Construction Law

This article appeared in a December 2011 issue of "The Construction Advisor" published by Lang Baker & Klain, PLC. Free Subscription to the Construction Advisor View the Construction Advisor index

Allstate Utility Construction, Inc. LLC v. Towne Bank of Arizona (October 2011)

In April 2007, Allstate Utility Company began performing contracted work on property owned by ALC Builders. Two weeks later, Allstate served a preliminary 20-day notice on ALC via first-class mail.

• Resource: Mechanics' Liens and Stop Notices on Private Arizona Construction Projects

In August 2008, Allstate recorded a construction lien against the property as part of an effort to collect more than $112,000 owed by ALC. Pursuant to A.R.S. § 33-993, Allstate attached to its lien a copy of the April 2007 preliminary 20-day notice. In completing the notice, Allstate typed on the signature line “SIGNATURE AND TITLE ON FILE.” When Allstate served the notice on ALC, Allstate did not include an acknowledgment form.

Eventually, Allstate sued ALC in an effort to foreclose the lien. Also named in Allstate’s suit was Towne Bank of Arizona, which had made a construction loan to ALC that was secured by a deed of trust on the property on which Allstate's work was performed. In Superior Court, Towne Bank moved for summary judgment against Allstate, claiming that Allstate’s construction lien was invalid. Towne Bank argued that the preliminary 20-day notice that Allstate served on ALC was defective because, in part, the notice:

• was not properly signed, and

• lacked a form that ALC could use to acknowledge receipt of the notice.

The judge granted Towne Bank’s motion and dismissed the bank from the lawsuit.

Reversal

Allstate appealed that decision to the Arizona Court of Appeals, which reversed the trial court’s ruling and ordered the trial court to enter judgment in favor of Allstate. The Court of Appeals’ opinion, in which it rejected all of Towne Bank’s arguments, contained discussions of two issues that are of interest to contractors.

First, the Court found that the preliminary 20-day notice was properly “signed.” Even though the statutory form of notice contains a signature line, the Court explained that A.R.S. § 33-992.01(C) “does not specify that the notice must be ‘signed’ by the claimant” and that “the act of signing a document ‘is not limited to manual, handwritten signatures.’” Rather, a party “signs” a document by “marking the document with the intention to authenticate it.” Allstate’s notice “plainly named Allstate as the claimant” and “recited Allstate’s address and telephone number.” The Court had no problem with Allstate’s typing “SIGNATURE AND TITLE ON FILE” on the signature line, relying in part on an affidavit by an officer of the lien servicing company in which he attested to the long-standing use of that language to authenticate such notices.

Second, with respect to Allstate’s failure to include an acknowledgment form, the Court found that the “omission of an acknowledgment form does not invalidate the 20-day notice.” The Court noted that a claimant has two options in proving that it served the notice: by recording (1) an acknowledgment of receipt executed by the recipient of the notice or (2) an affidavit of service.

“Section 33-992.01(C), which recites the information that a 20-day notice ‘shall contain,’ makes no reference to an acknowledgment,” the Court stated. “When a properly served … notice contains the other information the law requires, we hold the notice has ‘substantially’ complied with [the statute] even if it fails to include an acknowledgment of receipt form.”

The Bigger Picture

Perhaps as a warning to future parties that wish to challenge the validity of a construction lien, the Court of Appeals cited the Arizona Supreme Court’s 1986 ruling in Columbia Group, Inc. v. Jackson, which stated that “mechanics’ and materialmen’s lien statutes … are to be liberally construed in favor of materialmen. Substantial compliance with the statutes … is sufficient” (emphasis added).

In addition, the Court of Appeals reaffirmed that “lien statutes generally have two purposes: To protect laborers and materialmen who have provided goods and services, and to protect the right of property owners to notice of lien claims against them.”