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Court of Appeal, Third District, California.

SANGUINETTI & ARNAIZ DEVELOPMENT CO., INC., a California Corporation, Plaintiff and Appellant, v. A. TEICHERT & SONS, INC., a California Corporation, et al., Defendants and Respondents.

Civ. 24930.

Decided: September 15, 1986

John Steven Cechini, Inc., Anthony J. Chargin, Inc., and John Steven Cechini, Stockton, for plaintiff and appellant. Porter, Scott, Weiberg & Delehant and Edwin T. Weiberg, Sacramento, for defendants and respondents.

Sanguinetti & Arnaiz Development Company, Inc., (Sanguinetti) appeals from the judgment entered after the trial court granted a motion for summary judgment brought by defendant A. Teichert & Sons, Inc. (Teichert).  We shall reverse.


Only a brief recitation of the underlying facts and procedural background is necessary to understand this appeal.   In January 1980, Arnaiz Construction, Inc. (Arnaiz) entered into an agreement with Sanguinetti to construct tennis courts and a fitness course on a portion of Sanguinetti's approximately 51–acre development in Lodi, California.   In August 1980, Teichert entered into an agreement with Arnaiz to supply aggregate material (asphalt), to be used in the construction of the tennis courts and fitness course.   Teichert delivered the asphalt to Arnaiz on occasion between August 21, 1980, and November 6, 1980.   According to Teichert, Arnaiz never fully paid for the asphalt.

On May 7, 1981, Teichert recorded its notice of claim of lien (see footnote 1, post ) against the entire 51–acre development.   On August 3, 1981, Teichert brought an action in Lodi Municipal Court to foreclose the lien.   Sanguinetti filed a general demurrer (Code Civ.Proc., § 430.10, subdivision (e)) to the allegations in Teichert's complaint.   The demurrer was sustained without leave to amend.   After considering the pleading, the court found the complaint failed to “state facts sufficient to constitute a cause of action in that it shows on its face that the action is barred by the statute of limitations, namely:  Civ.Code, § 3116.” 1

On May 5, 1982, Sanguinetti filed its “complaint for damages” in Sacramento Superior Court alleging Teichert knew the lien was void at the time it had the claim of lien recorded;  the time for recording such notice had long since expired;  and that any right Teichert may have had to record a lien was limited to a parcel known as Lot 20, not the entire 51–acre development.   Sanguinetti further alleged Teichert filed its complaint to foreclose on the lien with knowledge the lien was void and overly broad.   Finally, Sanguinetti alleged the lawsuit was filed “with the ulterior intent, purpose, and motive of ․ extorting and/or forcing [Sanguinetti] to pay off an alleged outstanding account allegedly owed [Teichert] ․ by illegally, unlawfully, fraudulently, and maliciously holding [Sanguinetti's] aforementioned improved real property as hostage, under ․ color of authority, until the aforesaid outstanding accounts had been paid․”

On December 1, 1984, Teichert filed a motion for summary judgment asserting the complaint “consists of a single cause of action for malicious prosecution” which requires proof that the underlying action was favorably terminated on the merits.   Since its complaint to foreclose on the mechanics lien was dismissed for failure to record timely a notice of claim, Teichert contended it was “tantamount to dismissal based on a statute of limitations defense.”   Teichert argued Sanguinetti's complaint could not establish favorable termination on the merits.   The trial court granted the motion.


We begin our analysis by reciting the rules governing summary judgments.  “The summary judgment procedure, inasmuch as it denies the right of the adverse party to a trial, is drastic and should be used with caution.  [Citations.]  Summary judgment is properly granted only when the evidence in support of the moving party establishes that there is no issue of fact to be tried.   [Citations.]  [¶] ‘The moving party bears the burden of furnishing supporting documents that establish that the claims of the adverse party are entirely without merit on any legal theory.’ ”  (Mann v. Cracchiolo (1985) 38 Cal.3d 18, 35–36, 210 Cal.Rptr. 762, 694 P.2d 1134;  citations omitted.)

We next review the basis for the summary judgment in the case at bench, i.e., that Sanguinetti could not prove the underlying action was favorably terminated on the merits.

“ ‘ ․ [A] verdict or final determination upon the merits of the malicious civil suit or criminal prosecution complained of is not necessary to the maintenance of an action for malicious prosecution․  [I]t is sufficient to show that the former proceeding be legally terminated.’  (Lackner v. LaCroix (1979) 25 Cal.3d 747, 749–750, 159 Cal.Rptr. 693, 602 P.2d 393;  original emphasis.)   The termination, however, must reflect on the merits of the underlying action.  (Ibid.)  Thus, ‘[i]t is not enough ․ to show that the proceeding was dismissed.   The theory underlying the requirement of favorable termination is that it tends to indicate the innocence of the accused, and coupled with the other elements of lack of probable cause and malice, establishes the tort, that is, the malicious and unfounded charge ․ against an innocent person․  The same fundamental theory is applied in testing a dismissal or other termination without a complete trial on the merits.   If it is of such a nature as to indicate the innocence of the accused, it is a favorable termination sufficient to satisfy the requirement.   If, however, the dismissal is on technical grounds, for procedural reasons, or for any other reason not inconsistent with his guilt, it does not constitute a favorable termination.’ ”  (Jaffe v. Stone (1941) 18 Cal.2d 146, 150, 114 P.2d 335.)

“The type of litigation terminations which may be considered favorable to the defendant may be illustrated through example.   In Jaffe v. Stone, supra, 18 Cal.2d at pages 149–152 [114 P.2d 335], the court held a dismissal of a criminal action by a magistrate for lack of probable cause is a favorable termination even though the action may be recommenced by complaint or indictment.   In MacDonald v. Joslyn (1969) 275 Cal.App.2d 282, 289 [79 Cal.Rptr. 707, 35 A.L.R.3d 641], the court held a voluntary dismissal without prejudice of a civil suit is a favorable termination.   In Minasian v. Sapse, supra, 80 Cal.App.3d [823] at page 827 [145 Cal.Rptr. 829], the court held a dismissal for failure to prosecute under Code of Civil Procedure section 583, subdivision (a), is a favorable termination of the litigation.”   (Stanley v. Superior Court (1982) 130 Cal.App.3d 460, 464, 181 Cal.Rptr. 878, emphasis deleted.)

“The reason the terminations in Jaffe, MacDonald, and Minasian, were considered favorable terminations is because they reflected the opinion of someone, either the trial court or the prosecuting party, that the action lacked merit or if pursued would result in a decision in favor of the defendant.   Where the termination cannot be so construed then it is not a favorable termination.   Thus, a judgment of dismissal on the ground of the statute of limitations is not a favorable termination for the defendant within the context of a malicious prosecution action because it does not reflect at all upon the substantive merit of the alleged claim.”  (Stanley v. Superior Court, supra, 130 Cal.App.3d at pp. 464–465, 181 Cal.Rptr. 878.)

Teichert contends the dismissal was not a favorable termination reflecting on the merits because the court's ruling sustaining Sanguinetti's demurrer merely represented a determination Sanguinetti's complaint was technically defective as a pleading.   We disagree.

No California authority has been found which directly addresses the precise issue raised by Teichert.   Courts from other jurisdictions have held that the dismissal of a civil proceeding for defective pleading, such as technically failing to state a cause of action, did not constitute a favorable termination of the proceeding for the purpose of stating a claim for malicious prosecution.  “Stating that the requirement of ‘legal termination’ provided the basis for a showing that no probable cause existed for the institution of the former proceedings, the court in Siegel v. Chicago (1970) 127 Ill.App.2d 84, 261 N.E.2d 802, held that dismissal of the opponent's complaint on the basis that the complaint was insufficient to state a cause of action did not constitute a favorable termination.   The court pointed out that such a dismissal bore no necessary relationship to the legitimacy of the assertions contained therein, and therefore that such a dismissal did not support the claim that the assertions were baseless.”  (Annot., Malicious Prosecution—Termination (1984) 30 A.L.R.4th 572, 592, § 10 and cases cited.)

For guidance on the legal effect of a demurrer for purposes of a malicious prosecution suit in California, we refer to 7 Witkin California Procedure (3d ed. (1985) Judgment, § 222, at p. 659, where it is stated, “[f]rom one point of view, the judgment entered after sustaining a demurrer merely determines the insufficiency of the pleading and not the merits of the claim or defense.   [However], ․ general demurrers are commonly used to decide cases expeditiously on the fundamental question of laws involved (citation), and a rule that a judgment on demurrer is never [on the merits] would be unrealistic and unwise.”  (Ibid.)  Hence, “[a] judgment given after the sustaining of a general demurrer on a ground of substance, for example, that an absolute defense is disclosed by the allegations of the complaint, may be deemed a judgment on the merits, and conclusive in a subsequent suit;  and the same is true where the demurrer sets up the failure of the facts alleged to establish a cause of action, and the same facts are pleaded in the second action․”  (Goddard v. Security Title Ins. & Guar. Co. (1939) 14 Cal.2d 47, 52, 92 P.2d 804.)   As stated in Kahn v. Kahn (1977) 68 Cal.App.3d 372, 379, 137 Cal.Rptr. 332, whether or not there has been an adjudication of the merits of the controversy turns “ ‘ ․ upon a consideration of the entire ‘judgment’ together with the pleadings and the findings, in the light of the provisions, the scope and the apparent purpose of the [applicable] court law.' ”

Thus, in order to properly address Teichert's contention, we consider the significance of the demurrer to its complaint to foreclose and judgment of dismissal in light of the applicable mechanics' lien law.   The California mechanics' lien derives from article XIV, section 3, of the California Constitution, and the means for perfecting and enforcing that lien are purely statutory (Civ.Code, § 3082 et seq.;   see Maris Management Corp. v. Assured Drywall & Textures (1984) 152 Cal.App.3d 268, 273, 199 Cal.Rptr. 309;  Cal. Mechanics' Liens (Cal.Cont.Ed.Bar (1972), § 1.1, p. 7).)  “Under this statutory scheme, materialmen, contractors, subcontractors, and other persons listed in Civil Code section 3110 [fn. omitted] who furnish labor or materials on a work of improvement are entitled to file a mechanics' lien on the property where the improvement is located.   To secure a lien, a materialman must file a preliminary notice with the owner, the general contractor and the construction lender within 20 days after furnishing the materials (§ 3097, 3114), and thereafter record his claim of lien within 90 days of completion of the improvement (§ 3116).   If a notice of completion (see § 3093) or notice of cessation of work (see § 3092) has been recorded, the claimant must record his claim of lien within 30 days of such notice.  (§ 3116.)”  (Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803, 808, 132 Cal.Rptr. 477, 553 P.2d 637.)   Once these requirements are met, a suit to foreclose on the perfected lien must be commenced within 90 days.   (Ibid.)  If such action is not commenced the lien terminates.

 As is apparent from the foregoing, a distinction is drawn between the terms “lien” and “claim of lien.”   The term “claim of lien” refers to the verified “written statement” of the claimant's demand.  (§ 3084.)  “Thus, sections 3115 and 3116 provide that the original contractor or other claimant, ‘in order to enforce a lien, must record his claim of lien’ within the specified time periods.”  (Maris Management Corp. v. Assured Drywall & Textures, supra, 152 Cal.App.3d at pp. 273–274, 199 Cal.Rptr. 309.)   As the record in the case at bench discloses, the Lodi Municipal Court sustained Sanguinetti's demurrer to Teichert's complaint to foreclose its purported lien on the ground Teichert failed to record its “claim of lien” within the 90 day period provided by section 3116.2  No allegation was made that Teichert failed to commence an action to foreclose within the statutory period provided by section 3144.

Had Sanguinetti's demurrer been sustained on the latter ground Teichert might prevail on his “technical defect” in the pleadings argument.   Former section 1198.1 (now § 3144), which requires an action to foreclose be commenced within 90 days of recordation of a claim of lien, has been characterized as procedural in nature and “merely a statute of limitations rather than a statute affecting a substantive right [citation omitted].”  (Petersen v. W.T. Grant Co. (1974) 41 Cal.App.3d 217, 222, 115 Cal.Rptr. 874;  Robinson v. S & S Development, (1967) 256 Cal.App.2d 13, 15–17, 63 Cal.Rptr. 663;  cf. States Shingle Co. v. Kaufman (1964) 227 Cal.App.2d 830, 39 Cal.Rptr. 196;  Howard v. Societa Di Unione, etc., (1944) 62 Cal.App.2d 842, 145 P.2d 694.)   Thus, a dismissal entered because the claimant failed to bring an action to foreclose within the time required may merely reflect on his inability to obtain a remedy, not on the existence of the lien right.3  This principle is illustrated in In re Paul Potts Builders, Inc. v. County of Marin (9th Cir.1979) 608 F.2d 1279.   In Potts the Bay Area Design Group recorded a valid mechanics' lien against Potts, but its suit to foreclose was untimely under section 3144.   Several months later Potts filed a petition for bankruptcy and the trustee in bankruptcy moved the bankruptcy court to declare the lien void, which it did.   The Court of Appeal held that the lien was unenforceable, but rejected the district court's conclusion that the lien had “expired.”   The court held the lien continued in equity as to the owner, and in a bankruptcy proceeding Potts was not entitled to avoid its obligations.   The lien claimant retained its right to satisfaction within the equitable powers of the bankruptcy court.   (Id., at pp. 1280–1282;  accord 1 Miller & Starr, Current Law of California Real Estate (1975) § 10:32 p. 572 fn. 5 (1985 Supp., p. 391).)

 In the case at bench, however, Sanguinetti's demurrer was sustained because Teichert failed to comply with section 3116.   In this regard we must distinguish the respective statutory functions of section 3144 and section 3116.  Section 3144 governs the availability of foreclosure by requiring the lien claiment to bring his action in a timely manner, whereas section 1193.1 (now § 3116) requires timely recordation of notice of claim of lien as a condition precedent to the “perfection” of a lien.  (See Petersen v. W.T. Grant Co., supra, 41 Cal.App.3d at p. 222, 115 Cal.Rptr. 874.)   The distinction is conceptually consistent with the nature of a lien.  “The mere furnishing of labor or material does not create a lien.   Until the claim is perfected by compliance with statute, it is a mere inchoate personal right․  It has no tangible existence.”  (44 Cal.Jur.3d (1978) Mechanics' Liens, § 62, pp. 133–134, fn. omitted;  Borchers Bros. v. Buckeye Incubator Co. (1963) 59 Cal.2d 234, 238, 28 Cal.Rptr. 697, 379 P.2d 1.)   A mechanic's lien is created only if the prescribed conditions precedent are substantially performed.   A claimant's failure to satisfy these conditions will prevent the lien from arising in favor of the mechanic even though he may have bestowed labor of furnished material to the work of improvement.   (Stanislaus Lbr. Co. v. Pike (1942) 51 Cal.App.2d 54, 58–59, 124 P.2d 190 [right to lien “waived” by claimant's failure to record a timely notice of claim];  Gary C. Tanko Well Drilling, Inc. v. Dodds (1981) 117 Cal.App.3d 588, 592, 172 Cal.Rptr. 829 [claimant's failure to record claim of lien rendered lien “invalid”];  IGA Aluminum Products, Inc. v. Manufacturers' Bank (1982) 130 Cal.App.3d 699, 704, 181 Cal.Rptr. 859 [filing of a preliminary 20 day notice under section 3097 held to be a prerequisite to the perfection of a mechanics' lien];  1 Miller & Starr, op. cit. supra, § 10:21, p. 555.)

The distinction is important to our inquiry because it illustrates the substantive and procedural aspects of the respective statutes.4  The termination of an action on substantive, as opposed to technical or procedural grounds, reflects on the merits.  (Lackner v. LaCroix, supra, 25 Cal.3d at p. 751, 159 Cal.Rptr. 693, 602 P.2d 393, see Berman v. RCA Auto Corp. (1986) 177 Cal.App.3d 321, 325, 222 Cal.Rptr. 877;  Annot., op. cit. supra, § 7, pp. 589–590.)   As we read it, section 3116 is substantive.   It creates a duty in that the claimant must record his notice of claim of lien.   It also establishes rights in that if the claimant records his notice of claim of lien and meets the statutory prerequisites (§§ 3114, 3118) he will have thereby perfected his lien.   If the claimant fails to record his claim no right to a lien arises;  the lien is waived.  (See Gary C. Tanko Well Drilling, Inc. v. Dodds, supra, 117 Cal.App.3d at p. 592, 172 Cal.Rptr. 829.)   In the case at bench the court found Teichert failed to record its claim of lien timely, thereby conclusively establishing that Teichert failed to perfect its lien.   The dismissal therefore, reflected on the merits.  (Cf. Merron v. Title Guarantee & Trust Co. (1938) 27 Cal.App.2d 119, 121, 80 P.2d 740.)

Teichert's attempt to rely by analogy on Lackner v. LaCroix, supra, 25 Cal.3d 747, 752, 159 Cal.Rptr. 693, 602 P.2d 393, which holds that a statute of limitations defense is procedural is unavailing.   In Lackner, Jerome Lackner had been a defendant in an underlying medical malpractice action filed by LaCroix.   The malpractice case proceeded to trial.   The jury found the action had not been filed within the applicable statute of limitations period.   The court dismissed the malpractice action.   In upholding the trial court's entry of summary judgment on Lackner's subsequent action for malicious prosecution the Supreme Court reasoned that a dismissal following a statute of limitations defense would not reflect on the merits, because the dismissal was a “technical” termination.   The court then outlined two important public policy considerations supporting a statute of limitations defense which might be thwarted if an action dismissed on that ground could justify a malicious prosecution suit.   The public policy behind a statute of limitations defense is that of not requiring individuals to defend against stale claims.   That policy is undercut if in a subsequent malicious prosecution action the parties litigate the merits of the stale claim under the guise of establishing the element of probable cause.  (Id., at p. 752, 159 Cal.Rptr. 693, 602 P.2d 393.)   Secondly, “[t]he policy underlying limitation defenses is further exemplified by the long-standing principle that ‘[t]he statute may be used only as a “ ‘shield’ ” and not as a “ ‘sword,’ ” i.e., it can only be set up as a defense to a suit ․ and cannot be invoked affirmatively ․ as the foundation of a right.'  [Citation omitted.]”  (Ibid.)

 In contrast, as noted here, section 3116 is not a statute of limitations;  it requires the claimant to record his claim of lien as a prerequisite to the perfection of the lien.   In this regard we recognize that the purpose of section 3116 is not to prevent stale claims but rather to give the property owner notice.  (See Corbett v. Chambers (1895) 109 Cal. 178, 182, 41 P. 873.)  Section 3116 protects the property owner by informing him of the extent and value of the lienor's claim.  (See generally 44 Cal.Jur. (3d ed. 1978), § 68, at p. 144 and cases cited therein.)   The recording requirement insures that after a fixed period of time (e.g., 90 days after completion) the owner and the public will know or be able to find out whether property or improvements are encumbered by perfected liens.  (In re Morrell (D.C.1984) 42 B.R. 973, 980.)   As such, it permits the property owner to allege a favorable termination reflecting on the merits where an action to foreclose has been dismissed because the claimant failed to record in a timely manner.   This promotes rather than thwarts the policy behind section 3116.   Moreover, the stated concern in Lackner that a dismissal will leave stale issues unresolved, which may be relitigated under the guise of establishing probable cause in the malicious prosecution action is unfounded where a dismissal is entered on the claimant's failure to record a claim of lien in a timely manner.   As noted, such a dismissal is effectively a determination that no lien exists, which in this instance is terminal.

We hold that the dismissal of an action to foreclose a mechanics' lien on the ground a timely notice of claim of lien had not been filed is a favorable termination for malicious prosecution purposes.   The trial court erred in finding that the dismissal was not a favorable termination.

The judgment is reversed.



1.   Civil Code section 3116 provides:  “Each claimant other than an original contractor, in order to enforce a lien, must record his claim of lien after he has ceased furnishing labor, services, equipment, or materials, and before the expiration of (a) 90 days after completion of the work of improvement if no notice of completion or cessation has been recorded, or (b) 30 days after recordation of a notice of completion or notice of cessation.”Unless otherwise indicated all future statutory references are to the Civil Code.

2.   Teichert argues the Lodi court's ruling is flawed.   According to Teichert the starting point from which the 90 day period should have been computed is the date of completion of the work of improvement.  (See Electric Supplies Distributing Co. v. Imperial Hot Mineral Spa (1981) 122 Cal.App.3d 131, 136, 175 Cal.Rptr. 644 [each claimant in order to enforce a lien, if no notice of completion or cessation has been filed, must record his claim of lien after he has ceased furnishing materials and before the expiration of 90 days after completion of work of improvement].)  As Teichert notes the sole evidence before the Lodi court on this issue consisted of the allegation in its complaint stating that materials were furnished between November 3 and November 5, 1980 and points and authorities in support of Sanguinetti's demurrer to the complaint wherein Sanguinetti asserted the work of improvement was completed at the same time the materials were furnished.   Teichert contends that, in ruling the complaint to foreclose the mechanics' lien was pursuant to section 3116 time barred on its face, the Lodi court must have relied on Sanguinetti's argument and found the job was completed when the materials were furnished.   Teichert contends the date of completion should have been determined by applying factors listed in section 3086.While it is possible Teichert could have established that November 3–5, 1980, was not the date of completion, the record does not show it made any attempt to amend its complaint.   More important the record does not show Teichert appealed from the judgment of dismissal after the court sustained Sanguinetti's demurrer.   That judgment is therefore final.   Under the doctrine of collateral estoppel, Teichert is barred from relitigating the issue of completion here.   As we stated in Smith v. Smith (1981) 127 Cal.App.3d 203, 179 Cal.Rptr. 492, “ ‘When an issue of fact or law is actually litigated and determined by a valid and final judgment, and determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.’ ”  (Id., at p. 208, 179 Cal.Rptr. 492, quoting the Restatement Second of Judgments (Tent. Draft No. 4 (1977)) § 68, p. 1.)   Hence, for purposes of the instant appeal we assume as did the Sacramento Superior Court, that Teichert's notice of claim of lien was not timely filed.

3.   The case at bench predates a 1984 amendment to section 3144.   We are therefore not confronted with the effect of section 3144 subdivision (b) on the continuing viability of a perfected lien which has not been timely foreclosed upon.   Section 3144 subdivision (b), as amended, provides as follows:  “[¶] If the claimant fails to commence an action to foreclose the lien within the time limitation provided in this section [90 days after recordation of claim of lien], the lien automatically shall be null and void and of no further force and effect.”   (Stats.1984, c. 871, p. ––––, § 1.)

4.   “ ‘ “Substance” and “procedure” ․ are not legal concepts of invariable content’ [citation], and a statute or other rule of law will be characterized as substantive or procedural according to the nature of the problem for which a characterization must be made.”  (Grant v. McAuliffe (1953) 41 Cal.2d 859, 865, 264 P.2d 944.)  “ ‘As a general rule, laws which fix duties, establish rights and responsibilities among and for persons, natural or otherwise, are “ ‘substantive laws' ” in character, while those which merely prescribe the manner in which such rights and responsibilities may be exercised and enforced in a court are “procedural laws.” ’ ”  (Vienna v. California Horse Racing Bd. (1982) 133 Cal.App.3d 387, 394, 184 Cal.Rptr. 64.)

STROUD,* Associate Justice. FN* Assigned by the Chief Justice.

BLEASE, Acting P.J., and SIMS, J., concur.

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