A contractor receives a stop payment notice on a project where they are owed $25,000. The property owner has $40,000 in construction funds remaining. How much must the owner withhold?
Correct Answer
B) $25,000 (full amount of the claim)
When a valid stop payment notice is served, the owner must withhold the amount claimed or the amount owed to the contractor, whichever is less.
Why This Is the Correct Answer
Under California Civil Code §8520 et seq., when a valid stop payment notice is served, the owner must withhold from the construction funds the amount claimed in the notice. Here, the claim is $25,000 and the remaining funds ($40,000) are sufficient to cover it, so the owner withholds exactly $25,000 — the full amount of the claim.
Why the Other Options Are Wrong
Option A: $0 (stop notices don't apply to private work)
Stop payment notices absolutely apply to private works in California. Civil Code §8520 governs private works; §8500 governs public works. Both are valid. Dismissing the notice as inapplicable to private work is incorrect.
Option C: $12,500 (50% of amount owed)
$12,500 (50% of the claim) has no basis in the stop payment notice statute. California does not require only partial withholding based on a percentage of the claim amount.
Option D: $40,000 (all remaining funds)
$40,000 (all remaining funds) would over-withhold relative to the claim. The owner withholds only what is necessary to satisfy the claim — not the entire remaining balance. The excess $15,000 ($40,000 - $25,000) is not required to be withheld.
Memory Technique
A stop payment notice is like a 'hold' placed on a specific dollar amount. The hold equals the claim, not all the money in the account.
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