In some cases, when a California Stop Payment Notice is served, the direct contractor will serve an “Affidavit” on the public entity, demanding that the public entity release all funds withheld. Upon receipt of such an Affidavit, the public entity will serve the subcontractor or supplier who served the Stop Payment Notice with a copy of the Affidavit, along with a Demand For Release of Funds. If the Stop Payment Notice claimant does not respond with a “Counteraffidavit” by the date stated on the notice sent by the public entity, then the public entity will release the funds to the direct contractor and the Stop Payment Notice claimant will relinquish its Stop Payment Notice rights. If the Stop Payment Notice claimant is served with such an Affidavit and Demand For Release of Funds, the claimant should fill out the “Counteraffidavit” form (available at www.porterlaw.com) and serve it on the public entity and the direct contractor. This should at least temporarily stop release of the funds by the public entity and preserve the Stop Payment Notice remedy. (See Civ. Code §§ 9400-9414.)
California law provide “original”, “prime” or “direct” contractors with apparent relief from their contractual obligations when owners of property on which the original contractor works fail or refuse to pay them. This law can be found in the “10 Day Stop Work Notice” specified in Civil Code sections 8830-8848. Unfortunately, the applicable statutory procedures have a number of important shortcomings of which contractors, subcontractors and suppliers should be aware.
The payment bond is a valuable source for payment to subcontractors and suppliers who have not been paid for work performed on California construction projects. Although a payment bond is typically associated with public works projects, payment bonds can also be used on private works projects. If there is a payment bond on the project there are important deadlines which must be followed. If the original contractor was required to post a payment bond for the project, then follow the deadlines described below. (See California Civil Code sections 8600 - 8614 for private works and §§ 9550-9566 for public works).
Federal public work construction projects are unique in that there are no Stop Payment Notice or Mechanics Lien remedies available. Furthermore, although a remedy is available by proceeding against the original contractor’s payment bond under a federal law known as the “Miller Act” and its corresponding Federal Regulations (40 USCS 3131 et seq. and 48 CFR 28.101-1 et seq.), this remedy is not available to all subcontractors or suppliers. In addition, there are circumstances where a different form of security can be substituted for the payment bond (40 USCS 3131(b)(2)).
nder laws which took effect on January 1, 2011, claimants who seek to obtain payment for construction related debts through the California mechanic’s lien procedure must follow new rules and use new forms. Failure to do so will likely result in an unenforceable mechanics lien. There are a number of reasons that the law was changed. For example, until this change, there was no requirement that a mechanic’s lien claimant actually inform the property owner that the claimant has recorded a mechanic’s lien on the owner’s property. There was also no requirement that a mechanic’s lien claimant inform an owner of exactly what a mechanic’s lien is or that the owner may be sued within 90 days to foreclose on the mechanic’s lien and sell the owner’s property to pay the unpaid debt. Property owners had long complained that, until they received the mechanic’s lien foreclosure lawsuit, they were often entirely unaware that a mechanics lien had even been recorded on their property. The owner asserted that if he/she had known that a mechanic’s lien had been recorded, he/she could have acted to resolve the matter before a lawsuit became necessary. This was a particularly common complaint in the residential construction industry where homeowners are generally unaware of the entire concept of a mechanic’s lien.
