Legal Question in Construction Law in California

Re: Stop work as a result of non payment

Without having the chance to review the specifics or your contract, it would be difficult and improper to offer "generic" advice on your situation.

Your best advice is to have an attorney who does only construction law related matters review your situation. This will be money well spent. Some firms (ours for example) will not charge for an initial review of your situation.

This area of law has some very specific requirements (timeliness for one), and taking matters into your own hands could be an expensive mistake. Good luck, and be sure to select an attorney who is very familiar with this area of law as this will actually save you money in the long run.

Re: Stop work as a result of non payment

Retain a good competent attorney. The reason you are where you are is because you cannot see all from the outside as an attorney can and should.

Re: Stop work as a result of non payment

I�m going to presume that your company is a subcontractor on the project, where the general contractor is withholding payments.

From the information provided, you are probably justified in stopping the work until the general comes current with your payments. Alternatively, you probably have the right to terminate the subcontract for non-payment. I emphasize the word probably, as this issue has generated a lot of litigation and varying results in various courts.

The right to stop work, or terminate the subcontract depends on whether the other side�s breach is material. In this context, material means crucial to the contract, or, put another way, a breach that goes to the heart of the intent of the contract. Failure to pay is usually material, whereas failure to have the lunch truck stop by is not.

In this case, the general�s failure to pay may very well be a material breach, either excusing you from future performance, or giving you the right to terminate the contract. Several factors are involved. The failure to pay must be a wrongful act, and not just a reasonable delay, or a delay due to a dispute over the amount due, or over the quality of materials and work provided, etc.

What you need to prove a material breach on the part of the general is, essentially, that required progress payments were not made when required, and that the general had no justification for failure to make those payments. It certainly sounds like that�s the case here where they are behind in contract sum payments as well as payments for approved change orders.

The general may be claiming that the owner has failed to make progress payments, and point to a pay-when-paid or pay-if-paid clause in the subcontract. Any such clause is unenforceable under some fairly recent case law. If that�s the argument on which the general relies, they have a problem.

You should be aware that several code sections allow for an interest penalty of 2% per month for failure to make progress payment after receiving funds form the owner allocable to the subcontractor�s work. This will be an issue if you have to litigate with the general.

I�d recommend a very careful review of the contract and the facts of the dispute to make sure that your decision to stop work is not itself considered a material breach. I would strongly recommend that you contact counsel experienced in construction litigation to review the situation and provide specific advice. Also, be sure that you watch the time frames carefully, and don�t lose your mechanics lien or stop notice rights.

I wish you all success.

Now the inevitable caveat:

The foregoing information is provided as an accommodation only, and does not constitute specific legal advice or a biding legal opinion based on a comprehensive review of all relevant facts, nor can provision of such information be construed as creating an attorney-client relationship.

Re: Stop work as a result of non payment

Than in the well, you need help immediately. I am not sure why you didn't use the mechanics lean law in this situation to secure payment on your materials that you supplied. More importantly, I'm not sure if you've waived that right because of untimeliness. I am personally concerned to you stop work in this process so that you are subjecting yourself the breach of contract. Get an attorney immediately. I cannot advise you how very important it is to get someone knowledgeable in this area to oblige you. If you have been advised I don't think you've gotten the right advise but I do not know all the facts. I've been practicing real estate law in the San Francisco Bay Area for over 30 years. This is the kind of thing they can bankrupt the company. If you wish to consult with me I am available at 925 -- 945 -- 6000. You need help yesterday

Re: Stop work as a result of non payment

I concur with Mr. Newton. Frankly, I'm stunned that you haven't taken legal action already what with $300,000 at stake.

There is a law that specifically addresses stopping work for nonpayment, but it only applies to "original" contractors ie., those that have a direct contract with the owner. In fact, it was implemented as a result of the fairly recent cases that outlawed the "pay if paid clauses" mentioned by Mr. Newton. You hint that you're a subcontractor, but if you have a direct contract, have your lawyer look at CC section 3260.2.

If you contact a lawyer make sure that he/she is very familiar with construction law. This is not an area that many lawyers deal in and it takes a while to get up to speed.

By the way, from the few facts you've given, you can probably still record a lien (and then foreclose) against the property that may add some pressure to pay you. Remember, however, that a lien is nothing more than security for the debt owed.