Equitable Liens in Nevada

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The following abstract explains Nevada law regarding equitable liens.

Introduction

The Nevada Supreme Court has acknowledged equitable liens as a remedy where an intention to create such a lien appears, and where the property which is to become subject to the lien is identifiable.  Union Indemnity co. v. A.D. Drumm, Inc., 57 Nev. 242, 70 P.2d 767 (1937).      The Nevada Supreme Court has relied upon Professor Pomery’s definition of an equitable lien:

In order, however, that a lien may arise in pursuance of the doctrine of equitable lien, agreement must deal with some particular property, either by identifying it, or by so describing it that it can be identified, and must indicate with sufficient clearness an intent that property so described, or rendered capable of identification, it to be held, or transferred as security for the obligation.

Id.  Simply state an equitable lien is the right to have the property subjected in a court of equity to the payment of a claim.  An equitable lien may arise out of either an express or implied contract.  Id. at 768.  In addition, an equitable lien may be granted by a court of equity to prevent unjust enrichment of the owner of the property in question.  1 The Law of Debtors and Creditors § 9:3.  A creditor must establish that there is no adequate remedy at law, in order to be given an equitable lien.  Id. at § 9:13.  An equity lien is favored by the courts to do justice and prevent unfair results.  Mannon v. Presula, 59 Cal.App.2d 597, 605.

 

Elements

Generally, for an equitable lien to exist there must be (1) a debt, duty, or obligation owing by one person to another, (2) a thing to which that obligation fastens, (3) that can be identified or is described with reasonable certainty, (4) an intent that the property serve as security for the payment of the debt or obligation, and (5) that he or she is entitled to a lien and that he or she has no adequate remedy at law.  Farmers Home Admin. v. Redlands v. Malmberg, 695 P.2d 1031, 1040 (1985); See also, 51 Am. Jur. 2d Liens § 34.

The intent required may be either expressed or implied.  Contrary to the rule that prevails with respect to common-law liens, possession by the lienor of the thing sought to be charged is not essential to the existence of an equitable lien.  Under such liens, possession generally remains with the debtor.  51 Am. Jur. 2d Liens § 36.  An equitable lien cannot be based upon a moral obligation.  Union Indemnity Co, 57 Nev. 242, 70 P.2d at 769.  There must be some ground for equitable intervention and there must be some superior right in the party asserting a lien.  Id.  In order for an equitable lien to attach, there must be a specific thing against which the lien can vest.  Id.  The agreement must deal with some particular property, either by identifying it or by so describing it that it can be identified, and must indicate with sufficient clearness intent that property so described, or rendered capable of identification, is to be held, given, or transferred as security for the obligation.  Id.  “Courts cannot create liens.  They can only declare and enforce them when they exist, either in law or equity.”  Id.

Creation

Equitable lien decisions generally fall into two categories.  The first category consists of those decisions in which the lien is a product of the express intent of the parties.  The Law of Trusts and Trustees § 32.  Simply put, the parties intended to create an equitable lien.  Id.  The second category of equitable liens involves situations in which a debt exists but no express or implied agreement for security exists and equity demands that certain specific property of the debtor should be used as security for the repayment of the debt.  Id.

Express

An express executory agreement indicating an intention to make some particular property, real or personal, or a fund, security for a debt or obligation, creates a lien on the property described in the contract because equity regards as done that which was agreed to be done.  51 Am. Jur. 2d Liens § 40.  Also, an agreement to charge, assign, give security upon, or affect property that is not yet in the ownership of the party making the contract constitutes an equitable lien that is enforced in the same manner and against the same parties as a lien upon specific things existing and owned by the contracting party at the date of the contract.  Id.  Where an equitable lien arises out of an express contract and intention to create a lien must clearly appear.  Union Indemnity Co., 70 P.2d at 768.

To create a lien by an express contract, the agreement must clearly show the intend to create such a lien, the property sought or intended to be charged must be clearly described or identified, and the property must be distinctly appropriated to or dedicated to, or held as security for, the payment of the debt or obligation in question.  Id. at § 41.  It is not necessary that the lien by expressly stipulated in the contract if an intent to create it may be fairly and reasonably inferred from the terms employed.  Id.  The intent, however, may not be inferred from ambiguous language.  Id.

Implied

An equitable lien may exist without a lien agreement between the parties and without title or possession in the lienholder.  51 Am. Jur. 2d Liens § 45.  A lien may be created by the conduct of the parties.  Id.  An equitable lien may be implied and declared by a court of equity out of general considerations of right and justice if, as applied to the relationship of the parties and the circumstances of their dealing, there is some obligation or duty to be enforced.  Id.  A lien arising out of an implied contract, attendant circumstances must clearly indicate intention of parties to create a lien on specific property.  Union Indemnity Co., 70 P.2d at 768.  An implied equitable lien is “not a limitless remedy to be applied according to measure of conscience of particular a chancellor.”  Id. at 770.  For example, “while a promise to pay a debt out of a particular fund, without more, will not create an equitable lien, however, a mere promise to pay form a specific fund may suffice to create an equitable lien if considerations of detrimental reliance or unjust enrichment are implicated.”  County of Los Angeles v. Constr. Laborers Trust Funds for S. Ca. Admin. Co., 137 Cal.App.4th 410, 414-415.  It is also necessary that from the nature of the transaction, rights have developed which ought to be held binding upon the specific property.  51 Am. Jur. 2d Liens § 45.

An implied lien cannot exist if, from the nature of the contract between the parties, if would be inconsistent with the express terms or the clear intent of the contract.  Id. at § 46.  In other words, if an express contract controls the entire agreement between the parties and omits or excludes a lien, an equitable lien will not be implied.  51 Am. Jur. 2d Liens § 45.

Courts will imply an equitable lien if it can trace money or property that was unlawfully appropriated and transformed into another shape.  Id. at § 47.  The property, however, must have been enhanced or augmented by the unlawful appropriation.  Id.  An implied equitable lien can also be used to enforce a purchase money obligation that is not otherwise secured.  Id. at § 49.  In addition, courts will impose an equitable lien in favor of one whose money, materials, or services have benefited the property of another under circumstances entitling him or her to restitution.  Id. at § 50.  Finally, if a fund is created to pay for improvements on realty, the holder of a valid contractor’s lien for the making of the improvements has an equitable lien on the fund for the payment of the obligation represented by the lien.  51 Am. Jur. 2d Liens § 51.

Enforcement of an Equitable Lien

Where property is held by one person subject to an equitable lien, the person having the equitable lien can enforce it by a proceeding in equity.  Restatement (First) of Restitution § 161(b) (1937).  The “homestead exception is inapplicable when the proceeds used to purchase real property can be traced directly to funds obtained through fraud or similar tortuous conduct.”  Maki v. Chong, 119 Nev. 390, 394, 74 P.3d 376, 379.  However, when the person holding the property is not at fault, and where the foreclosure of the lien by a sale of the property would cause a hardship to the holder of the property, the court will not necessarily order an immediate sale of the property.  Restatement (First) of Restitution § 161(b) (1937).  A person that has an equitable lien upon the property of another will be protected if the rights of bona fide purchasers do not intervene.  Restatement (First) of Restitution § 161(c) (1937).  However, if the property, which is subject to a lien, is transferred to a third person who has notice of the equitable lien or who does not give value, the equitable lien if cut off if the property is transferred to a bona fide purchaser.  Restatement (First) of Restitution § 161(d) (1937).

The Supreme Court of the United States has also refused to enforce an equitable lien against the United States Army.  In Army v. Blue Fox, the court held that an “equitable lien claim brought against Army by subcontractor on government construction project was barred by sovereign immunity.”  535 U.S. 255, 262-263.

Conclusion

“The basis of equitable liens is variously placed on the doctrines of estoppel, or unjust enrichment, or on the principle that a person having obtained an estate of another ought not in conscience to keep it.”  Campbell v. Superior Ct., 132 Cal.App.4th 904, 72-73, 34 Cal.Rptr.3d 68 (2005).  A lien does not create a tile to, or create an estate in the property; in other words, a lien gives the lienholder a right to collect his debt out of the charged property.  Citizens Bank v. Elks Bldg., 663 P.2d 56, 59.  An equitable lien can be enforced through an expressed or implied contract.  Courts will impose an equitable lien when it is established that such facts would warrant such a remedy.  Generally, for an equitable lien to exist there must be (1) a debt, duty, or obligation owing by one person to another, (2) a thing to which that obligation fastens, (3) that can be identified or is described with reasonable certainty, (4) an intent that the property serve as security for the payment of the debt or obligation, and (5) that he or she is entitled to a lien and that he or she has no adequate remedy at law.  Farmers Home Admin. v. Redlands v. Malmberg, 695 P.2d 1031, 1040 (1985); See also, 51 Am. Jur. 2d Liens § 34.   “An equity lien is favored by the courts to do justice and prevent unfair results.”  Holder v. Williams, 167 Cal.App.2d 313, 316.

 

See elements for other claims at the Nevada Law Library

About the Author

Jay Young is a Las Vegas, Nevada attorney. His practice focuses on business law, business litigation, and acting as an Arbitrator and Mediator. Peers have named him an AV-Rated Lawyer, Best Lawyers, a Top 100 Super Lawyers in the Mountain States multiple years, and to the Legal Elite and Top Lawyers lists for many years. Mr. Young has been appointed a part time Judge, a Special Master to the Clark County, Nevada Business Court, as an arbitrator by the Nevada Supreme Court. He has been appointed as an arbitrator or mediator of well over 250 legal disputes from business disputes to personal injury matters. He has been named Best Lawyers for Arbitration. Mr. Young is a respected author of ten books, including A Litigator’s Guide to Federal Evidentiary Objections, A Litigator’s Guide to the Federal Rules of Evidence, and the Federal Court Civil Litigation Checklist.
Mr. Young can be reached at 702.667.4868 or at jay@h2law.com.