Facts: A developer employs a contractor to construct commercial property for a property owner. The contractor then employs a subcontractor to perform infrastructure work for the development. The subcontractor does not enter into a contract with the property owner, only the contractor. After the subcontractor completes their work, the contractor fails to compensate them. The subcontractor records a mechanic’s lien on the owner’s property and later forecloses. The subcontractor is further awarded the statutory prejudgment interest of 10% for breach of contract to be paid by the property owner and the contractor.
Claim: The property owner seeks to reduce their interest rate to the constitutional default rate of 7% for judgments, claiming the statutory default rate of 10% for breach of contract does not apply to them since they did not enter or breach a contract with the subcontractor, as only their contractor did.
Counter claim: The subcontractor claims the property owner is liable to pay the statutory interest rate of 10% on the judgment for breach of contract since they are entitled to recover the amount due pursuant to their contract.
Holding: A California court of appeals held the property owner is only liable to pay the constitutional default rate of 7% for judgments since they did not enter a contract with the subcontractor and, thus, though they are still liable under mechanic’s lien law, they are not subject to the statutory default rate of 10% for breach of contract. [Palomar Grading & Paving, Inc. v. Wells Fargo Bank (October 14, 2014)_CA4th_]
Owners should know their subs as well as their contractor. Owners should make sure they get a Preliminary Notice from each sub as each sub commences work. Also, they should get a Lien Release from each sub upon making final payment of retention money.
COMMENT!!! HOW DOES AN OWNER KNOW WHO ACTUALLY WORKS AND IS PAID WHILE THE PROPERTY IS BEING WORKED ON?
AND HOW TO SAFEGUARD AGAINST THESE DOWNFALLS?
THANKS;
PIA