NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

CHAVEZ, J.

Defendant and appellant East West Bank (Bank) appeals from the judgment entered in favor of plaintiff and respondent Paveco Construction, Inc. (Paveco) following a court trial on Paveco's action to enforce a stop notice against the Bank. Applying Civil Code section 31661 and Familian Corp. v. Imperial Bank (1989) 213 Cal.App.3d 681 (Familian), the trial court concluded that Paveco's stop notice claim had priority over the Bank's claimed entitlement to loan funds it had disbursed to itself before service of the stop notice to pay accrued interest and fees on loans the Bank had made to finance construction of the project at which Paveco had supplied labor and materials.

The Bank contends the judgment should be reversed because Familian is factually distinguishable. Alternatively, the Bank contends Familian should not be followed because it is poorly reasoned and legally incorrect. We do not find the instant case to be materially distinguishable from Familian, and we decline the Bank's request that we deviate from the long-standing legal principles set forth in that case. We therefore affirm the judgment.

BACKGROUND

Paveco is a paving and concrete contractor that performed work on a mixed use commercial project known as Altadena Lincoln Crossing (ALC). The Bank was ALC's construction lender.

The Bank made two loans to ALC. The first loan was for $18 million and was subsequently increased to $26 million. The second loan was for $2.5 million. Both loans were evidenced by a promissory note and a construction loan agreement and were secured by a deed of trust. The terms of both loans provided for a line of credit from which ALC could seek advances from time to time.

Although the stated purpose of the loans was to construct improvements at the project, the entire $28.5 million of loan proceeds was not available for construction costs. The promissory note for the $26 million loan authorized the Bank to set aside $854,212 of the loan proceeds to pay interest due on the note:

The construction loan agreement for the $26 million loan also provided for an interest reserve fund to be set aside out of the loan proceeds in order to pay interest due on the note:

The construction loan agreements for both loans contained the following provision restricting the use of loan funds to construction purposes, but allowing ALC to use loan funds to pay interest due under the loans if authorized by the Bank: "Borrower shall use the Loan Funds solely for the payment of . . . the costs of constructing the Improvements . . .; . . . other costs and expenses incurred or to be incurred in connection with the construction of the Improvements . . .; and . . . if permitted by Lender, interest due under the Note, including all expenses and all loan and commitment fees . . . ."

Pursuant to these provisions in the loan documents, the Bank paid itself $1,351,548 in interest on the $26 million loan, $653,722 in interest on the $2.5 million loan, loan fees of $335,000, and disbursement fees of $66,250. The entire balance of the $26 million loan was fully disbursed in 2007. All but $39,236 of the $2.5 million loan had been disbursed by February 2008.

ALC defaulted on the loans in 2006, 2007, and 2008. In light of the multiple defaults, the Bank extended the maturity dates of the loans, and in August 2008, entered into forbearance agreements with ALC.

In May 2008, Paveco and ALC entered into a contract to remove and replace various concrete and asphalt walkways and driveways at the project. Before commencing work, Paveco sent the Bank a preliminary 20-day notice pursuant to section 3097, notifying the Bank that Paveco intended to perform approximately $250,000 of work at the project. The Bank did not respond to Paveco's notice.

Paveco performed its work on the project in May and June of 2008. When ALC refused to pay Paveco's invoices totaling $108,709 for the work performed, Paveco served a bonded stop notice on the Bank on September 5, 2008.

Paveco filed the instant action on September 18, 2008, seeking to enforce the bonded stop notice against the Bank.2 After a three-day court trial, the trial court ruled against the Bank and concluded "that the interest and loan fees paid to [the Bank] from the loans are improper assignments under [section] 3166." The trial court awarded Paveco $108,709 in damages, plus prejudgment interest in the amount of $10,870.90. The court subsequently granted Paveco's motion for attorney fees under sections 1717 and 3176, and awarded Paveco $50,550 in attorney fees and $7,265 in costs. This appeal followed.3

DISCUSSION

I. California Stop Notice Law

California's stop notice law (§§ 3156-3267) allows subcontractors, laborers and suppliers of materials the right to serve a stop notice on the owner of a project or on the construction lender in the event of the owner's breach of a construction contract. (§§ 3158, 3159.) The stop notice law is part of a broader statutory scheme that encompasses mechanics liens and that accords protection to materialmen, laborers, contractors, and subcontractors who furnish labor and materials at a construction project. (Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803, 808 (Connolly).)

A stop notice is a written demand by a claimant to the construction lender to withhold from the construction loan fund monies owed to the claimant. (10 Miller & Starr, Cal. Real Estate (3d ed. 2001) § 28:78, pp. 250-251.) By serving a stop notice on a construction lender, a claimant creates a lien on the construction loan funds for the benefit of the claimant. (Connolly, supra, 17 Cal.3d at p. 813.)

A bonded stop notice is a stop notice given to a construction lender accompanied by a bond equal to one and one-fourth times the amount of the claim. (§ 3083.) If served with a bonded stop notice, a construction lender must withhold from the loan funds an amount sufficient "to answer" the claim. (§§ 3159, subd. (a)(1), 3162, subd. (a)(1); A-1 Door & Materials Co. v. Fresno Guarantee Sav. & Loan Ass'n (1964) 61 Cal.2d 728, 734 (A-1 Door).) If the lender fails to withhold funds required by the stop notice, it will be personally liable to the claimant for the full amount of the claim, plus interest from the date the claimant should have been paid (Connolly, supra, 17 Cal.3d at p. 809), as well as the prevailing claimant's attorney fees (§ 3176 ["the prevailing party shall be entitled to collect [reasonable attorney fees] from the party held liable by the court for the payment of the claim"]).

Before serving a stop notice on a construction lender, a claimant must generally give the lender a preliminary written notice within 20 days after commencing work on a project. (§ 3097.) The notice must identify the claimant and contain a general description of the service or materials to be furnished and the estimated total contract price. (§ 3097, subd. (c).) The purpose of such notice is to alert "owners and lenders to the fact that the property or funds involved might be subject to claims arising from contracts to which they were not parties and would otherwise have no knowledge." (Romak Iron Works v. Prudential Ins. Co. (1980) 104 Cal.App.3d 767, 778.)

A stop notice claimant has priority over any assignment of the construction loan funds, whether the assignment is made before or after the stop notice is served. This priority is accorded by section 3166, which states: "No assignment by the owner or contractor of construction loan funds, whether made before or after a stop notice or bonded stop notice is given to a construction lender, shall be held to take priority over the stop notice or bonded stop notice, and such assignment shall have no effect insofar as the rights of claimants who give the stop notice or bonded stop notice are concerned."

II. Familian Corp. v. Imperial Bank

The scope of the statutory priority accorded by section 3166 was the central issue considered by the Fourth Appellate District in Familian, supra, 213 Cal.App.3d 681. In Familian, a lender loaned $3.8 million to finance construction of condominium units. (Id. at p. 683.) The loan was secured by a deed of trust. As a condition to extending the loan, the lender required that a portion of the loan funds be segregated into a preallocated interest reserve account. (Id. at pp. 686-687.) Out of this account, the lender paid itself interest, fees, and expenses totaling $528,000 during the course of construction. When approximately $188,000 in unexpended loan funds remained, the lender received bonded stop notices totaling $105,000 and foreclosed on the trust deed. Thereafter, the lender received additional stop notices totaling $427,000. In an interpleader action, the lender deposited $105,000 with the trial court and argued that the stop notice claimants were entitled to a pro rata share of that amount only. (Ibid.)

Familian Corp., one of the stop notice claimants, moved for summary judgment, contending that it was improper for the construction lender to maintain a preallocated reserve to pay the costs of the construction loan, to disburse payment to itself from the loan proceeds, to obtain through foreclosure, property made more valuable because of Familian's work, and then to assert it could not pay for that work because the construction funds had been exhausted. (Familian, supra, 213 Cal.App.3d at p. 683.) In affirming the trial court's grant of summary judgment, the Fourth Appellate District concluded that the lender's attempt to preallocate a portion of the construction loan fund for the payment of interest and loan fees was ineffective as against the stop notice claimants. The court held that the preallocation and segregation of funds to pay unearned loan fees, interest and costs constituted an assignment within the meaning of section 3166 that could not take priority over a stop notice claim. (Id. at pp. 685-688.)

The court in Familian further held that the stop notice claimants had priority over disbursements already paid to the lender for interest and fees earned before service of the stop notice. The court rejected the lender's argument that a stop notice claimant's priority applied only to "unexpended" or "undisbursed" loan funds, and not to fees and interest earned and paid before the claimant commenced work on the project. Such prior disbursements, the court concluded, were also "assignments" within the meaning of section 3166 and could be recaptured in order to pay the stop notice claims. (Familian, supra, 213 Cal.App.3d at p. 688.)

The court in Familian reasoned that the stop notice laws were intended to protect laborers and materialmen, whose "`"credit risks are not as diffused as those of other creditors,"'" who "`"extend a bigger block of credit, . . . have more riding on one transaction, . . . have more people vitally dependent upon eventual payment [and] have much more to lose in the event of default."'" (Familian, supra, 213 Cal.App.3d at p. 687, quoting Connolly, supra, 17 Cal.3d at p. 827.) In contrast, the court noted, a secured construction lender is protected not only by a first priority encumbrance on the property that has increased in value as the result of a claimant's labor and materials, but also by the terms of a loan agreement according it full control of the loan funds, and the establishment of whatever reserves or other devices may be necessary to protect its interests. (Familian, at pp. 687-688.) Given the remedial purposes of the statute, the court in Familian noted that section 3166 "`must be liberally construed to effect its objects and to promote justice. [Citations.]'" (Familian, at p. 685.)

The court in Familian further reasoned that allowing stop notice claimants to recapture loan funds already disbursed to the lender would prevent lenders from structuring loans that would enable them to obtain an unjust double recovery: "A construction lender would need only to deduct its profits at the inception of the loan to assure a double recovery at the expense of those who enhance the value of the property by supplying labor and materials." (Familian, supra, 213 Cal.App.3d at p. 687.)

As support for its holding, the court in Familian cited the plain language of the statute, noting that "section 3166 expressly provides that any assignments made before or after receipt of stop notices are subordinate to the perfected claims of laborers and materialmen." (Familian, supra, 213 Cal.App.3d at p. 687.) The court also relied on case authority applying section 3166 and its predecessor statute, former Code of Civil Procedure section 1190.1, subdivision (h), in which the courts "jealously safeguarded" a stop notice claimant's priority. (Familian, at p. 686; see Calhoun v. Huntington Park First Sav. & Loan Asso. (1960) 186 Cal.App.2d 451; Rossman Mill & Lumber Co. v. Fullerton Sav. & Loan Asso. (1963) 221 Cal.App.2d 705 (Rossman); A-1 Door, supra, 61 Cal.2d 728; McBain v. Santa Clara Sav. & Loan Asso. (1966) 241 Cal.App.2d 829; Doud Lumber Co. v. Guaranty Sav. & Loan Assn. (1967) 254 Cal.App.2d 585; Idaco Lumber Co. v. Northwestern Sav. & Loan Assn. (1968) 265 Cal.App.2d 490.)

III. The Bank's Contentions

The Bank and the amici curiae argue that Familian should not be applied here because that case is both factually distinguishable and legally incorrect. Neither argument is persuasive.

A. Familian is not materially distinguishable

The Bank contends Familian is distinguishable because, unlike the lender in Familian, here it did not segregate any construction loan funds into a preallocated interest reserve account, nor did it pay itself interest and fees from such an account. Rather, only when interest payments became due and payable, the Bank maintains, did it then advance the amount of accrued interest from the loan funds, pay that amount to itself, and record the interest as having been paid.

That the Bank did not first segregate construction loan funds into a separate interest reserve account before disbursing those funds to itself does not materially distinguish Familian from the instant case. The court in Familian held that the preallocation of construction loan funds to pay unearned loan fees and interest, as well as disbursements for accrued interest and fees paid to the lender before service of the stop notice were both assignments within the meaning of section 3166: "We hold that a preallocation of construction loan funds and periodic disbursements to the lender are assignments within the meaning of section 3166." (Familian, supra, 213 Cal.App.3d at p. 688.) The Bank in this case made both types of assignments. It preallocated construction loan funds to pay interest and loan fees and it periodically disbursed those funds to itself.

Pursuant to the terms of the note and construction loan agreement for the $26 million loan, the Bank preallocated at least $854,212 of the construction loan funds as an interest reserve. It then disbursed to itself $1,351,548 in loan funds to pay accrued interest on the loan, exercising its authority to do so under the note and loan agreement.4 The absence of a segregated interest reserve account does not materially distinguish this case from Familian.

Amicus CMA argues that Familian is distinguishable because the construction lender in that case foreclosed on the property, and thereby received a "double recovery" by obtaining both the real property and value added to that property by the unpaid laborers and materialmen, whereas the Bank in this case did not foreclose on the property, which had decreased in value to an amount less than the loans. There is no evidence in the record that the value of the Bank's security had decreased below the amount of the loans. Even if there were such evidence, it would not be a valid basis for disregarding the statutory priority accorded to Paveco's stop notice claim. The applicability of section 3166 should not depend on whether real property market values are rising or falling, or on what remedies a construction lender chooses to exercise in the event of a default.

B. Familian is not legally flawed

The Bank and the amici curiae contend that construction loan funds disbursed by a lender to pay itself interest and fees earned before a stop notice is served should not be considered an "assignment" within the meaning of section 3166. They claim that the Familian court's interpretation of the statute to encompass such prior disbursements is legally flawed.

Section 3166 does not define "assignment," nor is the term defined elsewhere in the stop notice law. Absent a statutory definition, we apply the established rules of statutory interpretation. "`When construing a statute, a court seeks to determine and give effect to the intent of the enacting legislative body.' [Citation.] `"We first examine the words themselves because the statutory language is generally the most reliable indicator of legislative intent. [Citation.] The words of the statute should be given their ordinary and usual meaning and should be construed in their statutory context." [Citation.] If the plain, commonsense meaning of a statute's words is unambiguous, the plain meaning controls.' [Citation.] But if the statutory language may reasonably be given more than one interpretation, `"`courts may consider various extrinsic aids, including the purpose of the statute, the evils to be remedied, the legislative history, public policy, and the statutory scheme encompassing the statute.'"' [Citations.]" (People v. King (2006) 38 Cal.4th 617, 622; accord, Klein v. United States of America (2010) 50 Cal.4th 68, 77.)

The Bank argues that the ordinary meaning of the term "assignment" is "a transfer of a right to something that has not yet become property in possession," and that the Familian court's characterization of an amount already disbursed to pay an accrued debt as an "assignment" is contrary to that ordinary meaning. As support for its proffered definition, the Bank cites In re Estate of Beffa (1921) 54 Cal.App. 186, a probate case that concerned interpretation of a will in which the testator purported to "sign and transfer" certain real property to his housekeeper. (Id. at p. 187.) The court in Beffa concluded that because the term "assign" was "not the usual operative word to effect a conveyance of [real] property," the testator did not intend the document to serve as an immediate conveyance of the property, but rather as a will expressing his testamentary intent. (Id. at p. 190.) In reaching this conclusion, the Beffa court cited the following language from an 1896 Florida Supreme Court decision: "`An assignment in law is a transfer or setting over of property, or some right or interest therein, from one person to another . . . . The word is sufficiently comprehensive to include transfers of all kinds of property, but ordinarily it is limited in its application to the transfers of those things which are commonly designated choses in action, and to rights in or connected with property as distinguished from the particular item of property itself.' [Citation.]" (Id. at p. 189.)

The instant case does not involve a testamentary transfer of real property, but a contractual assignment of construction loan funds. Beffa is not persuasive authority for the Bank's proposed definition of "assignment" within the meaning of section 3166.

Amicus WIB contends that limiting the meaning of "assignment" to encompass only transfers of a right to a future payment from the construction fund, and not previously completed payments, is consistent with the way the term "assignment" is used elsewhere in the Civil Code. Examples it cites include an assignment of an interest in rents governed by section 2938, the assignment of a thing in action under section 954.5, and an assignment for the benefit of creditors. WIB also argues that the term "assignment," when read in the context of section 3166, and in particular, in conjunction with the term "priority," cannot reasonably be interpreted to include a completed payment. The term "priority," it argues, "contemplates conflicting rights to a future payment from the fund" and "becomes a non-sequitor once one party's right to payment is satisfied by actual payment." WIB cites no authority, however, to support this argument. Nothing in the text of section 3166, its legislative history, or California case authority supports WIB's interpretation of the statutory language.

WIB further contends that construing the term "assignment" to encompass only the right to future payments from the construction loan fund "harmonizes" section 3166 with section 3162, which requires a construction lender to "withhold" construction funds after service of a bonded stop notice. The term "withhold," it argues, means to refrain from giving or transferring something and has no retroactive application. A lender cannot "withhold" loan proceeds that have already been disbursed. As noted by the court in Familian, such an interpretation of the statute "seeks to engraft a loophole into section 3166. A construction lender would need only to deduct its profits at the inception of the loan to assure a double recovery at the expense of those who enhance the value of the property by supplying labor and materials."5 (Familian, supra, 213 Cal.App.3d at p. 687.)6

The term "assignment" as used in section 3166 refers to a contractual assignment of construction loan funds. (See H. O. Bragg Roofing, Inc. v. First Federal Sav. & Loan Asso. (1964) 226 Cal.App.2d 24, 27 (H. O. Bragg) [lender "could not control disbursements by private agreement with the borrower . . . and nullify the purpose and intent of the statute"].) The very narrow definition advocated by the Bank and the amici curiae is inconsistent with legal principles that govern such contractual assignments. As one authority has noted: "Generally, all contract rights may be assigned." (29 Williston on Contracts (4th ed. 2003) § 74:10, pp. 271-272, italics added.)

The Restatement of Contracts defines an "assignment" of a right as "a manifestation to another person by the owner of the right indicating his intent to transfer, without further action or manifestation of intention, the right to such other person or to a third person." (Rest., Contracts, § 149, p. 179.) A "right" that may be assigned is defined in the Restatement as "all rights arising under contracts or for breaches of contract, and only such rights." (Rest., Contracts, § 148, p. 178.)

ALC's agreement with the Bank authorizing the Bank to set aside an interest reserve fund from the construction loan proceeds and to periodically deduct from that fund accrued interest and fees owed to the Bank was a contractual "assignment" under section 3166. ALC assigned to the Bank periodic disbursements of the loan proceeds for prescribed construction purposes. Pursuant to that contractual assignment, the Bank preallocated the loan proceeds as an interest reserve fund and periodically disbursed to itself from that fund interest payments as they became due and payable.

The Bank's and the amici curiae's narrow construction of section 3166 conflicts with case authority in which courts have liberally construed section 3166 to protect contractors who supply labor and materials to a construction project and who rely on eventual payment from the construction loan fund. (Connolly, supra, 17 Cal.3d at pp. 826-827 ["courts have uniformly classified the mechanics' lien laws as remedial legislation, to be liberally construed for the protection of laborers and materialmen," fn. omitted]; Miller v. Mountain View Sav. & Loan Asso. (1965) 238 Cal.App.2d 644, 655 ["`statute is remedial and must be liberally construed to effect its objects and to promote justice'"]; H. O. Bragg, supra, 226 Cal.App.2d at p. 27; Rossman, supra, 221 Cal.App.2d at p. 709.) Paveco was an intended recipient of the construction loan funds the Bank preallocated and then disbursed to itself. Before commencing work, Paveco notified the Bank that it intended to provide approximately $250,000 in labor and materials toward improving the project. When it received Paveco's notice, the Bank knew that ALC was in default on the loans, and that only $39,236 in undisbursed loan proceeds was available to fund further construction work at the project, yet it did not respond to the notice. According Paveco statutory priority over the disbursements the Bank made to itself is consistent with the remedial purposes of section 3166 and the public policies underlying the statute.

The Bank argues that the Familian court's "extension" of the definition of "assignment" to include construction loan funds disbursed to a lender for interest and fees accrued and paid before service of the stop notice was legally unsound. In a footnote in its opening brief, the Bank seeks to distinguish the cases relied upon by the Familian court on this issue, arguing that none of those cases involved or discussed the effect of a stop notice on construction loan funds disbursed prior to its service.

It is true that the issue presented in Familian was one of first impression. The court's holding, allowing a stop notice claimant to recapture construction loan funds disbursed to the lender for interest and fees earned and paid before service of the stop notice was therefore an extension of the existing case law. It is not legally unsound for that reason.7

The legal principles set forth in Familian have remained intact for more than 20 years. The Bank and the amici curiae have provided no compelling reason to deviate from those long-standing legal principles.

DISPOSITION

The judgment is affirmed. Paveco is awarded its costs on appeal.

We concur:

BOREN, P. J.

ASHMANN-GERST, J.