Last, Faoro & Whitehorn A Professional Law Corporation

Why do you need business contracts?

2026-10-29T15:31:33Z

Operating a business requires careful planning to protect intellectual property and strategies. Equally as important, you want to find the right connections to help you scale your business and reach organizational objectives. Contracts can add value to your company and encourage sustainable and productive relationships. Keeping agreements updated will preserve their function and reduce the risks of disputes from undermining progress.

Build trust

Even though you have a good feeling about contracting with another company, you may still not know much about them. A business contract might provide opportunities for both parties to gain trust in the other. As you observe the other party uphold their contractual obligations, you can determine the best way to leverage the developing relationship. Within your contract, you can discuss a wide scope of topics. According to Entrepreneur, contract terms and conditions may include the following:

Financial requirements
Expectations
Timeline of agreement
Description of work

Enforce expectations

Disputes in the world of business can have detrimental effects on your company. Tension may impact brand reputation, drain valuable resources and prevent your company from moving forward. In serious cases, you might have a lawsuit on your hands. A contract allows you to establish expectations early on. You can disclose disciplinary measures for non-compliant participants. A brief discussion of solutions for potential problems might provide clarification in challenging circumstances. When you have a contract in place, all participants can reference it throughout the relationship. You can have confidence knowing the most sensitive parts of your business have the protection they need to sustain progress and success. Prior to signing any business contracts, verify that it contains all the necessary information for a fair and mutually beneficial outcome.

Protecting your business with solid contracts

2026-10-29T15:31:38Z

Business relationships can allow your company to take advantage of the skills and competencies of other industry professionals. If protected, these relationships can add innumerable value to your organization. One way to protect your company is through the use of contracts. A well-written contractual agreement enables you to disclose your expectations from the start.

Writing a contract

Anyone can write a contract, but missing components could prevent some agreements from staying together in a court of law. According to Entrepreneur, some integral parts of a business contract include the following:

Participants of the agreement
A description of each party's responsibilities
Expected delivery dates
Payment or benefits terms
Applicable law clauses

You will want to collaborate with your legal team to verify that your contract contains all of the required parts. Writing a good agreement may require multiple drafts before signing.

Enforcing a contract

Sometimes disagreements prevent contracts from functioning the right way. As a result, you might lose some of the benefits of the agreement. Enforcing the terms of your contracts requires regular assessments. Within your contract, discuss what will happen during non-compliance. Disclose disciplinary measures, as well as under what circumstances the contract will void. Encourage communication between parties to verify that everyone understands their responsibilities, as well as feels satisfied with their benefits. Developing contracts takes time. Maintaining them requires consistent effort. You will want to periodically update your agreements to reflect changes in your organization. With the right strategies, you can utilize contracts to protect your company as you create meaningful relationships that will support your organization.

How can I prevent the contractor from requesting too many change orders?

2026-10-29T15:30:45Z

When you hire a general contractor for a building project, you usually sign a contract. That contract likely has a clause for change orders. A change order is when someone makes an amendment to the construction contract. One of the parties might change the work that's required, and that in turn increases the price. Or else someone may change the length of time needed to complete the project. Change orders are common with construction projects. Still, too many change orders may invalidate the contract. Protect yourself from too many change orders by doing the following.

1. Make sure the contract is clear

Business contracts tend to be wordy and complex, but yours should not be. Make sure your contract terms are clear and detailed. Be upfront with the contractor about what work you expect. If your contract is ambiguous, your contractor may misinterpret what you want. That could result in change orders and delays as well as an increased price.

2. Be specific about communication

Include specific terms in the contract about requests for information. Agree on a way the contractor will communicate with you about any issues that arise.

3. Include a detailed change order clause in the contract

Be sure to include a clause that says that for any change order to be valid, both parties must agree to the new terms. Also, agree on a standard for pricing for change orders. Finally, be aware that some change orders are inevitable in any construction job. The property may have a latent, or hidden, defect no one could have foreseen. A detailed contract helps you prepare for the unexpected.

3 tools to remedy a construction payment dispute

2022-12-07T07:34:38Z

If you provide services or materials for a construction project, you rely on promised payments to keep you in business. When facing a payment dispute, you have multiple ways to remedy the situation in California. Consider these three tools that can help you recover unpaid funds.

1. Mechanics liens

As an unpaid party, you can use a mechanics lien to place a claim on a property until you receive overdue funds. If nonpayment continues, you can force a foreclosure in order to receive compensation. A mechanics lien attaches to the property’s title and is a matter of public record. You cannot take out such a lien against a public works project.

2. Bond remedies

A payment bond is a contract that guarantees unpaid parties on a construction job receive compensation. In California, the prime contractor must take out a payment bond for any public works project over a certain value. You can make a bond claim if you have a payment dispute relevant to the project.

3. Stop notices

A stop notice is a tool that halts funding of a construction project until the sender of the notice receives the unpaid funds. A stop notice only applies to currently outstanding balances and does not guarantee future payments. This is a commonly used method for public works projects, as mechanics liens are not allowed. These formal means of inducing payment can be highly effective, but you may want to pursue other tactics first. Carefully consider the likelihood of payment, your relationship with other stakeholders and the impact on your reputation when determining which approach to follow.

7 tips for drafting strong construction contracts

2022-09-16T18:21:16Z

When you are a contractor negotiating your next large project, you want to ensure you and your client agree on some basics: what work you will be completing, what the timeline is for the project and how much compensation your company will receive when the project is complete. These are essential elements for any construction contracts. Aside from including these essentials, you can ensure you have a strong construction contract by following these seven tips:

Use clear, concise, easy-to-understand language in the contract. Both parties should understand the contract language and contract details. Making the contract language more complicated does not help anyone.
Research California statutes and regulations to ensure your contract complies with those.
Agree to make any change orders in writing. You want a record of any additional work or costs that are added to the project after both parties sign the initial contract.
Identify what will happen if the project experiences delays because of unseen weather conditions, material shortages or labor problems. Will any unforeseen delays affect the cost? Who will cover that? You should address those potential problems in the contract.
Specify what work your company will not perform under this agreement, such as dealing with asbestos or lead paint.
Detail how parties can resolve a contract dispute and terminate the contract if needed. You can specify that you and the other party will seek mediation or arbitration to solve your dispute and give information on how to terminate the contract if needed.
Consult with an attorney to ensure your construction contract is enforceable and properly protects your business.

By taking these simple steps while preparing construction contracts, you are more likely to avoid a dispute, which can add to project costs and force delays. You can run your business more smoothly and ensure you are not taking any unnecessary risks that might harm your business.

Are delays on a construction site excusable or inexcusable?

2026-10-29T15:30:38Z

Construction projects often rely on contractors, subcontractors, material suppliers, architects, clients and many other parties to work together to deliver the project on time, on budget and within client specifications. Construction delays from disrupted supply lines or incomplete work from subcontractors can leave contractors vulnerable to breach of contract lawsuits from unhappy clients. Whether the contractor is liable for the delay depends on the situation, and generally involves one question: is the delay excusable or inexcusable?

Does the court consider the delay excusable?

Depending on the terms of a contract, the delay could be considered excusable. For example, some delays may only impact one aspect of the project, and other aspects of the project can continue while the contractor resolves that delay. Other delays can result from a situation beyond the contractor’s control, like abnormal weather conditions or a government order that prevents the project from continuing. If a delay is excusable, it will generally fall into one of two categories:

Non-compensable delays—If a delay is non-compensable, contractors may receive a time extension to complete the project. Typically, these delays could not have been foreseen and are not the contractor’s fault or the fault of their client.
Compensable delays—For some delays, contractors might receive damages to address extra costs created by the delay in addition to a time extension. Often, these delays are the result of another party’s fault or negligence.

Some contracts contain terms that define which delays are compensable and non-compensable, and it can be important for contractors to review these terms before taking on a project.

When might the court consider a delay inexcusable?

An inexcusable or non-excusable delay involves a delay caused by a contractor. If a contractor does not start the project in a timely fashion or if they halted work without reason, for example, they would likely be responsible for the delay. However, if a subcontractor left the project without completing their work or if a supplier did not provide materials in a timely fashion, an owner could regard the delay as inexcusable because it is the contractor’s responsibility to get the project back on track. Resolving a dispute often requires careful legal strategy. If contractors experience construction delays, it can be essential to speak to an attorney about these issues and whether their clients could view them as inexcusable given the terms of the contract.

The California Contractor State License Board’s basic process when a homeowner files a complaint

2022-09-16T18:21:24Z

If you have been engaged in a home improvement project, you may find that your contractor has violated your contract. Perhaps the materials specified were not used. Or, there were major delays even though you specified timeliness as a factor in the contract. You may turn to the California Contractor State License Board for some assistance. There are dispute resolution resources available through the California Contractors State License Board (CSLB). The first step is filing a written complaint with the CSLB. At that point, they will determine if your complaint falls within the CSLB’s jurisdiction and, assuming it does, send a notice to your contractor that a complaint has been filed. This notice will encourage the contractor to resolve the dispute without further action from the CSLB.

Mediation

If your contractor doesn’t agree to resolve the dispute, it will next go to mediation. This is an alternative dispute resolution process where a neutral third party helps you and your contractor communicate your issues effectively and see if you can come up with a resolution you both can live with. A consumer services representative (CSR) from the CSLngB will contact you about mediating the dispute. If mediation is unsuccessful, the CSR will present you with one or more of several dispute resolution options. For example, the CSR may refer you to an additional dispute resolution service, such as one of the CSLB’s arbitration programs. Or, the CSR might determine that your complaint requires further investigation to determine whether the contractor has violated Contractors State License Law.

Warning letter

Another option if mediation was unsuccessful is for the CSLB to issue a warning letter to the contractor and take no further action at this time. This may be done if the contractor’s actions were not egregious and there is no history reflecting a pattern of violations. This warning letter becomes part of the contractor’s permanent record and can be used to support future disciplinary action, if necessary.

Arbitration

The CSLB administers different arbitration programs based on the allegations of damage. If you are alleging $12,500 in damages or less, your case may be sent to mandatory arbitration. This is a bit like a trial, but with more flexible rules of evidence and held before an arbitrator instead of a judge. If you are alleging between $12,500 and $50,000, the CSLB administers a voluntary arbitration program. CSLB staff will determine whether your dispute meets the criteria for these programs.

Disciplinary action

If your complaint alleges violations of the law, the CSLB may investigate and consider disciplinary action. This could result in a citation, which could carry a civil penalty of up to $5,000. Or, the CSLB could order corrections to your project, requiring the contractor to perform or pay for these corrections. Or, charges could be filed that could lead to either suspension or revocation of the contractor’s license.

Small claims court

Nothing the CSLB does can guarantee you will receive restitution for your losses. If this is your goal, you should contact an attorney and/or pursue the issue in small claims court. If you prevail in either arbitration or small claims court, you should notify the CSLB and send it a copy of the case disposition. At that point, the CSLB will remind the contractor that, if the judgment or award is not satisfied, their license will be suspended.

Material supplier construction disputes

2022-09-16T18:21:34Z

A material supplier, on a construction project can face a great deal of risk when supplying construction materials for a project. The difficulty for material suppliers can be in finding the means for getting a client to pay them. In situations where they’ve provided all the materials the client needs for construction or the project has concluded, a material supplier will need to record and perfect a mechanic’s lien or stop payment notice.

Obtain security for payment by serving a preliminary notice

In order to have a valid mechanic’s lien, a material supplier must serve a preliminary notice. Service of a preliminary notice is required for all persons or entities equipment, or materials to the project, when they are not in direct contract with the owner and not exempt. The preliminary notice must be served on the owner or reputed owner, the direct contractor or reputed direct contractor, and any construction lender or reputed construction lender. (California Civil Code §8200). Preliminary notice must be served by personal service, certified mail, registered mail, or overnight delivery. Notice should be served as soon as possible, it is suggested that a material supplier serve the preliminary notice either as soon as the contract or purchase order is entered into or when materials are first delivered. A material supplier entitled to record a lien only for materials supplied within 20 days prior to service of the notice and, at any time thereafter (California Civil Code § 8204). The notice should include a description of the materials to be provided and an estimate of the value of the materials to be provided.

Serve your mechanics liens or stop payment notice to as security for payment when payment is not promptly received

If the project is a private work and the subcontractor, contractor, or owner does not pay for the materials supplied, and the material supplier has served its preliminary notice, a mechanic’s lien should be recorded in the county recorders office in the county where the project is located. The lien must be recorded within 90 days of the completion of the project, unless the owner has recorded a Notice of Completion, in which case the lien must be recorded within 30 days of recordation of the Notice. A mechanics lien is a claim on a specific property for uncompensated construction work or supplies. In California, a mechanics lien uses the property that received the benefit of the materials as collateral. If you are attempting to settle a dispute with a client that refuses to furnish payment for completed work or supplies, you should contact an attorney with experience in construction disputes and commercial collections. If the project is a public work, the material supplier will need to serve a stop payment notice on the public entity owner within the time frames state above. If payment is not received within with 90 days of recording your mechanic’s lien, a material supplier will need to file suit in the Superior Court for the county in which the lien was recorded. A Mechanic’s lien expires 90 days after its recorded, so take care to make sure suit to perfect the lien is timely filed or you will lose your security for payment. Or public works projects, stop payment notices will also need to be perfected by filing suit in the Superior Court for the county in which the project was located. Note that the suit to perfect your stop payment notice must be filed with 90 days after the last day to serve the stop payment notice.

Strict Compliance with Statutory Provisions Governing Proof of Service of 20-Day Preliminary Notice is Not Required

2022-09-16T18:21:36Z

In a new case, Hub Construction Specialties, Inc. v. Esperanza Charities, Inc. (filed February 8, 2016, Second District, Div. Eight) 2016 S.O.S. 787, the Court held that under the prior mechanic's lien code (Former Civ. Code, § 3097.1, subd. (a); Stats. 2010, ch. 697, § 16 [repealed].) strict compliance with proof of service provisions was not required when there was evidence that there had been strict compliance with the provisions regarding service of notice.

Plaintiff Hub Construction Specialties, Inc., was a material supplier to the general contractor on a construction project on property owned by Defendant Esperanza Charities, Inc. The general contractor failed to pay Plaintiff $81,857.55 for the materials. On March 16, 2012, Plaintiff served a 20-Day Preliminary Notice by Certified Mail, to the general contractor, the Defendant, and the project construction lender. It was uncontested that Plaintiff paid the postage for certified mail and that the general contractor, the Defendant, and the project construction lender received the 20-Day Preliminary Notice. Plaintiff did not, however, request or pay for a "Return Receipt" the certified mail of the notices.

On December 27, 2012, Plaintiff timely recorded a mechanic's lien against the property for $81,857.55 which remained unpaid. On February 6, 2013, Plaintiff filed a complaint to foreclose the mechanic's lien. Plaintiff sought a judgment for foreclosure of the mechanic's lien, and defendant sought a judgment that the lien was invalid and an order expunging the lien. In a Summary Judgment Procedure, the trial court denied Plaintiff's motion for summary judgment and ordered the property released from Plaintiff's lien. The court found Plaintiff could not provide sufficient proof of service by documentation of the return receipt of certified mail as required under Former Civ. Code, § 3097.1.

Defendant contended in its arguments for summary judgment that strict compliance with the statutory provisions regarding proof of service of the 20-Day Preliminary Notice. Defendants had previously admitted in discovery that they had been served with the 20-Day Preliminary Notice, and that they had in fact received the notice. These facts were stipulated to during the summary judgment proceedings. Defendants argued in the summary judgment proceedings that regardless of Plaintiff's strict compliance with the notice provisions, and Defendant's actual receipt of the notice, Plaintiff's lien was unenforceable due to failure to strictly comply with the proof of service requirements under Former Civil Code §3097.1.

Former Civil Code §3097.1 provided that: "Proof that the preliminary 20-day notice required by Section 3097 was served in accordance with subdivision (f) of Section 3097 shall be made as follows: [¶] (a) If served by mail, by the proof of service affidavit described in subdivision (c) of this section accompanied either by the return receipt of certified or registered mail, or by a photocopy of the record of delivery and receipt maintained by the post office, showing the date of delivery and to whom delivered, or, in the event of nondelivery, by the returned envelope itself."

The Trial Court agreed with Defendants and ordered the lien expunged. Plaintiff's appealed.

The Appellate Court in their opinion reviewed a number of cases stating that strict compliance with the notice requirements of former Civil Code section 3097 is necessary, as well as other cases holding that substantial compliance with other provisions of the mechanic's lien law suffices under some circumstances. The Court concluded that while the principle of strict construction applies to "the manner or form of serving notice upon an affected party" (Harold L. James, Inc. v. Five Points Ranch, Inc. (1984) 158 Cal.App.3d 1, 6, it does not extend to matters of proof in a case where the defendant has admitted that notice was served in the statutorily prescribed manner. The court states "We do not disagree with the rule that strict compliance with the notice requirements of former Civil Code section 3097 is required. It is undisputed that plaintiff complied with that statute. We merely decline to extend the rule of strict construction to the proof of service requirements of former §3097.1. In short, in a case where defendant has admitted that notice was served in the statutorily prescribed manner, plaintiff need not comply with the statutory requirements for proving that notice was served in the statutorily prescribed manner" (emphasis in original).

It should be noted that this case would not have arisen under the current statutes. Former Civil Code §3097.1, has been replaced by §8118. Civil Code §8118 requires in pertinent part that if the notice is given by mail, the declaration is to be accompanied by either: 1) Documentation provided by the United States Postal Service showing that payment for certified mail, or express mail; 2) Documentation provided by an express service carrier showing that payment was made; 3) A return receipt, delivery confirmation, signature confirmation, tracking record, or other proof of delivery or attempted delivery provided by the United States Postal Service, or a photocopy of the record of delivery and receipt maintained by the United States Postal Service; or 4) A tracking record or other documentation provided by an express service carrier.

This case is nonetheless instructive as to the courts thinking with regard to which portions of mechanic's lien law require strict compliance and which portions will be liberally construed by the court.

Failure to Report Judgments to the CSLB Will Result in Severe Consequences.

2022-09-16T18:21:46Z

A new case, Pacific Caisson & Shoring, Inc. v. Bernards Bros., Inc. (2015) 236 Cal.App.4th 1246 held that a contractor, whose license was suspended for failing to notify the California Contractors State License Board ("CSLB") of a judgment against it, was not entitled to recover for compensation owed to it, under the substantial compliance exception found in California Business & Professions Code §7031(e).

Pacific Caisson signed a subcontract with Bernards Brothers for construction on a hospital project. At the time the subcontract was entered Pacific Caisson had a valid license. However, in 2000, a related company called Gold Coast Drilling, Inc. ("Gold Coast"), entered into a Stipulated Judgment with a Union for failing to pay union employee benefits. Gold Coast and Pacific Caisson are owned by the same parties and share the same RMO. In 2003, during the Pacific Caisson subcontract with Bernard Brothers, Gold Coast defaulted on the Stipulated Judgment. Gold Coast never informed the CSLB of the Stipulated Judgement, but the Union notified CSLB of the Judgment after Gold Coast's default. The CSLB suspended Gold Coast's license for failure to satisfy a judgment and for failing to notify the CSLB within ninety (90) days of the date of the judgment. Due to the fact that Gold Coast and Pacific Caisson share the same qualifier, Pacific Caisson's license was also suspended pursuant to Business & Professions Code §7071.17(j). Pacific Caisson's license was suspended for 77 days.

Pacific Caisson subsequently sued Bernard Brothers for non-payment on their subcontract. Bernard Brothers defended on the grounds that as Pacific Caisson's license had been suspended during the course of the project they were barred from maintaining an action to recover compensation under California Business & Professions Code § 7031. The Trial Court agreed with Bernard Brothers and Pacific appealed.

Pacific argued on appeal that the substantial compliance exception found in California Business & Professions Code §7031(e) should apply and that they should not be barred from maintaining an action to recover compensation. Pacific specifically argued that Gold Coast substantially complied with licensing laws and thus their license and by extension Pacific's should not have been suspended. The relevant part of California Business & Professions Code §7031(e) states:

"However, notwithstanding subdivision (b) of Section 143, the court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, (3) did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced, and (4) acted promptly and in good faith to reinstate his or her license upon learning it was invalid."

The Court first ruled that a Stipulated Judgment must be reported to the CSLB pursuant to California Business & Professions Code §7071.17(b). The Court then found that Gold Coast did not act reasonably or in good faith under part two (2) of the test for the substantial compliance exception. The Court stated that if the failure to notify the CSLB of the stipulated judgment was the result of ignorance of the notification requirement, then Gold Coast acted unreasonably. If the failure was due to fear that if they did so their license would be suspended then, they did not act in good faith. The Court stated that "the substantial compliance exception to the forfeiture rule is "extremely narrow" and applies "only where a contractor was without a license owing to circumstances truly beyond his control." Gold Coast should have reported the judgement, because it did not its license was properly suspended, as was Pacific's as they share the same RMO.

This case illustrates the importance of strict compliance with reporting requirements, and the adverse consequences of failing to do. It is also important to note that a judgment is against the license. If you have multiple businesses and those businesses' licenses use the same qualifying individual, the licenses for each of those businesses will be tainted by judgments against any of the other business.