Home > Construction Law > Fei v. Yoon Denies Subcontractor Prompt Payment Penalties due to a Good Faith Dispute

Fei v. Yoon Denies Subcontractor Prompt Payment Penalties due to a Good Faith Dispute

In Fei Enterprises, Inc. v. Yoon (2011) (No. B209862), the Second District Court of Appeals recently issued a ruling providing some guidance on the applicability of prompt payment penalties under California construction law, and looking specifically at Business and Professions Code Section 7108.5. Section 7108.5 requires general contractors to pay subcontractors within ten days of their receipt of payment (unless otherwise agreed to in writing) or face a 2% per month penalty, unless there is a good faith dispute which allows the general contractor to withhold up to 150% of the disputed amount.

This was a construction dispute involving a claim for breach of a subcontract and prompt payment penalties, where the judgment by the trial court declined to award any penalties. The appeals court affirmed finding the failure to make prompt payment was due to the bona fide existence of a good faith dispute over the amount due under the subcontract, and held that the finding of a good faith dispute should be determined using an objective standard. In other words, the dispute must hold up to a reasonable person test, i.e. it has to be objectively supportable and not just a subjective belief.

All Rights Reserved © 2011 by Michael L. Mau, Esq. & The Mau Law Firm

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