the COVID-19 pandemic, the railings and house renovation was two months late (May 2020). In April 2020, Vought invoiced Stock $73,000, and when this was unpaid, sent another invoice in May 2020 (also un- paid). In June, Vought sent a proposed change order to Stock for $50,000 for the exterior railing, which was rejected. Stock continued to refuse to make payment on the early invoices. In July, Vought recorded a mechanics lien for $78,000 and in August sent a proposed change order for $10,000 in “legal costs” and interest on the unpaid progress payments. In response, Stock claimed that he was entitled to liquidated damages of $53,000; in December he paid Vought $20,000, or roughly the difference between Vought’s $73,000 invoice and Stock’s liquidated damage claim of $53,000. Vought sued. Following a four-day trial, the trial


court found Vought entitled to $59,000 in unpaid invoices (difference between total contract price and amounts paid) plus $31,000 for the railing, but found Stock was entitled to an offset of $29,000 for liquidated damages, for a total award for Vought of $61,000 plus prejudgment interest in the amount of $17,000. The trial court further ruled that


Vought was not entitled to prompt pay- ment penalties of 2% per month under Civil Code section 8800 because “there was . . . a good faith dispute between the parties as to what needed to be paid.” Vought appealed.


The Appeal On appeal, Vought argued among other things, that Stock violated Civil Code Section 8800 as a matter of law, and that Stock’s liquidated damage offset was not a “good faith” dispute that would excuse the withholding of payment. As to Vought’s Civil Code Section 8800 contention, the Court of Appeal held


Voughtprovides insight intothecontoursof the“goodfaithdispute”or, “bonafidedispute,” exceptionunderCalifornia’spromptpayment statutes.Andwhilethecaseinvolvedaspecific promptpaymentpenaltystatute,CivilCode section8000, thecasehasapplicabilitytoallof thepromptpaymentpenaltystatutes.


that the progress payments withheld on account of liquidated damages was a “good faith dispute” under Section 8800. Te Court explained that an owner


is entitled to withhold payment “[i]f there is a good faith dispute between the owner and direct contractor as to a progress payment due,” and here, the parties’ contract specifically allowed Stock to “withhold [payment] in whole or in part to such extent as may be nec- essary . . . to protect the Owner from loss . . . because of . . . reasonable evidence that the Work will not be completed within the Contract Time, and that the unpaid balance would not be adequate to cover actual or liquidated damages for the anticipated delay . . .” Te Court also distinguished United


Riggers & Erectors, Inc. v. Coast Iron & Steel Co. (2018) 4 Cal.5th 1082, in which the California Supreme Court held that a “good faith dispute” un- der Civil Code Section 8814 must con- cern the work underlying the specific payment that is otherwise due, on the ground that United Riggers involved a dispute over change orders that would have increased amounts due rather than liquidated damages that would have decreased amounts due.


Conclusion Vought provides further insight into the contours of the “good faith dispute” or “bona fide dispute” exception under California’s prompt payment statutes. And while the case involved a specific prompt payment penalty statute (Civil Code Section 8000), I believe the case has applicability to all the prompt payment penalty statutes. Further, the case is inter- esting in that the Court of Appeals based its decision on both the prompt payment penalty statute as well as the underlying contract between the parties but makes no distinction as to whether either alone was sufficient to support its decision. While liquidated damages are a product


of contract, would the Court of Appeal have reached the same conclusion if the parties’ contract did not expressly provide that payment may be withheld to cover liquidated damages and, instead, merely stated, as most liquidated damage provi- sions do, that liquidated damages are owed if a project is not timely completed?


Garret Murai is a construction attorney and partner at Nomos LLP in Oakland, California. He is the editor of the California Construction Law Blog, which can be found at www. calconstructionlawblog.com.


CALIFORNIA CONSTRUCTOR MAY/JUNE 2023


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