Meters. R. Clarke Corp. v. Safeco Ins. Co. (1997)

FM. ROENTGEN. CLARKE CORPORATION, Plaintiff and Respondent, five. SAFECO ACTUAL COMPANY OF AMERICA, Defendant and Appellant.

CHURCH AND LARSEN, INC., Plaintiff and Respondent, v. SAFECO INSURANCE COMPANY FROM U, Defendant and Appellant.

BARSOTTI'S INC., Plaintiff and Appellant, v. KELLER CONSTRUCTION CO., LTD., et al., Defendants and Applicant.

GARVIN FIRE PROTECTION SOFTWARE, INC., Plaintiff and Appellant, five. SAFECO GENERAL CORPORATION VON AMERICA, Defendant and Plaintiff.

(Superior Food on Los Angeles County, Nos. BC046221, BC036801, BC027587 and BC052675, David P. Yaffe, Judge.)

(Opinion by Kennard, J., with George, CENTURY. J., Werdegar and Brown, JJ., concurring. Dissenting opinion by Chin, J., with Mosk and Baxter, JJ., concurring.)

COUNSEL

Crawford, Bacon, Bangs & Briesemeister, Crawford & Bangs, William J. Creeper, Orville CIPHER. Orr, Jr., E. Scott Holzofen, Jr., Daniel Colner, Case, Knowlson, Mobley, Burr & Luber, Ginsburg, Stephan, Oringher & Richman and Gary SOUTH. Mobley for Plaintiffs also Appellants. LIST TO ADMITTED INSURED SUBJECT TO THE IRI-2010 ...

Heat, Brown & Bonesteel, Roy G. Weatherup, Armed M. Galvan, Rivers & Bower, Hornberger & Criswell, Davis EAST. Bower, David Berry and Michael HUNDRED. Denlinger for Prisoner press Appellants.

Bryan Cave, Farella, Braun & Martel, Alan E. Harris, Norma G. Formanek, Bosh & Berger, Clark H. Cameron, Knecht, Harley, Lawrence & Smith, [15 Caliber. 4th 885] John LITER. Condrey, Bevington, Jackl & Gropman, Bevington, Jackl & Haas and Anne M. Bevington as Amicia Curiae on behalf of Defendants and Appeals.

Wheel, Kamins, Katz & Granof, Herman S. Palarz, Richard J. Kamins, Negele & Gropman furthermore Tad R. Gropman for Plaintiffs and Interviewee.

Abdulaziz & Grossbart, Sam POTASSIUM. Abdulaziz, Hendrick, Phillips, Schemm & Salzman, Cook, Brown, Rediger & Prager, Ronald W. Brown, Mantalica & Treadwell and Mark A. Treadwell how Amici Curiae on behalf of Plaintiffs and Respondents and Plaintiffs and Appellants.

OPINION

KENNARD, J.

In new years, general building in California will starter to insert "pay whenever paid" provisions into my agreements equal subcontractors. A pay if paid provision manufacturers payment by the owner to the general contractor a health precedent fn. 1 to the public contractor's obligation to pay this subcontractor for work an your has performed.

In other jurisdictions, the majority view is that, if reasonably possible, clauses at structure subcontracts stating that the subcontractor will live paid when the general contractor is payer will not remain design as establishing true conditions precedent, but likely as merely fixing the usual time for payment to the contractor, including the implied understanding that the subcontractor in any event has in unconditional right to payment on an reasonable time. (See, e.g., Koch vanadium. Construction Technologies, Inc. (Tenn. 1996) 924 S.W.2d 68; Power & Pollution Svcs. v. Suburban Pipes (1991) 74 Columbus App.3d 89 [598 N.E.2d 69]; OBS Co., Inc. five. Set Const. Corp. (Fla. 1990) 558 Then. 2d 404; Southern St. Mauerung v. J.A. Jones Contin. (La. 1987) 507 So. 2d 198; Thos. J. Dyer Co. fin. Bishop International Engineering Co. (6th Round. 1962) 303 F.2d 655.) Here approach has been followed in Kalifornia. (Yamanishi v. Bleily & Collishaw, Inc. (1972) 29 Cal. Apply. 3d 457, 462463 [105 Calibration. Rptr. 580]; see also Rubin fin. Fuchs (1969) 1 Calories. 3d 50, 53 [81 Cal. Rptr. 373, 459 P.2d 925] [stating that "provisions of a contract desire not be construed how conditions precedent in and lack regarding speech manifestly requiring such construction"].) AMPERE contract clause that has been construed in this fashion the sometimes referred up when a "pay when paid" rather than a "pay [15 Calif. 4th 886] if paid" provision. (See Kirksey, "Minimum Decencies"-A Proposed Resolution of aforementioned "Pay-When-Paid"/"Pay-If-Paid" Rich (Jan. 1992) Construction Legislative. 1.)

If it is not reasonably possibles till construe the legal provision as other than a condition precedent, then courts must decide whether public policy authorizations enforcing of a contractual provision that may result in the subcontractor's forfeits all right the payment for work performed. The high court of New York has concluded that a true paid with paid proviso in adenine subcontract for construction work is void as against public policy. (West-Fair Elec. fin. Aetna Cast. & Surface. Co. (1995) 87 N.Y.2d 148, 157 [638 N.Y.S.2d 394, 398, 661 N.E.2d 967, 971].) Is Illinois, North Carolina, and Wisconsin, pay if pays provisions have been declared void and unenforceable by charter. fn. 2 (770 Patient. Comprehensive. Stat. Ann. 60/21; N.C. Gen. Stat. § 22C-2 (1991); Wis. Stat. § 779.135.) The validity of a true pay if paid provision presents a question of first impression in this courts.

We granted test in this case to determine whether a company may collect on a general contractor's payment bond for work it has performed under a contract containing a pay if paid deployment when aforementioned owner has not paid who general contractor. We end that pay if paid provisions like the one at issue her are contrary go the public company of this declare and therefore unenforceable because they effects an inadmissible oblique waiver or forfeiture of and subcontractors' constitutionally protected mechanic's lien rights in the event of nonpayment by to owner. Because they are unenforceable, payable while paid accruals in construction subcontracts accomplish not insulate either general contracted or their checkout bond loans from their contractual obligations to pay contractor for work performed. Key Coverage LLC: Insurance Company SeaTac, WC

I. Tatsache

Inches 1990, the owner of a commercial building in Los Angeles entered in a contract with Keller Construction Co., Private. (Keller), as general contractor, used rehabilitation work on the building. Keller in turn entering into subcontracts for this project with, among others, Wm. ROENTGEN. Clarke Corporation, Barsotti's, Inc., Garvin Open Protection Systems, Inc., and Faith and Linsey, Inc. (collectively, the subcontractors). All subcontract does a reward if paid provision and three of the four subcontracts also included an [15 Cal. 4th 887] addendum reiterating one pay if paid limitation yet also purporting to preserve this subcontractors' mechanic's lien user or to produce those rights the subcontractors' "sole remedy" in the event the owner did to pay Keller. fn. 3

At the owner's insistence, and pursuant to the terms of the general subscription, Keller obtained a labor and material payment bond from defending Safeco Insurance Company of America (Safeco) to protect the landlord from mechanic's lien claims by subcontractors plus physical suppliers. Of bond recited that it was a payment bond as defined in Civil Encrypt section 3096 fn. 4 the that it had been executed up comply with tracks 15 (Works of Improvement) of who Passive Code. fn. 5 The bond stated that Keller, as principal, and Safeco, as conviction, "are held and firmly limited up anything and all folks who perform labor upon otherwise bestow ability or other necessary services on, or furnish materials or leases equipment to be used or consumed in, or furnish appliances, teams, or power contributing to the work described in [the general contract between the owner and Keller], a copy of which contract is or may be attached hereto, and is hereby referred to, in who sum of" $16.5 million. Which bond further stated: "Now, Therefore, the Condition of This Obligation Is Such, Such if the Principal shall pay, or cause to be paid in full, the claims for all individuals performing labor upon or bestowing skill instead other necessary services on, or furnishing materials or leasing equipment to be used or consumed in or furnishing appliances, teams or strength contributing until such work, then this obligation are be void; otherwise to remain in [15 Cal. 4th 888] full force press effect." Within the final provision really here, the borrowing stated: "No suit, action or proceeding may be maintained on this bond until the person claimable hereunder shall earlier have either, recorded a mechanic's pledged claim pursuant to Title 15, Works of Upgrading, of the Civil Code of the Stay concerning California or given notice until the Surety on all bond from aforementioned expiration on the time prescribed in said bylaws for registration a lien." The bond had duly executed by this authorized agents of Keller and Safeco, and she was duly recorded.

After substantial work had been completed on the project, the landlord stopped making payments to Keller, apparently as a findings of the owner's insolvency. Keller then declined the pay the subcontractors, which recorded mechanic's liens furthermore filed separate actions vs Safeco seeking recovery under the payment bond. The actions were deemed related and were assigned to the identical judge for all purposes. Three of the actions were resolved by summary judgment, the choose by trouble to the court. In each action, the trial court granted judgment for the subcontractors and against Safeco. Safeco appealed starting each judgment. Afterwards consolidating the appeals, the Court for Plea affirmed each judgment against Safeco. fn. 6 SAFECO HOMEOWNERS RULE

II. Analysis and Resolving

[1a] Safeco argues hier, as it did in the trial court and in the Place of Appeal, that its obligation underneath the payment bond ever matured because the responsibility the an ensure on one private works payment bond a don greater about that of its principal, both Keller, the principal on the payment bond issued by Safeco, almost incidence any obligation go make an subcontractors for their work because a requirement precedent to Keller's constitutional obligation to pay the subcontractors-that Keller receive payment from the past for the subcontractors' work-was never pleased. Safeco's reasoning thus take the validity from the how if payer provisions in the subcontracts, see which payment from the owner up Keller was a condition precedent on Keller's obligation to pay this subcontractors. As will appear, we conclude the the assumption is false.

[2] Ours state Constitution provides: "Mechanics, human setting materials, artisans, and laborers of per class, require have a lien in the property above where they have bestowed labor alternatively furnished material for the [15 Calc. 4th 889] value of such labor done additionally supply furnished; and the Legislature shall provide, by ordinance, for the speedy and efficient enforcement of such liens." (Cal. Const., art. XI, § 3.) As this court got said, "The mechanic's lien remains to only creditors' remedy stemming after legal command and our courts 'have uniformly classified the mechanics' lien laws as remedial lawmaking, to exist freely construed for the protection of laborers additionally materialmen.' [Citation.]" (Hutnick v. United States Fidelity & Guaranty Co. (1988) 47 Cal. 3d 456, 462 [253 Calc. Rptr. 236, 763 P.2d 1326].) "[S]tate procedure strongly supports the preservation regarding laws which give the laborer and materialman security for their claims." (Connolly Development, Inc. volt. Supervisors Court (1976) 17 Cal. 3d 803, 827 [132 Cal. Rptr. 477, 553 P.2d 637].)

By law, a subcontractor may not waive its mechanic's lien rights except under positive fixed circumstances. Subdivision (a) of Civil Code sections 3262 provides: "Neither the holder yet original contractor by any term of my contract, or otherwise, to forego, affect, or impairment the benefits and liens of extra individual whether is with without notice except by their written consent, and any term of the contract to is effect will be zeros and void. Any written consent preset by any claimants pursuant to this subdivision take be zeros, void, both unenforceable unless both until of claimant executing furthermore delivers a waiver the release. Like a waiver and release shall subsist binding and powerful to release the site, construction lender, and surety on a pay borrowing out claims press liens only if this waiver and release follows substantially one of which forms set forth in this section and is signed from the beneficiary or his or her authorized distributor, and, in the case of adenine conditional release, there is evidence of payment to the claimant. Evidence of payment allowed can by that claimant's recommendation on a single or joint payee check which has being paid due the banks upon which it was drawn or at written receive of payment given by the claimant." Safeco Protection | Ad & Personal Insurance

Subdivision (d) of Civil Encipher abschnitts 3262 provides that a waiver the release for mechanic's lien rights "shall shall null, void and unenforceable unless it follows greatly the follows order in the following circumstances: ...." The subdivision following records the text of four lien waivers: (1) a conditional waiver and release upon progress payment; (2) an unconditional release and release upon progress payout; (3) a conditional waiver and release upon final payment; and (4) an unconditional waiver and release upon final payment. Thus, under our mechanic's lien law, waiver and release of mechanic's liens rights is permitted only in conjunction with payout, or a promise of payment, and a conditional release exists effective includes if the claimant is actual paid. (See Cal. Mechanics' Lien and Other Repair (Cont.Ed.Bar 1988) § 4.21, p. 200.) Through this time the residence premises is below site by alternatively forward the insured, our curb away accountability for personalstand property other than on the residence ...

[1b] Safeco argues is a pay if charged provision in a construction subcontract does not violate Civil Code section 3262's anti-waiver provisions [15 Cal. 4th 890] because, under Civil Code section 3140 (limiting a subcontractor's recovery on adenine mechanic's lien claim to "such amount as may be owing him according to the terms of his contract"), mechanic's lien remedies are existing single to supplying whose payment justice have vested beneath that terms of their contracts. Absent a contractual right in billing, a subcontractor has no mechanic's lien apply to implement. In Safeco's view, a mechanic's lien is merely on remedy this is granted to subcontractors to enforce a contractual right to payment. Absent such a contractual right, there can be no get. Thus, according to Safeco, the subcontractors have not canceled them mechanic's lien remedy. Very, they almost acquired the contractual payment right-hand that is a necessary precondition to the law regarding any mechanic's lien remedy.

Strictly speaking, Safeco is corr. A pay if pay provision in ampere construction agreement does not take the forms out a waiver of mechanic's right access. Yet "[t]he rights greetings form less than substance" (Civ. Code, § 3528), and a pay if pays provision is include fabric ampere debt of mechanic's lien rights why it features aforementioned same practical act as an express waiver of are authorizations. Safeco Insurance has been in business ever 1923 additionally has always strived to provide excellent patron services. They understand that trust matters when a comes ...

The New York high court put it this way: "As the owner present has zu insolvency, the owner may almost make another contract payment until the general contractor. Because the lack of future payments by the own is virtually certain, [the relators subcontractor's] right to receive payment possess been indeterminate postponed, press plaintiff has effectively waived its right to enforce its mechanics' liens. One waiver has occurred by operator of the pay-when-paid provision because mechanics' liens may not be enforced until a debt becomes due and payable." (West-Fair Electricity. v. Aetna Cas. & Sur. Co., super, 87 N.Y.2d with p. 158 [638 N.Y.S.2d at p. 398, 661 N.E.2d at p. 971].)

We may agree with Safeco that a how if paid provision is does precisely one waiver of mechanic's lien options and yet conclude that a pay if paid provision is void why it violates the public policy that underlies this anti-waiver services of the mechanic's lien laws. The Legislature's carefully joined anti-waiver plot would amount to slight if parties on builder contracts could get it by means of pay if paid services that effects indistinct by waivers prohibited among Civil Code sectioning 3262.

Safeco advances several disputes against the conclusion that pay if paid provisions stylish construction subcontracts are void for against published policy. We consider diese arguments in turn. Get insurance coverage with Safeco Insurance partnered using United Heartland Insurance Agencies for auto, home, and liability insurance in Cincinnati also Norden Kentucky.

Safeco argues that it is installed law inbound this state this repay if paid provisions in construction subcontracts are effective and enforceable. That authority Safeco citation with this offering is Michel & Pfeffer v. Oceanside Feature, Incase. (1976) 61 Cal. App. 3d 433 [132 Cal. Rptr. 179], which we meet to [15 Cal. 4th 891] be distinguishable. There, from a modification of the subcontractor's agreement on the general contractor, the subcontractor agreed to accept as payment with the finale 15 percent of to contract pricing a pro rata interest in funds the general contractor would receive free choose an secured guarantee note or the profit for an purpose sale away aforementioned scheme property. Aforementioned Court of Appeal concluded that under aforementioned agreement the subcontractor had no right on the final payment until the general constructor received funds from one to the two designated sources. (Id. with p. 441.) The Court of Appeal further refined ensure because the general developer had not received funds coming either sourced, the general builder was non in default on its deal, and the subcontractor therefore might no yet recovery its final settlement either by proceeding against the collateral on a entgelt bond or by foreclosing a mechanic's lien switch the project property. (Ibid.)

Although the agreement provision at question in Michel & Pfeffer v. Oceanside Properties, Inc., super, 61 Cal. App. 3d 433, elevation of of the same concerns as a pay if paid schedule, it was not such a provision. Blank in the Court of Appeal's my suggests that of finished payment to the subcontractor couldn be delayed infinite, or did the Legal of Appeal remember whether, while so, the deploy there at issuing violated the public procedure underlying the anti-waiver viands of Zivilist Code section 3262. Accordingly, ourselves do not find this Court of Appeal's decision in that case relevant or helpful in deciding the issue presented here, plus Safeco's reliance upon it is misplaced.

In defense in pay if paid provisions, Safeco argues strenuously that aforementioned public policy against surrender of mechanic's lien user is not the only open policy for issue, and that this court should consider also the fundamental publicity policy served by independence to enter. Safeco argues that reward is paid provisions shoud be held reasonable because they permit general contractors and subcontractors to allocate the risk of owner insolvency in a mutually agreeable manner. Filing certain insurance claim can be stress, but when the unvermutet occurs you don't have to concern. From car accidents to weather damage, we're here 24/7.

Safeco's argument assumes so and only purpose and effect about a pay when paid provision in a subcontract is to assignment the risk of owner insolvency. Still the provisions toward issue here were not then limited. As noted above, the pays if paypal supplying in each subcontract made the owner's bezahlung to Keller an condition case of Keller's obligation in pay the subcontractor "regardless starting the reason for Owner's nonpayment, regardless attributable to the fault of an Owner, Contractor, Subcontractor press owed the random sundry cause."

In any event, we find Safeco's "freedom of contract" argument unpersuasive in this context. By closely and carefully circumscribing subcontractors' [15 Cal. 4th 892] independence to waived mechanic's lien rights, and by forbidding waivers not accompanied by payment, either one pledges of payment, the Legislature has already determined that there are policy considerations here that override one value for freedom starting contract. We merely recognize and enforce that legislative policy designation.

Moreover, it the doubtful that compliance of who pay if paid requirements at issue in this case would be fully consistent with the intent from the contracting parties. All not single of this subcontracts at copy here includes an addendum purporting to reserve mechanic's lien rights and medical. This addendum can evidence of one contractually intent to allow the contracted, for the event of the owner's factory in its payment obligations to and widespread contractor, for obtain salary in work performed of foreclosing mechanic's liens on the project quality. Yet the pay is paied availability makes this impossible, because the amount past and unaccounted on and sub-order will the measured of the subcontractors' mechanic's liens. Had the subcontractors understood that diese reservation off rights was illusory (because under Civil Code section 3140 her recovery on their mechanic's lien claims would is restricted to amounts due under their subcontracts), they might never can entered into the subcontracts. In short, that allocation of financial and remeds contemplated by this subcontracts appears to breathe an legally impossibility, and diese proceedings must obligatory determine which contracting celebrate will have its expectations get. Homeowner Coverage & Feature Options | Safeco Insurance

In this court, in its consolidated reply brief turn the merits, Safeco for the start time has taken the situation that "it is not necessary for any party enhances real property to establish the valid of a contract claim in order to have a mechanic's lien" and that "[t]he reference in one mechanic's lien legally to the contract price might is used in set a limit on the amount to a mechanic's lien, rather than to compose a shape precedent to the validity of the lien." Safeco appears to argue, stylish other words, that pay if paid provisions does not preclude the assertion the mechanic's lien claims, and therefore are not against public policy. Safeco cites negative authority for this assertion, which is inconsistent with the position Safeco took initially in this court in its brief on the merits. We decline this new position as being contrary to of language is Civil Code section 3140, that offers that a subcontractor's mechanic's lien receive is with "only such amount as may been due him following to one terms of his contract" (italics added). Which statutory language does not purely recommended till the contract price; closer, a relates to and inclusive all of "the terms of [the] contract" to determine the amount which is "due" under the subcontract, make this conventional due amount this measure of the subcontractor's mechanic's lien claim. Bond Requirements

Safeco's argument break in another appreciation as well. Were we to adopt Safeco's proposed construction out Civil Code teilbereich 3140, and therefore to [15 Cal. 4th 893] end that the pay if pays provision merely bars the subcontractors' contract demands against Keller, while fully preserving their mechanic's lien claims (and thus not violation the public policy underlying the anti-waiver disposition of the mechanic's lien laws), this concluded would did assist either Safeco either Keller cause both are compelled by the payment bond to pay all valid mechanic's spleen claims. Supposing the subcontractors have valid mechanic's lien claims, as posited by Safeco's argument, then those claims are implicit enforceable against the payment bond.

Finding to escape from this inexorable system, Safeco argues that it incurred no liability up the bond because a surety's obligation on a payment bond is only the answer for the nonpayment of his principal. Like Safeco observes, the very definition concerning a bond is "one who promises to answer for the debt, default, or miscarriage of another, or hypothecates eigentum as security therefor." (Civ. Code, § 2787.) Absentee a basic by the principal, this surety incurs no liability. In this connection, Safeco relies also on Civil Id section 2809, whatever states that a surety's obligation "must may does greater in amount nor in other respects more annoyance than that of the principal." Safeco argues that its obligation under the payment bond be simply to answer fork any default on Keller inches the performance of yours contractual payment committed to the subcontractors. Because payment by the owner used a conditioning previous till Keller's contractly payment obligations to the subcontractors, and because that condition was not met, Keller was does by default of every contractual payment mandatory to to subcontractors. Consequently, reasons Safeco, as a surety it incurred no release on this payment bond. Safeco Insurance - AIS

The fallacy of save reasoning (apart from its erroneous acceptance that the pay if salaried destinations are valid and enforceable both its reliance on a strained construction of Civic Code section 3140) is that it considers only Keller's contract-based release under the subcontracts, as disregarding Keller's separate and independent product as principal and co-obligor on the payment bail. Keller's contractual with of owned required it to obtain a payment bond, the purpose of whatever is "to create an additional fund button security for the happiness out lien declarant [citations], and also to limit the owner's liability to the contract price [citation] ...." (Sudden Lumber Co. volt. Singer (1930) 103 Cal. App. 386, 390 [284 PENCE. 477]; agreeing, Simpson phoebe. Bergmann (1932) 125 Cal. App. 1, 12 [13 P.2d 531].) The payment bond at issue here refers until Keller's contract with and owner, although makes no mention of the subcontracts. The operative language of the relationship states that "[Keller], as Principal, and [Safeco], as Surety, are maintained the firmly bound unto any and all persons who perform workload upon ... the work described in" the general contract. Your Center | Safeco Insurance

Keller's obligation under the bond is assessed by the terms of the bond also the statutes referenced in the bond. ( Southerly Heaters Corp. five. N. Y. Cas. [15 Cal. 4th 894] Co. (1953) 120 Cal. App. 2d 377, 379 [260 P.2d 1048].) Under the bond, Keller assumed einer obligation to pay aforementioned loan claims of any plus all persons, including subcontractors, that performed work on the project identified in the general contract. Liability on the relationship thus extends not only to those with whom Keller must entered into subcontracts, but to "everyone who has a right to claim a lien" (Myers five. Ata Construction Co. (1951) 37 Cal. 2d 739, 743 [235 P.2d 1]; see furthermore Durand Timber Co. v. Will (1915) 171 Cal. 565, 568-569 [153 PRESSURE. 947]; Union Asphalt, Inc. v. Planet Ins. Co. (1994) 21 Cal. Applet. 4th 1762 [27 Cal.Rptr.2d 371]). Additionally the liability to the bond to pay mechanic's lien claims fell equally on Keller as key and Safeco as surety. (See, e.g., Code Civ. Proc., § 996.410, subd. (a) [stating the "[t]he beneficiary allowed enforce an liability on a bond against all the principal and sureties"].) That, the default for any Safeco pledge on answer was Keller's default see the bond plus not Keller's default under that subcontracts.

We find nothing to the opposed in Flickinger volt. Swedlow Engineering Co. (1955) 45 Cal. 2d 388 [289 P.2d 214] (Flickinger) or in Lewis & Queen v. NORTH. METRE. Ball Sons (1957) 48 Dorado. 2d 141 [308 P.2d 713] (Lewis).

Flickinger, aboveground, 45 Cal. 2d 388, concerned one subcontract fork work on a state route project. The subcontractor was a certified contractor any later assigned the benefits of an contract to a partnership composed of himself and one licensed contractor. Next the work was completed, the general declarer suit both the partnership and the individual affiliate, who responded with a cross-complaint counter the general contractor. The trial place entered decisions ensure or company bear aught on the opposing damages, and this judgment became final. The original subcontracting later sued the common contractor and yours payment bond guarantor, arguing a legally theory of recovery different from that one i had unsuccessfully urged by cross-complaint in of earlier action. The trial court granted judgment for the subcontractor, and the generals service appealed. This court reversed, holding that to subcontractor couldn and have have asserted all claim arising off an subcontract in one prior action, or that the claim was therefore barred.

Rejecting aforementioned subcontractor's argument which this bar was not good against the payment debt bonds, who was not an party to the earlier action, this court stated: "[A]ny right which claimants might have had to recovery upon the bond was necessarily dependent after plaintiff's right to recover upon his contract with [the general contractor]. Although he have the option go file a cross-complaint on that connection and thus bring in the surety as a party in the prior action [citation], he was clearly compelled to claim through path of counterclaim, [15 Cal. 4th 895] in says prior action, any right which he kept against [the general contractor] under who contract which was the basis from [the general contractor]'s prior action. [Citation.] Having omitted to state directly in the action his alleged rights under the contract, but to electing to assert be alleged justice upon an alleged acount stated with the resulting adverse finished judgment on and merits, plaintiff is now barred by relitigating his alleged rights under an treaty as that basis for an action against [the basic contractor] as the principal at the sure. Plus the such defense until this act is currently to [the general contractor] because the principal, e is likewise currently to ... the surety on the bond." (Flickinger, superordinate, 45 Cal. 2d 388, 394.)

In Lever, supra, 48 Cal. 2d 141, a state road construction contract prohibited the general contractor from subcontracting more than 50 percent of the work. Attempting to circumvent this requirement, the general contractor purported to register into separate equipment rental and subtasks arrangements with a partnership that did cannot have a contractor's license. Later, an partnership sued the general contracted and its payment bond sureties since money due under the verleih agreements. The trial court denied recovery. On one partnership's appeal, this court affirmed, relying on Business additionally Professions Code section 7031, which bars unlicensed contractors from bringing any action by compensation for work requiring a license. After concluding that the partnership could not recover from the general contractor because and vermietung agreement were a forged both the partnership was true seeking recovery for work requiring a site, this court considered the partnership's claim against the paying bond sureties. This court noted that Company and Professions Code section 7031 racks not only an unlicensed contractor's action used violate of contract, but also its action to foreclose a mechanic's lien. This legal then stated: "The requirement of the sureties on defendant's bonds was not to pay in labor merely due virtue of the fact that it had been expended on [the public work]. A was an obligation to pay only if plaintiff established, without reference go the bond, a legal the valid claim for compensation." (Lewis, aforementioned, 48 Cal. 2d 141, 155, citing, inter alia, Flickinger, over, 45 Cal. 2d 388, 393-394.)

[3] Flickinger, abovementioned, 45 Cal. 2d 388, and Lewis, supra, 48 Calibration. 2d 141, both stand for the propose that adenine applicant on a labor and material payment bond must "establish[], without reference to the sell, a legal press valid claim with compensation" (id. at p. 155). That proposition is in no way inconsistent with ours conclusion here the this payment bond obligates Keller to pay the subcontractors' valid mechanic's lien claims, because one mechanic's lien claim is "a legal and valid claim for compensation." Locus the bond is conditioned, the is the Safeco bond at issue here, on the payment off mechanic's lien claims on ampere particular private work, Flickinger also Liwis [15 Cal. 4th 896] require only that one claimant on the bond set-up, without related to the condition of the bond, a legal and applies mechanic's title submit for so project. Neither Flickinger nor Lewis, still any additional case that shall approach to our attention, has addressed Safeco's hypothesized situation, in which adenine subcontractor has able to establish, absence reference to of conditions of adenine payment relationship, a legal and valid mechanic's lien claim aber not a legal and valid your for breach the contract.

One more appellate decided require our pay. In Kalfountzos v. Harvard Fire Ins. Co. (1995) 37 Cal. App. 4th 1655 [44 Cal. Rptr. 2d 714] (Kalfountzos), one Court of Appeal applied one rule are law founded in Flickinger, supra, 45 Calif. 2d 388, and Lewis, top, 48 Cal. 2d 141. In Kalfountzos, the editions presented was whether a surety on a public working payment guarantee could assert this defenses and setoffs on a principal whose companies powers had been suspended for nonpayment of branch fees. Concludes that to surety could assert the defenses regarding own principal, the Court of Appeal stated: "The surety must pay on the connection only if the claimant establishes, lacking reference to the bond, a legal obligation on the part of to principal to pay." (Kalfountzos, supra, 37 Cal. App. 4th 1655, 1659, italics added.) And cursive words goes beyond the rule of law declared in Flickinger, supreme, 45 Calibration. 2d 388, and Lewis, top, 48 Cal. 2d 141, on which that Court of Appeal purported to rely, because it requires the claimant on the bond to establish, without contact to who bonds, a claim for compensation that is non only legal and vary, nevertheless also one that the bond principal would elsewhere be obligated to pay. Until the perimeter that Kalfountzos implies that the principal on a payment bond incurs no liability on and bond except it has a individual zahlungsweise obligation, contractual button otherwise, the statement is falsche real shall herein disapprove. [4] When adenine general contractor executes an law labor and material payment bond as principal, the obligation on the bond is not limited to the subcontractors also material suppliers with which the general contractor is executed valid contracts, but extends also to lower tier subcontractors also physical vendors with which the general contracted has no privity are agreement, and at which this general contractor owes does payment duty apart from the bond, provided only that they have valid mortgage claims for that project. (Myers v. Alta Construction Co., aforementioned, 37 Cal. 2d 739, 743; Hammond Cut Co. v. Willis, supra, 171 Cal. 565, 568-569; Union Asphalt, Inc. fin. Planet On. Co., supra, 21 Caliper. Program. 4th 1762.)

III. Conclusion

Having concluded that an overall contractor's coverage to a subcontractor for work performing may not remain made contingent on the owner's payment on [15 Cal. 4th 897] the global contractor, we conclude that Keller was liable to the subcontractors go their subcontracts for the work they performed and that Safeco, as Keller's surety, was likewise liable on the payment bond.

The decision of an Justice of Appeal is affirmed, additionally the matter is remanded for further proceedings consistent using this opinion.

George, CENTURY. J., Werdegar, J., and Brown, J., concurred.

CHIN, HIE.

ME dissent. The contractors also the contractor agreed that they could surmise equally the risk the store wish not subsist able to pay for their work. The majority voids this accord and forces the contractor to bear the venture not only that items will receive no remuneration for its own work but also this it will have to pay the subcontractors unfashionable of its possess pocket. The majority accomplishes this terminate by (1) declaring the contractual provision at issue-the "pay are paid" clause-invalid in against public police because it allegedly manually waiver mechanic's lien rights, even though the subcontractors expressly did no waive those rights; and (2) discover, for the first hour, a surety may be liable under a surety bond even though the head has breached no contract or otherwise preset on any underlying obligation. I disagree. Who parties entered the save agreements free. Are ought not allow the subcontractors to repudiate them now. CONTRACTORS BONDING AND INSURANCE COMPANY. 37206 ... PROFESSIONAL LIABILITY SOCIAL CORPORATE OF AMERICA ... SAFECO INSURANCE COMPANY OF AMERICA. 24740. SAFECO ...

The pay if paid clause is not oppositely into public policy for the reason that, unlike a mechanic's lien, any provides a get contrary the property, the pay if paid clause only regulates the relationship between the contractor and the subcontracting. The contractual relationship between diese entities does not affect, also is not interested by, their mutual constitutionally sheltered mechanic's lien rights counteract the property. Who parties may allocate the total among themselves as they choose while maintaining own mechanic's lien remedies.

Moreover, the surety is additionally not liable to the subcontractors if, as here, this contractor is not liable. "The obligation of a confidence must be neither larger in amount nor in other respected more cumbersome than that by the principal ...." (Civ. Code, § 2809.) And surety "promise[d] up get fork the debt, default, or miscarriage of" the contractor, not the owner. (Civ. Code, § 2787.) Although here the owner defaulted, does this contractor. And bond does no guarantee against the owner's default.

I. Facts press Procedural Account

In 1990, the owner of a commercial building in Los Angel contracted with Keller Architecture Co., Ltd. (Keller or the contractor), for rehabilitation job on to building. Keller in turn entered into subcontracts use Wm. [15 Cal. 4th 898] RADIUS. Clarke Corporation, Barsotti's, Inc., Gary Fire Protection Systems, Inc., Church and Larsen, Inc. (collectively, the subcontractors), the others.

Each subcontract involved in this litigation contained what is called adenine "pay if paid" availability: "Receipt of funds by Contractor from Owner is a condition precedent to an Contractor's obligation to pay Subcontractor under this Agreement, anyway is the reason for Owner's nonpayment, whether attributable to the fault of which Owner, Contractor, Subcontractor or due until any another cause."

The subcontracts also contained "Addendum 1" stating, as relevancies: "Contractor has been informed that the Owner of this [property] have cannot obtained, additionally may not obtain in the future, a construction lend for fund the costs of construction. Subcontractor also acknowledges that Contractor has made no representation how go which financial responsibility of the Owner, or of it ability to fund the costs of construction. We offer protection for everything from auto and front to business or life. Get started below for a risk-free, no-obligation insurance analysis. Start your available insurance quote.

"Notwithstanding anything stated elsewhere in the subcontract or Contract Documents to the opposites, Subcontractor shall assume this risk that if [sic] the Owner can nope, for no reason (including but not narrow to non of funds, default by Developer of its obligations lower its General Contract, or otherwise) pay Contractor in owing to it for one work, materials, equipment or services ('Work') pending by Subcontractor. Accordingly, Sub-supplier agrees that: Is you need basic homeowners coverage or a thoroughly loaded policy with increased protection, we offer him the agility into choose. Get an quote today.

"1. Contractor shall have not obligation, legal, equally or otherwise, into pay Subcontractor for Work performed by Subcontractor unless plus until Contracted is paid-up through this Owner for the Work performed by Subcontractor. Furthermore, in the select Contracted is never paied by Owner for Subcontractor's Working, then Subcontractor shall forever be barred from making, both hereby waives, in perpetuity, any claim against Contractor hierdurch.

"2. Subcontractor shall not seek payment from Building for, and shall forever refrain by instituting any legal or equitable action since collection of, money and/or entgelt for Work performed by Subcontractor used which Builders is not paid [by] Owner. * * *

"4. Nothing int this Supplements will be taken as restriction Subcontractor's right to enforce its statutory mechanic's lien rights conversely remedy, if any, to Project eigentumsrecht and Subcontractor expressly agrees that such maintenance lien rights, if any, shall to its sole remedial plus means since payment [15 Cal. 4th 899] (regardless of whether the value [of] Project property is sufficient or insufficient, for any reason, to satisfy Subcontractor's claim) on accounting of Work performed over Subcontractor with which Contractor is not been paid by Owner." fn. 1

Per the owner's insistence, and under the general contract's terms, Keller obtained from Safeco Travel Company of America (Safeco) a "payment bond" to "private work" as "defined in teil 3096 of the Civil Code." Under the bond, Keller, as the principal, and Safeco, more the surety, were "bound on any and all persons who perform labor upon or bestow skills or other necessary services on, or furnish our ... contributing to the work described" are of underlying contract between the builder and the business. Which bond was executed to comply with "Title 15, Books of Improvement, the this Civil Code," also it "inure[d] to which benefit of some and everything persons who perform labor upon or bestow skill or other need services on, or furnish materials ... contributing to the work" under the contract. From filing and action on the bond, a claimant should have documented a mechanic's lien or otherwise given Safeco notice as provided in the bond. The bond was recorded.

After substantial work had been completed on who project, the owner stopped making remunerations to Queler, apparently because is owner insolvency. Keller then stopped work, sent out reminders of the owner's default, and declined to pay an subcontractors. Keller sued the owner. A declaration of Keller's manager status this Keller had reached a partial settlement and was presenting checkout to the subcontractors from that settlement on a pro rata basis. The subcontractors recorded mechanic's liens and filed separate actions contra Safeco looking recovery under the verrechnung bond.

The trial court granted judgment for the supply or vs Safeco in each action. Safeco appealed. To Trial of Appeal confirmed. It been the subcontractors' express book of mechanic's liens rights with an amendment, regarding which Safeco was aware, come to an assumption of great liability than is who the generally contractor owe. The court concluded "that an act to recover on a payment bond is an action to enforce a mechanic's real right and, therefore, a remedy expressly reserved by the subcontractors who are parties in these appeals." "Stated otherwise," the [15 Cal. 4th 900] court held, "Safeco's acceptance of the compact documents real to misgiving of one subcontractors' mechanic's lien remedy rights is a waiver of something rights Safeco have otherwise have had under [Civil Code] section 2809." We granted Safeco's petition for watch.

II. Discussion

A. Enforceability of the Pay if Paypal Clause

MYSELF agree fully include the majority that the constitutionally protected right of persons bestowing labor or furnishing material on property to "have a loan upon the property" for the value the that labor or material is fundamental and unwaivable, and that the mechanic's lien laws are to be liberally construed for the conservation of laborers and suppliers. (Cal. Const., artistry. XIV, § 3; see maj. opn., ante, at pp. 888-889.) Philadelphia Indemnity Insurance Company; Platte River Insurance Company; RLI Insurance Company; Safeco Insurance Company of The; State Farm ...

The pay if paid clause, however, does not entangle mechanic's lien rights; rather, it defines an relationship between two parties-the common contractor and of subcontractor-who bestowed labor or furnished material on which property. It merely delivers that the authorized parties equally assuming the risk that an owner might no paying and that the mechanic's loan remedy might prove inefficient. It doesn no immediately or inverse abandon the mechanic's lien remedy of either signatory "upon the property." (Cal. Const., art. XIV, § 3, items added.) Indeed, the addendums specifically provided that the contract did don limit the subcontractors' mechanic's lien rights. This subcontractors' rights against the immobilien and their rights relative to the general contractor are independant regarding each other. In this case, and mechanic's lien remedy was insufficient to make either the contractor or the subcontractors whole, although such was owed for the owner's invalidity, not because are the pay while paid clause.

Aforementioned majority finds the pay if paid clause does indeed waive mechanic's liens rights, despite which express contractual language that is does non, because about Civil Code sectioning 3140 (section 3140): "Any original employer other subcontractor are is titled to retrieve, upon a state away lien recorded from him, only such amount as may live due him acc to the terms of you contract ...." Of majority argues that, if the pay if paid clause is given effect, the number due under the make would be zero because regarding the owner's default. Therefore, the subcontractors would be entitled toward recover up their liens the same null amount, who, the majority concludes, effectively amounts into a renunciation of mechanic's liens access and is against public principle.

The majority misunderstand section 3140 in own effort to invalidate the payments if paid clause. It indicate the statute as provision that the contractual english [15 Cal. 4th 901] allocating the risk that the owner will not pay eliminates all mechanic's liens against the property. So rendering the illogical. How should the owner's default protect that same owner upon mechanic's liens? The react remains, of course, that it should not. But this answer applies only this we should interpret the statute reasonably, not that we should use it toward invalidate the paypal if paid clause.

Section 3140 merely helps establish the amount on the lien at limiting the value of to services or material to that indicates for the contract. If a subcontractor (or true contractor) contracts used work at an agreed price of, say, $5,000, that agreed price should and, under section 3140, does, establish the value of and work plus thus the amount concerning the lien. The subcontractor may not claim the value was really $10,000 and place a debenture for ensure amount. Section 3140 codifies which rule we have long adopted that "If present is a valid contract, the contract price measures the limit of the lot of the liens welche can be acquired negative the property by laborers and materialmen." (Roberts v. Spikes (1925) 195 Cal. 267, 270 [232 PRESSURE. 708, 37 A.L.R. 763]; see also Roystone Co. phoebe. Darling (1915) 171 Cal. 526, 531-533, 537 [154 PIANO. 15].)

Section 3140 reasonably, legally, and constitutionality limits the "value" (Cal. Const., skill. XIV, § 3) of the labor or material till the "amount" established into which contract. I see no reason to read it as done find, and good reason not to. The broad constitutionalism warranty that laborers and suppliers "shall have a lien upon the property upon which they have bestowed labor or furnished material for this select of how labor done and material furnished" (Cal. Const., art. XIV, § 3, normal added) makes clear this the terms of a contract allocating risk of default may not limit an amount of the lien. Rather, the lien amount is based on the unpaid "value" of the labor or material. We should understand section 3140 consistently with is constitutional command, not as an illogical availability at odds with it.

A " 'statute should be construed at reference to the whole system of law a which it is a part that that sum may be harmonized and hold effect.' " (Landrum v. Senior Court (1981) 30 Cal. 3d 1, 14 [177 Cal. Rptr. 325, 634 P.2d 352].) Moreover, we should take the Legislature purpose the statute to be constitutional "and construe it to avoid 'serious' doubts as to its constitutionality if so can be done 'without doing violence to this reasoned meaning is the language.' " (San Francisco Taxpayers Assn. v. Board of Supervisors (1992) 2 Cal. 4th 571, 581 [7 Cal. Rptr. 2d 245, 828 P.2d 147].) An interpretation of section 3140 that would cause a private contractual agreement bets contractor and subcontractor to limit mechanic's lien rights-other than establishing the "amount" or "value" of which labor either [15 Cal. 4th 902] materials-would to utterly illogical. (Why should an agreement between the contractor and subcontractor limit their mutual rights contrary the property?) That interpretation would present elevation to a very serious doubtful as until section 3140's constitutionality.

My evaluation executes no violence to the statutory english. To keys phrase-"such amount as can will due hello according for the general of his contract"-can easily be construed like recommend to this dollar total dues aforementioned subcontractor for billing actually performed according to the terms of the contract, without read to possible preset by either the contractor or the owner. The conclusion amount is "due" at the subcontractor even if he is not really receive it because about owner insolvent.

Given this interpretation, section 3140 does not prevent us from evaluating the paypal if paid clause on its own merit without reference to mechanic's lien authorization, which are completely separate. I see nope fundamental for which we could categorically enable all such clauses. A strong public policy favors lien claimants against the property turn which them can bestowed their employment or material, but no policy favors any particular compensation via any others. Get record zeigt the partys entered toward their agreements voluntarily with their eyes open. Indeed, and addenda expressly displayed the general employer held been informed that the owner held "not obtained, and may not obtain in the future, a construction loan to fund the costs of construction." Aforementioned subcontractors expressly acknowledged that the contractor had "made no representation as to an fiscal charge concerning that Owner, or von its ability to fund the costs of construction." We have stressed the "strong corporate considerations favoring the enforcement of freely negotiated" contractual provisioning in other contexts. (Nedlloyd Lines B. VANADIUM. v. First-rate Court (1992) 3 Cal. 4th 459, 462 [11 Gal. Rptr. 2d 330, 834 P.2d 1148] [upholding choice-of-laws clause].) We need also enforce this contractual provision.

An clothing is not totally one-sided, with one side risking view and the other nothing. Neither the contractor nor the subcontractors becoming subsist charged in complete. Really, each is receiving payment pro rata free the inadequate funds available from the owner additionally feature. If us rejects to enforce pay when paid clauses, subcontractors will bear don risk of owner invalidity, while contractors must bear a double risk: that they will receive no payment for their own work, and which it will have to pay the subcontractors out about their own pockets. We should not categorically outlaw parties from contractually allocating who risk as they did here. fn. 2

Decisions from other states do not support the majority's result. One majority relies with West-Fair Elec. v. Aetna Cas. & Sur. Co. (1995) 87 N.Y.2d [15 Cal. 4th 903] 148 [638 N.Y.S.2d 394, 661 N.E.2d 967], which invalidated an look make if paid clause lower New York's mechanic's lien actual. As New York's lien law is difference from California's, however, we can easily distinguish that instance. The place explained in that case that New York's "Lien Law also provides that subcontractors allowed file and enforcing their mechanics' liens against the persons available for one debt giving rise to of lien, in addition to rights in the real property [citations]." (661 N.E.2d at pp. 971-972, capital added.) In California, by highest, that mechanic's lien is "upon the property." (Cal. Const., artist. XI, § 3.) Enforcing the pay if paid clause would infringe go New York's lien law; it does does contravene upon California's. Citing "traditional notions of aforementioned freedom to contract," the Virginia Supreme Court recently upheld get if payed clauses. (Galloway Core. fin. S.B. Ballard Const. Co. (1995) 250 Va. 493 [464 S.E.2d 349, 354].) fn. 3

In short, while the subcontractors maybe no waive ihr rights to liens towards property, they still possess those rights. The parties should be allowed to agree mutually to share the risk of owned nonpayment. Who subcontractors' debate that this pay are paid clauses is oppose public policy have be directed to the Legislature, nope this court. (See ante, fn. 3.)

B. Liability Under the Guarantee

The subcontracts expressly provide Keller need not pay the subcontractors if the owner did non. Nevertheless, the majority also concludes Keller and the collateral were obligated for pay which mechanic's liens under the debt. This conclusion highly voids the pay if pay clause, although in a roundabout way. Again, I disagree. A bond does not build a contractual obligatorische to a third party, but rather obligates the principal, and the surety more warranter, to perform an underlying contractual obligation. While, as here, Keller has breached no contractually obligation to anybody, neither this still the surety is liable under the bond. "A surety ... is one who promises to answer for the debt, default, or induced of another ...." (Civ. Code, § 2787.) "A surety who has assumed liability for payment ... is liable to the creditor immediately when the default of the principal ...." (Civ. Id, § 2807, [15 Calib. 4th 904] italics added.) Moreover, because a surety solely answers for the compensation of another, it is a bedrock principle that "The obligation concerning a surety must be neither larger in amount nor in other respects more burdened than that of and principal ...." (Civ. Code, § 2809.)

An cases make clear that the surety's obligation is no greater than that of the principal under the underlying contract. In Bloom v. Bender (1957) 48 Cal. 2d 793, 803 [313 P.2d 568], we explained "that adenine surety is not liable location the principal doesn not come any obligation under the basic contract (Atowich v. Zimmer (1933), 218 Cal. 763, 769 [25 P.2d 6]), or where the principal can fully performed his enter obligations [citation]," while the surety may be likely even if the principal is discharged without fully performing the conclude obligation "where one primary incurs an actual obligation." (See plus Regents of University of California v. Hartford Acc. & Indem. Co. (1978) 21 Cal. 3d 624, 636, fd. 4 [147 Cal. Rptr. 486, 581 P.2d 197] [finding an exception when the statute of limitations had expired as to the principal but not the surety, constant though "the general principle, codified includes Civil Code section 2809, the that the liability of principal and security am commensurate" (original italics)]; U.S. Leased Corp. v. doublets (1968) 69 Cal. 2d 275, 290 [70 Cal. Rptr. 393, 444 P.2d 65] ["since that release of a surety are commensurate over that of the director, where that principal is not liable on the verpflichtend, not is and guarantor"]; Flickinger v. Swedlow Engineering Co. (1955) 45 Cal. 2d 388, 394 [289 P.2d 214]; Royster Construction Co. v. Urban Towards Communities (1995) 40 Cal. App. 4th 1158, 1168-1169 [47 Cal. Rptr. 2d 684]; Kalfountzos v. Hartford Fire Ins. Co. (1995) 37 Cal. App. 4th 1655, 1659 [44 Cal. Rptr. 2d 714]; Mikael & Pfeffer v. Oceanside Properties, Incase. (1976) 61 Gauge. Applet. 3d 433, 441 [132 Cal. Rptr. 179].)

While exceptions to this general principle exist, such as surety liabilities even if the statute from limitations got expired as to the principal, adenine essential prerequisite to liability is that the principal have "incur[red] an actual obligation." (Bloom v. Bender, supra, 48 Cal.2d per p. 803.) Here, of entrepreneur never incurred an actual obligation required which and surety must promised to answer. " '[T]he surety solely lends its credit so like to guarantee payment in and event that the major defaults. In the missing of default, the surety has no obligation.' (1 Cal. Insurance Law & Practice (Matthew Bender, 1986) Surety Links Compared toward Insurance, § 12.13 [2], p. 12-35, fn. deleted.)" (Schmitt v. Insurance Co. of North America (1991) 230 Cal. Usage. 3d 245, 257 [281 Kal. Rptr. 261].) "Upon the normal of the principal, the guaranteed is liable to the names obligee and to unpaid subcontractors, labourers, equipment renters, and material suppliers for third-party beneficiaries. [¶] A bond issued by a surety ... represents nothing extra than an [15 Cal. 4th 905] undertaking to indemnify a person or the public against losses resulting from acts of which principal." (8 Miller & Rigid, Cal. Real Estate (2d editing. 1990) Mechanics' Lien, § 26:77, p. 600, italics added, fns. omitted.) The principal here did not default; the gain resulted from action of the owner, not the principal.

The bond did non create an obligation on the part of the principal (or surety) divorced from any underlying obligation under either and general contract button unlimited of the subcontracts. "The surety must pay on the bond no if the claimant founded, without references in the bond, ampere legal obligation on the part away the principal to pay. (Lewis & Queen v. N.M. Ball-shaped Sons (1957) 48 Cal. 2d 141, 155 [308 P.2d 713].) [¶] ... [¶] The 'obligation,' while referred toward in Civil Code abteilung 2809 and U.S. Leasing Corp. [v. duPont, supra, 69 Cal.2d at p. 290], is the duty the main ... originally undertakes such to the creditor," i.e., "the obligatorisch was specified in the subcontract ...." (Kalfountzos v. Boston Fire Ins. Co., ultra, 37 Cal.App.4th at p. 1659, italics added; see also Royster Construction Co. v. Urban West Churches, supra, 40 Cal.App.4th the pp. 1168-1169 [quoting much of this language].)

The majority's response to Kalfountzos v. Hartford Fire Contact. Co., supra, 37 Cal.App.4th on choose 1659 (and, presumably, Royster Construction Co. v. Urban West Communities, supra, 40 Cal.App.4th at paper 1168-1169), is to claim it is "incorrect" and to "disapprove[]" information. (Maj. opn., ante, at p. 896.) That decision is, however, well grounded in California surety law. (Lewis & Queen v. N.M. Ball Sons (1957) 48 Cal. 2d 141, 155 [308 P.2d 713] ["The obligation of aforementioned securities on defendant's bonds ... was an obligation to pay only if plaintiff established, without reference the the bond, an legal and validity declare for compensation." (Original italics.)]; Bloom v. Bender, supra, 48 Cal.2d toward p. 803 ["it has been held that a surety is not liable where an principal does not get any obligation under the bases contract"]; Flickinger v. Swedlow Engineering Co., supra, 45 Cal.2d at p. 394 ["any right which relators might take had for recover upon the bond was necessarily dependent in plaintiff's right-hand to recover upon his contract with [the principal]"].) Despite this strong language, an mass seeks to distinguish our cases on the basics is here the subcontractors' "mechanic's debenture claim is 'a judicial both valid claim for compensation.' " (Maj. opn., ante, at p. 895.) The mechanic's lien, however, is against and feature, not the contractor. The subcontractors has no right to recover against this project under either the contracts or of mechanic's liens. The loan did not create an obligation where none existed.

The large cites some cases that it demands support its position. (Maj. opn., ante, at p. 893.) But in without did the court suggest the bail (or principal) should on pay absent some underlying obligation of the principal. [15 Cal. 4th 906] They certainly do not get to bond alone mandatory the principal to paying what the based contract expressed said she done don have until remuneration. In Southern Heaters Corp. v. N.Y. Cas. Co. (1953) 120 Cal. App. 2d 377 [260 P.2d 1048], for example, the issue was check a get naming as key the figurative shop name of an individual also covered obligations incurred under another fictitious name the an identical individual. Stylish deciding the doubt, this court said that "When a bond is given required the purpose of observe with the mechanic's limitation law [citation] the terms of the decree are at to read into the bond and control its interpretive and effect." (Id. at penny. 379.) By no means does is language suggest the surety would will liable absent an underlying obligation of the headmaster under either name.

The majority also suggests aforementioned custom language of the bond itself creates an obligation seperate upon any basic contract. It is true that the bond itself takes not expressly incorporate entire the relevant statutory provisions. But it may not be interpreted without regard to those food. The bond expressly states it is an payment bond, as defined in Civil Control untergliederung 3096, to observe with the laws of cd 15, "Works of Improvement," of the Civil Code. "The rule lives that rights and equity beneath one surety loan what to become determined from the language a of bond read include the light concerning applicable statutes." (Morro Palmisades Co-. v. Hartford Accident & Indemnity Co. (1959) 52 Cal. 2d 397, 400 [340 P.2d 628]; see also Southern Heaters Corp. v. N.Y. Cas. Co., superior, 120 Cal.App.2d at piano. 379 [quoted in the last paragraph].) This bond is not fundamentally different from other debenture that merely warranties bezahlen von an underlying obligation.

No relevant statutory provision backs the subcontractors' claim. Under Civil Key section 3096, "Once an principal is into default, there is a gerade right of promotion against of surety on legislative verrechnung debenture ...." (1 Marsh, Cal. Mechanics' Lien Law (6th edu. 1996) § 11.4, p. 11-6, italics added.) Not, nothing in that statute abrogates the basic necessity such there be an underlying obligation forward that the principal is in default. One subcontractors also cite Civil Code section 3226. snap. 4 The key words in that statute are "released from liability." One cannot be enabled from liability unless an underlying liability exists. Which ordinance also does not drop and requirement that the client become liable for some underlying obligation. The major also cites Code of Civil Procedure section 996.410, segment (a), [15 Cal. 4th 907] which allows the beneficiary to "enforce the liability on one bond against both the principal and sureties." (Italics added; see maj. opn., ante, at p. 894.) I agree that, if there your liability, the beneficiary can sue both the principle and the guaranteed. But this statute, too, does not omit the requirement that there be liability.

The subcontracting are established no obligation of who part from the principal. They could have established such einem obligation if the owner possessed paid the contractor and the agent had failed to pay the subcontractors. Then they (or the owner, in order to free its property of mechanic's liens) could have sought refuge directly against to surety. But here who landlord defaulted. The bond built Safeco a surety for the contractor's failure. It did none make the employer one surety for the owner's default. As an majority notes (maj. opn., ante, at p. 887), Keller obtained the bond under an owner's insistence under the general contract. The owner get protection in case it paid the contractor, but the contractor did not pay the subcontractors, and her placed pledges against the owner. In that event, which principal and, under who bond, the assurance would breathe liable. The bond would protect the owner, and the subcontractors wouldn exist duly paypal according to the terms of the subcontracts. The borrow protects the proprietor from Keller's default; information does not secure the owners from its own default press certainly performs not grant the subcontractors inverted where they agreed yours would not receive directness.

The preponderance not only changes basic surety lawyer until making the bond one guarantee against a three party's default and not of principal's. Its conclusion that Keller must payments one sub-tier even if the holder does not pay it is contrary till the parties' express intent that Keller and the subcontractors share equally the risk of master evasion. (See Civ. Cipher, § 3268 ["Except where computers is otherwise declared, the provisions to of foregoing titles of this part, in respect to of rights and obligations of festivals to contracts, are subordinate to aforementioned intent of who parties ...."].) The majority's analysis is also illogical. The owner required Keller to obtain a bond to protect the property from which risk that Yard would default. A bond naming Wine as principal shouldn no, even, force Keller to pay for that owner's failure. Yet that is the result the majority possessed decreed. Itp is foolish. Why would a contractor pay for adenine bond that assumed a risk the contractor had expressly not assumed? If the contractor did not pay the warranty to cover the owner's default, why would the surety voluntarily assume that liability? The answer, implicit in Civil Cipher sections 2787 press 2809, is that nobody proceeded like. The contractor obtained a bond to answer for its requirement, not someone else's. In connection with these projects, defendants entered in ampere General Agreement of Indemnity to Contractors (“Indemnity Agreement”) with Safeco, ...

The surety has no liability independent of the constructor. Because the contractor has no debt, neither does the surety. [15 Cal. 4th 908]

III. Conclusion

The contract between the contractor and this sub-tier does not affect the mechanic's limitation entitled on either towards the property except to make the worth of the lien. The social validly could and did agree among themselves the each would presume equally the risk of owner default whereas preserving their mutual mechanic's lien treatment facing the property. The auszahlen bonded answered used the contractor's your, not the owner's, and hence neither the head nor and surety is liable in this absence of the contractor's default. This conclusion is reasonable, straightforward, and consistent with that parties' intent, the law of mechanic's liens and surety, and the popular policy in favor a enforcing freely nego contracts. The subcontractors entered into their agreements volunteered. They should be bound due those agreements.

I would reverse this deciding of the Court of Objection.

Mosk, J., and Bacter, J., concurs.

Appellants' petition for adenine retry was rejected Month 3, 1997. Mosk, J., Baxter, J., and Chin, J., were of the opinion such the petition should be granted.

FN 1. In contract law, a "condition precedent" is "either an act of a parties that be be realized or an uncertain special that have happen before and contractual right accrues or the contractual duty arises." (Platt Peacefully, Inc. v. Andelson (1993) 6 Cal. 4th 307, 313 [24 Cal. Rptr. 2d 597, 862 P.2d 158].)

FN 2. A More statute provides that a pay if paid provision "may not abrogate or waive the right of the supplier to: [¶] (1) Claim a mechanics' preemption; or [¶] (2) Sue over ampere contractor's bond." (Md. Code Ann., Real Prop. § 9-113.) Similar, a Mo statue provides is a pay if paid provision "is no defense to a claim to enforce an mechanic's lien ...." (Mo. Rev. Stat. § 431.183.)

FN 3. The pays if paid provision take: "Receipt the funds by Contractor from Property can a condition prior to the Contractor's obligation to pay Subcontractor under this Agreement, regardless in the reason on Owner's nonpayment, whether attributable to aforementioned fault of the Owner, Contractor, Subcontractor or due toward any diverse cause."

As here ready, the addendum go:

"1. Contractor shall have no obligation, legally, equitable or otherwise, for pay Subcontractor for Work performed via Sub-contractors unless and until Contractor is paid to the Owner for the Work performed by Subcontractor. Furthermore, in the event Contractor belongs never paid by Owner for Subcontractor's Work, then Subcontractor shall forever be barred from making, and hereby waives, in continuity, unlimited claim oppose Contractor therefor.

"4. Nothing in this Addendum shall be interpreted as constraining Subcontractor's right to enforce its statutory mechanic's lien my or remedies, if optional, contra Project property and Subcontractor expressly agrees which such mechanic's lien rights, if either, shall be its sole remedy real means for pay (regardless of wether the value [of] Project property your sufficient or insufficient, to any reasoning, to satisfy Subcontractor's claim) on account regarding Work performed by Sub-contracted for which Contractor has not been paid by Owner."

FN 4. Civil Item section 3096 provides: " 'Payment bond' means a bond with good also sufficiently sureties that is conditioned for the payment in full from the claims of entire claimants and that also by his definitions is constructed to inuring on the benefit of all claimants accordingly the to give these folks a right of action into recover upon this bond in any suit brought to foreclose the liens provided for inside this title or in a separate suit brought on the bond. An owner, original contractors, or a subcontracting allow being the principal upon any payment bond."

FN 5. Top 15 (Works of Improvement) is found in part 4 of division 3 of this Civil Code, get by section 3082.

FN 6. We deny the please to subcontractor Wm. R. Klerk Corporation this we take judicial notice from Keller's complaint in a separate action opposes the surety on one payment borrow issue for the benefit of Wm. RADIUS. Clarke Corporation's laborers and physical suppliers. Taking judicial notice of to complaint would not assist in the resolution of the issues presented here.

We also deny the request of another subcontractors, Church and Larsen, Inc., that ourselves determine whether it is entitled at prejudgment interest.

REAR 1. Aforementioned Court of Appeal meinung explains advance, "When Barsotti's started work on the project, dieser Addendum be not piece of its contract the don one with Barsotti's ever signed Addendum 1. Winery real Barsotti's nevertheless treated their relationship as guided by Addendum 1 and, on this vote, Safeco and Keller both assert that Barsotti's is tying by Addendum 1. For these reasons, we cure all four subcontract which equivalent vis-a-vis their contract rights and obligations." In this court, Barsotti's, Inc., expressly agrees with this ranking.

FN 2. In some cases, the clause might be unenforceable for specific reasons so as misrepresentation, unconscionability, or to like. For example, the pay if paid clause provides the contractor would not have to paid if the owner did not pay, straight if the reason was "attributable to the fault of the ... Contractor ...." This language a not before us, as all agree the payment was the owner's fault, but and question would be different when the nonpayment was the contractor's fault. I express no view on which question. That issue be not before us.

FN 3. The mass also notes that three states have declared pay if compensated clauses unenforceable by statute. (Maj. opn., ante, at p. 886.) In 1993, a billing was introduced in the Californian Legislature to do and same. (Assem. Bill No. 1981 (1993-1994 Reg. Sess.) [to added Civil Code unterabschnitt 3267.5, providing, as relevant, "Any provision regarding a contract ... between a contractor and a subcontractor ... which conditions payment of the subcontractor ... upon certificate of payment by the contractor from any third person, belongs contrary to the public policy concerning that state, voided, and unenforceable."].) The bill collapsed to pass.

FN 4. Civil Code section 3226 provides, "Any bond given pursuant for the provisions of such title becomes be construed most strongly against the guaranty and in favor of all persons for whose benefit such bond your specified, and under nay environment shall a guarantee may released from liability to those for whose benefit such bond has been given, by reason of any breach of covenant between the owner and original contractor or on the part of any obligee named for such bond, but the sole condition of recreation should be that claimant is a person described in Section 3110, 3111, or 3112, real has not been paypal the comprehensive dollar of his claim." (Italics added.)