims as long as they do

not affect or impair the claims or liens of others."].) Moorefield's interpretation of the

statute is unsupported by its plain language and statutory history.

Moorefield argues this interpretation of section 3262 contradicts the purpose of

California's statutory scheme governing mechanic's liens. However, the ability of an

original contractor to waive or impair its own mechanic's lien rights is consistent with the

proposition that those contractors have mechanic's lien rights and that they are generally

protected by other provisions of the statutes. Moreover, the general rule that California's

mechanic's lien statutes should be interpreted in favor of the lien claimant cannot override

the plain language of sections 3262 and 3268. Regardless of an original contractor's

ability to invoke other mechanic's lien statutes for its own protection, section 3262

represents an additional protection extended only to "other persons."

C

Here, Moorefield contracted directly with the Parkside owner, DBN, and was

therefore an original contractor under section 3262. (See Scott, Blake & Wynne v.

Summit Ridge Estates, Inc., supra, 251 Cal.App.2d at p. 357.) The subordination clause

19 signed by Moorefield provides that "any and all payments made or payable to

[Moorefield] pursuant to the Contract shall remain subordinate to the Loan at all times

during the term of the foregoing assignment, and that any and all liens for labor done and

materials and services furnished pursuant to the Contract or otherwise shall be

subordinate to the lien of the Deed of Trust." The subordination clause was necessary to

fund the construction loan, and Moorefield benefited as a direct result of its subordination

agreement. Without the subordination clause, Moorefield would not have been able to

work on the Parkside development because DBN would not have obtained funding. The

Moorefield executive responsible for the Parkside project testified that he had "no issues"

with the consent agreement at the time.

Under sections 3268 and 3262, the subordination clause was a valid exercise of

Moorefield's right to waive or impair its own mechanic's lien rights. (See Santa Clara

Land, supra, 226 Cal.App.3d at p. 1566.) Duly-enacted statutes reflect the public policy

of this state. (See In re Mark B. (2007) 149 Cal.App.4th 61, 79; Farmers Ins. Exchange

v. Hurley (1999) 76 Cal.App.4th 797, 803.) The trial court erred in holding otherwise.

III

Even if valid, Moorefield contends the subordination clause cannot be enforced

against it because the consent agreement containing the clause was breached. Moorefield

asserts that full payment under its construction contract with DBN was a condition of its

agreement to subordinate. Because Moorefield did not receive full payment, it argues,

the subordination clause never became effective.

20 The issue here is not the factual question of whether Moorefield was paid, but the

legal question of its effect on Moorefield's subordination agreement under the language

of the relevant contracts. In the absence of conflicting extrinsic evidence, we review the

trial court's interpretation of the relevant agreements de novo. (Parsons v. Bristol

Development Co., supra, 62 Cal.2d at p. 865.)

The trial court did not cite any specific provision in finding a material breach had

occurred. Moorefield points to two provisions in support of its argument: (1) that

"[DBN] shall continue to be liable for all obligations of [DBN] thereunder, [DBN] hereby

agreeing to perform all of its obligations under the [construction] Contract"; and (2) that

"[Moorefield] shall be reimbursed in accordance with the Contract for all work, labor and

materials rendered pursuant to the Contract." Moorefield does not cite any extrinsic

evidence it contends would aid our interpretation of these provisions.

Contrary to Moorefield's assertion, the first provision does not appear in the

consent agreement; it appears in DBN's assignment agreement. The provision serves to

confirm DBN, not any other party, remains obligated under the construction contract with

Moorefield. This provision is not a condition of Moorefield's consent agreement; indeed,

it is not a part of the consent agreement at all. It represents a confirmation by DBN, to

Intervest, that DBN will comply with the construction contract. It cannot invalidate the

subordination clause, which represents Moorefield's commitment to Intervest, in the

event of DBN's failure to perform its obligations under the construction contract.

As to the second provision, Moorefield's partial quotation obscures its meaning.

The full provision reads as follows: "In the event of default by [DBN] under any

21 instrument, document or agreement relating to the Loan, [Moorefield], at Lender's

request, will continue performance on behalf of Lender under the Contract in accordance

with the terms thereof, provided that [Moorefield] shall be reimbursed in accordance with

the Contract for all work, labor and materials rendered pursuant to the Contract." The

reimbursement obligation arises only where DBN has defaulted and Intervest requests

that Moorefield continue its performance under the construction contract. Moorefield

does not allege Intervest ever made such a request. Indeed, the evidence showed

Moorefield never had an agreement with Intervest for payment. Moorefield and Intervest

had little, if any, direct communication during the project.

The consent agreement was signed by Moorefield "as an inducement to Lender to

make, and in consideration of Lender making the loan (the 'Loan') to Borrower under the

Loan Agreement . . . ." The consideration for Moorefield's consent agreement, including

the subordination clause, was therefore Intervest's "making the [construction] loan . . . to

[DBN] under the Loan Agreement . . . ." Moorefield does not dispute that Intervest made

the loan to DBN. When that occurred, Moorefield's agreement to subordinate its

mechanic's lien rights became enforceable. DBN's subsequent failure to pay Moorefield

did not withdraw Moorefield's agreement to subordinate under the language of the

agreement. Payment to Moorefield was not a condition of the subordination clause.

The consent agreement and subordination clause in this case are therefore

distinguishable from the subordination agreements at issue in the cases cited by

Moorefield in support of its argument. In those cases, a party to the subordination

agreement was alleged to have breached a condition of the subordination itself,

22 commonly the requirement that the loan given first priority be used only for construction

purposes. (See Brown v. Boren (1999) 74 Cal.App.4th 1303, 1315 [" 'Since one

condition to priority is the proper use of the construction loan funds, the priority of the

construction loan lien does not vest until such time as the funds are applied to the

construction purpose. [Citation.]' "]; Protective Equity Trust #83, Ltd. v. Bybee (1991) 2

Cal.App.4th 139, 150-151; Gluskin v. Atlantic Savings & Loan Assn. (1973) 32

Cal.App.3d 307, 313.) No similar condition existed under the agreements in this case.

The trial court therefore erred in interpreting the agreements to require payment to

Moorefield as a condition of the subordination clause. The agreements, as properly

construed, required at most only that Intervest make the construction loan to DBN under

the terms of the construction loan agreement for the subordination clause to be

enforceable. Since Intervest in fact made the construction loan, Moorefield may not

avoid application of the subordination clause.

IV

Because we conclude the subordination clause is valid, Moorefield's mechanic's

lien was subordinated to the Intervest deed of trust that provided security for Intervest's

construction loan to DBN. When Intervest foreclosed on its deed of trust, Moorefield's

mechanic's lien--as a subordinate interest--was extinguished. (See Rheem Mfg. Co. v.

United States (1962) 57 Cal.2d 621, 625; see also Hohn v. Riverside County Flood

Control etc. Dist. (1964) 228 Cal.App.2d 605, 610.) Because its mechanic's lien has been

extinguished, Moorefield may not maintain its action for foreclosure against the Parkside

property. Moreover, because Intervest's deed of trust exceeded its successful bid for the

23 property at the trustee's sale, there were no surplus funds for the trustee to distribute to

subordinate lienholders like Moorefield. (See § 2924k, subd. (a); Passanisi v. Merritt-

McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1503-1504.)

Our conclusions are based on the law and undisputed facts, including the terms of

the applicable agreements. The trial court's judgment must therefore be reversed with

instructions to enter judgment in favor of Intervest. (See Singh v. Southland Stone,

U.S.A., Inc. (2010) 186 Cal.App.4th 338, 357 ["An appellate court may reverse a

judgment with directions to enter a different judgment if it appears from the record that

no new evidence of significance would be presented in a new trial and there is only one

proper judgment."]; Mid-Century Ins. Co. v. Gardner (1992) 9 Cal.App.4th 1205, 1220; 9

Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 874, p. 935.)

The remaining grounds for reversal urged by Intervest are moot considering our

conclusion Moorefield's mechanic's lien has been extinguished. We therefore need not

consider them.

DISPOSITION

The judgment is reversed. The matter is remanded with instructions to enter

judgment against Moorefield Construction, Inc., and in favor of Intervest-Mortgage

Investment Company and Sterling Savings Bank in accordance with this opinion.

Intervest-Mortgage Investment Company and Sterling Savings Bank are entitled to costs

on appeal.

24 McDONALD, J.

WE CONCUR:

BENKE, Acting P. J.

HALLER, J.

25 Filed 9/30/14

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

MOOREFIELD CONSTRUCTION, INC., D065464

Plaintiff, Cross-Defendant, and Respondent, (Super. Ct. No. RIC539252) v.

ORDER CERTIFYING OPINION

INTERVEST-MORTGAGE INVESTMENT FOR PUBLICATION

COMPANY et al.,

Defendants, Cross-Complainants, and Appellants.

THE COURT:

The opinion filed September 12, 2014, is ordered certified for publication.

BENKE, Acting P. J.

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