Moorefield Construction, Inc. v. Intervest-Mortgage Investment Co.
178 Cal. Rptr. 3d 709
Cal. Ct. App.2014Background
- Moorefield Construction, Inc. contracted with DBN Parkside, LLC for the Parkside Medical Center project; Intervest-Mortgage Investment Company provided construction financing secured by a deed of trust on the Parkside property.
- Intervest required DBN to assign its remedies under the construction contract; Moorefield consented, agreeing that its payments and liens would remain subordinate to the loan during the assignment.
- Moorefield performed substantial work (including multiple site clearings) and submitted pay applications funded by Intervest via DBN; Moorefield issued waivers/releases for payments as work progressed.
- DBN defaulted on the loan; Intervest foreclosed after taking title to the property; Moorefield filed a mechanic’s lien for approximately $2.2 million, later asserting priority over Intervest’s deed of trust.
- The trial court found Moorefield’s lien valid and superior in priority and held the subordination clause unenforceable and that equitable subrogation did not apply; Intervest appealed.
- On appeal, the court reversed, holding the subordination clause enforceable, thereby subordinating Moorefield’s lien to Intervest’s deed of trust and extinguishing Moorefield’s lien upon foreclosure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Moorefield subordination clause enforceable under §3262 and public policy? | Moorefield contends §3262 protects non-owner claimants and forbids waivers impairing their liens; the clause improperly subordinates Moorefield’s lien. | Intervest argues §3262 protects subcontractors, not original contractors, and the subordination clause is valid to facilitate funding. | Subordination clause enforceable; original contractor may waive own lien rights under §§3262, 3268. |
| Does equitable subrogation give Intervest partial priority over Moorefield’s lien? | Intervest should have priority or be subrogated to priority rights through equitable subrogation. | Equitable subrogation applies to restore priority where appropriate. | Equitable subrogation does not apply; subordination clause governs priority. |
| Was Moorefield’s subordination conditioned on Moorefield being paid (a contractual payment condition)? | Moorefield argues payment in full was a condition precedent to effectiveness of the subordination. | Intervest argues the subordination was conditioned only on Intervest’s execution of the loan; payment was not a condition. | Subordination was not conditioned on Moorefield’s payment; loan funding sufficed for enforceability. |
| What is the outcome given the enforceability of the subordination clause? | If the clause is enforceable, Moorefield’s lien remains superior. | If enforceable, Moorefield’s lien is subordinated and extinguished upon foreclosure. | Subordination clause enforceable; Moorefield’s lien subordinated and extinguished; judgment reversed in Intervest’s favor. |
Key Cases Cited
- Santa Clara Land Title Co. v. Nowack & Associates, Inc., 226 Cal.App.3d 1558 (Cal. App. 1991) (limits on waiver rights and original contractor waivers under §3262 and §3268)
- Bentz Plumbing & Heating v. Favaloro, 128 Cal.App.3d 145 (Cal. App. 1982) (statutory history of §3262 protecting subcontractors from waivers)
- Tesco Controls, Inc. v. Monterey Mechanical Co., 124 Cal.App.4th 780 (Cal. App. 2004) (waivers of subcontractors require statutory forms)
- Wm. R. Clarke Corp. v. Safeco Ins. Co., 15 Cal.4th 882 (Cal. 1997) (liberal construction of mechanic’s lien laws; remedial nature)
- Halbert's Lumber, Inc. v. Lucky Stores, Inc., 6 Cal.App.4th 1233 (Cal. App. 1992) (legislative history of §3262 and protection of subcontractors)
- Parsons v. Bristol Development Co., 62 Cal.2d 861 (Cal. 1965) (contract interpretation framework for reviewing agreements)