Cal-Pac. Materials Co. v. Redondo Beach City Sch. Dist.

[654]

Opinion

THOMPSON, J.

In this appeal, we consider the narrow issue of the extent of protection afforded a public entity by the filing of a surety bond by a general contractor pursuant to Civil Code section 3196 in order to secure the release of funds withheld from the contractor by reason of a dispute over a stop notice filed with the entity by a subcontractor. We conclude that a public entity which honors the section 3196 bond by releasing withheld funds to the general contractor is relieved of any liability resulting from the stop notice. Accordingly, we reverse a trial court judgment holding defendant Redondo Beach City School District liable to plaintiff Cal-Pacific Materials Company, the subcontractor.

The parties agree on the operative facts. Redondo Beach City School District (School District) contracted with Willens & Bertisch Co., Inc. (Willens) for the construction of improvements upon School District real property. Safeco Insurance Company of America (Safeco) issued its payment bond covering the project. Willens subcontracted plastering and related work on the job to Western States Lathing and Plastering Co., Inc. (Western States). Western States in turn purchased on open book account materials for the project from plaintiff, Cal-Pacific Materials Company, (Cal-Pacific).

Cal-Pacific directed a letter to Western States saying that $1,936 was due it for materials supplied for the public improvement and sent a copy of the letter to Willens. Relying upon the letter, Willens disbursed $4,064 to Western States and retained $1,936 of the amount due from Willens to the latter to cover Cal-Pacific’s demand. Willens did not pay the $1,936 to Cal-Pacific but continued to hold the sum. In fact, $9,701.06 was due from Western States to Cal-Pacific as the result of materials furnished for the job; the amount stated in the letter to Western States, a copy of which was furnished Willens, was in error.

Cal-Pacific, not having been paid the $9,701.06 due from Western States on the open book account, invoked the statutory procedure embodied in Civil Code section 3179 et seq. It served a stop notice upon School District memorializing the debt of Western States in the amount of $9,701.06 for material used in the public improvement. By reason of the stop notice, School District withheld from payments otherwise due Willens, the prime contractor, the amount required by the notice.