Unpublished Disposition, 908 F.2d 977 (9th Cir. 1984)

MEMORANDUM^* 

Darwin and Don Kartchner (the "Kartchners"), appeal the judgment of the United States Bankruptcy Court and the order affirming judgment on appeal by the Bankruptcy Appellate Panel ("BAP") of the Ninth Circuit. They argue that the BAP erred in discerning the effective date of the 1984 amendment to Cal.Civ.Code Sec. 3262 and in determining the intent of the parties with respect to the waiver and releases executed by appellee, Scane Lumber Company ("Scane"). The Kartchners contend that the second waiver and release executed by Scane was, therefore, valid under Sec. 3262 and effectively released them from any debt owed to Scane. They also contend that Scane should be estopped from demanding further payment and that Scane's endorsement of their check should be deemed as acceptance of payment in full. We affirm the BAP's order and the judgment of the bankruptcy court.

* The Kartchners contend that the second release, executed on January 24, 1984, was valid under Cal.Civ.Code Sec. 3262 and should be interpreted as all-inclusive with respect to the amount owed to Scane. However, the amendment upon which they rely was not signed by the Governor and filed with the Secretary of State until June 8, 1984. See 1 Statutes of California and Digest of Measures at 559 (1984). Consequently, it was not in effect at the time the release was executed. Id. at A-5.

Prior to the 1984 amendment, Sec. 3262 provided that

neither the owner nor original contractor by any term of their contract, or otherwise shall waive, affect, or impair the claims and liens of other persons whether with or without notice, and any term of the contract to that effect shall be null and void....

(Emphasis added.) In Bentz Plumbing & Heating v. Favaloro, the California Court of Appeals held that under this statute, waivers such as that executed by Scane were unenforceable, as " [t]o require a subcontractor to consent to a lien waiver to secure payments due a prime contractor at the least 'affect [s]' and probably 'impair [s] the lien by the threat of resulting non-payment to the subcontractor." 180 Cal. Rptr. 223, 226 (App.1982). This case involves the same type of situation that the Bentz court held was impermissible under the statute. The Kartchners refused to pay unless Scane executed a release of its lien. The court held that this was just the type of coercion that the legislature sought to prevent in enacting Sec. 3262. The court held that the appropriate way for the owner to protect itself was by issuing joint checks, payable to both the contractor and the subcontractor. Id. at 227.

It was primarily on this basis that the BAP affirmed the judgment of the bankruptcy court. However, the Kartchners urge us to reject the holding in Bentz.

We have held that

[u]nder the Erie doctrine, a federal court sitting in diversity is not free to reject a state judicial rule of law merely because it has not received the sanction of the state's highest court, but it must ascertain from all available data what the state law is and apply it. West v. AT & T Co., 311 U.S. 223, 236-37, 61 S. Ct. 179, 183-84, 185 L. Ed. 139 (1940). An intermediate state appellate court decision is a 'datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise. Id. at 237, 61 S. Ct. at 183.

Estrella v. Brandt, 682 F.2d 814, 817 (9th Cir. 1982). The Kartchners' arguments are unconvincing. The holding in Bentz is a reasonable interpretation of the statute as it existed prior to the 1984 amendment, based on the language of the statute, the changes made by the 1972 amendments, and the consideration of public policy. Consequently, the waiver and release was invalid under California law.

II

Additionally, the Kartchners contend that Scane should be estopped from asserting a claim for the balance owed. They assert that they relied on the second waiver and Scane's oral assurances in paying Mauller the $22,479.60 and "thereby lost all leverage with Mauller to induce it to pay Scane portions of the earlier payment." However, the Kartchners have not shown any detrimental reliance. The entire $22,479.60 was retained by Scane. The Kartchners have made no further payments to Mauller. The amount still owed on the contract with Mauller, $11,595.52, is barely half of that owed to Scane. Consequently, the Kartchners had no leverage with Mauller at the time they allegedly relied on the second release. In fact, they had relinquished whatever leverage they once had with Mauller as well as their ability to protect themselves from the claims of Scane by failing to make their first check for $22,570.40 jointly payable to both Mauller and Scane. Because they have failed to establish detrimental reliance their estoppel argument fails. See Western Speciality Co. v. Clairmont Constr. Co., 204 Cal. App. 2d 532, 539, 22 Cal. Rptr. 536, 540 (App.1962).

Further, the Bentz court also rejected the application of estoppel based on a release of a mechanic's lien. As that court stated:

[i]f we were to now hold that a subcontractor or materialman is estopped by its execution of a lien waiver [our holding] would entirely negate section 3262 as amended. Public policy, expressed in the statute, precludes an owner from relying 'reasonably' upon such a waiver. Nor will the doctrine of equitable estoppel, 'which rests firmly upon a foundation of conscience and fair dealing' (City of Long Beach v. Mansell (1970), 3 Cal. 3d 462, 488, 91 Cal. Rptr. 23, 476 P.2d 423; fn. omitted), allow an application of the doctrine which turns on its head the legislative judgment that principles of 'fair dealing' require that subcontractors and materialmen be protected from overreaching by owners and prime contractors intent on depriving them of their lien rights.

180 Cal. Rptr. at 227. As the Bentz court noted, there are several means by which an owner may protect himself, including issuing joint checks. However, under California law as it existed at the time the release in this case was executed, an owner could not justifiably rely on a release from a subcontractor. Id.

III

Finally, the Kartchners argue that because Scane endorsed the joint check for $22,479.60, it should be deemed to have accepted that amount as full payment for the amount owed by the Kartchners. However, none of the cases they cite actually support this proposition. Instead, these cases merely support the "joint check rule." Under this rule, absent some agreement with the owner as to the allocation of a check's proceeds, a subcontractor who endorses a joint check will be deemed to have received the money due him up to the amount of the check. See Bohannan Bros., Inc. v. Lo Jean Dev. Co., 82 Cal. Rptr. 922, 925 (App.1969) (Endorsement constitutes payment in full "in the absence of any showing of contrary intention of the parties or that the total of the joint checks so presented was less than the materialman's total billings to the subcontractor."); Rodeffer Indus., Inc. v. Chambers Estates, Inc., 69 Cal. Rptr. 551, 552 (App.1968) ("Generally, where a general contractor, pursuant to an agreement with a materialman supplying a subcontractor, makes payment on a construction job by check payable jointly to the subcontractor and the materialman, and the payments are sufficient to satisfy the material bill, the general contractor is released from liability to the materialman when the latter releases all or part of the proceeds of the joint check to the subcontractor.") (emphasis added).

Although they do not phrase it as such, the Kartchners' position is that Scane's endorsement of the check should be deemed an accord and satisfaction. California Civ.Code Sec. 1521 defines an accord as "an agreement to accept, in extinction of an obligation, something different from or less than that to which the person agreeing to accept is entitled." "Acceptance, by the creditor, of the consideration of an accord extinguishes the obligation, and is called satisfaction." Cal.Civ.Code Sec. 1523. In order to establish an accord and satisfaction, a party must show that the amount due is in dispute, that a check for an amount less than that claimed is sent to the creditor with a statement that it is sent in full satisfaction of the claim, that the check is accepted in full satisfaction of the disputed claim, and that the creditor so understands. Dietl v. Heisler, 10 Cal. Rptr. 587, 590 (1961).

However, the Kartchners rely solely on their misreading of the joint check rule cases. They have offered no evidence that an accord and satisfaction was intended by the issuance and subsequent endorsement of this check. In fact, the stipulated facts strongly suggest otherwise. Although the Kartchners did later propose an accord and satisfaction when they offered the remaining $11,595.22 in the form of a check naming Scane and Mauller as joint payees, both Scane and Mauller rejected this offer. Consequently, this argument also fails.

The BAP's order and the judgment of the bankruptcy court is

AFFIRMED.