A contractor receives a stop payment notice on a project with a remaining balance of $45,000. The contractor's work is 75% complete. How much can legally be withheld?
Correct Answer
A) $11,250
Remaining work = 25% of $45,000 = $11,250. Only the amount for incomplete work can be legally withheld under Michigan lien law.
Why This Is the Correct Answer
The correct answer is A ($11,250). When a stop payment notice is issued, the amount that can legally be withheld is limited to the value of the work not yet completed. If the work is 75% complete, then 25% remains: 25% × $45,000 = $11,250. Only this uncompleted portion can be withheld because the completed work has been earned and must be paid.
Why the Other Options Are Wrong
Option B: $33,750
$33,750 is incorrect. This represents 75% of $45,000 — the value of the work already completed. Withholding payment for completed work would be improper; only the value of incomplete work can be legally withheld.
Option C: $45,000
$45,000 is incorrect. Withholding the entire remaining balance would mean refusing to pay for work already completed and accepted, which violates Michigan lien law principles. The full $45,000 cannot be withheld.
Option D: $22,500
$22,500 is incorrect. This represents 50% of the remaining balance, which does not correspond to any recognized calculation based on the 75% completion percentage given in the problem.
Memory Technique
Think: 'You can only withhold what hasn't been done.' Completed work = earned money. Withheld amount = % remaining × balance. Here: 25% not done × $45,000 = $11,250.
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