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ARTICLES
Good Faith and Fair Dealing: The Implied
Duty to Meaningfully Educate the College Athlete, Co-Author Kerry
Krueger
Mechanics’ Liens: The Basics,
Joshua Stevens
Good Faith and Fair Dealing: The Implied
Duty to Meaningfully Educate the College Athlete
Margaret E. Ciccolella, University of the Pacific; Linda A.
Sharp, University of Northern Colorado;
Kerry Krueger, Law
Firm of Kroloff, Belcher, Smart, Perry & Christopherson, Stockton,
California (Originally published
Entertainment and Sports Law Journal Volume 6 Number 1.
Abstract
Statements found in the NCAA Manual and made by the NCAA President
emphasize the primacy of academic success for college athletes.
However the reality of a 'meaningful education' is often elusive due
to the multitude of competing interests. College athletes must balance
academic success with the extensive time demands of athletic
competition, practice, travel, conditioning, watching game film, etc.
Often, this balancing act proves unsuccessful insofar as it pertains
to the achievement of educational goals. To date, there has been
little legal recourse available for aggrieved college athletes who
wish to argue that they have been unfairly deprived of the opportunity
for a meaningful education. Educational malpractice lawsuits have been
unsuccessful and contractual recourse for students has been limited to
cases in which specific promises have been breached by a university.
The authors argue, however, that college athletes should be able to
rely upon a university's good faith efforts to provide a meaningful
education. If a university fails to act in good faith a cause of
action based on a breach of the duty of good faith and fair dealing
should be available to the college athlete.
Keywords
College Sport-Contract-Good Faith and Fair Dealing
Introduction
'Every contract imposes upon each party a duty of good faith and
fair dealing in its performance and enforcement' (Restatement of
Contracts [Second] (1981) §205). It is widely accepted that the basic
legal relationship between student and university is contractual in
nature (Zumbrun v. University of Southern California (1972) 25
Cal. App. 3d 1; Wickstrom v. Northern Idaho College (1986) 725
P. 2d 155 (Idaho)). The exchange of tuition for an education creates a
contract between student and university as does the promise to
participate in the intercollegiate athletics program in exchange for a
meaningful education (Gally v. Columbia University (1998) 22
F.Supp. 2d 199 (S.D.N.Y.); Ross v. Creighton University (1992)
957 F.2d 410 (7th Cir.)
The term 'meaningful education' begs precise definition. However,
one commentator described a 'meaningful education' as the
'intellectual development of students engaged in good faith in the
educational process' (Widener, 1982, p. 470). While a precise
definition of a 'meaningful education' may be elusive, there is no
dispute as to the importance placed upon the educational process by
colleges and universities. Further, the NCAA and its member
institutions prioritize the importance of the educational process and
academic success, and explicitly acknowledge that the academic
interests of student and college athlete are indistinguishable. For
example, Myles Brand, President of the NCAA, spoke to this issue
recently: 'since the participants in college sports are students -
individuals whose first business is acquiring an education - their
academic success is of central importance.' (NCAA State of the
Association Address, 2006).
The 2005-2006 NCAA Manual (§§ 2.2 and 2.4) also emphasizes
educational primacy:
Intercollegiate athletics programs shall be conducted in a manner
designed to protect and enhance the . . .educational welfare of
student-athletes . . .Intercollegiate athletics programs shall be
maintained as a vital component of the educational program and
student-athletes shall be an integral part of the student body . .
.The admission, academic standing and academic progress of
student-athletes shall be consistent with the policies and standards
adopted by the institution for the student body in general.
A representative statement by a university in its college athlete
handbook concerning this issue is as follows: 'the primary purpose of
a student's attendance at a collegiate institution is to acquire an
education. The college athlete's goals must be the same as those of
other students, with education as the primary pursuit'
(Student-Athlete Handbook and Calendar, 2005-2006, p. 7).
If the primary purpose for all students is to acquire an education,
then the university must carefully consider its obligation to provide
a meaningful education. This is especially true for the college
athlete who commonly faces the competing interests of the
intercollegiate athletic and academic programs, e.g., time demands,
conflicting schedules between practices/games and classes. For
example, a study released at the 2007 NCAA Convention reported that
almost one-third of Division I football and men's basketball players
stated that athletics participation has prevented them from choosing
the major they wanted. This survey raises further questions about
whether college athletes are given enough opportunity to be students
first (Knobler, 2007).
When a college athlete alleges that the university has failed to
provide a meaningful education, legal action may result. Such a claim,
as in Ross, typically complains of failures related to
academic offerings or performance, e.g., the type and nature of a
course, the quality of an instructor, the provision of tutors, and the
quality of equipment. These suits typically allege educational
malpractice and/or breach of contract (Ross; Andre v.
Pace University (1996) 655 N.Y.S.2d 777 (App. Div.)). Claims in
educational malpractice are essentially negligence claims alleging
that an educational institution has failed to provide a quality
education. The problem with such lawsuits is two-fold: (i) a claim in
educational malpractice is generally not recognized as a viable cause
of action by the courts; and (ii) promises made by the university to
the student are often vague and therefore difficult to enforce. As a
result, universities generally are not liable (Davis, 1991).
However, a recent case, in which no specific promises were alleged,
has allowed a breach of contract claim (University of Southern
Mississippi v. Williams (2004) 891 So.2d 160 (Miss.)). In this
case the court employed the principle of good faith and fair dealing
that requires the highest ethical conduct on the part of the
university and may provide a broader and more effective legal strategy
for aggrieved college athletes in future lawsuits against
universities.
This paper will focus on the contractual duty of a university to
meaningfully educate the college athlete emphasizing the duty of good
faith and fair dealing. It will briefly explain why educational
malpractice is not a viable cause of action for the student seeking
legal recourse for alleged academic failures of the university.
Thereafter, fundamentals of the contractual relationship between a
student and a university will be discussed, followed by an analysis of
how courts resolve these disputes both when specific promises are
involved and when they are not. The Ross case will be
discussed at length and an argument will be made to employ a
neoclassical model of contract interpretation in college
athlete/university disputes. The next section addresses the theory of
good faith and fair dealing through an analysis of the Williams
case and argues for the application of good faith and fair dealing in
the college athlete context and is followed by concluding remarks.
Educational malpractice
Negligence cases in which a student alleges academic failures of
the university are typically framed as educational malpractice.
Claims in educational malpractice are essentially negligence claims
alleging that an educational institution has failed to provide a
quality education. However, courts are quite clear, as in Ross,
that they are reluctant to interfere in the educational process when
the general quality of an education is attacked. Professionals in
other disciplines have been subject to malpractice actions but the
courts, generally for policy reasons, have refused such claims against
educators (Davis, 1991). There is no satisfactory way to establish
duty or a standard of care by which to evaluate an educator because
education is a collaborative and subjective process whose success is
largely reliant upon the student. There is inherent uncertainty about
causation - does ultimate responsibility for results lie with the
educator or the student? - and damages are often uncertain. There is
also a concern that recognizing claims in educational malpractice will
result in a deluge of claims against schools, thus opening the
'floodgates' of litigation. Finally, courts have recognized that they
are not properly equipped to oversee the day-to-day operations of a
school and/or resolve disputes involving academic freedom and autonomy
(Ross; Andre; Beh, 2000; Melear, 2003).
In a very few situations, claims in negligence have been viable but
only on the rare occasions when there has been a constitutional and/or
statutory basis for such an action. For example, in 1982 the Supreme
Court of Montana held that school authorities owed a duty of
reasonable care to a special education student in testing her and
placing her in an appropriate special education program (B.M. v.
State (1982) 649 P. 2d 425 (Mont.)). This court stated that it
had no difficulty in finding a duty of care owed to special education
students citing both the state constitution and relevant sections of
state statutory law. The court allowed the negligence claim but
remanded the case for consideration of damages. In a subsequent
proceeding, plaintiff failed to meet her burden of proof regarding
damages and no recovery was therefore awarded (B.M. v. State
(1985) 698 P. 2d 399 (Mont.)). This case highlights the difficulty for
the plaintiff in proving damages even when a claim in negligence is
allowed.
It should be noted that malpractice actions sounding in contract
are also typically rejected. Such claims ostensibly attack the quality
of educational experiences provided to students but actually reiterate
the questions concerning the reasonableness of conduct by universities
in providing educational services. For example, in the Gally
case, a dental student sued a dental school for breach of contract,
including breach of good faith, alleging that the school failed to
perform on promises in its code of conduct. Specifically, the student
claimed the school failed to address her allegations of rampant
cheating by other students and discriminatory treatment to her
personally. The court acknowledged the contractual relationship
between student and university but held that not every dispute between
a student and university is amenable to a breach of contract claim.
'Where the essence of the complaint is that the school breached its
agreement to provide an effective education, the complaint must be
dismissed as an impermissible attempt to avoid the rule that there is
no claim in New York for 'educational malpractice' (Gally v.
Columbia University (1998) 22 F. Supp. 2d 199 (S.D.N.Y.), at p.
207).
The essence of a claim for educational malpractice raises questions
that must be answered by reference to principles of duty, standards of
care, and reasonable conduct. These issues are integral to tort law,
not contract law, and are typically rejected by the courts for the
policy reasons described above (CenCor, Inc. v. Tolman (1994)
868 P. 2d 396 (Colo.)).
Contract theory
Fundamentals of the Contractual
Relationship
The basic legal relationship between a student and a university is
contractual in nature (Zumbrun; Wickstrom). The
relationship's terms are generally implied and found in documents such
as enrollment agreements, student manuals, registration materials,
catalogs, bulletins, circulars, and university regulations made
available to the student. Implicit in the contract is the
understanding that if the student complies with the terms prescribed
by the university, she will obtain the degree sought (Gally; Ross;
Beh, 2000).
Express contracts, denoting the obligations of both student and
university, do exist but are less common (CenCor). The
following enrollment agreement signed by the student provides an
example:
I agree to attend all classes as scheduled, to
perform all duties required by the College and abide by the rules and
regulations of the College in accordance with the policies as set
forth in the current College catalogue . . . I further understand that
upon satisfactory completion of the above titled program (including
the externship) and the fulfillment of my financial obligations to the
College, I will receive the College diploma (CenCor, Inc. v.
Tolman (1993) Petitioner's Opening Brief WL 13037812, at pp.
10-11).
For the college athlete, an express contract exists when documents
are signed requiring the signature of university official(s) and/or
the student, i.e., the letter of intent and a financial aid agreement
(Cozzillio, 1989; Davis, 1991). For example, the following university
mandated financial aid agreement requires the signatures of the
college athlete and three university officials:
This athletics financial aid agreement is made in
accordance with the provisions of the Constitution of the National
Collegiate Athletic Association that pertain to the principles of
amateurism, sound academic standards, and financial aid to
student-athletes. Your acceptance of this award means that you agree
with these principles and are bound by them (Financial Aid Agreement,
2005-2006).
There is a long line of precedent establishing that the
relationship between the university and the college athlete is
contractual, based on the financial aid agreements and the national
letter of intent (NLI). Beginning with the seminal case, Taylor v.
Wake Forest University (1972) 191 S.E.2d 379 (N.C. Ct. App. ),
there is substantial authority for this proposition. In Taylor,
the court had no difficulty interpreting the scholarship agreement as
a contract. Thereafter courts have consistently followed this line of
analysis (Begley v. Corporation of Mercer University (1973)
367 F. Supp. 908 (E.D. Tenn.); Cardamone v. University of
Pittsburgh (1978) 384 A. 2d 1228 (Pa. Super. Ct.); Barile v.
University of Virginia (1981) 441 N.E.2d 608 (Ohio Ct. App. );
Waters v. University of South Carolina (1984) 313 S.E.2d 346
(S.C. Ct. App. ); Hysaw v. Washburn University (1987) 690 F.
Supp. 940 (D. Kan.)).
In an oft-cited article on the issue of the contractual nature of
the athletic scholarship and the college national letter of intent,
Cozzillio (1989) acknowledged precedent that has found the
university-student relationship to be contractual, particularly when
financial aid is involved. Cozzillio, however, also attempted to
explicate the parameters of each party's rights and duties under the
contract. At its foundation, the NLI sets forth a university's promise
to provide financial aid in exchange for the college athlete's promise
to attend the university and play a sport. Additionally, the college
athlete must meet the express conditions in the contract. The NLI is
null and void if by the opening day of classes an athlete has not met:
'(a) the institution's requirements for admissions, (b) its academic
requirements for financial aid to athletes, or (c) the NCAA
requirements for freshman financial aid (NCAA Bylaw 14.3) or the
junior college transfer requirements' (Collegiate Commissioners
Association (2005) § 7b).
The university's duty under the scholarship and letter of intent is
to provide a financial aid package, an opportunity to participate in
athletics and 'to provide an opportunity to secure an education' (Cozzillio,
1989, p. 1367). Consistent with the university's stated duty,
Cozzillio (1989, p. 1370) reiterated the concept of educational
primacy as a part of the university's duties: 'First, the
student-athlete's purpose in attending college is to obtain an
education'. This concept that interpretation of bilateral promises
found in the scholarship agreement and national letter of intent must
be broad enough to include the opportunity to secure an education is a
pivotal concern. It should be considered unconscionable to require
college athletes to maintain good academic standing and yet fail to
require the university to provide a meaningful educational opportunity
for college athletes.
When Specific Promises are Involved
Breach of contract is a viable theory on which an aggrieved student
may seek a remedy against a university. Specifically, the likelihood
of plaintiff's success rises substantially when the suit alleges the
breach of identifiable promises relevant to the terms of these
agreements. Universities are more likely to incur liability when there
is a breach of a specific rather than vague promise, arguably because
it is easier to state a claim. Case law is replete, as exemplified by
the cases discussed below, with favorable outcomes for a
student-plaintiff when a university knowingly or recklessly makes
specific false or misleading statements in the course of an
agreement. Course catalog statements typically describe the nature and
extent of academic programs and can create a reasonable expectation of
what is available to the student who relies upon the catalog and
decides to matriculate. When the statements are specific and either
false or misleading, university liability may ensue. The following are
examples of statements for which schools were liable:
1. Misrepresenting the type and quality of equipment,
facilities, and/or faculty. Students have a cause of action when
they allege that statements by school officials and the catalog
misrepresented that students would train on 'up-to-date equipment and
instruments' and work under 'qualified faculty' (CenCor, Inc. v.
Tolman (1994) 868 P. 2d 396 (Colo.), at p. 399). A student
received damages when a community college falsely represented in its
catalog and by statements of school officials the type of equipment
and training that would be available to him in welding class (Dizick
v. Umpqua Community College (1979) 599 P. 2d 444 (Ore.)).
2. Misrepresenting accreditation status. The university
was liable when it misrepresented in the catalog and in statements
from school personnel that the respiratory therapy school was
accredited. The statements were made with a reckless disregard for
whether the college could perform (Lesure v. State (1990)
Tenn. App. LEXIS 355.
3. Breach of a catalog promise. The court found a breach
where a 'catalogue promised such things as qualified teachers, modern
equipment, a low teacher to student ratio, and excellent training
aids' but that the 'college actually provided one unqualified teacher
in a room with seating for 42 students, all taking different level
courses, with only two 10-key machines' and the 'only training aid was
an unused overhead projector'. The jury found that the school
knowingly made false and misleading statements (American
Commercial Colleges, Inc. v. Davis (1991) 821 S.W.2d 450 (Tx. Ct.
App. ), at p. 452).
When Specific Promises are not Involved
The question remains whether there can be liability when there are
breached promises that lack the specificity of the above-cited
examples. In Gally, the court held that merely alleging a
breach without the identification of a 'specific breached promise' did
not state a claim upon which relief can be granted. Likewise, in
Jackson v. Drake University (1991) 778 F. Supp. 1490 (S.D. Iowa),
a court rejected the claim of a college athlete who asserted that
rights to an educational opportunity and to athletic participation
were implied within the express contract between him and the
institution. The court declined to adopt this view as it stated that
'where the language of a contract is clear and unambiguous, the
language controls' (p. 1493). In the Hysaw case a few years
earlier, a federal district court also rejected a breach of contract
claim by a college athlete who asserted that there was an implied
right to play football in the scholarship agreement that he signed.
According to the court, the right to play football is not a promise
made in the scholarship agreement.
Probably the most widely publicized case dealing with a college
athlete's contract claims is the Ross case. In 1978,
Creighton University, a private liberal arts school, provided Kevin
Ross with a basketball scholarship to attend Creighton. Creighton
sought this contract with Ross knowing he was not academically
prepared for the rigors of its academic program. At the time of the
offer, Ross' academic ability was far below the average Creighton
student, i.e., Ross was from an academically disadvantaged background
and Ross' ACT score, a test used to predict academic success at
college, was in the bottom fifth percentile while the average student
admitted to Creighton was in the upper 27th percentile. Based on Ross'
academic disadvantages, Creighton offered tutoring and academic
support and assured him he would be able to participate in a
meaningful education. Ross accepted and played basketball for four
years for Creighton. During this time, Ross maintained a D average,
while completing only 96 units. Many of these units did not apply to
the necessary 128 units needed to graduate. Ross alleged he took these
courses upon advice from the athletic department personnel. At the end
of these four years, Ross was no longer eligible to play college
basketball and still had over a year's worth of academic work to
complete in order to get a degree. It is important to note that while
at Creighton, Ross' written coursework was read and typed by the
athletic secretary. Although a Creighton student for four years, at
the end of his college basketball career, Ross had the overall
language skills of a fourth grader and the reading skills of a seventh
grader.
In 1982, Creighton paid for Ross to attend one year of a private
elementary school to acquire basic educational skills in reading and
writing. Unlike his fellow elementary students, Kevin had already
attended public schools for 12 years and Creighton University for four
years. When Ross then tried to complete his college education at a
local university, he was forced to withdraw due to lack of funds. Ross
alleged he then fell into a deep depression.
In 1989 Kevin Ross filed a lawsuit alleging, among other claims,
that Creighton University had breached its duty of good faith and fair
dealing in his contract with the University. According to Ross, this
duty imposed an obligation on Creighton to provide him with a
reasonable opportunity for meaningful participation in its academic
programs. Ross alleged that Creighton breached this contract when it
denied him any real opportunity to participate in and benefit from the
University's academic program. The basis for this claim alleged
numerous University failures, e.g., the University failed to provide
adequate tutoring services; the University failed to require Ross to
attend tutoring services; the University failed to allow Ross to
red-shirt to spend more time on his academics; and the University
failed to provide funds so that Ross could complete his education.
Although Ross' claims were dismissed by the federal district court,
the Seventh Circuit Court of Appeals reversed and remanded on the
contract claim, specifically addressing whether the plaintiff was able
to point to identifiable contractual promises that the defendant
failed to honor. The court held that Ross' contract claims alleged
more than simply an inadequate education; rather, the student asserted
that the university knew of his deficiencies, promised him specific
services to assist him academically, and breached its promise by
failing to provide those services. The court used precedent to point
out examples of specific promises which a court could objectively use
to assess whether a breach of contract had occurred, e.g., the failure
to provide a set number of instructional hours (Paladino v.
Adelphi University (1982) 454 N.Y.S.2d 868 (App. Div.); the
failure for a professor to give lectures and final exams and all
students received a grade of 'B' (Zumbrun); the failure to
provide instruction fundamental to skills necessary for a specific
qualification such as journeyman (Wickstrom). The Seventh
Circuit's decision would have allowed a trial court to determine
'whether the institution made a good faith effort to perform on its
promise', whether Ross had 'any real access to its academic
curriculum' and an adjudication on 'Mr. Ross' specific and narrow
claim that he was barred from any participation in and benefit from
the University's academic program without second-guessing the
professional judgment of the University faculty on academic matters' (Ross
v. Creighton University (1992) 957 F.2d 410 (7th Cir.), at p.
417). Creighton settled with Ross for $30,000 (Olivas, 1997). Although
the first instance court mentioned the notion of good faith, it based
its holding on the failure of Kevin Ross to plead specific broken
contractual promises. The court did not address the context of the
situation nor look for fairness in the circumstances of Ross'
situation at Creighton University (Beh, 2000).
A critique of the Ross decision has been offered by Beh (2000).
With regard to good faith, Beh stated that the court should have
examined: whether the school provided any tutoring at all, and if so,
was that program comparable to other schools; whether Ross' practice
schedule left him adequate time for class, tutoring and studying; and
whether the school engaged in ethical conduct toward Ross as required
by the NCAA. With regard to bad faith, Beh stated that the Ross court
should have examined: whether Creighton assessed Ross' academic
ability during the recruiting process (or did it just focus on his
athletic talents); whether Creighton knew that its program was
educationally inadequate to meet Ross' needs; whether Creighton
misrepresented the nature of the academic support program to Ross in
written and/or oral communications; and whether Creighton followed the
ethical tenets of the professional organizations to which it belonged.
Beh argued that such questions 'focus on the objective reasonableness
of the program in comparison to similar programs, external standards
of good practice, and any evidence of bad faith and improper motives.
This result is more satisfying than complete abdication of judicial
oversight in that it can protect students from exploitive conduct
while still according deference to academic decisions' (Beh, 2000, p.
219). Beh, therefore, proposed an analysis that looks not just at
specific promises found in a document but at the larger context of the
relationship between the parties.
The context of the college
athlete/university relationship
Contract law has been viewed as providing a framework for the
enforcement of promises (Feinman, 1990). Classical contract theory
provided a vehicle to allow parties the 'freedom of contract', which
meant that parties were essentially allowed to fashion their own
contracts with whomever they chose and with terms that they jointly
negotiated. So long as the parties did not violate public policy or
the law, they were free to make contracts that reflected their own
self-interests. This view of contracts emphasized notions of
individual autonomy in which the courts limited their intrusion into
the parties' ability to make contracts (Feinman).
However, this theory presupposes that parties are able to act in
their own best interests and to operate on an even playing field. The
neoclassical model of contract interpretation (modern
contract) has been fashioned to recognize that courts sometimes need
to intervene in contracts and not just apply the abstract and formal
contract principles embodied in the classical model (Eisenberg, 1984).
Thus, the neoclassical model allows courts to look at the context of a
contract, not just the express language. It permits courts to look at
the relational aspects of a contract to try and reconcile the inherent
tension that is at the heart of many contracts; between individual
autonomy in making contracts and issues of social or individual
welfare. The neoclassical model focuses on flexibility and pragmatism
and allows arguments based on policy analysis, empirical inquiry and
practical reason. The formalistic inquiry associated with the
classical model gives way to considerations of fairness and
interdependence (Eisenberg).
In Melear's article (2003) dealing with the evolution of the
contractual relationship between student and institution, the author
states that students, who are now characterized as consumers in some
contexts, 'have specific and often precise expectations of
institutional performance and actively seek judicial relief through
contract theory for perceived abrogations of these expectations….In
its contemporary manifestation, contract theory provides students an
outlet that was previously unavailable to seek redress against their
colleges and universities' (Melear, 2003, p. 175). Further, although
the relationship between student and university is contractual in
nature, it is not always appropriate to adhere to the rigid
interpretation which is a part of the classical model.
Davis (1997) made a compelling argument that courts improperly
ignore the relevant context of the college athlete and university
relationship in adhering to a classical model of contractual
interpretation, as in the Ross case, which focused primarily
on the bargain principle, i.e., what the parties have bargained for in
the contract. Davis argued that courts should interpret contracts
between college athletes and universities using the neoclassical model
that focuses on the relational aspects between the parties. Courts,
according to Davis, need to look at the relative status of the parties
and the nature of the context in this situation. Courts that continue
to adhere to the formalistic rules of the classical model do not fully
appreciate the relative powerlessness of the college athletes.
Further, the classical model does not account for the fact that
college athlete contracts with their universities are not in any way
negotiated. They are a take-it-or-leave-it proposition and not the
business- to-business contract typified by the classical model.
Hanlon (2006) has also echoed the call for a neoclassical
interpretation in the context of the college athlete contract with the
university due to the disparity of bargaining power that exists
between the parties. For example, in the NLI situation, the language
of this agreement disproportionately favors the NCAA and its member
universities. 'In fact, there is no bargaining power afforded to the
prospective student-athlete' (Hanlon, 2006, p. 44). Hanlon (p. 46)
therefore characterized the relationship between the university and
the college athlete as an 'unconscionable contract of adhesion'. Using
the neoclassical model would allow courts to address fairness of a
contract by looking at outside social factors, public policy, and
community values. 'Several doctrines have developed as a result of the
neoclassical contract law evolution including promissory estoppel,
unconscionability, condition precedent and good faith' (Hanlon, 2006,
p. 60).
Riella (2002), in an article discussing the National Letter of
Intent (NLI), also characterized it as an unconscionable contract
based on the inherent disparity in position and bargaining power
between the parties and noted the failing of a strict contractual
interpretation that does not recognize implied obligations of
contracts between universities and athletes. 'Such holdings fail to
recognize that the documents that form the contract, and especially
the NLI, are not bargained-for exchanges, but standard form
agreements' (Riella, 2002, p. 2199).
Thus, the fact that some promises are not explicitly stated in the
contract document should not be an impediment to arguing that some
aspects of the relationship, e.g., educational primacy, should be an
important component of the deal. If courts appropriately adopt the
neoclassical model of interpretation in the case of the college
athlete and university relationship, justice is served by adhering to
the longstanding principle of 'good faith and fair dealing'.
Good Faith and Fair Dealing
Fundamentals of Good Faith and Fair Dealing
This section addresses the principle of good faith and fair
dealing, analyzes a recent good faith and fair dealing case in the
student-university context and argues for its application in the
college athlete relationship with the university. The aggrieved
student suing the university for alleged breached promises that are
not explicitly stated in the contract should have recourse using a
neoclassical model of contract interpretation which employs the good
faith and fair dealing concept as a tool to address the context of the
college athlete and university relationship and the expectations of
the parties.
It is a fundamental principle of law that in every contract there
is an implied covenant of good faith and fair dealing in the
interpretation and enforcement of contracts, and an implied duty of
cooperation on both sides (Lord, 2005; Logan v. Bennington College
(1995) 72 F.3d 1017 ( 2d Cir.); Restatement (Second) Contracts, 1981).
The duty of good faith requires cooperation, fairness, and decency
consistent with the 'parties' agreed-upon common purposes and
justified expectations' (Beh, 2000, p. 216).
The obligation of good faith and fair dealing when one has induced
expectation is historically rooted in a principle that imposes high
ethical conduct in the performance of a contract. In 1877, the United
States Supreme Court stated that the principle of good faith is 'one
of sound morals as well as sound law' (Insurance Co. v. Wolff
(1877) 95 U.S. 326). Previously, in 1868, the Supreme Court had
considered the 'good faith' rule to be a well-settled principle of
law, i.e., the rule that one may not defeat the just expectations of
those with whom they contract:
Corporations as much as individuals are bound to
good faith and fair dealings, and the rule is well settled that they
cannot, by their acts, representations, or silence, involve others in
onerous engagements and then turn round and disavow their acts and
defeat the just expectations which their own conduct has superinduced
(Railroad Co. v. Howard (1868)74 U.S. 392, at p. 413).
In another judicial definition, the California Supreme Court has
stated that the principle of good faith 'exists merely to prevent one
contracting party from unfairly frustrating the other party's right to
receive the benefits of the agreement actually made' (Guz v.
Bechtel National, Inc. (2000) 24 Cal.4th 317 (Cal.), at p. 349).
The duty of good faith explicitly considers the behavior of one
party to another. The Supreme Court stated that 'Courts from time
immemorial have held that those who undertake to act for others are
held to good faith and fair dealing and may not favor themselves at
the cost of those they have assumed to represent' (Trailmobile Co.
v. Whirls (1947) 331 U.S. 40). This sentiment has also been
expressed at the state level: 'the covenant of good faith finds
particular application in situations where one party is invested with
a discretionary power affecting the rights of another. Such power must
be exercised in good faith' (Carma Developers (Cal.) Inc. v.
Marathon Development Cal. Inc. (1992) 2 Cal.4th 342 (Cal.), at p.
372).
By extension, this has direct application to the student-university
relationship. One court aptly described this notion as follows: 'The
judicial inquiry should be directed toward the bona fides of the
decisionmaking and the fairness of its implementation: whether the
institution acted in good faith and dealt fairly with its student body
should be the polestar of the judicial inquiry' (Beukas v. Board
of Trustees of Fairleigh Dickinson (1992) 605 A.2d 776 (N.J.
Super. Ct. App. Div.), at p. 784).
Beh (2000, p. 184) contends that good faith and fair dealing, 'the
work horses of contract law', hold the potential to 'police' the
student-university relationship, even in cases where the promises made
are vague. 'Good faith and fair dealing can provide a framework to
adjudicate student claims that is not unduly intrusive in that gray
area where student claims are less specific but reasonable
expectations seem clear' (Beh, 2000, p. 215). Courts may look at
external sources such as 'custom, community standards in the academic
community, literature of higher education, and codes of ethics of
professional organizations' (p. 216) to provide courts with external,
objective standards in order to force accountability upon the academic
institution.
Application of Good Faith and Fair
dealing in the Student-University Setting
The recent case of Williams is a seminal case for the
application of the good faith principle in the student relationship
with the university. In Williams, the Supreme Court of
Mississippi held the university breached its duty of good faith and
fair dealing with a graduate student when it consciously frustrated
her attempts to prepare and defend her dissertation. The court's
analysis focused on the student's expectation of pursuing her academic
endeavors in an unfettered environment as well as the university's
obligation to conduct itself in concert with its relevant
publications.
Williams began her doctoral work in the summer of 1985. Upon
completion of her coursework, having received grades of A's and one B,
and passing her comprehensive examination and two foreign language
examinations, she was admitted to candidacy for her Ph.D. in the
summer of 1990. At that time, she was also hired by the department to
teach undergraduate courses. She alleged her chairperson engaged in
sexual harassment and assault and after reporting this to the Dean of
the College and the Chair of the department, she requested a new
chairperson. Over the course of the next four years, Williams made
repeated requests for advice and direction on her dissertation but
received no reply. Finally, in 1994 she met with the new chairperson
and made plans to finish within the year. In June of 1995 however, she
received a letter from the chairperson, acknowledging his
'unconscionable lack of response' and stating that her dissertation
topic was not viable (University of Southern Mississippi v.
Williams (2004) 891 So.2d 160 (Miss.), at pp. 171-172). This
situation effectively precluded Williams from defending a dissertation
that had been approved and was followed by six years' work on the
project. No option for redress was offered internally by USM.
In Williams the plaintiff filed suit arguing USM breached
the contract created by its graduate catalog since USM failed to
provide the educational opportunity for which she paid, by not giving
her a fair hearing regarding her complaints about actions and
inactions of the professors, and by not acting with good faith and
fair dealing. USM countered that it did not violate any term of an
alleged contract and that Williams was merely suing over a bad grade.
Williams prevailed on her contract claim and was awarded $800,000 in
damages.
The Supreme Court of Mississippi had previously held that 'the
student-university relationship is contractual in nature and the terms
of the contract may be derived from a student handbook, catalog, or
other statement of university policy' (University of Mississippi
Medical Center v. Hughes (2000) 765 So.2d 528 (Miss.), at p.
534). The court in Hughes also held that 'rigid importation
of the contractual doctrine has been rejected' (p. 534 noting the
potential danger of judicial intervention in the academic context).
The court stated in Williams, however, that judicial
reluctance to intervene in the academic context does not mean that
academic decisions are inherently unreviewable. '[D]eference should
not be construed as a license for administrators to act arbitrarily
and capriciously when making decisions that affect a student's
academic standing, nor to act in bad faith or deal unfairly with a
student' (University of Southern Mississippi v. Williams
(2004) 891 So.2d 528 (Miss.), at p. 169).
In recognizing that every contract contains an implied covenant of
good faith and fair dealing in performance and enforcement, the
Williams court cited a previous iteration of good faith and bad
faith:
Good faith is the faithfulness of an agreed purpose
between two parties, a purpose which is consistent with justified
expectations of the other party. The breach of good faith is bad faith
characterized by some conduct which violates standards of decency,
fairness, or reasonableness (Cenac v. Murry (1992) 609 So.2d
1257 (Miss.), at p. 1272).
In affirming the jury's verdict for the plaintiff, the court found
sufficient evidence to conclude that USM breached the duty of good
faith and fair dealing in its relationship with Williams. The court
acknowledged evidence that USM and its employees knowingly conducted
themselves in ways that violated standards of decency, fairness, and
reasonableness. The court noted the uncontested academic performance
of Williams and found that she 'was a mature, accomplished student on
the verge of full acceptance into academia', and the inactions of USM
employees 'precluded, or at least severely delayed, Williams' ability
to complete the final requirement of a doctorate, the presentation and
defense of an acceptable dissertation' (University of Southern
Mississippi v. Williams (2004) 891 So.2d 160 (Miss.), at pp. 171,
173). In so doing, USM failed to fulfill its contractual obligations
to Williams. The Supreme Court of Mississippi remanded on the issue of
damages. Thereafter, the University of Southern Mississippi and
Williams settled the claim for an undisclosed amount (Leifer, 2006).
Good Faith and Fair Dealing with College
Athletes
Ross opened the door for college athletes to find redress for
university breach of contract claims based on the failure to perform
specific promises. And, while Ross dealt with the college athlete,
Williams opened the door wider for any student, including an
aggrieved athlete under a general notion of good faith and fair
dealing. Melear (2003) concludes that the relationship between student
and university emphasizes reciprocity of good faith and
reasonableness, and that courts caution against the rigid application
of purely contractual principles. According to Melear (p. 179), the
'polestar' of judicial inquiry should be directed toward the fairness
of decisions and whether institutions act in good faith and deal
fairly with students.
Therefore, the neoclassical model of contract interpretation should
be used by courts and the good faith and fair dealing concept must be
employed in college athlete cases alleging a lack of meaningful
opportunity for an education. With regard to the college athlete,
Davis (1991, pp. 787-788) stated that schools often control the daily
lives of athletes and, in so doing, 'a relationship of trust and
dependence often develops that is not present in the relationship
between lay students and universities'.
Many commentators have noted that the increasing commercialization
of college sports has made it even more difficult for universities to
reconcile the gap between college sports and the fundamental mission
of higher education. Allen Sack (2001, p. B7), a well-known
commentator on collegiate sport stated: 'longer seasons, significantly
lower admission standards for athletes, and the growing power of
coaches over all aspects of an athlete's life are just a few of the
changes spawned by the unprecedented commercialism that has invaded
athletics departments'. Numerous books have documented the basic
incompatibility of big-time college athletics and educational primacy
(Sack & Staurowsky, 1998; Sperber, 2000; Shulman & Bowen, 2001;
Duderstadt, 2000; Zimbalist, 1999). Eitzen (2000, p. 30) has captured
the essence of the matter:
Not only do typical athletes in big-time sports
enter at an academic disadvantage, they often encounter a diluted
educational experience while attending their schools. Coaches, under
the intense pressure to win, tend to diminish the student side of
their athletes by counseling them to take easy courses, choose easy
majors, and enroll in courses given by faculty members friendly to the
athletic department.
Despite the call for educational primacy by Myles Brand and the
statements embodied in the NCAA Manual, the reality is far from the
stated ideal. In fact, the current commercial structure of big-time
college sports is essentially incompatible with education (Eitzen,
2000; Sack, 2001).
Therefore, the good faith and fair dealing principles found in
Williams should be applicable in a college athlete context. This
case evidenced the university's powerful bargaining position in
dealing with the academic needs of Williams. Likewise, college
athletes generally have little experience and/or expertise in
understanding whether their academic course of study matches a
university's academic offerings and expectations or even whether the
academic experience that they are receiving is a meaningful one.
Conversely, the university is in a position to reasonably predict how
a student's academic ability will match the university academic
programs. It should be noted that at the time the athlete is
recruited, the university controls the educational experiences
offered. Given this environment and based on the disparity of power in
the college athlete/university context, Davis (1997) asserted courts
should adopt a neoclassical model of contract interpretation, allowing
the expectation interest of college athletes to be considered. Courts
should not 'reject the notion of interdependence and communal
interests between college athletes and their institutions' (p. 1145).
College athlete handbooks and NCAA guiding principles which
expressly state that athletes are 'students first' or that the
'academic endeavors are of primary importance' provide specific
support for the proposition that the athlete has been promised a
meaningful academic environment. Athletic performance expectations
that significantly interfere with this promise, such as practice times
that do not allow an athlete to attend required courses or obtain
academic tutoring should result in a finding of breach based on the
good faith and fair dealing principle. The survey results reported at
the 2007 NCAA Convention which showed that almost a third of Division
I football players and men's basketball players stated that athletic
participation prevented them from choosing the major they desired
raises more questions about the issue of educational primacy in this
highly commercialized environment (Knobler, 2007).
Additionally, arbitrary and capricious decisions by the university
and those made in bad faith, as exemplified in both Ross and
Williams, place the college athlete at great academic risk
and the university at risk for breach of contract under principles of
good faith and fair dealing. Specifically, academic advising to meet
the needs of athletics rather than academia, failure to provide
assistance with academic-related concerns, failure to allow college
athletes the same educational opportunities as other students, are all
indicative of a failure to put the student first or to make academics
a priority as promised in college athletics.
Good faith and fair dealing with students, as expected under
Williams, requires an athletic department first look to the
students' academic abilities and performance and only then to examine
athletic abilities. The good faith doctrine provides a mechanism by
which courts can recognize the educational component of an
institution's obligation to its college athletes (Davis, 1991).
Conclusion
Judicial deference to educational institutions and the courts'
reluctance to consider educational malpractice has allowed past claims
by students to be ignored and universities to proceed without
accountability and oversight (Gally; CenCor, Inc). The Ross
holding suggests that the courts are willing to consider an action in
contract that alleges identifiable breaches that a court can
objectively consider and avoid interfering with matters of academic
substance.
Moreover, colleges should provide a critically important function
in offering opportunities for college athletes to further develop
their intellectual abilities. Institutional practices that result in a
prioritization of athletic over academic interests and limit a
student's participation in academics may represent a breach of good
faith and fair dealing for which the institution may be liable as
evidenced by the fact pattern in Williams.
If good faith performance of a contract deals with 'faithfulness to
an agreed common purpose and consistency with the justified
expectations of the other party' (University of Southern
Mississippi. v. Williams (2004) 891 So.2d 160 (Miss.), at p.
170), then it is a reasonable assertion that the agreed common purpose
between student and university is education. Courts should use a
neoclassical model of contract interpretation and address the
contextual aspects surrounding the college athlete/university
relationship. Simply put, the university should be held accountable to
be faithful to its primary educational purpose and the specific
expectations it creates with all students, i.e., to act in a way that
exemplifies good faith and fair dealing with the college athlete. This
has special importance given the increasingly commercial approach by
universities investing in competitive marketing to attract and induce
the matriculation of prospective students and student-athletes (Beh,
2000).

Mechanics’ Liens: The Basics
By: Joshua J. Stevens
All
too often, an attorney is retained to help an honest and
well-intentioned contractor who has not been paid for his work, only
to quickly find out that the proper procedures were not followed and
the contractor has forfeited his right to pursue Mechanics’ Lien
remedies. While this is not the end of the world, it is a potential
road to recovery that is often closed before the attorney ever gets
involved. Mechanics’ Liens can be powerful tools that aid in
securing payment; however, they are also creatures of strict statutory
construction and thus certain deadlines and procedures must be
followed or those Mechanics’ Lien rights are forever forfeited. With
Mechanics’ Liens, what you don’t know can hurt you.
What follows is by no means a comprehensive guide to Mechanics’
Lien law, but instead is intended to be a basic primer to help you
protect your rights, with an eye towards some proactive precautions
that can be taken to protect your rights on future projects.
I. Underlying Principles of Mechanics’
Liens
Article XIV, Section 3 of the California Constitution provides that
-
"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; and the Legislature shall
provide, by law, for the speedy and efficient enforcement of such
liens."
The bulk of the statutes governing Mechanics’ Liens are contained
in California Civil Code sections 3109 through 3155.
So, what exactly are Mechanics’ Liens? Mechanics’
Liens are constitutional remedies, implemented by statutes, that
attach to private works of improvement (i.e. the project or
property upon which work was performed) that give a claimant
(contractor, subcontractor, etc.) who furnished labor, services,
equipment, or materials, an enforcement tool towards obtaining payment
for its supplied labor, services, equipment, or materials. The
claimant is given this protection because its contribution increased
the value of the property, and thus the claimant should be allowed to
collect payment for its services. (See Gary C. Tanko Well Drilling,
Inc. v. Dodds (1981) 117 Cal.App.3d 588, at 593.)
What is a "private work of improvement?" A
private work is essentially any work of improvement contracted for by
any private entity. If the work of improvement is contracted for by a
local, state, county, or federal governmental agency, it is a "public"
work of improvement, and Mechanics’ Liens are unavailable. (See
California Civil Code §§ 3100 and 3109.) In a
"public" project, a contractor may have Payment Bond or Stop Notice
rights; however, a description of these remedies is outside the scope
of this article.
Who is allowed to record a Mechanics' Lien? According
to Civil Code section 3110, the definition of who may record a
Mechanics’ Lien is quite broad, and includes:
"Mechanics, materialmen, contractors,
subcontractors, lessors of equipment, artisans, architects, registered
engineers, licensed land surveyors, machinists, builders, teamsters
and draymen, and all persons and laborers of every class performing
labor upon or bestowing skill or other necessary services on, or
furnishing materials or leasing equipment to be used or consumed in or
furnishing appliances, teams, or power contributing to a work of
improvement . . . whether done or furnished at the instance of the
owner or of any person acting by his authority or under him as
contractor or otherwise."
Essentially, any person (or business entity) who at the request of
the owner of the property (or the owner’s agent), furnished labor,
material, leased equipment, or furnished special skills and/or
services to a project for constructing a work of improvement on real
property is entitled to record a Mechanics’ Lien, subject to
specifically enumerated statutory and/or case law exceptions.
Further, although not specifically enumerated under Civil Code
section 3110, the following classes of persons have also been allowed
to record Mechanics’ Liens: carpenters (See Ogram v. Welchoff
(1919) 40 Cal.App. 298), house movers (See Palmer v. Lavigne
(1894) 104 Cal. 30), those who provide laborers (such as businesses
who provide a pool of laborers to perform work or services upon a
project) (See Contractors Labor Pool Inc. v. Westway Contractors,
Inc. (1997) 53 Cal.App.4th 152), and transporters of materials
(under certain limited circumstances). (See Consolidated Lbr. Co.
v. Bosworth, Inc. (1919) 40 Cal.App.80; Contractors Dump Truck
Serv. v. Gregg Constr. Co. (1965) 237 Cal.App.2d 1; Ivy
Trucking Inc. v. Creston Brandon Corp. (2000) 84 Cal.App. 4th
85.)
Thus, if someone physically worked on a property or provided
something to be used on a property, he or she may be able to record a
Mechanics’ Lien. However, in the case of material suppliers, the
materials, parts, etc. must have actually been used on
the project, even if specially constructed for the project, or else
the supplier has no right to a Mechanics’ Lien. This holds true even
if those materials, parts, etc. are not usable for any other project.
(See California Portland Cement Co. v. Wentworth Hotel Co.
(1911) 16 Cal.App.692; George F. Kennedy, Inc. v. Miles & Sons
Constr. Div. (1970) 5 Cal.App.3d 516.)
Where are Mechanics’ Liens Recorded?
A Mechanics’ Lien must be recorded with the County Recorder’s
Office in the county where the property upon which the work of
improvement was performed, is located.
II. Preserving the Mechanics’ Lien Before it is Recorded
What is a Preliminary Notice? In most cases, before a
contractor may record a Mechanics’ Lien, they must serve a preliminary
twenty (20) day notice (also known as a "prelien notice"). (See
California Civil Code § 3114.) A preliminary notice must be in
writing, and must contain at a minimum:
(1) Heading: the statement "Notice to Property
Owner" as required by Civil Code section 3097(c)(5), set forth in
boldface type. (Most pre-printed preliminary notices contain such a
statement at the top of the form.)
(2) Description of Who the Work is For: the name and
address of the party to whom the labor, services, equipment, or
materials will be furnished.
(3) Description of Who Will Do the Work:
the name and address of the person or entity furnishing the labor,
services, equipment, or materials.
(4) Description of the Work: a substantially accurate
general description of the labor, services, equipment, or materials to
be furnished along with a total price estimate, or total contract
price.
(5) Location: a description of the jobsite sufficient
to identify where the work of improvement is to be performed, street
address, block numbers and street names or even tract information is
sufficient, if the property is identifiable.
(See California Civil Code § 3097.)
The task of identifying the jobsite can present a problem in
instances where new construction is being performed on developments
that do not yet have a street address. Nevertheless, the claimant
serving the preliminary notice has a duty to identify the jobsite to
the best of its ability, sufficient that the person or entity
receiving the preliminary notice can identify the property listed and
distinguish it from other jobsites. (See California Civil Code
§ 3097(c)(4).
When must a preliminary notice be served? When a
contractor provides services directly to a private landowner,
the contractor has no obligation to serve the owner with a preliminary
notice, but the contractor must still serve any lender. (See Civil
Code § 3097(a).) However, if a contractor provides services to a
general contractor, who is in turn providing services to a private
landowner, the contractor must serve a preliminary notice
within twenty (20) days of the time he or she first
provides services on the project. (Not within twenty days of when the
contract was signed, but within twenty days of when the subcontractor
started its actual work.) (See California Civil Code § 3097(b)
and (d).) A preliminary notice does not cover work performed before
the beginning of the 20-day period. (See Romak Iron Works v.
Prudential Ins. Co. (1980) 104 Cal.App.3d 767.)
The purpose of the preliminary notice is to put the owner on notice
that there is a contractor or material supplier who does not have a
direct contract with the owner, and if this subcontractor is not paid,
he may file a lien. It does not mean that the subcontractor is due any
money, only that if, at some later date the subcontractor is not paid,
he may record a lien. Thus, to be safe, if there is any degree of
separation between the contractor and the landowner, a preliminary
notice should be served within twenty (20) days of
beginning work.
The issue of whether a preliminary notice is required can be
complicated where the same entity or a closely related entity is both
the general contractor and the owner of a particular property. In such
cases, the owner/general contractor may set up one entity to own the
land and one to act as the general contractor. This type of structure
may make it difficult for the subcontractor to determine whether it is
in direct contract with the owner or not. Whether a preliminary notice
is required in such instances is uncertain and fact dependant; thus,
it is best to serve a preliminary notice if there is any uncertainty.
If a preliminary notice is not served timely a subcontractor may
still be able to establish that the owner had actual notice of the
subcontractor’s work in its capacity as the general contractor and
thus record its lien.
Who must be served with a preliminary notice?
A preliminary notice must be served on the owner of the property (or
the reputed owner), the "original" contractor, and any lender. (See
California Civil Code § 3097(a).) If service of a preliminary
notice is not properly sent when required, and a subcontractor records
a Mechanics’ Lien, the subcontractor may be subject to
disciplinary action by the Contractor’s State Licensing Board. (See
Business and Professions Code §§7000-7191.)
How must a preliminary notice be served? A
preliminary notice must be served either personally, or by registered
or certified mail. (See California Civil Code § 3097(f).) It is
wise to request return receipt if the notice is served by mail to
later establish proper service.
Once the preliminary notice has been served, then what?
If a contractor is not timely paid, the contractor must record a
Mechanics’ Lien within ninety (90) days of either
completing or ceasing work on the project. (See California Civil
Code § 3116.) However, if the owner of the property records
either a notice of completion or a notice of cessation, the contractor
has only thirty (30) days from the time the notice is
recorded to record its Mechanics’ Lien. (See California Civil Code
§ 3116.)
What information must a Mechanics’ Lien contain?
According to California Civil Code § 3084, a Mechanics’ Lien
must include:
(1) Amount Owed: the claimant’s demand after
deducting all credits and offsets.
(2) Owner: the name of the owner or reputed owner of
the property.
(3) Description of the Work Performed: a general
description of the labor, services, equipment, or material furnished
by the claimant.
(4) Description of Who the Work was Performed For:
the name of the person or entity who employed the claimant or to whom
the claimant furnished labor, services, equipment, or material.
(5) Location: a description of the project site
sufficient to appropriately identify it.
(6) Signature: the claimant’s signature and
verification that the claims made in the Mechanics’ Lien are true and
accurate.
III. Enforcing the Mechanics’ Lien
If a contractor remains unpaid, after a Mechanics’ Lien is
recorded, the contractor must bring a suit to foreclose on its
Mechanics’ Lien within ninety (90) days from the date
the Mechanics’ Lien was recorded, or the Mechanics’ Lien is forfeited.
(See California Civil Code § 3144.)
Is there any way to extend this period? The ninety
(90) day period for filing an action to foreclose on a Mechanics’ Lien
may be extended through mutual agreement between the contractor
who recorded its Mechanics’ Lien and the owner. The agreement must be
in writing and recorded in the County Recorder’s Office before the
ninety (90) day time limit runs. Such an extension may not last longer
than one year from the time the contractor’s work on the project was
completed. (See California Civil Code § 3144.)
Further, if the real property against which a Mechanics’ Lien has
been recorded falls under the jurisdiction of a bankruptcy action, the
ninety (90) day period in which an action must be brought to foreclose
on a Mechanics’ Lien is tolled until the bankruptcy action’s automatic
stay is terminated. (See 11 USC § 362; Sawyer Nurseries v. Galardi
(1986) 181 Cal.App.3d 663.)
After payment, what should a contractor do? If
the contractor has been paid, the contractor should promptly record a
Release of Mechanics’ Lien with the County Recorder’s Office. It is
important to note that while the original Mechanics’ Lien does not
require a Notary Acknowledgment a recorded Release of Mechanics lien
must be notarized.
IV. Possible Future Changes in the Law
Currently, California Mechanics’ Lien law does not require the
recording of a Notice of Action or Lis Pendens against a property to
foreclose on a Mechanics’ Lien. (See California Civil Code
§3146.) California Senate Bill 1691, introduced by Senator
Lowenthal during the 2008 session, sought to change the law to require
a claimant who moves to enforce a Mechanics’ Lien claim to record a
Lis Pendens disclosing the nature of the enforcement action within 110
days of recording the Mechanics’ Lien, or else the lien would be
forfeited. A Lis Pendens would impart constructive notice upon all
other parties of the contractor’s action to enforce his Mechanics’
Lien. Senate Bill 1691 also sought to move the statutory sections of
the California Civil Code governing Mechanics’ Liens to a newly
created code section, section 8000 through 8848.
Senate Bill 1691 was vetoed by Governor Schwarzenegger on September
28, 2008, with the stated reason being the California Legislature’s
failure to pass the state budget in a timely manner. Nevertheless,
Senate Bill 1691 could be renewed at a future date, and would add an
additional procedural hurdle to the enforcement of Mechanics’ Liens.
V. 10 Commandments of Counseling
Construction Clients
Obviously, there are many potential pitfalls involved in protecting
a client’s Mechanics’ Lien rights, and many of the same problems
regularly plague contractors. The following "Commandments" are
intended to give the attorney an idea of certain proactive measures to
discuss with a client to better protect the client’s rights on future
projects and give the client or potential client some insight into the
process from the attorney's prospective.
1) Thou Shalt Always Serve A Preliminary Notice.
Tell the client to get these out early and often. A lot of contractors
do not send out a preliminary notice until a problem arises, and by
then it is usually far too late for a preliminary notice to be
effective. Preliminary notices do not hurt anyone’s feelings, they are
not offensive, and they should become a regular part of any
contractor’s business that go out like clockwork once work has begun
on a project. Does the client have any questions about whether a
preliminary notice needs to be served? Have them serve one anyway
because it cannot hurt. If the client needs help with serving
documents and staying on top of deadlines, consider putting the client
in touch with any number of reputable construction services that
assist with preliminary notices and Mechanics’ Liens.
2) Thou Shalt Not Wait Until The Last Day To File, Serve, Or
Record Anything. Attorneys usually do not like to work on a
rush basis. Inform your client that if you are forced to file
something at the last minute, it will often cost the client
considerably more money. Additionally, the client runs the risk that
due to delay, something may not get filed on time and they will simply
be out of luck. Waiting until the last day to serve an important
notice is almost a surefire way to guarantee that problems will arise,
and service will not be timely. Failing to record something in a
timely manner means that all of the other contractors who did not wait
to record their liens stand at the front of the line when it comes to
collecting money, while your client waits at the back of the line and
hopes there is still some money left when it is their turn. Sometimes
filing, serving, or recording something at the last minute is truly
unavoidable, but these times are few and far between. If at all
possible, do not wait.
3) If Thou Hath Waited Until The Last Day, File, Serve, or
Record in Person. If, for whatever reason, the client is
filing, serving, or recording something anywhere near the last day to
do so - THEY SHOULD DO IT IN PERSON. The client should not mail their
lien to the Recorder’s Office on the second to last day and hope
everything gets taken care of appropriately. The Recorder’s Office
periodically changes their rates for recording documents. If your
client mails a lien to be recorded, they run the risk that they have
included the incorrect amount of money, or that the Recording Clerk
will not get to the lien for several days. In both instances,
the lien will be late. Instead, the client should show up to the
Recorder’s Office in person, early, and allow themselves plenty of
time to pay all necessary fees and make sure that their lien has the
correct date on it. Things get lost or held up in the mail all the
time, so they should not believe that just because they dropped it in
the mail everything will be ok.
4) Thou Shalt Provide Your Attorney With All Available
Information. Instruct your client that before they see you,
they should gather up everything they have on the project and should
try to assemble their materials in some degree of order. Attorneys
need everything; even if the client does not think it is important, it
might be. Dates of completion, cessation, filing dates, recording
dates, service dates, the first and last days the client performed
work on the project, invoices for all amounts owed on the project(s)
in question, etc. Tell them to bring everything. Finally, tell them to
be available when you call with questions. All of this will save the
client considerable money in the long run.
5) Thou Shalt Develop A Separate, Organized Binder For Each
Project. Really, for each an every one. It does not matter how
big or small the project is. It does not matter if the client is just
doing a little work for their cousin’s brother’s best friend from high
school who they have known for 30 years. Organize everything in a
separate binder. What should go in the binder? Everything about that
particular project (See Commandment #4, above). This becomes
especially important if the client has several different projects with
the same company, person, or entity. The client should ideally
organize the binder by project, development, or unit, clearly label
them, and make sure each binder has all of the necessary
information. Let the client know that the better organized they are,
the more money they will save if the matter is referred to an
attorney, because the attorney will spend less time trying to piece
together all of the relevant information.
6) Thou Shalt Treat Every Project As If It Will One Day End
Up In Litigation. Obviously, a client should not threaten
everyone they work with that "my attorney can beat up your attorney."
But, if a client has this litigation mindset from the beginning, they
are far more likely to send out preliminary notice notices on time,
record and file documents in a timely manner, and better organize
their documents from the start.
7) Thou Shalt Explain Everything About The Project To Your
Attorney As If Your Attorney Has Never Seen A Building Before In His
Life. When explaining the matter to you (or any attorney), a
client should not assume anything. The client was at the project site,
the attorney was not. The client saw each phase of construction as it
was being performed, talked with other contractors, etc. The attorney
did not. In many construction cases, the attorney might never actually
see the project site in person or in pictures because the matter is
resolved before such a viewing becomes necessary. So have the client
lay it all out for you. Have them draw a map of the project. Have the
client detail exactly which units they worked on, and which ones they
did not. This ensures that when their claim is filed, or a demand
letter is sent on their behalf, that everything they are entitled to
is included.
8) Thou Shalt Not Be Filled With Righteous Anger.
Don’t get mad, get legal. Counsel the client that it does not benefit
them to get angry and storm off the job, or try to "get even" with
someone. The client should never give another party ammunition to use
against them. The absolute best thing a client can do is to finish
their work (if possible) and do the best job they can so that an
opposing party cannot later complain about their work. Then the client
can move to collect. Let the client know you understand they are
frustrated, but they need to realize that attorneys do not have magic
wands they can waive to immediately collect payment for their clients.
Enforcing legal rights takes time. The client should finish their
work, be proud of it, provide their attorney with everything he or she
needs, and treat this project as a business matter, not a blood debt.
Getting angry and taking a razed-earth approach to litigation only
costs the client more money, and is rarely if ever satisfying to
anyone.
9) Thou Shalt Stay Informed and Regularly Contact the
Recorder’s Office. Just as the client should not get mad, they
should not bury their head in the sand and hope it all blows over
either. The client will need to be available to collect notices of
completion or cessation. The client should stay in contact with other
contractors on job. The client will often be able to find out if the
other contractors got paid, and if not, why not? The client should
stay in contact with the general contractor, or owner, or even the
lender, and should keep their finger on the pulse of what is going on
with the project. With their connections, the client is often the best
source of information for the attorney. Also, the client should make a
habit of calling the Recorder’s Office regularly to inquire about
projects they have not been paid on, to see if anything important has
been recorded recently. The client should make sure their contact
information is current, and that the Recorder’s Office, lender,
general contractor, and owner all have their correct address on their
service list for the project.
10) Thou Shalt Not Feel Too Badly If A Deadline Hast Been
Blown. Guess what? There is more than one way to skin a cat.
If the client did not serve a preliminary notice, did not record a
Mechanics’ Lien, or blew some other important deadline, all is not
necessarily lost. Depending upon the nature of their claims, you may
still likely be able to file a lawsuit on the client’s behalf to
collect the amount owed, under a breach of contract type claim or
something similar. As ever, let the client know that it is almost
always best for them to come and see you sooner, rather than later.
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