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_]