Manos v. Degen

California Court of Appeal · D006810 · 1988-08-19 · Published · 203 Cal. App. 3d 1237 · 250 Cal. Rptr. 493 · 1988 Cal. App. LEXIS 774

JOHN MANOS, Plaintiff and Appellant, v. GERALD N. DEGEN Et Al., Defendants and Respondents

Proceeding: appeal
Trial court: Superior Court of San Diego County
Trial judge: Patricia D. Benke
Outcome: affirmed — The judgment is affirmed.
Area: civil
Panel: Daniel J. Kremer (author)

Analysis

A model's reading — qwen3.8-27b, prompt v1, 2026-10-13T07:40Z · confidence high

The trial court granted the Bank's motion for summary adjudication, holding that Manos's stop notice was unenforceable because it was not accompanied by a bond in the statutorily required amount of 125% of the claim. The Court of Appeal affirmed, ruling that Civil Code section 3162 mandates withholding only for fully bonded notices and does not require proportional withholding for under-bonded claims.

Ruling reviewed	Standard	The court	The model
Granting of Bank's motion for summary adjudication regarding enforcement of the stop notice “The superior court properly granted the Bank’s motion for summary adjudication of issues.”	de novo	correct	agree with court The appellate court correctly applied the plain language of Civil Code sections 3083 and 3162, which condition the lender's mandatory duty to withhold funds on the receipt of a bond equal to 125% of the claim. The court properly rejected the plaintiff's equitable argument for proportional withholding, citing the legislative intent to limit judicially created remedies against construction funds as established in Connolly Development, Inc. v. Superior Court.

Authorities

relied: Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803 — Establishes that the lender's duty to withhold funds is triggered only by a bonded stop notice meeting statutory requirements and reflects legislative disfavor of equitable liens against construction funds.
relied: Boyd & Lovesee Lumber Co. v. Western Pacific Financial Corp. (1975) 44 Cal.App.3d 460 — Supports the policy that stop notice statutes relieve lenders from the expense and risk of policing the distribution of construction funds.
relied: Miller v. Mountain View Sav. & L. Assn. (1965) 238 Cal.App.2d 644 — Holds that a construction lender may disregard an unbonded stop notice.

The appellate opinion: sound — The opinion is sound because it correctly interprets the mandatory language of Civil Code section 3162 in conjunction with section 3083, concluding that the statutory duty to withhold is binary rather than proportional. It effectively addresses the plaintiff's equitable argument by citing controlling Supreme Court authority (Connolly) that prioritizes statutory compliance over judicially created equitable remedies in this context.

How this analysis was made · dispute it

A model's reading — claude-fable-5-1, prompt v1, 2026-10-13T04:32Z · confidence medium

The superior court granted Bank of Coronado's motion for summary adjudication on subcontractor John Manos's cause of action to enforce a stop notice, holding that Manos's failure to comply with the statutory bonding requirements (a bond of 1.25 times the claim) barred enforcement against the construction loan fund. The Court of Appeal affirmed, holding that Civil Code sections 3083 and 3162 impose a withholding duty on a lender only when the stop notice is accompanied by a bond in the full statutory amount, and that no proportional or partial withholding duty exists for an underbonded notice.

Ruling reviewed	Standard	The court	The model
Grant of summary adjudication to the Bank on the cause of action for enforcement of stop notice, on the ground that a $41,000 bond on a $41,000 stop notice claim was not a 'bonded stop notice' under Civil Code section 3083 and therefore imposed no duty under section 3162 on the lender to withhold any funds, including a proportionate $32,800. “Because Manos’s stop notice was not accompanied by a bond in the statutorily required amount, the Bank was not required under section 3162 to withhold any funds.”	de novo	correct	agree with court The opinion does not expressly state a standard of review, but it independently construes sections 3083, 3162 and 3264 on undisputed facts, which is de novo review. The text of section 3083 defines a bonded stop notice as one accompanied by a bond in a penal sum equal to 1 1/4 times the claim, and section 3162 makes withholding mandatory only upon receipt of a bonded stop notice; section 3264 makes the statutory scheme exclusive and forecloses the equitable, proportional remedy Manos sought. Connolly Development (17 Cal.3d 803) squarely states the lender may disregard an unbonded notice and must withhold only upon a bond of 1 1/4 times the claim, and footnote 25 of Connolly confirms the Legislature's disfavor of judicially created remedies against loan funds. Footnote 3 adds independent support: Manos never asked the Bank to withhold $32,800 and the bond named only Degen, not the Bank, as assured. The court's reading is faithful to the statutory text and the controlling Supreme Court authority.

Authorities

relied: Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803 — A construction lender may disregard an unbonded stop notice, but upon receipt of a notice accompanied by a bond equal to one and one-fourth times the claim must withhold sufficient funds; section 3264 reflects legislative disfavor of judicially created equitable remedies against construction loan funds.
relied: Boyd & Lovesee Lumber Co. v. Western Pacific Financial Corp. (1975) 44 Cal.App.3d 460 — Section 3264 was enacted to relieve lenders of the expense and risk of policing distribution of construction funds by abolishing the subcontractor's nonstatutory equitable lien remedy against the fund.
relied: Miller v. Mountain View Sav. & L. Assn. (1965) 238 Cal.App.2d 644 — Unlike an owner, a construction lender may disregard an unbonded stop notice.

The appellate opinion: sound — The court answers the only contention on appeal by applying the plain text of sections 3083, 3162 and 3264 and the directly on-point statement of the Supreme Court in Connolly Development, and it correctly characterizes the proportional-withholding theory as an equitable remedy the Legislature has foreclosed. The opinion is brief and does not discuss the general rule of liberal construction of mechanics' lien remedies or elaborate on substantial compliance, but neither would alter the result given the exclusive statutory scheme and the alternative grounds in footnote 3.

How this analysis was made · dispute it

Opinion — Kremer

Opinion

KREMER, P. J.

Plaintiff John Manos appeals an order granting defendant Bank of Coronado’s (Bank) motion for summary adjudication of issues on Manos’s complaint for enforcement of stop notice. Manos contends the court should have enforced his stop notice to the extent it was bonded under Civil Code 1 section 3083. We affirm the order.

In July 1983 the Bank made a $679,000 construction loan to Bancroft Associates, secured by a trust deed on real property in Spring Valley. *1239 Bancroft Associates obtained the loan to develop the property into a 14-unit apartment building.

In August 1984 Manos subcontracted with Bancroft Associates and its general contractor Degen Development to provide labor and materials for the project. In September 1984 Manos and Degen modified the agreement. Manos provided labor and materials under the modified agreement until Degen’s failure to pay the ongoing costs of Manos’s work prevented further performance by Manos. In October 1984 Manos recorded a mechanics’ lien against the property in the amount of $82,423.16. In December 1984 Manos served a stop notice on the Bank and a bond in the sum of $41,000 naming Degen as the assured. The stop notice demanded the Bank withhold .$41,000 from the loan fund to pay Manos’s claim and stated a bond in the penal sum of 125 percent of the amount of the claim was delivered with the notice. The Bank did not withhold any funds. 2

In January 1985 Manos sued the Bank, Bancroft Associates and Degen asserting causes of action for foreclosure of mechanics’ lien, conspiracy, and enforcement of the stop notice.

In December 1986 the Bank sought summary adjudication of issues relating to the foreclosure of the mechanics’ lien and enforcement of the stop notice. Responding to the Bank’s motion, Manos conceded the mechanics’ lien was extinguished when the Bank foreclosed on the property. However, Manos asserted rights under the stop notice to the extent it was bonded. After hearing, the court granted the Bank’s motion for summary adjudication, holding Manos’s failure to comply with statutory provisions governing stop notices barred enforcement of the notice. Manos appeals.

III

Manos contends the superior court erred in rejecting his assertion the Bank was required to withhold $32,800 as the bonded portion of his stop notice claim. We disagree. Manos’s contention is without support in statutory or decisional authority. 3

Stop notices are governed exclusively by statute. (§ 3264.) Manos has failed to establish substantial compliance with the statutory requirements for asserting a claim against the Bank’s construction fund.

*1240 Section 3264 provides: “The rights of all persons furnishing labor, services, equipment, or materials for any work of improvement, with respect to any fund for payment of construction costs, are governed exclusively by Chapters 3 (conmencing with Section 3156) and 4 (commencing with Section 3179) of this title, and no person may assert any legal or equitable right with respect to such fund, other than a right created by direct written contract between such person and the person holding the fund, except pursuant to the provisions of such chapters.”

The policy behind section 3264 is to relieve lenders from “the expense and risk of policing the ultimate distribution of construction funds” by abolishing the subcontractor’s old nonstatutory judicially developed equitable lien remedy. (Boyd & Lovesee Lumber Co. v. Western Pacific Financial Corp. (1975) 44 Cal.App.3d 460, 465 [118 Cal.Rptr. 699], cited with approval in Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803, 827, fn. 25 [132 Cal.Rptr. 477, 553 P.2d 637].)

Section 3162 provides in relevant part: “Upon receipt of a stop notice pursuant to Section 3159, the construction lender may, and upon receipt of a bonded stop notice the construction lender shall, withhold from the borrower or other person to whom it or the owner may be obligated to make payments or advancement out of the construction fund, sufficient money to answer such claim . . . .”

Section 3083 defines “bonded stop notice” in relevant part as “. . . a stop notice, given to any construction lender, accompanied by a bond with good and sufficient sureties in a penal sum equal to 1 Va times the amount of such claim . . . .”

“Unlike the owner, the lender may disregard an unbonded stop notice (Miller v. Mountain View Sav. & L. Assn. (1965) 238 Cal.App.2d 644, 661 [48 Cal.Rptr. 278] . . .), but upon receipt of a notice accompanied by a bond equal to one and one-fourth times the amount of claims (§ 3083) the lender must withhold from the unexpended balance of the loan fund a sum sufficient to pay the claim. (§ 3162.)” (Connolly Development, Inc. v. Superior Court, supra, 17 Cal.3d at p. 809.)

We read section 3162 as requiring a lender to withhold funds only if the stop notice is accompanied by a bond in the sum of one and one-fourth times the amount of the stop notice claim. Nothing in section 3162 suggests the lender must withhold a proportion of the amount claimed in the stop notice when a bond is provided in an amount less than one and one-fourth times the stop notice claim. Manos’s contention the Bank had a duty to withhold a proportionate $32,800 from the loan funds upon his providing a *1241 $41,000 bond on his $41,000 stop notice claim is at most an appeal to equity. The Legislature has stated its disfavor with judicially created equitable remedies against construction loan funds. (Connolly Development, Inc. v. Superior Court, supra, 17 Cal.3d at p. 827, fn. 25.) Because Manos’s stop notice was not accompanied by a bond in the statutorily required amount, the Bank was not required under section 3162 to withhold any funds. 4

The superior court properly granted the Bank’s motion for summary adjudication of issues.

Disposition

The judgment is affirmed.

Work, J., and Woodworth, J., * concurred.

All statutory references are to the Civil Code unless otherwise specified.

Later the Bank foreclosed on the property after Bancroft Associates defaulted on the loan.

We also note the record contains no suggestion Manos at any time asked the Bank to withhold only $32,800 from the construction loan funds. Further, Manos did not name the Bank as an assured on the bond but instead named only Degen.

Attorney practice manuals are instructive to the practitioner on this issue.

“The construction lender should take the following steps when served with a stop notice: . . . [11] (b) Determine whether the notice is accompanied by the proper bond. The lender can disregard a stop notice that is not accompanied by a bond equal to one and one-fourth times the amount of the claim (CC §§ 3083, 3162).” (Cal. Mechanics’ Liens and Other Remedies (Cont.Ed.Bar 1988) § 6.15, p. 280.)

“Any claimant other than the contractor may file a stop notice with the construction lender. CC § 3159. The person given the notice may withhold funds to answer the claim but is under no duty to do so unless a sufficient bond in a sum equal to one-and-one-quarter times the amount of the claim (referred to as a bonded stop notice) is filed with him by the claimant. CC § 3083. . . .[H] [T]he custodian of the construction funds may be compelled to withhold funds to meet a stop notice claim if the claimant furnishes the prescribed bond . . . .” (2 Bowman, Ogden’s Revised Cal. Real Property Law (Cont.Ed.Bar 1975) § 20.23, p. 1034.)

Assigned by the Chairperson of the Judicial Council.

Cites, in this corpus

Connolly Development, Inc. v. Superior Court S.F. 23225 · 1976-08-31
Boyd & Lovesee Lumber v. Western Pacific Financial Civ. 13765 · 1975-01-13
Miller v. Mountain View Savings & Loan Ass'n Civ. 22473 · 1965-12-10

Cited by

Cal. Bank & Trust v. Del Ponti E053187 · 2014-12-09
Building Profit Corp. v. Mortgage & Realty Trust E013067 · 1995-07-07