223 Cal. App. 4th 831
Cal. Ct. App.2014Background
- Point Center Financial (Lender) funded a construction loan for a San Diego project and served as construction lender under a stop notice regime.
- Respondents Brady, Dynalectric, Division 8, and Brewer served bonded stop notices; Lender disbursed funds, with some funds preallocated to itself for interest and fees.
- Familian Corp. v. Imperial Bank (1989) guides that a construction lender’s preallocation/assignment does not trump stop notice priority; the trial court followed this precedent.
- By October 2007 Lender had disbursed all funds; subsequent bonded stop notices (2008) challenged Lender’s withholding liability.
- The trial court awarded Respondents 1,555,771.37 under section 3167, recognizing stop notice priority over the lender’s contractual rights; Dynalectric’s preliminary notice issue and Division 8’s notice of commencement were disputed.
- The court remanded for further proceedings on a potentially dispositive factual issue about Dynalectric’s start date and whether a factual excuse from serving a preliminary notice existed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Familian governs assignment priority under 3166 | Brewer/Respondents rely on Familian to override lender preallocation. | Lender contends Familian should be limited or distinguished. | Familian adopted (de novo); assigns priority to stop notices over preallocation. |
| Whether a construction lender’s preallocation constitutes an assignment under 3166 | Preallocation transfers rights to lender; subject to stop notice priority. | Disbursements are merely performance of contract, not assignment. | Disbursements to lender are assignments under 3166; stop notices prevail. |
| Dynalectric's duty to serve a preliminary notice under 3097 | Lender argues Dynalectric was exempt; 3097(a) and (b) interpreted to require notice. | Dynalectric claims exemption as direct contractor with owner; 3097 lines misread. | Dynalectric required to serve preliminary notice; remanded for factual hearing on start date. |
| Whether there is a factual excuse for Dynalectric not serving a preliminary notice | Lender asserts no factual excuse; facts show late/none served. | Dynalectric asserts factual excuse exists; issues unresolved. | Remand to determine if a factual excuse existed; if yes, Dynalectric entitled to judgment. |
| Division 8's failure to serve notice of commencement under 3172 | Failure to file is prejudicial; noncompliance could bar relief. | Notice requirement is directory unless prejudice shown. | Division 8’s noncompliance was nonprejudicial; judgment affirmed, but Dynalectric remanded. |
Key Cases Cited
- Familian Corp. v. Imperial Bank, 213 Cal.App.3d 681 (Cal. Ct. App. 1989) (preallocation/assignment rule: stop notices trump lender priority)
- A-1 Door & Materials Co. v. Fresno Guarantee Sav. & Loan Ass'n, 61 Cal.2d 728 (Cal. 1964) (assignment priority over stop notices)
- Connolly Development, Inc. v. Superior Court, 17 Cal.3d 803 (Cal. 1976) (stop notices protect labor/materials; funds earmarked for construction)
- Kodiak Industries, Inc. v. Ellis, 185 Cal.App.3d 75 (Cal. App. 1986) (interpretation of 3097 and 'the contractor' terminology)
- Westfour Corp. v. California First Bank, 3 Cal.App.4th 1554 (Cal. App. 1992) (interpretation of 'the contractor' in 3097)
- Shady Tree Farms v. Omni Financial, 206 Cal.App.4th 131 (Cal. App. 2012) (interpretation of preliminary notice to general/prime contractor)
- Romak Iron Works v. Prudential Ins. Co., 104 Cal.App.3d 767 (Cal. App. 1980) (notice requirements purpose and timing)