Contractors Arm Yourselves: The Bonded Stop Notice Is An Effective Tool

By Gregory R. Shaughnessy

A little used and frequently overlooked weapon in the arsenal of an unpaid contractor or subcontractor on a private work of improvement is the bonded stop notice. For the sophisticated and aggressive contractor, the bonded stop notice can be one of the most effective remedies available under California law.

I he bonded stop notice on a private project must be distinguished from a stop notice on a public project. Perhaps the most important distinction is that a general contractor has no stop notice rights on a public work of improvement. In addition, on public projects a bond is not required to accompany the stop notice.

The bonded stop notice on a private project is directed to the construction lender, who is required to Continue reading

Your Contract: What It Should Have – Part 1

Contract1. Licensee’s statement

Effective January 1, 1996 section 7030 of the business and professions coded was amended to revise the form of notice requiring at least 10 point type on all prime construction contracts as follows

“Contractors are required by law to be licensed and regulated by the contractors’ state license board which has jurisdiction to investigate complaints against contractors if a complaint regarding a patent act or omission is filed within four years of the date of the alleged violation.  A complaint regarding a latent act or omission pertaining to structural defects must be filed within 10 years of the date of the alleged violation.  Any questions concerning a contractor may be referred to the registrar, Contractors’ State License Board, P.O. Box 16000, Sacramento, California 95826.

Failure to include this written statement may constitute Continue reading

What to Put In Contracts, or Keep Out For That Matter Part 1

The value of a written contract depends on the contractor’s ability to have certain phrases placed in the contract that protects the contractor’s interest.  Sometimes it may be true to go to work with just a handshake and not have a written contract if the provisions are disadvantageous to the contractor.

Sometimes working with an owner on a handshake (which would be illegal with a home improvement contract) or between a subcontractor and a prime or direct contractor could have its advantages.  If there is a dispute, a properly licensed contractor working on a handshake can be almost certain that the law will award it the reasonable value of work actually performed. This would normally result even if the other party stated that Continue reading

Regional Steel Corporation v. Liberty Surplus Insurance Corp.

Second Appellate District (Los Angeles County)

Insurer had no duty to defend subcontractor alleged to have installed defective steel framing in an apartment building, where only alleged damage was to sub’s work, not to other property.

A subcontractor was hired to provide reinforcing steel for the columns, walls, and floors of an apartment project. The steel sub used both 90 degree and 135 degree seismic tie hooks in shear walls. However, after the tie hooks had been encased in concrete, a city inspector issued a correction notice requiring the exclusive use of 135 degree tie hooks. The general refused to pay the steel sub’s invoices and withheld $545,000. The steel sub sued the general for nonpayment, and the general filed a cross-complaint against the steel sub and others asserting contract, warranty, and negligence claims. The steel sub tendered defense of the matter to its insurer. The insurer denied the tender, asserting “no damage to property was alleged, and the purely economic losses caused by the need to reopen the poured concrete to correct the Continue reading

E. J. Franks Construction, Inc. v. Sahota

Fifth Appellate District (Merced County)

Licensed general contractor operating a sole proprietorship who incorporated and had contractor’s license reissued to the corporation was not barred by Business and Professions Code section 7031 from pursuing quantum meruit damages.

A licensed general contractor operating a sole proprietorship incorporated during a construction project and had his contractor’s license reissued to the corporation. A dispute arose with the owner regarding additional work performed after incorporation and reissuance of the contractor’s license. The owner claimed that Business and Professions Code section 7031 barred the corporation from pursuing any quantum meruit damages because it was Continue reading

Breach of Contract: Part 3 – Prompt Payment Statutes

1. Unjust enrichment

It would seem to be self-evident that a person cannot be bound to a contract unless it consents to be bound.  This is really just another way of saying that a contract requires a manifestation of mutual assent.

However, consider this situation.  A prime contractor, under contract with the owner, is creating an industrial building.  The contract price is $200,000.  The prime contractor expects to pay $50,000 for the “mechanical package” on the building including plumbing, heating, air conditioning, and the fire sprinkler system.  The contractor awards a $50,000 subcontract to S-1 for the complete mechanical package.  S-1 in turn subcontracts the heating, ventilating and air conditioning (but not the plumbing or fire sprinkler) to S-2 at a contract price of $25,000.  S-2 is a sub-subcontractor.  There is no contractual relationship between S-2 and the prime.

Now suppose that all the mechanical work has been finished and S-1 has been paid $25,000, all of which it has retained for its own work.  S-2 has been paid nothing.  At this point, S-1 leaves the state on an extended vacation.  S-2 for some reason, fails to enforce its mechanic’s lien and Continue reading

Breach of Contract: Part 2

1. Waiver of breach

Some construction contracts contain a provision that the owner waives all claims against the contractor if it makes final payment with the knowledge of a construction defect.  Such a clause was upheld in a case in which a contract for sought damages, the contractor interposed a defense a paragraph of the construction contract which provided that the making of the final payment constituted a waiver of all claims except those arising from defective work appearing after completion of the contract.  The court held that Continue reading

Breach of Contract: Part 1

If a party fails to perform under a contract, there is a breach.  A breach by one party excuses the other party from performing under the contract.  One party cannot ignore its duties under a contract and demand that the other party perform its duties.  One who breaks a promise can’t insist that the other party perform.

1. Substantial performance questions arise under construction contracts which is complicated.  How do you comply with every requirement of the plans and specifications?  What if Continue reading

The McAffrey Group Inc v The Superior Court of California County of Fresno

HOMEOWNERS MUST COMPLY WITH BUILDER’S PRE-LITIGATION PROCEDURES IN PURCHASE AGREEMENT BEFORE SUING FOR ALLEGED CONSTRUCTION DEFECTS UNDER RIGHT TO REPAIR ACT

gavel-2THE MCAFFREY GROUP INC (PETITIONER) V THE SUPERIOR COURT OF CALIFORNIA COUNTY OF FRESNO (RESPONDENT–JESUS CITAL ET. AL REAL PARTIES IN INTEREST 2014 DJDAR 3712(2014 )

This case is a petition for a writ of mandate brought by McAffrey Group which is a builder and developer of single family homes in Fresno.  Real parties in interest own 24 homes within the development, 19 of those homes are owned by 32 individual who purchased their homes directly from McCaffrey.  Nine of the 19 homes were sold before 2013 using a 2001 version of McCaffrey’s “Combined Purchase and Sale Agreement and Joint Escrow instructions” and “Homeowner Warranty.”  Five of the 24 homes are owned by Continue reading

Hidden Attorneys’ Fees in Contracts

GavelThink There is No Attorneys’ Fees Clause in Your Contract? It May Be Hidden in the Performance Bond

By Sean Thompson and John Klotsche, Hanson Bridgett LLP

In California, a litigant is only entitled to recover attorneys’ fees if a statute or contract allows such recovery.  As a result, one of the most important provisions in any construction contract is the attorneys’ fees clause.

Most attorneys’ fees clauses provide that the prevailing party in dispute resolution proceedings will be entitled to recover Continue reading

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