A contractor receives partial payment of $8,000 on a $15,000 contract but the remaining $7,000 is overdue by 45 days. Under California prompt payment law, the contractor may:
Correct Answer
C) Charge interest at 1.5% per month on overdue amounts
California law allows contractors to charge interest at 1.5% per month (18% annually) on overdue payments under prompt payment provisions.
Why This Is the Correct Answer
California's prompt payment law (Civil Code Section 3260 for private work) allows contractors to charge interest at 1.5% per month (equivalent to 18% annually) on overdue progress payments. This rate is statutory and applies automatically once payment is overdue — the contractor does not need to prove damages beyond the unpaid amount.
Why the Other Options Are Wrong
Option A: Charge interest at 2% per month on overdue amounts
2% per month (24% annually) exceeds the statutory rate. California law caps prompt payment interest at 1.5% per month. Charging more could expose the contractor to a usury claim.
Option B: File a mechanics lien for the full contract amount
Filing a mechanics lien for the full contract amount ($15,000) would be improper because $8,000 has already been paid. A mechanics lien can only be filed for the unpaid balance ($7,000), not the total contract price. Overstating a lien is fraudulent and can result in the lien being voided.
Option D: Stop work immediately
Stopping work immediately without following proper contractual and legal procedures could constitute a breach of contract by the contractor. California law generally requires specific notice steps before a contractor can lawfully suspend work for non-payment — an immediate work stoppage without following those steps creates legal risk for the contractor.
Memory Technique
Prompt payment interest in California = 1.5% per month = 18% per year. Remember '18%' — it matches the common credit card annual rate, making it easy to recall. Then convert: 18% ÷ 12 months = 1.5% per month.
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Under California Civil Code Section 8000-9566, what is the maximum time limit for enforcing a recorded mechanics lien through legal action?
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