2005 California Civil Code Sections 3161-3163 Article 4. Effect of Stop Notice and Bonded Stop NoticeCIVIL CODE
3161. It shall be the duty of the owner upon receipt of a stop notice pursuant to Section 3158 to withhold from the original contractor or from any person acting under his or her authority and to whom labor or materials, or both, have been furnished, or agreed to be furnished, sufficient money due or to become due to such contractor to answer such claim and any claim of lien that may be recorded therefor, unless a payment bond has been recorded pursuant to the provisions of Section 3235, in which case the owner may, but is not obligated to, withhold such money. If the owner elects not to withhold pursuant to a stop notice by reason of a payment bond having been previously recorded, then the owner shall, within 30 days after receipt of the stop notice, give a written notice to the claimant at the address shown in the stop notice that the bond has been recorded and furnish to the claimant a copy of that bond. 3162. (a) Upon receipt of a stop notice pursuant to Section 3159, the construction lender may, and upon receipt of a bonded stop notice the construction lender shall, except as provided in this section, withhold from the borrower or other person to whom it or the owner may be obligated to make payments or advancement out of the construction fund, sufficient money to answer the claim and any claim of lien that may be recorded therefor. The construction lender shall be subject to the following: (1) The construction lender shall withhold funds pursuant to a bonded stop notice filed by an original contractor, regardless of whether a payment bond has previously been recorded in the office of the county recorder where the site is located in accordance with Section 3235. (2) The construction lender shall withhold funds pursuant to a bonded stop notice filed by any other person named in Sections 3110, 3111, and 3112, unless a payment bond has previously been recorded in the office of the county recorder where the site is located in accordance with Section 3235. If a payment bond has previously been recorded, the construction lender may, at its option, withhold funds pursuant to the bonded stop notice or stop notice, or may elect not to withhold pursuant to the bonded stop notice or stop notice given by anyone other than an original contractor. (3) If, when giving the construction lender the stop notice or bonded stop notice, the claimant makes a written request for notice of the election, accompanied by a preaddressed, stamped envelope, the construction lender shall furnish the claimant a copy of the bond within 30 days after making the election. A lender shall not be liable for a failure to furnish a copy of the bond if the failure was not intentional and resulted from a bona fide error, if the lender maintains reasonable procedures to avoid such an error, and if the error was corrected not later than 20 days from the date on which the violation was discovered. The payment bond may be recorded at any time prior to the serving of the first stop notice. (b) In the case of a stop notice or bonded stop notice filed by the original contractor or by a subcontractor, the original contractor or subcontractor shall only be entitled to recover on his or her stop notice or bonded stop notice the net amount due the original contractor or subcontractor after deducting the stop notice claims of all subcontractors or material suppliers who have filed bonded stop notices on account of work done on behalf of the original contractor or the subcontractor. (c) In no event shall the construction lender be required to withhold, pursuant to a bonded stop notice, more than the net amount identified in subdivision (b). Notwithstanding any other provision, no construction lender shall have any liability for the failure to withhold more than this net amount upon receipt of a bonded stop notice. 3163. If the construction lender objects to the sufficiency of the sureties on the bond accompanying the bonded stop notice, he must give notice in writing of such objection to the claimant within 20 days after the service of the bonded stop notice. The claimant may within 10 days after the receipt of such written objection substitute for the initial bond a bond in like amount executed by a corporate surety licensed to write such bonds in the State of California. If the claimant fails to do so, the construction lender may disregard the bonded stop notice and release all funds withheld in response thereto.
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