Mechanics Lien Law

NOTE:-This summary of 1925 amendments to Mechanic's Lien Law and related statutes was prepared by Glen Behymer, Attorney for the Building Material Dealers Credit Association of Los Angeles, an authority on the Lien Law.

The changes noted become effective July 23, 1925, and credit managers should take careful note of same.

New Section 1184-D of Code of Civil Procedure providing for bond to cover disputed claims on Public JobJ in ordei to release funds due contractor and permil payment of undisputed claims.

Section ll84-D of the Code of Civil Procedure is a new section oermitting contractors desiring to dispute the validity_ of claims of persons who have filed stop notices on public jobs to file with the public body a special surety bond one and one-quarter times the amount of the disputed verified claim or siop notice, rvhereupon the funds iir ttre hands of the public body can be distributed among all other undisputed claims and the net balance, if any, to the contractor, and the special bond is substituted as to the disputed claim in lieu of the claim on the fund, which provision gives such claimant a joint and several action on the original bond, plus the special bond.

This section was enacted in order to enable contractors desiring to dispute the validity of a claim of a materialman, sub-contractor or laborer, who has filed rvith the public body a verified claim or notice to withhold, to file with the public body a bond with corporate surety in a penal spm equal to one and one-fourth times the amount of such 4isputed claim. By doing so, the acknowledged claims can be paid without waiting until the disputed claim has been liquidated. The fund in the hands of the public body is distributed among the persons holding undisputed cljims and any net balance remaining after the payment of such claims is paid to the contractor. The person holding disputed claims then has two remedies: First, againsl the bondsmen who wrote the original bond of the contractor, ald second,. an action against all the sureties who put up the special bond to cover the particular disputed claim and the remedy against these sureties is joint and several. This is a good statute which protects reputable contractorb from dishonest and padded claims and at the sarne time does not lessen the protection of materialmen, sub-contractors and laborers and permits an early settlement of the stop notices or verified claims of honest claimants.

Section ll92 of. the Code of Civil Procedure having to do with Notices of Non-Responsibility.

Section lI92 of. the Code of Civil Procedure having to do with notices of non.respo.nsibility, merely adds the riquire- ment that the person filing such notice insert in same the name of any purchaser under contract of the premises in Question, if any, or the lessee of the premises, if known.

This covers a defect in the present law rvhich is most flagrant in cases where a large tract of land stands in the name of some bank or trust comDanv. which has subdivided the land into lots ancl has roia ittaiuidual lots under contract of sale to many purchasers. A notice given by such a tract owner covering the tract as a whole-does not, as a practical proposition, give very much notice to persons dealing with individual contract purchasers. While this change is a minor one, it is of some practical importance.

CHANGE IN ACT OF MAY IO, 1919

Surety liable to materialman or laborer without necessity of filing stop notice or verified ,claim. Six months' time allowed for action against surety.

The real important change from the sub-contractors', laborers' and materialmen's viervpoint is the change in the Act of May 10, 1919, embodied in what is knorvn as Assembly Bill 895 at the present session. Both under the amended statute and the present law, the time to file stop notices or verified claims on public jobs is exactlv the same as the time for filing liens *'ould be if the job were a private job. IJnder the law as it stood prior to the recent amendment, in order to hold the surety on the contractor's bond, the timely filing of such verified claim was an indispensable prerequisite or condition precedent to an action against the bonding company. Under the amendment, the timely filing of the claim is still necessary, so far as the fund in the hands of the public body is concerned, but the surety on the contractor's bond is liable to the materialman without the necessity of filing any stop notice or verified claim, and action against the surety may be brought at any time after the claimant has ceased to perform labor or furnish materials and until the expiration of six months after the period in which verified claims might have been filed on the particular job for the purpose of establishing a lien on the funds in the hands of the public body.

From a practical standpoint, this amendment is quite important because in many instances a materialman or subcontractor may have a valued customer, whom he believes to be honest and solvent but as to whose solvency he has some doubt. He does not desire to embarrass the contractor by filing a verified claim, believing that the contractor will, out of his last payment, take care of his account. He can, therefore, forego his right to file a verified claim, relying upon his right of action against the bondsman, thereby maintaining his friendly relationship with the contractor and still not gambling unduly with his.account and he will be absolutely safe in so doing, unless, of course, materialmen and sub-contractors holding accounts in the aggregate more than the penaltv of the Surety Company's bond follow the same course, and then bring suit within the statutory period against the bondsmen. In such event the materialmen would have to pro rate between them the full penalty on the labor and material bond.

Under the law, as it stood prior to the 1925 amendment, it was necessary, in order to maintain an action against the surety g!.1he bond for the materialman,.to file hig".verified claims and bring his suit against the bondsmen within the same period of time as he would have to sue on a verified claim as against the fund in the hands of the public body. The change, therefore, is quite radical and quite beneficial to the laborers, sub-contractors and materialmen and placeb the situation on public jobs somewhat the same as ls thb situation on private jobs so far as a suit against the suretf on the bond is concerned. This improvement in the lary should be welcomed by all contractors and is especially of benefit to honest solvent contractors with small capital, and should be welcomed by all surety companies excepit those who habitually write undesirable risks i

Certain other minor changes lvere made in the statute such as to expressly provide for the filing of notices of comlpletion by the officials on public jobs, but the minor changeb are of interest to lawyers rather than to materialmen. Effective July 23, 1925.