The Stop Payment Notice is most often associated with a Public Project. It is used by those who are not contracted directly with the Public Entity to instruct (request) the Public Entity to withhold funds from the monies being used to make progress payments due to the Original Contractor, while the project is still under construction. The reason to serve a Stop Payment Notice is due to the Original Contractor not paying the contracted subcontractors or suppliers to the project within the terms of their contract.
By serving a Stop Payment Notice, the Subcontractor and/or Supplier forces the Public Entity not to release money which has already been approved and appropriated for the Original Contractor preventing the available funds from being distributed before the Subcontractor and/or Supplier has the opportunity to validate his claim to these funds.
The Stop Payment Notice is usually a pre-cursor to filing a Bond Claim Notice. However, the Stop Payment Notice is only a valid tools while funds are still available for payment on the project. Once the project is completed and the funding is no longer available. Claimants with uncollected accounts receivables from the project resort to a Bond Claim Notice on Public Jobs and a Mechanics Lien on Private Jobs.
Most attorneys contracted to take legal action for unpaid contracts of this nature will encourage the use of both the Stop Payment Notice and the Bond Claim Notice to bring forth a solid foundation by which a Subcontractor and/or Supplier may enforce it’s claim. Please also consider a “Lien against Funds” in those states which do not allow for a Stop Payment Notice.