SECTIONS 8540-8544 - California Statutes

CIVIL CODE

SECTION 8540-8544

8540. (a) Funds withheld pursuant to a stop payment notice shall be
distributed in the following order of priority:
(1) First, to pay claims of persons that have given a bonded stop
payment notice. If funds are insufficient to pay the claims of those
persons in full, the funds shall be distributed pro rata among the
claimants in the ratio that the claim of each bears to the aggregate
of all claims for which a bonded stop payment notice is given.
(2) Second, to pay claims of persons that have given an unbonded
stop payment notice. If funds are insufficient to pay the claims of
those persons in full, the funds shall be distributed among the
claimants in the ratio that the claim of each bears to the aggregate
of all claims for which an unbonded stop payment notice is given.
(b) Pro rata distribution under this section shall be made among
the persons entitled to share in the distribution without regard to
the order in which the person has given a stop payment notice or
commenced an enforcement action.

8542. Notwithstanding Section 8540:
(a) If funds are withheld pursuant to a stop payment notice given
to a construction lender by a direct contractor or subcontractor, the
direct contractor or subcontractor may recover only the net amount
due the direct contractor or subcontractor after deducting any funds
that are withheld by the construction lender pursuant to the claims
of subcontractors and material suppliers that have given a stop
payment notice for work done on behalf of the direct contractor or
subcontractor.
(b) In no event is the construction lender required to withhold,
pursuant to a stop payment notice, more than the net amount provided
in subdivision (a). Notwithstanding any other provision of this
chapter, a construction lender is not liable for failure to withhold
more than that net amount on receipt of a stop payment notice.

8544. The rights of a claimant who gives a construction lender a
stop payment notice are not affected by an assignment of construction
loan funds made by the owner or direct contractor, and the stop
payment notice has priority over the assignment, whether the
assignment is made before or after the stop payment notice is given.