Invalidating a lien under these circumstances seems a bit harsh. Most anyone looking at the lien would be able to determine who the lienor was. — Comment by Vincent Pallaci
Over the past six months, the California appeals courts have grappled over claimant names more than usual. Back in September, I wrote about an appeal opinion in Ball v. Steadfast-BLK, where a mechanics lien was filed by “Clark Air Conditioning & Heating” but the company’s official name was “Clark Heating and Air Conditioning.” If you read the sentence too fast, you might not even see the difference!
The trial court invalidated the lien based on this technicality, but the appeals court reversed. Unfortunately, the appeals decision was rooted in some technicalities of its own, and so California lien claimants still didn’t have a clear picture as to how incorrect a lien claimant’s name can be on a mechanics lien to remain valid.
The California appeals court encountered this lien claimant name issue again last month in Montgomery Sansome LP v. Rezai.
Facts & Problem: Name Confusion Between Mechanics Lien and Construction License
The problem presented in these California cases is that the courts are bound by the strict laws regulating construction licensing. Almost every state has a licensing scheme for contractors, and these schemes nearly always prohibit a contractor from entering into a contract in a name that is not licensed.
So, if a contractor is ABC Construction, they must sign contracts and act as ABC Construction. Period.
But, we all know typos happen, and small mistakes happen as deals happen in the speed of business. And so we get a situation as presented in Montgomery Sansome LP v. Rezai, where a company licensed as “Montgomery Sansome Ltd” files a mechanics lien as “Montgomery Sansome Ltd LP.” Technically, the company that filed a mechanics lien doesn’t have a license, and therefore, doesn’t have a lien right.
Lien Filed As: Montgomery Sansome Ltd, LP
Licensed As: Montgomery Sansome Ltd
Guidance Offered For Mistakes In Claimant Identity
The California 4th Circuit Court of Appeals’ decision in the Rezai case gives parties a tiny bit more guidance than the decision a few months ago in the Ball case.
The court held that a mistake in the lien claimant’s identity does not invalidate the mechanics lien immediately and by rule. Instead, the matter is a “fact” at issue and in dispute in the case, that must be determined at trial. In other words, a judge or jury must look at the facts presented and determine whether the two entities existed separately, or if they are one in the same.
The appeals court here actually cites the Ball case, as well as a similar 2004 case (Handyman Connection of Sacramento Inc. v. Sands (2004)), to reason that:
[A] critical issue in determining whether [the licensing laws] bars [the claimant’s] claims is whether the Montgomery Sansome entity that contracted with defendants is a general partnership and separate legal entity from the licensed limited partnership. If it is, then…any claims for compensation would be barred…On the other hand, if the entity that contracted with defendants is the same entity that held a license, then, under Ball, the use of slightly different names for that entity on different documents would not bar recovery.
So there you have it. While this new case presents a clearer standard, it will be interesting to see what happens when different situations like this are presented to courts. While there appears to be some leeway for lien claimants at the appellate level in California, it’s a good idea for mechanic lien claimants to get their name RIGHT when filing.