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William L. Porter Anthony P. Fritz Conor H. McElroy

Articles > Construction law in California

Penalty for Filing a False or Inflated Stop Notice

by William L. Porter, Attorney at Law

Some time ago a prime contractor came to me with a problem involving a stop notice. It seemed that a supplier to the contractor on a project had a dispute with the contractor. As a result, the supplier filed a stop notice on the project. This prevented the public entity from paying the contractor. The problem was that the disputed bill from the supplier was for $65,000, while the stop notice filed was for $75,000. In my subsequent conversation with the supplier, he acknowledged that there was only $65,000 unpaid. He said he filed a stop notice in the higher amount because he wanted to be sure to cover anticipated interest, fees, costs and lost profits. I advised him that filing the stop notice in such an amount and for such a purpose was improper and requested he release the stop notice. He refused. I confirmed the conversation in writing and promptly took him to court.

The law on this subject is found in California Civil Code Section 3192, which states:

“Any person who willfully gives a false stop notice to the public entity or who willfully includes in his notice labor, services, equipment, or materials not furnished for the work of improvement with respect to which such notice is given, forfeits all right to participate in the pro rata distribution of money or bonds withheld.”

The result of the court case was that, rather than simply reducing the stop notice, the stop notice was released in full by the judge. The funds were then released and the prime contractor was paid in full. The supplier also lost its rights against the public works payment bond.

The lesson from the case is that those who file false or inflated stop notices in an amount in excess of the value of the work performed, and in order to coerce a payment from an owner for sums to which they are not entitled, often end up with nothing at all from the owner. Act honestly and others are more likely to treat you honestly. Act dishonestly and both the law and your opponent may exact a costly punishment in the form of the release of the entire stop notice and forfeiture of important rights.

William L. Porter is a principal in Porter Law Group, Inc. in Sacramento, California.
He can be reached at (916) 381-7868.