## Facts

- Property owners contracted with Swinerton & Walberg Co. to build a 78-unit apartment building for approximately $790,000 after extras.
- The owners obtained a construction loan from Union Bank secured by a deed of trust; the proceeds (plus an additional owner deposit) were placed in a segregated construction loan disbursement account.
- The disbursement arrangement allocated specified sums for nonconstruction and contingencies, and contemplated progress payments to the contractor; $74,000 was to be withheld until completion and assurance against mechanics’ liens.
- The building loan agreement stated that, upon borrower default, the bank could apply undisbursed funds to the borrower’s obligations to the bank, and that no contractor would have any “interest in or claim upon” the set-aside funds.
- Swinerton signed an acknowledgment accepting the loan agreement’s terms as controlling over inconsistent provisions in its construction contract with the owners.
- The project was completed; the bank disbursed substantial sums to Swinerton during construction but retained the $74,000 holdback.
- The owners defaulted on obligations to both Swinerton and the bank; Swinerton recorded a mechanics’ lien and offered to release it if the bank disbursed the $74,000, but the bank refused.
- The bank foreclosed on the deed of trust; after foreclosure, a significant balance of the construction loan funds remained undisbursed in the disbursement account.
- Swinerton sued the bank and obtained a judgment imposing an equitable lien on $74,000 of the undisbursed funds, plus interest; the bank appealed that portion of the judgment.

## Issues

1. Whether a contractor that fully performed may obtain an equitable lien on undisbursed construction loan funds held by the lender after owner default and foreclosure.
2. Whether the contractor’s acknowledgment of a “no interest or claim” clause in the building loan agreement bars or estops the contractor from asserting an equitable lien.
3. Whether later-enacted statutory provisions limiting rights in construction funds apply retroactively to defeat the contractor’s claim.
4. Whether prejudgment interest is available on the $74,000 holdback based on the bank’s refusal to disburse it.

## Decision

- The court affirmed the judgment imposing an equitable lien in favor of Swinerton on $74,000 of the undisbursed construction loan funds held by Union Bank.
- The court held that the “no interest or claim” clause negated only a direct contractual right to demand payment from the bank under the loan agreement, not an equitable lien arising from completed performance and the bank’s retention of earmarked funds.
- The court rejected the bank’s reliance on later statutory changes, holding they did not apply retroactively to this transaction.
- The court affirmed the award of prejudgment interest on the $74,000 because the sum was certain and wrongfully withheld after the contractor completed the work and offered to release its mechanics’ lien.

## Legal Principles

- An equitable lien may be imposed on an identifiable, segregated fund where the claimant’s completed performance and reliance relate to that fund and retention by another would be unjust.
- A construction lender may be subject to an equitable lien on undisbursed loan proceeds earmarked for construction payment when the lender retains both the benefit of the completed improvement (enhanced security) and the remaining construction funds.
- Contract language disclaiming contractor “interest” in loan funds can bar a contractual claim to payment from the lender, but does not necessarily waive equitable remedies absent a clear, express relinquishment of equitable rights.
- Statutes are presumed to operate prospectively; later statutory limitations generally do not extinguish equitable rights arising from earlier transactions absent clear legislative intent.
- Prejudgment interest is recoverable on a liquidated, certain amount wrongfully withheld when payment is due and the obligor lacks justification for nonpayment.

## Conclusion

The court held that a contractor who completed construction could enforce an equitable lien against undisbursed, earmarked construction loan funds held by the lender despite a contractual disclaimer of contractor claims, and it upheld prejudgment interest on the withheld holdback as a certain sum wrongfully retained.


Swinerton & Walberg Co. v. Union Bank, 25 Cal. App. 3d 259, 101 Cal. Rptr. 665 (Ct. App. 1972)