An Administrator's Guide to California Private School Law

Chapter 17 – Construction

payment notice claimant. A school may release payments withheld from a contractor for a stop payment notice as follows:  Release of the Stop Payment Notice. The subcontractor who filed the stop

payment notice may file a waiver and release upon partial or final payment. 2425 Upon receipt of this waiver and release, the school may release funds withheld because of the stop payment notice unless it has other reasons to withhold the funds. If a lawsuit is pending on the stop payment notice that is being released, a dismissal with prejudice of either the entire lawsuit, or at least a dismissal of the school from the lawsuit, must accompany the release.  Stop Payment Notice Release Bond. The direct contractor may provide the school a release bond by an admitted surety insurer in an amount of 125 percent of the amount claimed in the stop payment notice. 2426 Upon receipt of the release bond, the school must release any funds withheld for the stop payment notice. 2427  Joint Check Issued to Contractor and Subcontractor. The school may issue a joint check to the claimant and the contractor to ensure that a subcontractor is paid. The contractor signs the joint check and transmits it to the subcontractor. Before releasing a joint check to a subcontractor who has filed a stop payment notice lawsuit, the school should make sure that the subcontractor has provided a request for dismissal with prejudice of the lawsuit at least as to the school and a stop payment notice release. The request for dismissal may be held in trust by the school until the joint check clears, at which time it would be filed with the court.  Expiration of Statutory Time Deadlines of Failure to Enforce Stop Payment Notice. The school may release amounts withheld pursuant to a stop payment notice if the stop payment notice claimant fails to file a stop payment notice action within 90 days after the expiration of time within which a stop payment notice must be given. 2428 The School may also release these amounts if an action to enforce a stop payment notice is dismissed, unless the dismissal is without prejudice. 2429  Judicial Determination. Upon a final determination and judgment entered against the claimant, the school may release the funds withheld for the stop payment notice as ordered by the court or a jury. 2430 The school may also release the funds pursuant to a mutual settlement between and among the school, the contractor, the claimant, and the payment bond surety, provided the school is not withholding the funds for other reasons.

F. D EALING W ITH S URETY Most contractors are concerned about their ability to obtain bonding for future projects. Because of this, a contractor may not want the school to contact the surety regarding the contractor’s failure to pay subcontractors and suppliers, or to perform the work required by the contract documents. Schools should be cautious when contacting a prime contractor’s surety. If the

An Administrator’s Guide to California Private School Law ©2019 Liebert Cassidy Whitmore 587