Court Opinion

ID: 5452214
Source: CourtListenerOpinion
Date Created: 2022-01-08 19:13:18.130759+00
Date Added: 2024-06-11T08:32:28.396084
License: Public Domain

CHIN, J.
I dissent. The contractor and the subcontractors agreed that they would assume equally the risk the owner would not be able to pay for their work. The majority voids this agreement and forces the contractor to bear the risk not only that it will receive no payment for its own work but also that it will have to pay the subcontractors out of its own pocket. The majority accomplishes this end by (1) declaring the contractual provision at issue—the “pay if paid” clause—invalid as against public policy because it supposedly indirectly waives mechanic’s lien rights, even though the subcontractors expressly did not waive those rights; and (2) finding, for the first time, a surety may be liable under a surety bond even though the principal has breached no contract or otherwise defaulted on any underlying obligation. I disagree. The parties entered into these agreements freely. We should not allow the subcontractors to repudiate them now.
The pay if paid clause is not contrary to public policy for the reason that, unlike a mechanic’s lien, which provides a remedy against the property, the pay if paid clause only regulates the relationship between the contractor and the subcontractors. The contractual relationship between those entities does not affect, and is not affected by, their mutual constitutionally protected mechanic’s lien rights against the property. The parties may allocate the risk among themselves as they choose while maintaining their mechanic’s lien remedies.
Moreover, the surety is also not liable to the subcontractors if, as here, the contractor is not liable. “The obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal . . . .” (Civ. Code, § 2809.) The surety “promise[d] to answer for the debt, default, or miscarriage of’ the contractor, not the owner. (Civ. Code, § 2787.) But here the owner defaulted, not the contractor. The bond does not guarantee against the owner’s default.
I. Facts and Procedural History
In 1990, the owner of a commercial building in Los Angeles contracted with Keller Construction Co., Ltd. (Keller or the contractor), for rehabilitation work on the building. Keller in turn entered into subcontracts with Wm. *898R. Clarke Corporation, Barsotti’s, Inc., Garvin Fire Protection Systems, Inc., Church and Larsen, Inc. (collectively, the subcontractors), and others.
Each subcontract involved in this litigation contained what is called a “pay if paid” provision: “Receipt of funds by Contractor from Owner is a condition precedent to the Contractor’s obligation to pay Subcontractor under this Agreement, regardless of the reason for Owner’s nonpayment, whether attributable to the fault of the Owner, Contractor, Subcontractor or due to any other cause.”
The subcontracts also contained “Addendum 1” stating, as relevant: “Contractor has been informed that the Owner of the [property] has not obtained, and may not obtain in the future, a construction loan to fund the costs of construction. Subcontractor also acknowledges that Contractor has made no representation as to the financial responsibility of the Owner, or of its ability to fund the costs of construction.
“Notwithstanding anything stated elsewhere in the subcontract or Contract Documents to the contrary, Subcontractor shall assume the risk that if [sz'c] the Owner does not, for any reason (including but not limited to unavailability of funds, default by Contractor of its obligations under its General Contract, or otherwise) pay Contractor money owing to it for the work, materials, equipment or services (‘Work’) provided by Subcontractor. Accordingly, Subcontractor agrees that:
“1. Contractor shall have no obligation, legal, equitable or otherwise, to pay Subcontractor for Work performed by Subcontractor unless and until Contractor is paid by the Owner for the Work performed by Subcontractor. Furthermore, in the event Contractor is never paid by Owner for Subcontractor’s Work, then Subcontractor shall forever be barred from making, and hereby waives, in perpetuity, any claim against Contractor therefor.
“2. Subcontractor shall not seek payment from Contractor for, and shall forever refrain from instituting any legal or equitable action for collection of, money and/or compensation for Work performed by Subcontractor for which Contractor is not paid [by] Owner.
“4. Nothing in this Addendum shall be interpreted as limiting Subcontractor’s right to enforce its statutory mechanic’s lien rights or remedies, if any, against Project property and Subcontractor expressly agrees that such mechanics lien rights, if any, shall be its sole remedy and means for payment *899(regardless of whether the value [of] Project property is sufficient or insufficient, for any reason, to satisfy Subcontractor’s claim) on account of Work performed by Subcontractor for which Contractor has not been paid by Owner.”1
At the owner’s insistence, and under the general contract’s terms, Keller obtained from Safeco Insurance Company of America (Safeco) a “payment bond” for “private work” as “defined in section 3096 of the Civil Code.” Under the bond, Keller, as the principal, and Safeco, as the surety, were “bound unto any and all persons who perform labor upon or bestow skill or other necessary services on, or furnish materials . . . contributing to the work described” in the underlying contract between the contractor and the owner. The bond was executed to comply with “Title 15, Works of Improvement, of the Civil Code,” and it “inure[d] to the benefit of any and all persons who perform labor upon or bestow skill or other necessary services on, or furnish materials . . . contributing to the work” under the contract. Before filing an action on the bond, a claimant must have recorded a mechanic’s lien or otherwise given Safeco notice as provided in the bond. The bond was recorded.
After substantial work had been completed on the project, the owner stopped making payments to Keller, apparently because of owner insolvency. Keller then stopped work, sent out notices of the owner’s default, and declined to pay the subcontractors. Keller sued the owner. A declaration of Keller’s manager states that Keller had reached a partial settlement and was tendering payment to the subcontractors from that settlement on a pro rata basis. The subcontractors recorded mechanic’s liens and filed separate actions against Safeco seeking recovery under the payment bond.
The trial court granted judgment for the subcontractors and against Safeco in each action. Safeco appealed. The Court of Appeal affirmed. It held the subcontractors’ express reservation of mechanic’s liens rights in the addendum, of which Safeco was aware, amounted to an assumption of greater liability than that which the general contractor owed. The court concluded “that an action to recover on a payment bond is an action to enforce a mechanic’s lien right and, therefore, a remedy expressly reserved by the subcontractors who are parties to these appeals.” “Stated otherwise,” the *900court held, “Safeco’s acceptance of the contract documents and the reservation of the subcontractors’ mechanic’s lien remedy rights was a waiver of whatever rights Safeco might otherwise have had under [Civil Code] section 2809.” We granted Safeco’s petition for review.
II. Discussion
A. Enforceability of the Pay if Paid Clause
I agree fully with the majority that the constitutionally protected right of persons bestowing labor or furnishing material on property to “have a lien upon the property” for the value of that labor or material is fundamental and unwaivable, and that the mechanic’s lien laws are to be liberally construed for the protection of laborers and suppliers. (Cal. Const., art. XIV, § 3; see maj. opn., ante, at pp. 888-889.)
The pay if paid clause, however, does not implicate mechanic’s lien rights; rather, it defines the relationship between two parties—the general contractor and the subcontractor—who bestowed labor or furnished material on the property. It merely provides that the signatory parties equally assume the risk that the owner might not pay and that the mechanic’s lien remedy might prove inadequate. It does not directly or indirectly waive the mechanic’s lien remedy of either signatory “upon the property.” (Cal. Const., art. XIV, § 3, italics added.) Indeed, the addendums specifically provided that the contract did not limit the subcontractors’ mechanic’s lien rights. The subcontractors’ rights against the property and their rights relative to the general contractor are independent of each other. In this case, the mechanic’s lien remedy was insufficient to make either the contractor or the subcontractors whole, but that was due to the owner’s insolvency, not because of the pay if paid clause.
The majority finds the pay if paid clause does indeed waive mechanic’s liens rights, despite the express contractual language that it does not, because of Civil Code section 3140 (section 3140): “Any original contractor or subcontractor shall be entitled to recover, upon a claim of lien recorded by him, only such amount as may be due him according to the terms of his contract. . . .” The majority argues that, if the pay if paid clause is given effect, the amount due under the contract would be zero because of the owner’s default. Therefore, the subcontractors would be entitled to recover on their liens the same zero amount, which, the majority concludes, effectively amounts to a waiver of mechanic’s liens rights and is against public policy.
The majority misinterprets section 3140 in its effort to invalidate the pay if paid clause. It reads the statute as providing that the contractual language *901allocating the risk that the owner will not pay eliminates all mechanic’s liens against the property. That interpretation is illogical. Why should the owner’s default protect that same owner from mechanic’s liens? The answer is, of course, that it should not. But this answer means only that we should interpret the statute reasonably, not that we should use it to invalidate the pay if paid clause.
Section 3140 merely helps establish the amount of the lien by limiting the value of the services or material to that specified in the contract. If a subcontractor (or original contractor) contracts for work at an agreed price of, say, $5,000, that agreed price should and, under section 3140, does, establish the value of the work and thus the amount of the lien. The subcontractor may not claim the value was really $10,000 and place a lien for that amount. Section 3140 codifies the rule we have long adopted that “If there is a valid contract, the contract price measures the limit of the amount of the liens which can be acquired against the property by laborers and materialmen.” (Roberts v. Spires (1925) 195 Cal. 267, 270 [232 P. 708, 37 A.L.R. 763]; see also Roystone Co. v. Darling (1915) 171 Cal. 526, 531-533, 537 [154 P. 15].)
Section 3140 reasonably, logically, and constitutionally limits the “value” (Cal. Const., art. XIV, § 3) of the labor or material to the “amount” established in the contract. I see no reason to read it as doing more, and good reason not to. The broad constitutional guarantee that laborers and suppliers “shall have a lien upon the property upon which they have bestowed labor or furnished material for the value of such labor done and material furnished” (Cal. Const., art. XIV, § 3, italics added) makes clear that the terms of a contract allocating risk of default may not limit the amount of the lien. Rather, the lien amount is based on the unpaid “value” of that labor or material. We should construe section 3140 consistently with this constitutional mandate, not as an illogical provision at odds with it.
A “ ‘statute should be construed with reference to the whole system of law of which it is a part so that all may be harmonized and have effect.’ ” (Landrum v. Superior Court (1981) 30 Cal.3d 1, 14 [177 Cal.Rptr. 325, 634 P.2d 352].) Moreover, we should assume the Legislature intended the statute to be constitutional “and construe it to avoid ‘serious’ doubts as to its constitutionality if that can be done ‘without doing violence to the reasonable meaning of the language.’ ” (San Francisco Taxpayers Assn. v. Board of Supervisors (1992) 2 Cal.4th 571, 581 [7 Cal.Rptr.2d 245, 828 P.2d 147].) An interpretation of section 3140 that would cause a private contractual agreement between contractor and subcontractor to limit mechanic’s lien rights—other than establishing the “amount” or “value” of the labor or *902materials—would be utterly illogical. (Why should an agreement between the contractor and subcontractor limit their mutual rights against the property?) That interpretation would give rise to a very serious doubt as to section 3140’s constitutionality.
My interpretation does no violence to the statutory language. The key phrase—“such amount as may be due him according to the terms of his contract”—can easily be construed as referring to the dollar amount due the subcontractor for services actually performed according to the terms of the contract, without reference to possible default by either the contractor or the owner. The contract amount is “due” to the subcontractor even if he does not actually receive it because of owner insolvency.
Given this interpretation, section 3140 does not prevent us from evaluating the pay if paid clause on its own merits without reference to mechanic’s lien rights, which are completely separate. I see no basis on which we could categorically invalidate all such clauses. A strong public policy favors lien claimants against the property on which they have bestowed their labor or material, but no policy favors any particular claimants over any others. This record shows the parties entered into their agreements voluntarily with their eyes open. Indeed, the addenda expressly stated the general contractor had been informed that the owner had “not obtained, and may not obtain in the future, a construction loan to fund the costs of construction.” The subcontractors expressly acknowledged that the contractor had “made no representation as to the financial responsibility of the Owner, or of its ability to fund the costs of construction.” We have stressed the “strong policy considerations favoring the enforcement of freely negotiated” contractual provisions in other contexts. (Nedlloyd Lines B. V. v. Superior Court (1992) 3 Cal.4th 459, 462 [11 Cal.Rptr.2d 330, 834 P.2d 1148] [upholding choice-of-laws clause].) We should also enforce this contractual provision.
The clause is not totally one-sided, with one side risking all and the other nothing. Neither the contractor nor the subcontractors will be paid in full. Indeed, each is receiving payment pro rata from the inadequate funds available from the owner and property. If we refuse to enforce pay if paid clauses, subcontractors will bear no risk of owner insolvency, while contractors must bear a double risk: that they will receive no payment for their own work, and that they will have to pay the subcontractors out of their own pockets. We should not categorically prohibit parties from contractually allocating the risk as they did here.2
. Decisions from other states do not support the majority’s result. The majority relies on West-Fair Elec. v. Aetna Cas. & Sur. Co. (1995) 87 N.Y.2d *903148 [638 N.Y.S.2d 394, 661 N.E.2d 967], which invalidated a similar pay if paid clause under New York’s mechanic’s lien laws. As New York’s lien law is different from California’s, however, we can easily distinguish that case. The court explained in that case that New York’s “Lien Law also provides that subcontractors may file and enforce their mechanics’ liens against the persons liable for the debt giving rise to the lien, in addition to rights in the real property [citations].” (661 N.E.2d at pp. 971-972, italics added.) In California, by contrast, the mechanic’s lien is “upon the property.” (Cal. Const., art. XIV, § 3.) Enforcing the pay if paid clause would infringe on New York’s lien law; it does not infringe on California’s. Citing “traditional notions of the freedom to contract,” the Virginia Supreme Court recently upheld pay if paid clauses. (Galloway Corp. v. S.B. Ballard Const. Co. (1995) 250 Va. 493 [464 S.E.2d 349, 354].)3
In short, while the subcontractors may not waive their rights to liens against property, they still have those rights. The parties should be allowed to agree mutually to share the risk of owner nonpayment. The subcontractors’ arguments that the pay if paid clause is against public policy should be directed to the Legislature, not this court. (See ante, fn. 3.)
B. Liability Under the Bond
The subcontracts expressly provide Keller need not pay the subcontractors if the owner did not. Nevertheless, the majority also concludes Keller and the surety were obligated to pay the mechanic’s liens under the bond. This conclusion effectively voids the pay if paid clause, although in a roundabout way. Again, I disagree. A bond does not create a contractual obligation to a third party, but rather obligates the principal, and the surety as guarantor, to perform an underlying contractual obligation. If, as here, Keller has breached no contractual obligation to anyone, neither it nor the surety is liable under the bond. “A surety ... is one who promises to answer for the debt, default, or miscarriage of another . . . .” (Civ. Code, § 2787.) “A surety who has assumed liability for payment ... is liable to the creditor immediately upon the default of the principal . . . (Civ. Code, § 2807, *904italics added.) Moreover, because a surety merely answers for the liability of another, it is a bedrock principle that “The obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal . . . .” (Civ. Code, § 2809.)
The cases make clear that the surety’s obligation is no greater than that of the principal under the underlying contract. In Bloom v. Bender (1957) 48 Cal.2d 793, 803 [313 P.2d 568], we explained “that a surety is not liable where the principal does not incur any obligation under the basic contract (Atowich v. Zimmer (1933), 218 Cal. 763, 769 [25 P.2d 6]), or where the principal has fully performed his contract obligations [citation],” although the surety may be liable even if the principal is discharged without fully performing the contract obligation “where the principal incurs an actual obligation.” (See also Regents of University of California v. Hartford Acc. & Indem. Co. (1978) 21 Cal.3d 624, 636, fn. 4 [147 Cal.Rptr. 486, 581 P.2d 197] [finding an exception when the statute of limitations had expired as to the principal but not the surety, even though “the general principle, codified in Civil Code section 2809, is that the liability of principal and surety are commensurate” (original italics)]; U.S. Leasing Corp. v. duPont (1968) 69 Cal.2d 275, 290 [70 Cal.Rptr. 393, 444 P.2d 65] [“since the liability of a surety is commensurate with that of the principal, where the principal is not liable on the obligation, neither is the guarantor”]; Flickinger v. Swedlow Engineering Co. (1955) 45 Cal.2d 388, 394 [289 P.2d 214]; Royster Construction Co. v. Urban West Communities (1995) 40 Cal.App.4th 1158, 1168-1169 [47 Cal.Rptr.2d 684]; Kalfountzos v. Hartford Fire Ins. Co. (1995) 37 Cal.App.4th 1655, 1659 [44 Cal.Rptr.2d 714]; Michel & Pfeffer v. Oceanside Properties, Inc. (1976) 61 Cal.App.3d 433, 441 [132 Cal.Rptr. 179].)
While exceptions to this general principle exist, such as surety liability even if the statute of limitations had expired as to the principal, a basic prerequisite to liability is that the principal have “incurred] an actual obligation.” (Bloom v. Bender, supra, 48 Cal.2d at p. 803.) Here, the contractor never incurred an actual obligation for which the surety has promised to answer. “ ‘[T]he surety merely lends its credit so as to guarantee payment in the event that the principal defaults. In the absence of default, the surety has no obligation.’ (1 Cal. Insurance Law & Practice (Matthew Bender, 1986) Surety Bonds Compared to Insurance, § 12.13 [2], p. 12-35, fn. deleted.)” (Schmitt v. Insurance Co. of North America (1991) 230 Cal.App.3d 245, 257 [281 Cal.Rptr. 261].) “Upon the default of the principal, the surety is liable to the named obligee and to unpaid subcontractors, laborers, equipment renters, and material suppliers as third-party beneficiaries. no A bond issued by a surety . . . represents nothing more than an *905undertaking to indemnify a person or the public against losses resulting from acts of the principal.” (8 Miller & Starr, Cal. Real Estate (2d ed. 1990) Mechanics’ Lien, § 26:77, p. 600, italics added, fns. omitted.) The principal here did not default; the losses resulted from acts of the owner, not the principal.
The bond did not create an obligation on the part of the principal (or surety) divorced from any underlying obligation under either the general contract or any of the subcontracts. “The surety must pay on the bond only if the claimant establishes, without reference to the bond, a legal obligation on the part of the principal to pay. (Lewis & Queen v. N.M. Ball Sons (1957) 48 Cal.2d 141, 155 [308 P.2d 713].) [¶] ... [¶]The ‘obligation,’ as referred to in Civil Code section 2809 and U.S. Leasing Corp. [v. duPont, supra, 69 Cal.2d at p. 290], is the obligation the principal. . . originally undertakes as to the creditor,” i.e., “the obligation was defined in the subcontract. . . .” (Kalfountzos v. Hartford Fire Ins. Co., supra, 37 Cal.App.4th at p. 1659, italics added; see also Royster Construction Co. v. Urban West Communities, supra, 40 Cal.App.4th at pp. 1168-1169 [quoting much of this language].)
The majority’s response to Kalfountzos v. Hartford Fire Ins. Co., supra, 37 Cal.App.4th at page 1659 (and, presumably, Royster Construction Co. v. Urban West Communities, supra, 40 Cal.App.4th at pages 1168-1169), is to claim it is “incorrect” and to “disapprove^]” it. (Maj. opn., ante, at p. 896.) That decision is, however, well grounded in California surety law. (Lewis & Queen v. N.M. Ball Sons (1957) 48 Cal.2d 141, 155 [308 P.2d 713] [“The obligation of the sureties on defendant’s bonds . . . was an obligation to pay only if plaintiff established, without reference to the bond, a legal and valid claim for compensation.” (Original italics.)]; Bloom v. Bender, supra, 48 Cal.2d at p. 803 [“it has been held that a surety is not liable where the principal does not incur any obligation under the basic contract”]; Flickinger v. Swedlow Engineering Co., supra, 45 Cal.2d at p. 394 [“any right which plaintiff might have had to recover upon the bond was necessarily dependent upon plaintiff’s right to recover upon his contract with [the principal]”].) Despite this explicit language, the majority seeks to distinguish our cases on the basis that here the subcontractors’ “mechanic’s lien claim is ‘a legal and valid claim for compensation.’ ” (Maj. opn., ante, at p. 895.) The mechanic’s lien, however, is against the property, not the contractor. The subcontractors have no right to recover against the principal under either the contracts or the mechanic’s liens. The bond did not create an obligation where none existed.
The majority cites several cases that it claims support its position. (Maj. opn., ante, at p. 893.) But in none did the court suggest the surety (or principal) had to pay absent some underlying obligation of the principal. *906They certainly do not suggest the bond alone obligated the principal to pay what the underlying contract expressly said it did not have to pay. In Southern Heaters Corp. v. N.Y. Cas. Co. (1953) 120 Cal.App.2d 377 [260 P.2d 1048], for example, the issue was whether a bond naming as principal the fictitious business name of an individual also covered obligations incurred under another fictitious name of the same individual. In deciding the question, the court said that “When a bond is given for the purpose of complying with the mechanic’s lien law [citation] the terms of the statute are to be read into the bond and control its interpretation and effect.” {Id. at p. 379.) By no means does this language suggest the surety would be liable absent an underlying obligation of the principal under either name.
The majority also suggests the specific language of the bond itself creates an obligation separate from any underlying contract. It is true that the bond itself does not expressly incorporate all the relevant statutory provisions. But it may not be interpreted without regard to those provisions. The bond expressly states it is a payment bond, as defined in Civil Code section 3096, to comply with the laws of title 15, “Works of Improvement,” of the Civil Code. “The rule is that rights and liabilities under a surety bond are to be determined from the language of the bond read in the light of applicable statutes.” (Morro Palisades Co. v. Hartford Accident & Indemnity Co. (1959) 52 Cal.2d 397, 400 [340 P.2d 628]; see also Southern Heaters Corp. v. N.Y. Cas. Co., supra, 120 Cal.App.2d at p. 379 [quoted in the previous paragraph].) This bond is not fundamentally different from other bonds that merely guarantee payment of an underlying obligation.
No relevant statutory provision supports the subcontractors’ claim. Under Civil Code section 3096, “Once the principal is in default, there is a direct right of action against the surety on statutory payment bonds . . . .” (1 Marsh, Cal. Mechanics’ Lien Law (6th ed. 1996) § 11.4, p. 11-6, italics added.) However, nothing in that statute abrogates the basic necessity that there be an underlying obligation for which the principal is in default. The subcontractors also cite Civil Code section 3226.4 The key words in that statute are “released from liability.” One cannot be released from liability unless an underlying liability exists. This statute also does not omit the requirement that the principal be liable for some underlying obligation. The majority also cites Code of Civil Procedure section 996.410, subdivision (a), *907which allows the beneficiary to “enforce the liability on a bond against both the principal and sureties.” (Italics added; see maj. opn., ante, at p. 894.) I agree that, if there is liability, the beneficiary could sue both the principal and the surety. But this statute, too, does not omit the requirement that there be liability.
The subcontractors have established no obligation of the part of the principal. They could have established such an obligation if the owner had paid the contractor and the contractor had failed to pay the subcontractors. Then they (or the owner, in order to free its property of mechanic’s liens) could have sought recourse directly against the surety. But here the owner defaulted. The bond made Safeco a surety for the contractor’s default. It did not make the contractor a surety for the owner’s default. As the majority notes (maj. opn., ante, at p. 887), Keller obtained the bond at the owner’s insistence under the general contract. The owner obtained protection in case it paid the contractor, but the contractor did not pay the subcontractors, and they placed liens against the property. In that event, the principal and, under the bond, the surety would be liable. The bond would protect the owner, and the subcontractors would be duly paid according to the terms of the subcontracts. The bond protects the owner from Keller’s default; it does not protect the owner from its own default and certainly does not grant the subcontractors indirectly what they agreed they would not receive directly.
The majority not only changes basic surety law by making the bond a guarantee against a third party’s default and not the principal’s. Its conclusion that Keller must pay the subcontractors even if the owner does not pay it is contrary to the parties’ express intent that Keller and the subcontractors share equally the risk of owner nonpayment. (See Civ. Code, § 3268 [“Except where it is otherwise declared, the provisions of the foregoing titles of this part, in respect to the rights and obligations of parties to contracts, are subordinate to the intention of the parties . . . .”].) The majority’s analysis is also illogical. The owner required Keller to obtain a bond to protect the owner from the risk that Keller would default. A bond naming Keller as principal should not, however, force Keller to pay for the owner’s default. Yet that is the result the majority has decreed. It is nonsensical. Why would a contractor pay for a bond that assumed a risk the contractor had expressly not assumed? If the contractor did not pay the surety to cover the owner’s default, why would the surety voluntarily assume that liability? The answer, implicit in Civil Code sections 2787 and 2809, is that neither did so. The contractor obtained a bond to answer for its obligation, not someone else’s.
The surety has no liability independent of the contractor. Because the contractor has no liability, neither does the surety.
*908III. Conclusion
The contract between the contractor and the subcontractors does not affect the mechanic’s lien rights of either against the property except to establish the value of the lien. The parties validly could and did agree among themselves that each would assume equally the risk of owner default while preserving their mutual mechanic’s lien remedies against the property. The payment bond answered for the contractor’s obligations, not the owner’s, and therefore neither the principal nor the surety is liable in the absence of the contractor’s default. This conclusion is reasonable, straightforward, and consistent with the parties’ intent, the law of mechanic’s liens and surety, and the public policy in favor of enforcing freely negotiated contracts. The subcontractors entered into their agreements voluntarily. They should be bound by those agreements.
I would reverse the judgment of the Court of Appeal.
Mosk, J., and Baxter, J., concurred.
Appellants’ petition for a rehearing was denied September 3, 1997. Mosk, J., Baxter, J., and Chin, J., were of the opinion that the petition should be granted.

 The Court of Appeal opinion explains further, “When Barsotti’s started work on the project, this Addendum was not part of its contract and no one at Barsotti’s ever signed Addendum 1. Keller and Barsotti’s nevertheless treated their relationship as controlled by Addendum 1 and, on this appeal, Safeco and Keller both assert that Barsotti’s is bound by Addendum 1. For these reasons, we treat all four subcontractors the same vis-á-vis their contractual rights and obligations.” In this court, Barsotti’s, Inc., expressly agrees with this assessment.

 In some cases, the clause might be unenforceable for specific reasons such as misrepresentation, unconscionability, or the like. For example, the pay if paid clause provides the *903contractor would not have to pay if the owner did not pay, even if the reason was “attributable to the fault of the . . . Contractor . . . .” This language is not before us, as all agree the nonpayment was the owner’s fault, but the question would be different if the nonpayment was the contractor’s fault. I express no view on that question. That issue is not before us.

 The majority also notes that three states have declared pay if paid clauses unenforceable by statute. (Maj. opn., ante, at p. 886.) In 1993, a bill was introduced in the California Legislature to do the same. (Assem. Bill No. 1981 (1993-1994 Reg. Sess.) [to add Civil Code section 3267.5, providing, as relevant, “Any provision of a contract. . . between a contractor and a subcontractor. . . which conditions payment of the subcontractor. . . upon receipt of payment by the contractor from any third person, is contrary to the public policy of this state, void, and unenforceable.”].) The bill failed to pass.

 Civil Code section 3226 provides, “Any bond given pursuant to the provisions of this title will be construed most strongly against the surety and in favor of all persons for whose benefit such bond is given, and under no circumstances shall a surety be released from liability to those for whose benefit such bond has been given, by reason of any breach of contract between the owner and original contractor or on the part of any obligee named in such bond, but the sole conditions of recovery shall be that claimant is a person described in Section 3110, 3111, or 3112, and has not been paid the full amount of his claim.” (Italics added.)