Filed 4/30/20
                           CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                             SIXTH APPELLATE DISTRICT

CARMEL DEVELOPMENT COMPANY,                         H041005
INC.,                                              (Monterey County
                                                    Super. Ct. Nos. M91899, M91649)
        Plaintiff and Appellant,

        v.

LARRY ANDERSON et al.,

        Defendants and Appellants.

        Plaintiff Carmel Development Company, Inc. provided design and construction
work for a luxury subdivision (Monterra) in Monterey County over the course of more
than 10 years under an oral contract with property owner Roger Mills, the principal of
Monterra Ranch Properties, LLC (Monterra LLC). Plaintiff recorded a mechanic’s lien
and a site improvement lien against certain lots in Monterra after being informed that
Monterra LLC would be unable to continue paying for plaintiff’s work. Plaintiff sued
several of Monterra LLC’s investors with property interests in unsold lots in the
development (defendants Larry Anderson et al.) as well as Monterra LLC, alleging
causes of action for among other things breach of contract and foreclosure of the
mechanic’s and site improvement liens. Monterra LLC stipulated to liability before trial;
the investor defendants contested liability in a lengthy bench trial.
        Defendants appeal from the judgment which validated the mechanic’s and site
improvement liens and attached them in specified amounts to lots owned by defendants
for purposes of lien foreclosure. Defendants argue that the trial court erred by
determining: (1) that plaintiff could maximize the amount of money owed under the liens
by applying payments received for the liened work to other work it performed at
Monterra that was not the subject of the liens; (2) that plaintiff could selectively allocate
liability for the liens to certain lots even though the improvements that were the subject
of the liens benefited all lots in Monterra; (3) that the lien amounts could include
contractual interest; and (4) that plaintiff was entitled to prejudgment interest.
Defendants also argue there was no substantial evidence to support the existence of an
oral agreement for contractual interest. Plaintiff cross-appealed to preserve its arguments
related to contractual interest and the allocation of lien liability.
       For the reasons stated here, we will reverse the judgment because it was improper
to allocate the water infrastructure lien only to certain benefited lots; the liens could not
accrue contractual interest greater than the reasonable value of the improvements; and the
trial court applied an incorrect rate to calculate prejudgment interest. We will remand the
matter with instructions (detailed in Part II.F.) to remove contractual interest from both
liens, reapportion the water infrastructure lien, and recalculate prejudgment interest.
                           I.   TRIAL COURT PROCEEDINGS
       The following summary is based on the trial court’s written statement of decision,
supplemented with evidence from the bench trial.
   A. PROJECT HISTORY AND DEVELOPMENT AGREEMENT
       The Monterey County Board of Supervisors approved a 2,911-acre subdivision
known as Monterra in 1987. Brothers Roger and Basil Mills formed Monterra LLC and
purchased the undeveloped Monterra subdivision in 1995. After Monterra LLC acquired
the Monterra subdivision, the owners of the Tehama subdivision (located immediately
south of Monterra) entered into an agreement with Monterra LLC. Among other things,
the agreement provided that Monterra LLC would transfer about 1,000 acres from
Monterra to Tehama to create Cañada Woods North (where a golf course and a small
number of residential units were to be built). Tehama would also allow lots in Monterra


                                                2
to use Tehama’s graywater sewage treatment system, and Monterra LLC would construct
a potable water system to be used by lots in Monterra and Cañada Woods North.
       Monterra LLC hired plaintiff via a handshake agreement to redesign Monterra as
an “exclusive and environmentally-friendly development.” The trial court found that the
agreement was as follows: for design work plaintiff would charge its billing rate, actual
consultant charges, and a five percent markup applied to the consultant charges; for
construction work plaintiff would charge its actual costs for equipment and labor
performed by plaintiff as well as the actual costs of its subcontractors and materialmen,
plus a 25 percent markup of the construction labor costs to account for supervision,
overhead, and profit.
       Plaintiff developed Monterra between 1996 and 2008. That development work
included “lot design and layout, locating building envelopes on each lot, water and
sewage system layout and design, roadway design, construction and repair.” Plaintiff
developed Monterra in phases in order to build and sell a few houses at a time to raise
capital to invest in each successive phase. Roughly half the lots in Monterra were
developed and sold before Monterra LLC ran out of capital; those sales generated over
$100 million. Part of the development included construction of a reverse osmosis water
plant, which served the lots in the subdivision that had been sold to third parties.
       Plaintiff and Monterra LLC entered into an oral contract providing for contractual
interest in late 2000. Monterra LLC agreed to pay interest on unpaid balances at the rate
of 10 percent. The trial court found that interest was “to accrue 60 days from the last day
of the month in which the work was performed.” (In determining the accrual period, the
trial court acknowledged that trial testimony on that point was “often unclear, confusing
and conflicting.”)




                                              3
       Monterra LLC informed plaintiff in 2008 that it could no longer make payments,
                                                                 1
effectively breaching the contract. Plaintiff recorded two liens to secure its right to
money for two categories of work: water improvements throughout Monterra, and site
improvements in phases seven and nine. The Water Lien was for water improvements
“related to the expansion of a water and sewer system including the installation of new
wells, lift stations and a larger reverse osmosis water plant to increase the water and
sewer systems capacity to provide services to the last 85 unsold lots of the Monterra
subdivision.” The Site Improvement Lien “related to the installation of site
improvements (roads, driveways, retaining walls, utilities) to benefit the lots located in
Phases 7 and 9 of Monterra.”
   B. LITIGATION, STATEMENT OF DECISION, AND JUDGMENT
       Plaintiff sued Monterra LLC and defendants, alleging (among other things) breach
of contract as to Monterra LLC and seeking lien foreclosure as to Monterra LLC and
defendants. (The case was consolidated with a related breach of contract action by
another contractor against Monterra LLC, which settled during trial.) Before trial,
plaintiff and Monterra LLC agreed to a stipulated judgment. Monterra LLC stipulated
that it owed over $9 million to plaintiff, that the amount due would be satisfied by a
foreclosure of the liens against the 85 unsold lots, and that any amount not satisfied by
foreclosure would become a judgment against Monterra LLC.
       The case proceeded to a lengthy bench trial between plaintiff and defendants. The
case was tried in two phases, liability and damages. Following the first phase, the trial
court determined that defendants were liable for the Water Lien and the Site
Improvement Lien. The trial court found that the liens could accrue contractual interest,
but that the claimed lien amounts were based on excessive charges. The court found
plaintiff had improperly applied the 25 percent markup for supervision, overhead, and

       1
         What we will refer to as the Water Lien was recorded as several separate liens,
one lien per relevant project phase.
                                              4
profit to its billing rates rather than to the actual costs of labor, requiring recalculation of
the amounts due under the liens. The court found that the excessive charges were not
fraudulent, but rather the result of a good faith dispute about the correct billing
calculation.
       Regarding allocation of lien liability, the trial court considered defendants’
argument that the Water Lien and Site Improvement Lien had been improperly recorded
against only unsold lots in Monterra. The court determined that Monterra LLC had asked
plaintiff to impose the liens on only those lots. The court noted that “completion of the
infrastructure, even in areas not contiguous to all of the lots liened, was of benefit to all
the lots liened.” But the court reasoned the liens did “not have to be allocated evenly
across all lots” based on “authority cited by [plaintiff] to the effect that the landowner and
the materialman may agree to have a lien attach to some of the property but not others.”
The court found that Monterra LLC and plaintiff agreed “to such allocation in both (1.)
agreeing that payments made were to be applied to non-liened work which benefitted
only non-liened lots ... ; and (2.) agreeing that work for which the lien amounts are at
issue here be apportioned only to certain lots which benefitted from the liened work.”
The court found the lien allocation a “bona fide attempt by the parties, under extremely
difficult circumstances, equitably to avoid financial injury to third-party purchasers who
had already purchased lots which were to be free of mechanic[’s] liens,” and that the
parties could “agree to allocate or limit allocation of a lien claim to a specific lot or lots.”
       In the damages phase of trial, the court calculated the specific amounts due on the
liens after hearing testimony from competing experts. The court noted that the claimed
total amount due, before making any adjustments for overbilling, was over $6 million.
The parties’ experts recalculated the amount of the liens based on the court’s finding in
the first trial phase that the 25 percent markup was to be applied to plaintiff’s actual costs
rather than to its billing rates. The total was to include contractual interest at 10 percent
per annum commencing 60 days after the end of the month in which the work was
                                               5
performed, with “application of payments first to interest accrued and then to principal as
of the date of the checks.” The trial court selected plaintiff’s expert’s calculation of the
corrected amount of the liens (totaling over $2 million). Noting that plaintiff’s expert did
not separate the Water Lien from the Site Improvement Lien, the court divided the
defense expert’s calculation of the Site Improvement Lien by that expert’s calculation of
the total amount of the liens to determine the percentage attributable to the Site
Improvement Lien. The court then multiplied plaintiff’s expert’s total lien amount by the
resulting percentage to conclude that the Site Improvement Lien totaled $132,661. To
calculate the amount of the Water Lien, the trial court subtracted the resulting Site
Improvement Lien amount from plaintiff’s expert’s total lien amount, reduced the
resulting sum by a percentage agreed to by the parties to eliminate certain lots that had
been released while the case was pending, and concluded that the remaining Water Lien
amount was $1,462,459. After eliminating those lots that had been released, the number
of liened unsold lots reduced from eighty-five (85) to fifty-eight (58). The court applied
prejudgment interest at a rate of 10 percent per annum under Civil Code section 3287,
subdivision (b), commencing one year after plaintiff filed its complaint.
       The two liens were apportioned to specific lots in the judgment. The Water Lien
was allocated to the remaining 58 unsold lots in Monterra, with a principal amount of
$25,214.81 per lot plus $11,733.18 per lot in prejudgment interest. The Site
Improvement Lien was allocated to the eight lots in phases seven and nine of Monterra,
with a principal amount of $16,582.63 per lot plus $7,708.92 per lot in prejudgment
interest. (The eight lots in phases seven and nine were liable for both liens.) All 58
unsold lots would share responsibility for plaintiff’s costs, as well as postjudgment
interest.
                                    II.   DISCUSSION
       Defendants argue that plaintiff should not have been allowed to apply payments
that should have reduced the lien amounts to other work in Monterra that was not the
                                              6
subject of the liens, nor to allocate lien liability to certain lots even though the liens
benefit all lots in the subdivision. Defendants also challenge the inclusion of contractual
interest in the lien amounts, and the award of prejudgment interest.
   A. APPLYING PAYMENTS TO MAXIMIZE THE LIEN AMOUNTS
       Plaintiff applied payments it received from Monterra LLC to debt that was not
subject to liens, in effect increasing the amounts of the Water Lien and Site Improvement
Lien. The trial court approved the application of Monterra LLC’s payments to “lots
which had been sold” before crediting those payments against the lien amounts.
Defendants contend Civil Code section 1479 requires payments to be applied “first to
interest then principal, to the oldest outstanding obligations.” (Unspecified statutory
references are to the Civil Code.) They note that applying payments in the order
specified in section 1479, subdivision (3) would reduce the amounts due under the Water
Lien and Site Improvement Lien.
       We review a trial court’s interpretation and application of statutes de novo. (Silver
v. Los Angeles County Metropolitan Transportation Authority (2000) 79 Cal.App.4th
338, 347–348 (Silver).) We review the trial court’s factual findings resolving disputed
testimony for substantial evidence. (Ibid.)
           1. Trial Evidence
       Plaintiff’s principal, Alan Williams, testified that during “the first year or so” of
plaintiff’s work on Monterra, Monterra LLC specified that its payments were to be
applied to particular invoices from plaintiff. Both Williams and Monterra LLC’s
principal, Roger Mills, testified that Monterra LLC thereafter made all payments to
plaintiff “on account.” Williams testified that once Monterra LLC began paying on
account, Mills left it to plaintiff’s discretion where the payments were applied. Mills
confirmed that after September 2000, Monterra LLC made payments on account rather
than for specific invoices. Mills testified that he and Williams met monthly to review the
preceding month’s invoices.
                                               7
       Plaintiff’s office manager testified about tracking invoices and payments. She
maintained a spreadsheet for invoices related to the Monterra project. On that
spreadsheet she always applied payments from Monterra LLC to the oldest outstanding
balance. The invoice amounts were sometimes estimates, provided in response to
requests by Williams. (We will refer to that spreadsheet as the “invoice spreadsheet” to
differentiate it from the “interest spreadsheet” plaintiff prepared later to calculate
contractual interest owed by Monterra LLC.) Williams testified that he and Mills used
the invoice spreadsheet during their monthly meetings to determine the “order of
magnitude” of what Monterra LLC owed, and not as a monthly statement showing how
payments were being applied.
       Williams testified that after recording the Water Lien and Site Improvement Lien,
he created a color-coded spreadsheet breaking down everything he had billed to Monterra
LLC between 2005 and 2008 into dozens of specific construction activities. (The color
spreadsheet was admitted into evidence at trial.) Plaintiff color-coded the activities into
three categories: construction activities for water infrastructure were highlighted in
yellow (and formed the basis for the Water Lien); construction activities for road and
other infrastructure work in phases seven and nine were highlighted in red (and formed
the basis for the Site Improvement Lien); and construction activities outside of those
categories were not highlighted. (Those latter activities consisted of “road improvements
that were not water-related, or were specific to the particular developer” or lot owner.)
Williams testified that he applied payments received from Monterra LLC to the
unhighlighted construction activities (regardless of when those activities were completed)
at Mills’s request. Mills reportedly asked Williams to apply payments to construction
activities that benefited only the lots Monterra LLC had already sold to third parties so
that those third parties would not incur any lien liability. In its statement of decision, the
trial court found that plaintiff had applied payments as requested by Monterra LLC to
prevent purchasers of the sold lots from incurring lien liability.
                                               8
              2. Plaintiff’s Application of Payments was Proper
       Section 1479 designates the order of payments when a “debtor, under several
obligations to another, does an act ... which is equally applicable to two or more of such
obligations.” (§ 1479.) If the debtor states at the time of performance an “intention or
desire ... that such performance should be applied to the extinction of any particular
obligation,” the creditor must apply the payment as instructed. (Id., subd. (1).) If the
debtor does not instruct the creditor regarding how the payment should be applied, the
“creditor, within a reasonable time after such performance, may apply it toward the
extinction of any obligation, performance of which was due to him from the debtor at the
time of such performance.” (Id., subd. (2).) And if neither party applies the payment to a
particular obligation, the creditor must apply the payment to the obligations in the
following order: interest due at the time of performance, principal due at the time of
performance, the obligation earliest in date of maturity, an obligation not secured by a
lien or collateral, and finally to any obligation secured by a lien or collateral. (Id.,
subd. (3).)
       The parties agree that Monterra LLC made all relevant payments “on account,”
meaning that Monterra LLC never directed plaintiff at the time of payment to apply
payments to any specific invoice or category of work. As such, section 1479,
subdivision (1) does not apply. The parties dispute whether this case is governed by
subdivision (2) or subdivision (3) of section 1479.
       Defendants argue that plaintiff “attempted to reallocate payments many months
and years after those payments were received, and well after those payments were already
applied to the oldest outstanding charges.” They also contend plaintiff applied the
payments to the unhighlighted category of invoices too late to fall under section 1479,
subdivision (2), such that the default order of payment from section 1479, subdivision (3)
required plaintiff to apply the payments to the obligations with the earliest date of


                                               9
maturity (which in this case would mean the oldest outstanding invoices because the
invoices all matured at the same rate).
       The trial court heard conflicting testimony about whether plaintiff had ever
formally applied payments to specific categories of work performed on the Monterra
subdivision. The invoice spreadsheet and plaintiff’s office manager’s testimony about
preparing it suggested that plaintiff had consistently applied payments to the oldest
outstanding balances. But Williams testified that the invoice spreadsheet was used
merely as a reference document during monthly meetings to show Mills the “order of
magnitude” of what Monterra LLC owed. Williams’s testimony provides substantial
evidence to support the trial court’s finding that plaintiff did not actually apply
Monterra LLC’s payments to specific categories of work until plaintiff prepared the liens
at issue here. Such an application of payments made on account is permissible under
section 1479, subdivision (2), which gave plaintiff discretion to apply the payments
“toward the extinction of any obligation” so long as the application was made “within a
reasonable time” after the payments were received. (§ 1479, subd. (2).)
       Without citation to authority, defendants argue that plaintiff’s application of
payments was untimely because it occurred “many months and years after those
payments were received.” But there is longstanding authority interpreting section 1479
to the effect that “where the debtor has made no designation, the creditor, if entitled to
make application, must make the application before suit is brought.” (See Joy v.
Rousseau (1925) 72 Cal.App. 179, 184.) We see no reason to depart from that authority.
       In their reply brief, defendants argue that plaintiff’s application of payments is
unlawful because it harmed defendants. But here again defendants cite no authority
supporting the proposition that a party violates section 1479 if it applies payments in a
way that harms another party. Logic dictates that someone may suffer any time payment
is applied to one debt rather than another. Detriment to a third party has been found
relevant, but only in situations where a debtor initially directed a creditor to apply a
                                              10
payment to a specific obligation and the payment was later applied to a different
obligation. (E.g., Johnston v. Groom (1929) 99 Cal.App. 462, 464 [where debtor made a
payment with directions to apply it to a specific account, “appropriation by either party
cannot be changed so as to injuriously affect the rights of third parties”]; accord Hart,
Schaffner & Marx v. Vaughn (1936) 17 Cal.App.2d 516, 519.) As it is undisputed that
Monterra LLC made all payments on account, that rule does not apply here.
       The trial court did not err when it approved plaintiff’s application of Monterra
LLC’s payments to the unhighlighted category of work, which complied with
section 1479, subdivision (2). Because the application was permissible, we do not reach
plaintiff’s argument that this was a “single obligation” case such that section 1479 was
wholly inapplicable.
   B. WATER LIEN ALLOCATION
       Defendants argue that the trial court erred by approving an agreement between
plaintiff and Monterra LLC to charge only specified lots (i.e., the unsold lots) the costs of
water improvements that benefited not only all lots in Monterra but also adjacent lots
                    2
owned by Tehama. Plaintiff argues that the Water Lien work benefited only the unsold
lots, meaning that the trial court allocated the lien to all lots that benefited from the work.
The parties’ briefing presents two issues: determining the number of lots that benefited
from the Water Lien work; and whether the Water Lien was properly allocated among the
benefited lots.

       2
         The record—and the parties’ briefing—is ambiguous as to which specific lots
outside Monterra the water improvements may have benefited. Per the original
agreement between Monterra LLC and Tehama, the Monterra water system was to supply
water to the Cañada Woods North development. Plaintiff refers to certain “Tehama lots”
as benefiting from water infrastructure improvements (though plaintiff argues that
Tehama already paid for its share of the improvements), while defendants refer to lots in
the Tehama development as well as “property owned by the Cañada Woods Water
Company.” As Tehama owned both the Tehama and the Cañada Woods North
developments, we will refer to property within those developments collectively as “lots
owned by Tehama.”
                                              11
           1. The Trial Court Correctly Found That the Water Lien Benefited All
              Lots in Monterra
       As the contractor for Monterra who provided skill, labor, and materials for the
subdivision, plaintiff was authorized to record “a lien upon the property upon which [it]
bestowed labor or furnished materials ... for the value of such labor done or materials
                             3
furnished.” (Former § 3110 ; see also Cal. Const., art. XIV, § 3 [“Mechanics, persons
furnishing materials, artisans, and laborers of every class, shall have a lien upon the
property upon which they have bestowed labor or furnished material for the value of such
labor done and material furnished.”]) The lien attaches to “the work of improvement and
the land on which it is situated together with a convenient space about the same or so
much as may be required for the convenient use and occupation thereof.” (Former
§ 3128.)
       Regarding the geographic scope of a mechanic’s lien, the California Supreme
Court has observed that the “ ‘question is not so much as to the amount of land required
for the area to be occupied by the [improvements], but rather as to the amount of land to
be improved or benefited by the creation and use of the [improvements].’ ” (Cal.
Corrugated Culvert Co. v. Stewart (1934) 220 Cal. 104, 106–107 [lien for construction of
a rice elevator and a barn applied to entire farm property because the improvements
benefited the whole farm], citing Western Well Works v. Cal. Farms Co. (1923)
60 Cal.App. 749, 757 [lien for an irrigation well that extended to an area 100 feet in
diameter around the well was too narrow; remanding for recalculation of lien’s
geographic scope because the completed well “would have sufficed for the irrigation of at
least one, if not both, of the sections of land upon which it was to be located”].)
Determining the scope of a lien “must take into consideration the intended use for which


       3
        The Civil Code sections related to mechanic’s liens were repealed, renumbered,
and reenacted, effective July 1, 2012. (§ 8052, subd. (a); Stats. 2010, ch. 697, §§ 16, 20,
pp. 3804, 3810.) The former Civil Code sections govern this matter because the liens
were recorded before the effective date of the new law.
                                             12
the [improvement] is erected. ... [I]f its use is dependent upon, and connected with the
uses made of other buildings or the uses made of other portions of the tract of land upon
which it is situate[d], then if all of the larger tract is required for the ‘necessary and
convenient use’ of the [improvement] involved, such larger tract may properly be
included.” (Anselmo v. Sebastiani (1933) 219 Cal. 292, 298.)
       The question of which standard of review applies to a trial court’s decision
regarding the amount of land associated with a mechanic’s lien appears to be one of first
impression. Other than dictum in two early decisions, the Supreme Court has never
directly addressed the issue. (See Green v. Chandler (1880) 54 Cal. 626, 627 [“[T]he
Mechanics’ Lien Law makes it the duty of the Court to determine, on rendering
judgment, the quantity of land which may be required for the convenient use and
occupation of any building, improvement, or structure, which may be built thereon by
any one claiming a lien.”]; Anselmo, supra, 219 Cal. at p. 297 [“ ‘Determining the area of
land that shall be included in ... a lien for the erection of a building is largely within the
discretion of the trial court, and unless abused, will not be disturbed.’ ”].) Because
determining the amount of land benefited by a mechanic’s lien requires a trial court to
resolve disputed evidence and make factual findings, we apply the substantial evidence
standard of review. (See Moorefield Construction, Inc. v. Intervest-Mortgage Investment
Co. (2014) 230 Cal.App.4th 146, 154.)
       Before examining the record for substantial evidence, we must resolve a dispute
between the parties about what the trial court actually decided regarding which lots
benefited from the water improvements. Plaintiff urges that substantial evidence supports
a “conclusion that the work in the liens benefitted the lots liened and not the un-liened
lots,” whereas defendants contend the trial court decided that the water improvements
benefited all the lots in Monterra. The disagreement appears to stem from an ambiguity
in the statement of decision where the trial court states it was acceptable for plaintiff to
apportion the Water Lien “only to certain lots which benefitted from the liened work.”
                                               13
Read in isolation, that statement could mean either that plaintiff apportioned the lien to
only those lots that benefited from the water improvements, or alternatively that plaintiff
apportioned the lien to certain lots that benefited from the water improvements while
leaving unencumbered other lots that also benefited from those improvements. But in the
context of the trial evidence we will now discuss—as well as the court’s repeated
references to the water improvements as “designed to be an integrated whole serving all
the lots in each phase”—it is clear the trial court found that the improvements benefited
all lots in Monterra.
       Plaintiff’s trial theory was that it had allocated the Water Lien to the remaining
unsold lots because those were the only lots that benefited from the Water Lien
improvements. Consistent with that position, Williams testified that he did not think the
lots already sold to third parties benefited from the Water Lien improvements because
those lots were receiving water from the existing water treatment plant. Williams noted
that the existing water treatment plant had the capacity to serve the sold lots.
       But Williams also acknowledged that the Monterra water system was designed to
be an integrated whole serving the entire subdivision. Williams explained that the county
initially required Monterra LLC to build a smaller test reverse osmosis plant (i.e., the
plant serving the sold lots), whose capacity would be expanded later by building the High
Well Treatment Plant (the costliest improvement in the Water Lien). Williams confirmed
that once the High Well Treatment Plant was finished, it would “supply water to all
170 lots” in Monterra. The existing smaller water plant would then be converted to treat
brine effluent that was the byproduct of processing water at the High Well Treatment
Plant. Williams also acknowledged that certain improvements that were part of the
Water Lien were already operational, meaning that they were being used by the sold lots
even though those lots were not included in the Water Lien. Those improvements
included wells that were providing water to the existing water plant.


                                             14
       Plaintiff initially recorded a lien for the water-related improvements against all
lots in Monterra, suggesting plaintiff believed the improvements benefited all of those
lots. Plaintiff later released the original lien and recorded the liens that make up the
Water Lien, which name only the 85 unsold lots. Williams testified that he reduced the
number of lots against which plaintiff claimed the Water Lien at Mills’s urging.
Williams testified that Mills expressed three concerns about the liens being recorded
against all lots (admitted over a hearsay objection for the limited purpose of explaining
Williams’s conduct): Mills thought it would be unfair to the third parties who had
purchased lots to have to pay even though they had already “paid for their share of
things”; Mills believed the improvements in the Water Lien “benefited the developers’
lots”; and Mills feared that a blanket lien would taint the project.
       The trial court’s statements at the final hearing of phase one of the trial support
our conclusion that the trial court determined the Water Lien benefited all lots in
Monterra. The court stated it interpreted case law as allowing the “owner and the
contractor to agree what properties can be liened, and it does not require a uniform
lien ... [or] that the lien be allocated evenly across all the properties.” In allocating the
Water Lien to the unsold lots, the court summarized “the problem” as follows: “Either
you impose those liens on individual purchasers that have already paid for those lots and
bought them; or the developer goes unpaid; or you find that the lenders, who were in a
position to be able to have -- to insist on some kind of a control[] account, a bond, could
have covered it.”
       The trial court’s statement of decision describes the Water Lien as consisting of
improvements to “increase the water and sewer systems capacity to provide services to
the last 85 unsold lots.” The court found the water and sewer infrastructure “was
designed to be an integrated whole serving all the lots in each phase, no phase of which
could have operated independently of the others.” The court noted that the initial water
plant was an experimental undertaking, and that “it was always anticipated that this first
                                               15
plant would not be sufficient to supply water to all of the lots in Monterra.” The court
found the High Well Treatment Plant was “an integral part of the entire development
project.” Regarding allocation of the liens, the court found that “completion of the
infrastructure, even in areas not contiguous to all of the lots liened, was of benefit to all
the lots liened.” Finally, the trial court found that plaintiff and Monterra LLC could
agree that “work for which the lien amounts are at issue here be apportioned only to
certain lots which benefitted from the liened work.”
       Substantial evidence supports the trial court’s conclusion that the Water Lien
improvements benefited all lots in Monterra. Williams acknowledged that the plan all
along was to build the smaller water plant to demonstrate the feasibility of reverse
osmosis, and then build the High Well Treatment Plant which would have the capacity to
serve all lots in the development. Williams also acknowledged that the Water Lien
included charges associated with wells already in operation, providing evidence that the
improvements in the Water Lien were in fact directly benefiting the sold lots. To support
its argument that sold lots did not need the Water Lien improvements, plaintiff repeatedly
cites a letter from an engineer stating that the existing water plant had enough capacity to
serve the sold lots. But the letter also notes that the “intent for many years has been to
replace the existing 80 [gallons per minute] plant with the High Well treatment plant
(140 gpm) and convert the existing plant into a brine concentration facility.” We
therefore find no error in the trial court’s conclusion that the Water Lien improvements
benefited all lots in the subdivision.
           2. The Water Lien Should Not Have Been Limited to the 85 Unsold Lots
       Former section 3110 states that a mechanic’s lien extends to all “property upon
which [the party claiming the lien has] bestowed labor.” Whether a lien under former
section 3110 for work that benefited certain lots may be allocated to only a subset of
those lots presents a question of law we review de novo. (Diamond v. Superior Court
(2013) 217 Cal.App.4th 1172, 1188 [“Statutory interpretation involves purely legal
                                              16
questions to which we apply the independent standard of review.”] (Diamond); see also
A.A. Baxter Corp. v. Home Owners & Lenders (1970) 7 Cal.App.3d 725, 732 (Baxter)
[“As these liens are the creatures of statute the objects thereof are limited to those
designated by the statute.”].)
       In finding that plaintiff and Monterra LLC could “agree to allocate or limit
allocation of a lien claim to a specific lot or lots,” the trial court relied on three cases:
B. & J. Const. Co. v. Spacious Homes, Inc. (1962) 204 Cal.App.2d 216 (B. & J.);
Rodeffer Industries, Inc. v. Chambers Estates, Inc. (1968) 263 Cal.App.2d 116
(Rodeffer); and Baxter, supra, 7 Cal.App.3d 725. We will briefly summarize the cases
and explain why the trial court’s decision must be reversed.
       The B. & J. Construction Company agreed to grade and fill land for a contractor;
the land to be graded covered two tracts. (B. & J., supra, 204 Cal.App.2d at pp. 218,
222.) B. & J. graded the two tracts and billed the contractor for over $30,000. (Id. at
p. 218.) B. & J. was paid over $20,000, including one payment for $10,000. (Id. at
pp. 219, 221.) The $10,000 check contained the following notation: “ ‘Endorsement of
this check relinquishes all mechanic[’s] lien rights and all labor lien rights for labor and
materials furnished on’ ” one of the two tracts. (Id. at pp. 221–222.) B. & J. recorded a
lien against both tracts for the roughly $10,000 it was still owed. (Id. at p. 222.) The
lower court found that B. & J. had forfeited its lien by, among other things, including
both tracts in its lien claim. (Id. at p. 221.) In reversing, the B. & J. court interpreted the
language on the $10,000 check as “an offer to apportion the cost of the improvement in
such a way as to give [the property owner] the benefit of a lien-free area.” (Id. at p. 222.)
The court reasoned that by endorsing the check, B. & J. agreed to “allocate some of the
money theretofore paid as full payment on [one tract], and to consider the unpaid balance
as entirely attributable to [the other tract].” The appellate court concluded that while B.
& J. improperly included both tracts in its lien claim, it was still entitled to the


                                               17
outstanding lien balance on remand after amending the lien to impose it against only the
remaining tract. (Id. at pp. 222–223.)
       Rodeffer was a concrete supplier for a 146-lot residential subdivision. (Rodeffer,
supra, 263 Cal.App.2d at p. 117.) Rodeffer received periodic payments by checks which
included written vouchers; the check/voucher combinations were “joint checks” payable
to both Rodeffer as concrete supplier and also the subcontractor that actually poured the
concrete at the subdivision. The vouchers stated they were to be applied to “labor and/or
materials furnished to ... specifically designated lots situated” in the subdivision. (Id. at
pp. 117–118.) Rodeffer received a portion of each check’s amount (representing the sum
owed for the concrete supplied for the lots specified in the voucher), and the
subcontractor retained the remainder. (Ibid.) Rodeffer sued to foreclose a lien for the
outstanding balance associated with material supplied to the subdivision. On the
defendant subdivision owner’s claim that the entire amount of the checks should have
been credited toward Rodeffer’s outstanding balance for the subdivision, the Rodeffer
court concluded that “issuance of a joint check payable to a materialman and a
subcontractor in payment of labor and materials for specifically designated lots does not
require that the materialman credit the entire proceeds of such check against not only
materials delivered to the lots for which the check was expressly issued, but also against
all other materials furnished on a particular construction project.” (Id. at p. 119.)
       In Baxter, the A.A. Baxter Corporation agreed to act as a contractor for a tract to
be subdivided into three units that would each contain multiple houses. (Baxter, supra,
7 Cal.App.3d at p. 728.) A.A. Baxter worked on the project for several months, resulting
in an unpaid balance of over $125,000. It recorded a lien for the unpaid balance against
the third unit of the subdivision and undeveloped land on the tract; the first and second
units were not included in the lien. (Id. at pp. 729–730.) The defendants were owners of
residences in the third unit and their lenders. (Id. at p. 729.) A.A. Baxter’s principal was
also a limited partner in Harbor Crest, the company that owned the tract. The evidence
                                              18
showed that A.A. Baxter’s principal knew that Harbor Crest was in financial trouble, and
made an agreement with Harbor Crest to subject the lots in the second and third units “to
a secret claim of lien” whereby A.A. Baxter would delay assertion of a lien claim on the
first unit so that lots in the other units could be sold without disclosing that they might
later be subject to lien liability. (Id. at pp. 730–731.) A.A. Baxter obtained a money
judgment against Harbor Crest, but was denied foreclosure of its lien against the
homeowners and lenders from the third unit. (Id. at p. 730.)
       The Baxter court affirmed, finding that the lien was untimely and that A.A. Baxter
had purposefully elected to impose the lien on only a subset of the lots improved by the
liened work. (Baxter, supra, 7 Cal.App.3d at p. 731.) The court explained that the
relevant mechanic’s lien law in effect at the time provided that any “ ‘person who, at the
instance or request of the owner ... of any lot or tract of land, grades, fills in, or otherwise
improves the same, ... has a lien upon said lot or tract of land for his work done and
materials furnished.’ ” (Id. at p. 732.) The court interpreted that section to mean that the
“object of the lien conferred ... is the ‘tract of land’ graded or otherwise improved,” thus
the lien applied to the entire tract, not merely to a part of the tract. (Ibid.) But the court
also noted that a contractor may waive the right to lien a portion of a tract by his or her
conduct (such as by failing to timely record a lien claim). (Ibid.) The court explained
that where “work is performed on an entire tract there is a difference between limiting
enforcement of the contractor’s lien to a part of the tract [due to waiver by the contractor]
and permitting the contractor to claim a lien upon only a part of the tract.” (Ibid.) The
court concluded that the defendants were “entitled to rely upon the assumption any claim
of lien by a contractor for grading the entire tract would be upon the entire tract; would
not be limited to the lots in [the third unit]; and, in any event, would not subject their
property to more than a proportionate share of the amount of the claimed lien.” (Id. at
pp. 732–733.) The appellate court affirmed the denial of recovery on the lien foreclosure,
finding that the lien was untimely; that A.A. Baxter had improperly sought to recover its
                                              19
unpaid balance from only a limited subset of the lots that had been improved by the
liened work; and that A.A. Baxter was barred by the equitable doctrines of estoppel and
laches. (Id. at pp. 733–735.)
       Here, the trial court stated that plaintiff and Monterra LLC could “agree to allocate
or limit allocation of a lien claim to a specific lot or lots.” Similarly, plaintiff argues that
plaintiff and Monterra LLC “could agree to deem payments applicable to certain lots so
the work on those lots was fully paid, and leave the work on other lots unpaid,”
effectively allocating payments “so that the sold lots were lien-free.” While that may
have been the parties’ intent, the actual allocation of payments did not legally accomplish
the goal of freeing the sold lots from lien liability. Monterra LLC owed plaintiff a lump
sum for its work on the water improvements, which we have already concluded benefited
all lots in the subdivision. There is no evidence that Monterra LLC ever directed plaintiff
to apply payments to the sold lots’ proportionate share of the water improvements.
Though Monterra LLC did direct plaintiff to apply payments to the unhighlighted
category of work shown on the color spreadsheet, Monterra LLC’s direction to apply
payments toward the sold lots’ liability for work other than the water improvements is
irrelevant to the allocation of the Water Lien.
       We find the facts of this case to be more similar to those in Baxter than to those in
B. & J. To paraphrase Baxter, defendants were entitled to rely on the assumption that
any claim of lien by plaintiff for water improvements benefiting the entire Monterra
development would be imposed upon the entire development, would not be limited to the
unsold lots, and would not subject those unsold lots to “more than a proportionate share
of the amount of the claimed lien.” (Baxter, supra, 7 Cal.App.3d at pp. 732–733.)
       Plaintiff argues the trial court’s decision was consistent with Rodeffer, supra,
263 Cal.App.2d 116. But unlike the owner in Rodeffer that directed payments to be
applied to work on specific lots, Monterra LLC made payments on account and never


                                               20
directed plaintiff to allocate payments to the sold lots’ proportionate share of the water
improvements.
       Plaintiff contends that reversing the trial court would be inequitable because it
would be equivalent to a finding that plaintiff “released its lien on the sold lots while
money was still owing on the work benefitting those lots.” We acknowledge that our
decision will reduce the total amount plaintiff receives under the Water Lien because
plaintiff can no longer recover anything from the lots not encumbered by the Water Lien.
But as we have explained, there is no legal support for the trial court’s selective
allocation of liability for the Water Lien. Plaintiff could have avoided this result by
foreclosing the original mechanic’s lien for the water improvements, which it recorded
against all lots in Monterra.
       Plaintiff notes that defendants “did not require control accounts to ensure
disbursement of their loan funds to pay the mechanics -- which would have reduced or
eliminated the nonpayment of [plaintiff’s] invoices -- and Defendants did not obtain
payment bonds which would have provided them priority over mechanic’s liens.” (Citing
former §§ 3123, 3137, 3139.) But our decision does not eliminate defendants’ liability
for the Water Lien; we merely conclude that the trial court’s decision improperly
imposed greater lien liability on defendants than their proportionate share. Defendants’
failure to use control accounts or payment bonds is irrelevant to the appropriate allocation
of the Water Lien.
       The trial court reasoned that selective allocation of the liens was consistent with
the Subdivided Lands Act. (Bus. & Prof. Code, § 11000 et seq.) By noting that the
Subdivided Lands Act makes it unlawful for a developer to sell a lot within a subdivision
if it is subject to a blanket encumbrance (such as a mechanic’s lien), the trial court
appeared to be concerned that applying the lien to the sold lots could subject Monterra
LLC to liability for violating the Subdivided Lands Act. (See Bus. & Prof. Code,


                                             21
§ 11013.1.) But nothing in that statutory scheme purports to supersede the Civil Code
provisions related to mechanic’s liens.
           3. Plaintiff is Entitled to Proportionate Recovery On Remand
       Defendants argue that because plaintiff asserted the Water Lien against only 85
lots instead of against all lots that benefited from the water improvements, plaintiff
should not be entitled on remand to recover from defendants the amount of the Water
Lien that is proportionately attributable to the lots still at issue in this case. Defendants
rely on Baxter, supra, 7 Cal.App.3d 725, and Cook v. Cappellino (1929) 101 Cal.App. 77
(Cook).
       As we noted in our previous summary, the Baxter court affirmed the denial of lien
recovery to the contractor because the contractor had intentionally and improperly sought
to recover the lien amount from a subset of the affected lots based on a secret agreement
with the property owner. (Baxter, supra, 7 Cal.App.3d at pp. 733–735.) In finding that
the contractor had improperly recorded its lien against only a subset of the benefited lots,
the appellate court observed: “Even assuming the claim of lien filed by [A.A. Baxter]
effectively subjects ... property to liens for apportioned shares of the amount unpaid
[A.A. Baxter] on its contracts with [the land owner], [A.A. Baxter] did not seek such
relief; instead, [it] sought to subject the whole of [the defendants’] properties to the whole
of the unpaid amount due it; and neither the pleadings nor the proof in the case would
support a judgment decreeing foreclosure on an apportionment basis.” (Id. at p. 733.)
       Cook involved a lien foreclosure action by plaintiffs who had furnished materials
to a corporation as agent for the owners of real property for construction on that property.
(Cook, supra, 101 Cal.App. at pp. 77–78.) Each plaintiff had recorded multiple liens
against multiple lots, but their lien foreclosure action sought the full amount due them
without identifying any particular lien recorded against any specific lot or landowner.
The lower court found that the lien foreclosure actions were untimely, and denied relief
based on the liens. Two plaintiffs appealed, seeking to revive the lien foreclosure action.
                                              22
The Cook court rejected their arguments, explaining that the plaintiffs could not recover
the full amount of their liens against any single owner because each lien included
“improvements upon the properties of all, nor could one lien for either total amount be
charged against all, as prayed, without a proportionate segregation.” (Id. at p. 79.) The
court concluded that because “no specific lien was pleaded or sought to be established as
against any particular landowner, ... no judgment could have been rendered for the
declaration of liens which were not pleaded.” (Ibid.)
       Baxter and Cook are of little persuasive value regarding defendants’ proportionate
liability for the Water Lien. Neither case stands for the proposition that proportionate
allocation is not available unless specifically pleaded. Given that the mechanic’s lien
laws are “remedial legislation, to be liberally construed for the protection of laborers and
materialmen” (Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803, 826–
827), we believe that trial courts retain discretion to craft a remedy (such as proportionate
allocation) that allows a lienholder to recover as much of his or her claim as legally
possible. Defendants cannot claim unfair surprise regarding proportionate liability given
that the issue was thoroughly developed by the parties during trial.
   C. SITE IMPROVEMENT LIEN ALLOCATION
       Defendants argue the trial court erred in allocating the Site Improvement Lien to
only the unsold lots in Monterra phases seven and nine. They acknowledge that the Site
Improvement Lien consists solely of “improvements within the physical boundaries of
Phases 7 and 9,” but argue that the improvements benefit the entire subdivision because
the “road[] and associated infrastructure that [plaintiff] constructed connects with the
roads in all other phases” of Monterra. They also contend that the trial court’s finding
that Monterra was a single “work of improvement” under former section 3106 compels a
finding that the Site Improvement Lien benefited all lots in the subdivision.
       As we have discussed, we review the trial court’s determination of the amount of
land necessary for the convenient use and occupation of improvements that are the
                                             23
subject of a lien for substantial evidence, and we review the trial court’s allocation of the
lien amount among the benefited lots de novo (Diamond, supra, 217 Cal.App.4th at
p. 1188).
       Phases seven and nine are adjacent to each other. Phase seven contains two lots,
and phase nine contains six lots. Monterra LLC still owned all lots in phases seven and
nine when plaintiff recorded the Site Improvement Lien. Paseo Venado is the only road
in phases seven and nine, and it was built as part of the Site Improvement Lien work. It
begins on the western boundary of phase seven, travels between the two lots in phase
seven, continues along the phase nine southern border, and ends near the eastern
boundary of phase nine. Paseo Venado is a spur route off the more arterial Via Malpaso.
Paseo Venado provides the only road access to lots in phases seven and nine (with the
possible exception of one lot in phase seven that has a different road as its western
boundary). Because it dead-ends in phase nine, Paseo Venado does not provide access to
lots in phases other than phases seven and nine from any of the Monterra external
entrances. The trial court’s statement of decision describes the Site Improvement Lien
work as “related to the installation of site improvements (roads, driveways, retaining
walls, utilities) to benefit the lots located in Phases 7 and 9 of Monterra.” We interpret
that language as a factual finding that the Site Improvement Lien benefited only the lots
in phases seven and nine.
            1. The Site Improvement Lien Benefited Only the Lots Liened
       Defendants’ argument regarding which lots benefited from the Site Improvement
Lien work is similar to their argument about which lots benefited from the Water Lien
work. But the nature of the improvements in the two liens is distinct. Whereas the Water
Lien reflected improvements that would have led to the operation of a water treatment
plant providing water to all lots in Monterra, the Site Improvement Lien work involved
building a road and related infrastructure serving only the lots in phases seven and nine.
The connection between those improvements and lots outside phases seven and nine is
                                             24
far more attenuated than the connection between the water improvements and all the lots
in Monterra.
       Forsgren Associates, Inc. v. Pacific Golf Community Development LLC (2010)
182 Cal.App.4th 135 (Forsgren) is instructive regarding whether a lien can legally attach
to adjacent property. Forsgren was a general contractor for a project that involved
constructing a golf course and flood channel. The golf course was supposed to be the
first phase in a development project that was designed eventually to include residential
lots and parks on property adjacent to the golf course property. (Id. at pp. 138, 140.)
Forsgren performed construction on the golf course. Most construction occurred on the
golf course property, but some elements of the golf course construction (the “ ‘back tee’ ”
of one hole and some topsoil relocation) occurred on a portion of an adjacent property on
which the residential units were to be constructed. (Id. at pp. 141–143.) After
performing over $1.5 million of unpaid work, Forsgren brought a breach of contract
action against the developer and was permitted by the lower court to foreclose a
mechanic’s lien recorded against both the golf course property and the entire adjacent
property. (Id. at pp. 143–144.)
       On appeal, the Forsgren court noted that the mechanic’s lien “attached to all such
property on which the golf course construction was ‘situated together with a convenient
space about the same or so much as may be required for the convenient use and
occupation thereof.’ ” (Forsgren, supra, 182 Cal.App.4th at p. 150, quoting former
§ 3128, italics omitted.) The court reasoned that to determine the scope of a mechanic’s
lien, a trial court is “required to take into consideration the use and purpose for which the
improvement was intended.” (Id. at p. 151.) The scope “ ‘largely depends on the
character of the development.’ ” (Ibid.) Summarizing case law, the Forsgren court
stated that in order for a “lien to attach to the adjacent property, the purpose for which the
building or improvement in question is erected must be ‘so intimately and directly
connected with the operations carried on in the adjacent buildings as to constitute it an
                                             25
essential part and parcel’ of the improvement.” (Id. at p. 153.) The court concluded that
the golf course mechanic’s lien did not attach to the entire adjacent property “because not
all of the adjacent property was required for the convenient use and occupation of the
golf course.” (Id. at p. 139.) The lower court was directed to enter a new order attaching
the lien to the limited portion of the adjacent property where Forsgren had actually
performed work during golf course construction. (Id. at p. 160.)
       We find Forsgren’s reasoning persuasive. The Site Improvement Lien work was
performed and located only within phases seven and nine. To require lots in adjacent
Monterra phases to share proportionate liability for the Site Improvement Lien, the
improvements supporting that lien would have to be “ ‘so intimately and directly
connected with the operations carried on in the adjacent’ ” Monterra phases as to make
them an “ ‘essential part and parcel’ of the improvement.” (Forsgren, supra,
182 Cal.App.4th at p. 153.) Substantial evidence supports the trial court’s conclusion
that there was no such functional connection here. The road built as part of the
improvements is of little, if any, benefit to the lots in Monterra located outside phases
seven and nine because it begins and dead-ends inside those two phases and does not
provide access to any lots outside phases seven and nine. The trial court’s decision
attaching the Site Improvement Lien only to the lots in phases seven and nine was
correct.
       Defendants argue that because the trial court found Monterra was a single “work
of improvement” as defined in former section 3106, it necessarily had to conclude that
the Site Improvement Lien work benefited the entire subdivision. (See former § 3106
[“ ‘Work of improvement’ includes but is not restricted to the construction ... of any
building, ... or road, ... [and] the filling, leveling, or grading of any lot or tract of land”].)
In finding that the “Monterra project was a single work of improvement for purposes of
determining the validity and the timeliness of the liens asserted,” the trial court focused
almost exclusively on the improvements associated with the Water Lien. The court
                                                26
described the stages of building the water system for the project, starting with the first
plant that was to be followed by the High Well Treatment Plant; the trial court then
specifically found that the “second phase of the water system (the ‘high well treatment
plant’) was an integral part of the entire development project.” Defendants offer no
authority for the proposition that a lien for discrete improvements within a larger scope of
work cannot be found to benefit fewer than all lots involved in the development as a
whole. The nature and extent of the benefits derived from the underlying work largely
determine the scope of the lien.
       Defendants complain in their reply brief that plaintiff’s position as to the Site
Improvement work benefiting only the lots in phases seven and nine is inconsistent with
the position another plaintiff took at trial. They note that the principal for a contractor
who settled with defendants during trial testified that the work on a spur road in phase six
of Monterra benefited the entire subdivision because a “completed subdivision has to add
value to all of the parcels.” Defendants appear to suggest that because the other
contractor was also represented by plaintiff’s counsel, plaintiff’s position should be
disregarded. But different parties are entitled to have different theories of the case, and
the ultimate decision of the Site Improvement Lien’s scope was a question for the trier of
fact, here the trial court.
   D. CONTRACTUAL INTEREST IN THE LIENS
       The trial court determined that plaintiff and Monterra LLC agreed by oral contract
that Monterra LLC would pay contractual interest at a rate of 10 percent per annum for
past-due invoices. The trial court also determined that unpaid contractual interest could
legally be included in the Water Lien and the Site Improvement Lien. Defendants argue
there was no substantial evidence to support the existence of an oral agreement to pay
contractual interest, and that even if such an agreement existed the mechanic’s lien law
precludes adding contractual interest to the amount of a mechanic’s lien.


                                              27
          1. Substantial Evidence Supports the Existence of an Interest Agreement
       Oral contracts are authorized by California law. (§ 1622.) Every term of an oral
contract need not be stated in minute detail. (Skirball v. RKO Radio Pictures, Inc.
(1955) 134 Cal.App.2d 843, 861.) But to be enforceable, there must at a minimum be
evidence of a “ ‘ “meeting of the minds upon the essential features of the agreement, and
[evidence showing] that the scope of the duty and limits of acceptable performance be at
least sufficiently defined to provide a rational basis for the assessment of damages.” ’ ”
(Scott v. Pacific Gas & Electric (1995) 11 Cal.4th 454, 467.) “Where the existence of a
contract is at issue and the evidence is conflicting or admits of more than one inference, it
is for the trier of fact to determine whether the contract actually existed.” (Bustamante v.
Intuit, Inc. (2006) 141 Cal.App.4th 199, 208.) We review those factual findings for
substantial evidence. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 987.)
       Substantial evidence supports the trial court’s decision that an oral contract existed
with the following essential features: plaintiff and Monterra LLC agreed to pay interest
on past-due invoices; the interest rate would be 10 percent; and interest would accrue
“60 days from the last day of the month in which the work was performed.” Williams
testified that he approached Mills at the end of 2000 when Monterra LLC’s unpaid
balance was over $2 million. The two made a handshake agreement that Monterra LLC
would pay interest at a rate of 10 percent on outstanding balances, starting in
January 2001. Mills confirmed the existence of that agreement in his trial testimony,
explaining that he agreed to pay interest because he recognized that plaintiff would be in
effect financing the project. Mills testified that he could not remember the precise details
regarding interest accrual, but that he recalled it would “accrue in either 30 days after the
end” of the month when the work was completed, “or 60 days.” He noted that he would
have wanted the accrual period to be as long as possible, meaning he “might have pushed
for 60 days.” Williams testified that interest “was due the month after we did the work,”
and that “interest would be charged in the month afterwards.”
                                             28
       Defendants challenge the finding of an oral contract because “there was no
evidence that Mills and Williams ever agreed on the essential term of when interest
would begin to accrue.” In selecting a 60-day accrual period as the “most reasonable
conclusion under the circumstances,” the trial court chose the period that was more
beneficial to Monterra LLC (and, by extension, defendants). The trial court was entitled
to credit Mills’s testimony that interest accrued 60 days after the month the work
occurred. Indeed, in their reply brief defendants “concede that substantial evidence exists
to support such a finding” that the parties agreed to a 60-day accrual period.
       Defendants urge viewing the testimony about the interest agreement “with extreme
skepticism, given the wealth of contrary evidence presented to the trial court.”
Defendants cite evidence of no oral contract to pay interest, including: the lack of
contemporaneous documentary evidence showing that plaintiff was charging interest; the
lack of a written contract to charge interest; plaintiff’s office manager’s testimony that
she did not track interest owed until preparing the liens in 2008; that the invoice
spreadsheet the office manager used until preparing the liens did not track interest; and
that financial information Monterra LLC reported to creditors did not show that plaintiff
was charging interest. But as our review is for substantial evidence, we will not reverse
merely because there was evidence to support a different decision by the trial court.
(Heard v. Lockheed Missiles & Space Co. (1996) 44 Cal.App.4th 1735, 1747 [“All
factual matters must be viewed in favor of the prevailing party and in support of the
judgment. All conflicts in the evidence must be resolved in favor of the judgment.”].)
Substantial evidence supports the trial court’s finding that an oral agreement for
                                   4
contractual interest was formed.


       4
          Plaintiff urges in its cross-appeal that if we find the contract to pay interest
indefinite and therefore unenforceable, we should find that the parties actually agreed to a
30-day accrual period. Because substantial evidence supports the trial court’s decision, a
remand on this point is not necessary.
                                             29
           2. Contractual Interest was Improperly Included in the Liens
       Defendants argue that even assuming an agreement to pay contractual interest
exists, the trial court was precluded by law from including contractual interest in the
Water Lien and Site Improvement Lien. Plaintiff raises a new argument on appeal: that
the liens need not be remanded for recalculation because as “a matter of the facts, no
interest is in the lien, because [plaintiff’s] and the trial court’s allocation of payments
paid off the interest owing and part of the principal balance for the work.” (Italics and
underlining omitted.) The amount of a mechanic’s lien “shall be for the reasonable value
of the labor, services, equipment, or materials furnished or for the price agreed upon by
the claimant and the person with whom he or she contracted, whichever is less.” (Former
§ 3123, subd. (a).) Whether former section 3123 allows for the recovery of contractual
interest as part of a mechanic’s lien is a question of statutory interpretation we review de
novo. (Silver, supra, 79 Cal.App.4th at p. 353.) We review the trial court’s factual
findings resolving disputed testimony for substantial evidence. (Ibid.)
       The trial court found that “charges for many items (primarily labor) in [plaintiff’s]
billings were significantly in excess of the rates provided for by the contract,” and that
those excessive charges were not commercially reasonable. The court determined that
the oral contract between plaintiff and Monterra LLC provided that a 25 percent markup
for supervision, overhead, and profit was to be applied to plaintiff’s actual labor costs
rather than to its billing rates; applying the markup to plaintiff’s actual cost amounts was
“not only the number to which the parties agreed the percentage would be applied, but
also the number that is commercially reasonable in support of the lien claim.”
       The statement of decision separately addresses contractual interest, concluding
that “interest called for by a contract, so long as not a penalty in nature, is recoverable in
a mechanic’s lien action.” (Citing Lambert v. Superior Court (1991) 228 Cal.App.3d 383
(Lambert); Abbett Electric Corp. v. California Fed. Savings & Loan Assn. (1991)
230 Cal.App.3d 355 (Abbett).) The trial court acknowledged that under former
                                              30
section 3123 it must determine “the amount of the contract price or reasonable value
(whichever is less)” for the liens. The court decided that plaintiff was “entitled to recover
what its charges were had the charges been made in accordance with the parties’
agreement as determined by the court, and that charges as allowed by the court were
reasonable and added value to the lots.”
       Under former section 3123, to calculate the amount of each lien the trial court had
to determine two figures: first, the reasonable value of the liened work; and second, the
agreed upon contractual price for that work. The court was then required to award
plaintiff the lesser of the two amounts. The trial court found that the parties’ contract
price without interest (basically, costs plus a 25 percent markup) was commercially
reasonable, which we interpret as a finding that the contract price and the reasonable
value of the liened work were one and the same. Equating the contract price with
reasonable value is supported by evidence that plaintiff’s improvements added value to
the subdivision and that the contract as modified by the trial court was commercially
reasonable.
       But rather than awarding plaintiff the “reasonable value” of the liened work—
which the court found was equal to the contract price without interest—as required by
former section 3123, the trial court added contractual interest to the reasonable value.
The contractual interest added no value to the liened work; it was instead a method of
compensating plaintiff for Monterra LLC’s failure to timely pay invoices. Because the
court found that the reasonable value of the liened work equaled the contract price
without interest for that work, and the contractual interest provision added no additional
value to the liened work, the trial court erred by including contractual interest in the
amount of the liens.
       The trial court distinguished Lambert and Abbett as involving remedies for breach
of contract or failure to perform, whereas the contractual interest agreement between
plaintiff and Monterra LLC was “simply that the amount due for payment under the
                                             31
contract will increase in the event that payment is not made by a certain date.” (See
Lambert, supra, 228 Cal.App.3d at pp. 388–389 [delay damages cannot be included in a
mechanic’s lien]; Abbett, supra, 230 Cal.App.3d at p. 358 [attorney fees cannot be
recovered under the mechanic’s lien law].) But the distinction the trial court drew is
without legal significance. As the Lambert court persuasively explained, the “function of
the mechanic’s lien is to secure reimbursement for services and materials actually
contributed to a construction site, not to facilitate recovery of consequential damages.”
(Lambert, at p. 389.)
       As to plaintiff’s new argument about interest not being included in any of the liens
as a matter of fact, the trial court never made a finding that no contractual interest
remained in the liens. And the expert spreadsheet plaintiff cites (exhibit No. CDC-235) is
not the spreadsheet the trial court actually relied on to determine the amount of the liens
(exhibit No. D-597). Though plaintiff may be able to show on remand that excluding
contractual interest will not impact the amount of the liens, the record is insufficiently
developed for us to decide the issue on appeal.
   E. PREJUDGMENT INTEREST (§ 3287)
       Defendants argue that plaintiff was not entitled to prejudgment interest because a
lien foreclosure action is not a “cause of action in contract” under section 3287,
subdivision (b) (section 3287(b)). They also contend that even assuming prejudgment
interest was legally available under section 3287(b), the trial court abused its discretion
by awarding prejudgment interest and applied the wrong interest rate.
       The trial court deferred consideration of whether plaintiff was entitled to
“prejudgment interest under Civil Code sections 3287 and 3288” until the second phase
of trial. Plaintiff argued it was entitled to prejudgment interest under either section 3287
(because the damages were sufficiently certain) or section 3288 (because the mechanic’s
lien recovery was an obligation not arising from contract). Defendants countered that
plaintiff was not entitled to prejudgment interest, contending that section 3287,
                                              32
subdivision (a) did not apply because the damages were uncertain; section 3287(b) did
not apply because the damages were uncertain and the equities did not favor an award of
interest; and section 3288 did not apply because it “simply defies common sense to even
suggest [plaintiff’s] alleged right to recovery does not stem from its contractual rights.”
The trial court reasoned that section 3288 did not apply because “the mechanic’s lien
arises from a contract claim.” The court concluded that the equities favored awarding
prejudgment interest under section 3287(b) because plaintiff had to wait a long time to
receive a favorable judgment; plaintiff had to borrow substantial sums of money to keep
the project going; and defendants could have tendered a sum at the beginning of the case.
The court determined prejudgment interest would accrue at 10 percent beginning one
year after the complaint was filed.
           1. Section 3287(b) Applies to Mechanic’s Lien Foreclosures

       Defendants argued in their opening brief that the trial court abused its discretion in
awarding prejudgment interest because, “except in circumstances not present
here ..., [s]ection 3287(b) does not allow prejudgment interest on unliquidated
obligations.” Defendants raised a new argument in their reply brief, that plaintiff was not
entitled to prejudgment interest under section 3287(b) because that subdivision applies
only to a “ ‘cause of action in contract.’ ” We sought supplemental briefing regarding
whether a lien foreclosure action is a “cause of action in contract” for purposes of
section 3287(b).
       Section 3287(b) provides: “Every person who is entitled under any judgment to
receive damages based upon a cause of action in contract where the claim was
unliquidated, may also recover interest thereon from a date prior to the entry of judgment
as the court may, in its discretion, fix, but in no event earlier than the date the action was
filed.” By its express terms, section 3287(b) applies only when the prevailing party is
entitled to damages “based upon a cause of action in contract.” The issue presents a


                                              33
question of law which we review de novo. (Diamond, supra, 217 Cal.App.4th at
p. 1188.)
       Whether a mechanic’s lien foreclosure action is a cause of action in contract under
section 3287(b) is an issue of first impression. We find instructive George v. Double-D
Foods, Inc. (1984) 155 Cal.App.3d 36 (George), where the appellate court determined
that quantum meruit is a cause of action in contract under section 3287(b). In George,
the administrator of an estate sued on a quantum meruit theory to recover for the
reasonable value of the decedent’s services as the vice president of Double-D Foods.
(George, at pp. 39–40.) The suit alleged that Double-D’s agents had orally agreed to
provide decedent bonuses and stock options in addition to his base salary, but no written
employment contract was ever completed. (Id. at p. 40.) On appeal from a jury award of
damages, Double-D Foods argued that prejudgment interest under section 3287(b) was
not available in a proceeding in quantum meruit. (Id. at p. 46.) The appellate court
disagreed, noting that “statutes relating to claims ‘arising upon contract’ have been
applied to quasi-contractual obligations,” and reasoning that “for most purposes, an
action to recover the reasonable value of services is considered an action on the contract.”
(Id. at p. 47.)

       Foreclosing a mechanic’s lien does not technically enforce a contractual provision,
but the statutory scheme is closely related to contract and quasi-contract actions. (See
Basic Modular Facilities, Inc. v. Ehsanipour (1999) 70 Cal.App.4th 1480, 1483 [“The
purpose of a mechanics’ lien is to prevent unjust enrichment of a property owner at the
expense of laborers or material suppliers.”].) For example, the measure of damages in a
lien foreclosure action is the lesser of the “price agreed upon by the claimant and the
person with whom he or she contracted” (i.e., the contract price), or the “reasonable value
of the labor, services, equipment or materials furnished” (i.e., the same as the measure of
damages in quantum meruit). (Former § 3123, subd. (a); see Palmer v. Gregg (1967)


                                             34
65 Cal.2d 657, 660 [“The measure of recovery in quantum meruit is the reasonable value
of the services rendered.”].)
       Treating a mechanic’s lien foreclosure action as a cause of action in contract is
also consistent with defendants’ unequivocal position in the trial court that it “simply
defies common sense to even suggest” that the lien foreclosure action does not “stem
from [plaintiff’s] contractual rights.” Defendants provide no justification for their
inconsistent position on appeal. (See Jackson v. County of Los Angeles (1997)
60 Cal.App.4th 171, 176–177, 183–191 [plaintiff in Americans with Disabilities Act case
estopped from arguing that he was a qualified individual with a disability who could
perform the essential duties of police officer, after stipulating in workers’ compensation
case that he was unable to work in that position].) We conclude a mechanic’s lien
foreclosure action is sufficiently like a contract action to be considered a “cause of action
in contract” for purposes of section 3287(b).
       Defendants compare section 3287(b) to section 1717 (contractual attorney’s fees)
and note that a lien claimant not in contract with a property owner cannot recover
attorney’s fees under section 1717. (Citing Abbett, supra, 230 Cal.App.3d at p. 358 [“ ‘It
is thus black letter law that except for any cause of action on a contract between the lien
claimant and the owner of the improved property which provides for fees, a lienholder
has no entitlement to them from the owner.’ ”].) But sections 1717 and 3287(b) are
different. Section 1717 applies only “where the contract specifically provides that
attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded” to
a prevailing party. (§ 1717, subd. (a).) Section 1717 thus expressly requires a contract.
Section 3287(b), by contrast, provides for the award of prejudgment interest in any
“cause of action in contract” without the need to consider or interpret the terms of a
particular contract.
       Defendants speculate that the reason no published decision has ever affirmed an
award of section 3287(b) interest in a lien foreclosure action is that those actions are not
                                             35
causes of action in contract. But it is equally likely that the issue has simply never arisen
because mechanic’s liens usually involve “damages certain, or capable of being made
certain by calculation” such that prejudgment interest would be available under section
3287, subdivision (a).
            2. There Was No Abuse of Discretion in Awarding Prejudgment Interest
        Defendants argue that even if the court had discretion to award prejudgment
interest under section 3287(b), the court abused its discretion in doing so. We review the
trial court’s award for abuse of discretion. (Esgro Central, Inc. v. General Ins. Co.
(1971) 20 Cal.App.3d 1054, 1064.)
        Defendants argue prejudgment interest should not have been awarded because:
the damages were uncertain and “none of the defendants could have possibly known or
calculated them prior to judgment being entered”; plaintiff was the cause of the
uncertainty because of its overcharging; and defendants could not tender payment
because plaintiff recorded liens with willfully inflated claims. Defendants contend the
“trial [court] would have been justified, under Civil Code section 3118, in invalidating
[plaintiff’s] liens entirely” based on willful overcharging. (See former § 3118 [“Any
person who shall willfully include in his claim of lien labor, services, equipment, or
materials not furnished for the property described in such claim shall thereby forfeit his
lien.”].)
        Uncertainty is inherent in any award of prejudgment interest under section 3287(b)
because section 3287(b) is “an exception to the general rule prohibiting prejudgment
interest when the damages in issue are not capable of being made certain when due.”
(Lewis C. Nelson & Sons, Inc. v. Clovis Unified School Dist. (2001) 90 Cal.App.4th 64,
71.) As for plaintiff’s overcharging, the trial court expressly found that former
section 3118 did not apply because “the excess charges were inadvertent on the part of
[plaintiff], not willful, and not done to inflate its lien or to defraud.” The trial court
further reasoned, “nothing prevented Defendants from tendering payment of what they
                                               36
considered an undisputed sum, after commencement of the suit.” Had defendants
tendered an amount in good faith, that payment could have been considered by the trial
court in determining whether to award prejudgment interest.
       Additional factors discussed by the trial court also support the prejudgment
interest award. Plaintiff’s work provided obvious benefit to Monterra, even if the precise
value was uncertain. Plaintiff had to wait over five years between filing its complaint and
receiving a favorable judgment. Plaintiff borrowed significant amounts to keep the
project going because of Monterra LLC’s failure to make payments. And setting the
starting date for prejudgment interest at one year after plaintiff filed its complaint (even
though section 3287(b) authorizes interest from the date a complaint is filed) shows the
trial court considered and balanced the equities. Defendants have not demonstrated an
abuse of discretion in the trial court’s prejudgment interest award.
              3. Seven Percent is the Proper Prejudgment Interest Rate
       Determining whether the 10 percent interest rate of section 3289, subdivision (b)
or the seven percent interest rate from article XV, section 1 of the California Constitution
applies is a question of law we review de novo. (Diamond, supra, 217 Cal.App.4th at
p. 1188.)
       Article XV, section 1 of the California Constitution provides that the “rate of
interest upon the loan or forbearance of any money, goods, or things in action, or on
accounts after demand, shall be 7 percent per annum” unless the parties “contract in
writing for a rate of interest.” Section 3289 provides rules for interest rates applicable to
breaches of contract. If the contract specifies a legal rate of interest, a court will apply
that rate “after a breach [of contract] ... until the contract is superseded by a verdict or
other new obligation.” (§ 3289, subd. (a).) If a contract does not stipulate a legal rate of
interest, a 10 percent per annum interest rate applies in the event of a breach. (Id.,
subd. (b).)


                                              37
       The parties focus on Palomar Grading & Paving, Inc. v. Wells Fargo Bank, N.A.,
(2014) 230 Cal.App.4th 686 (Palomar). Palomar Grading & Paving, Inc. and Cass
Construction were subcontractors that sued to foreclose mechanic’s liens they recorded
on commercial property after the general contractor failed to pay them for substantial
portions of their work. (Id. at p. 688.) The lower court awarded damages for the lien
foreclosure with prejudgment interest at a rate of 10 percent per annum against, among
other entities, the owners of the liened property. (Id. at p. 689.) The appellate court
agreed with the owners that the constitutional default interest rate of seven percent should
apply instead of the 10 percent interest rate for breach of contract because the “salient
fact here is that the owners of the property had no contract” with the subcontractors. (Id.
at p. 690.) Although the purpose of the mechanic’s lien laws is to prevent unjust
enrichment of property owners, the court reasoned that the 10 percent interest rate for
breach of contract does not apply in every mechanic’s lien case because the benefit to the
owner “is not necessarily the result of an owner’s contract with the lien claimant.”
(Ibid.) Addressing the fairness of awarding 10 percent interest against a general
contractor but only seven percent interest against a non-contracting landowner, the court
explained that the differing interest rates occur because the “owner’s loss is a matter of
operation of law, not voluntary choice.” (Id. at pp. 690–691.)
       We find the reasoning of Palomar persuasive. Like the owners in Palomar, it is
undisputed that defendants here had no direct contractual relationship with plaintiff.
They were merely investors in the entity—Monterra LLC—that had a direct contractual
relationship with plaintiff. While plaintiff is entitled to the reasonable value of its
services from defendants as well as prejudgment interest under section 3287(b), those
conclusions do not dictate that the prejudgment interest rate be 10 percent. Because
defendants owe prejudgment interest by operation of the mechanic’s lien laws and not
because they breached a contract, the trial court erred in setting the interest rate at
10 percent rather than seven percent.
                                              38
       Plaintiff notes that defendants succeeded to Monterra LLC’s interest, and contend
that as successor owners they remain subject to plaintiff’s liens and all its “incumbent
rights.” But being subject to plaintiff’s liens does not mean defendants should pay the
same prejudgment interest rate on those liens as Monterra LLC must pay by virtue of
breaching its contract with plaintiff. Monterra LLC owes interest at the breach of
contract default rate of 10 percent (§ 3289, subd. (b)) because it voluntarily agreed to
enter into a contract with plaintiff. Defendants, on the other hand, are responsible for the
liens and associated prejudgment interest by operation of law because they invested in
Monterra LLC without taking steps to ensure that their deeds of trust would take priority
over any mechanic’s liens. (See Palomar, supra, 230 Cal.App.4th at p. 691 [it is
equitable to charge non-contracting owners seven percent instead of 10 percent because
“the owner’s loss is a matter of operation of law, not voluntary choice”].)
       We acknowledge what may appear to be an inconsistency in determining that a
mechanic’s lien foreclosure is an action in contract under section 3287(b), but that the
10 percent interest rate for breach of contract judgments under section 3289,
subdivision (b) does not apply. But looking at the text of the statutes at issue,
section 3287(b) applies broadly to any cause of action in contract, whereas section 3289
applies only to breach of contract actions. Like section 1717, section 3289 provides tools
to aid contract interpretation and thus assumes a contract between the parties. As there
was no contract between plaintiff and defendants, there could be no breach, and
section 3289 therefore does not apply.
   F. REMAND INSTRUCTIONS
       We provide the following guidance for the trial court’s benefit in a limited trial on
remand.
       The trial court’s first task involves both liens. The court must recalculate the
amount of the Site Improvement Lien and Water Lien after subtracting sums associated
with any contractual interest included in the liens as a result of Monterra LLC’s
                                             39
agreement to pay plaintiff contractual interest. To the extent the parties are unable to
stipulate to a new calculation based on the existing record, additional expert testimony
may be necessary. Once the new lien totals are determined, the trial court must divide the
amount of the Site Improvement Lien among the lots in phases seven and nine.
       The trial court’s second task involves only the Water Lien. The court must
determine the precise number of lots that benefited from the Water Lien. We can state
with certainty based on the record before us that at minimum all lots within Monterra
benefited from the Water Lien improvements. The parties dispute whether the Water
Lien also includes balances due for improvements benefiting lots outside Monterra (i.e.,
lots owned by Tehama in either Tehama or Cañada Woods North). The parties appear to
agree that certain water infrastructure improvements benefited lots owned by Tehama, but
disagree regarding whether the Water Lien itself contains amounts associated with lots
outside Monterra. (Defendants argue the Water Lien includes charges for improvements
benefiting Tehama, whereas Williams testified that Tehama was billed separately for
water infrastructure.) Upon resolving that factual dispute and determining the total
number of benefited lots, the court must divide the new Water Lien total by the number
of benefited lots. Each of the 58 lots listed in the original judgment in this case will then
be responsible for that lot’s pro rata share of the Water Lien. (Plaintiff acknowledges its
recovery is limited to those 58 lots, noting in its cross-appeal that it is “not arguing that it
should be permitted now to recover from the sold lots their proportionate share of the
water lien, only that in making the calculations on a remand, the water lien would first
have to be allocated across the 171 lots to determine each benefitted lot’s proportionate
share (i.e., 1/171th) of the water lien.”)
       Prejudgment interest at a rate of seven percent must then be added to the newly
calculated amounts for both liens, with a starting date of June 26, 2009 (the date already
selected by the trial court). (Cal. Const., art. XV, § 1.)


                                               40
                                  III.   DISPOSITION
       The judgment is reversed and the matter is remanded for a limited retrial (as
described in Part II.F. of this opinion) to remove contractual interest from both the Site
Improvement Lien and the Water Lien, reapportion the Water Lien, and recalculate
prejudgment interest. Each party shall bear its own costs on appeal.




                                             41
                                        ____________________________________
                                        Grover, J.




WE CONCUR:




____________________________
Premo, Acting P. J.




____________________________
Bamattre-Manoukian, J.




H041005 - Carmel Development Company, Inc. v. Anderson et al.
Trial Court:                               Monterey County Superior Court
                                           Superior Court No. M91649


Trial Judge:                               Hon. Thomas W. Wills


Counsel for Plaintiff/Appellant:           Joel Franklin
Carmel Development Company, Inc.            Law Offices of Joel Franklin
                                           Anne Frassetto Olsen
                                            Law Offices of Anne Frassetto Olsen
                                           Robert P. Herendeen
                                            Herendeen & Bryan


Counsel for Defendants/Appellants:         Christopher Ross Rodriguez
Larry Anderson, et al.                      Lewis Brisbois Bisgaard & Smith LLP




Counsel for Defendant/Appellant:           Robert E. Rosenthal
Monterey County Bank                        L&G, LLP




H041005 - Carmel Development Company, Inc. v. Anderson et al.
