Insurance & LiensQuestion 680 of 1632

On a PUBLIC works project, a subcontractor with unpaid invoices serves a 'stop payment notice' on the public entity under Civil Code §9358 (formerly known as a 'stop notice'). The effect is to:

a.Garnish the prime contractor's bank account without any judgment
b.Require the awarding body to terminate the prime contract immediately
c.Place a mechanics lien on the public entity's real property
d.Require the public entity to withhold enough unpaid contract funds

Explanation

Civil Code §9358 obliges the public entity served with a stop payment notice to withhold, from money still owed on the contract, an amount sufficient to answer the claim plus a reasonable allowance for litigation costs, and it is protected when it withholds in good faith. (a) skips the judgment a creditor needs before levying on an account. (b) asks for a remedy the notice does not carry — the contract continues, only the money stops. (c) is the trap the public-works scheme exists to answer: public property cannot be liened, which is why the legislature substituted this notice and the §9550 payment bond.

Law Reference: Civil Code §9358 / §9350 et seq.

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