Building contractors listen up: Is your paperwork done?
California building contractors can do business as individuals, partnerships or corporations, but due to an anomaly in the law, not as limited liability companies. A corporation provides the owner with liability protection from contracts gone sour and claims regarding job-related accidents. For that reason, many contractors who do more than a minimal amount of building, form corporations and hold their licenses in the name of the corporation. But as William Opp found out you have to do it right.
William Opp was a California licensed building contractor. He was also president of Mountain Connection, Inc. (MCI). MCI did not hold a California contractor’s license.On behalf of MCI, Opp signed a subcontract with Mauldin-Dorfmeier, the general contractor for a project at California State University, Stanislaus. Opp put his individual contractor’s license number where the contract called for a license number. You can see this disaster coming.
MCI performed the job but Mauldin-Dorfmeier, the general, filed for bankruptcy, so MCI sued on the public works payment bond for monies rightfully due.The bonding company proved that MCI did not hold a California contractor’s license and therefor couldn’t sue. Opp sued again as William Opp dba Mountain Connection and Mountain Connection, Inc. In other words, Opp claimed that MCI was his fictitious business name, and because he was licensed, Opp dba MCI was licensed. Opp documented that he supervised most of the work under the MCI subcontract.
Will William Opp or MCI be able to collect on the bond as a licensed California building contractor?All contractors know about Business and Professions Code Section 7031. That’s the code that requires anyone acting as a contractor have a license before suing for collection of compensation for the performance of work. In California, contractor is a synonymous with builder. In case you are wondering. Opp claimed he did the work and was a licensed contractor. The trial court and court of appeal found that MCI was the contracting party, the subcontract was in the name of MCI. MCI was not licensed. Oops. MCI loses.
Opp also claimed as noted that he was the contractor doing business as MCI as a dba. Oops again. No fictitious business name may include the words corporation, corp., incorporated, or inc. unless the entity is a corporation. MCI does not have a license, Opp is not a party to the subcontract, they both lose even though they did the work. No recovery on the bond. Bonding company gets windfall.
I’ve seen this happen all too regularly where a licensed individual changes his construction business into a corporation either for tax reasons or for protection from liability, then starts doing business signing contracts in the name of the corporation. Sometimes the contractor forgets to change the license over to the corporation, and sometimes changing the individual license to the corporation takes many months, so the contractor is essentially doing the job as an unlicensed corporation. As they say in construction, The job isn’t done until the paperwork is done.
There is only one exemption where an unlicensed contractor may be able to recover compensation for doing construction work: Where the contractor can show, 1) he was licensed as the contractor prior to the job, 2) he acted reasonably to keep his license in good standing, 3) he did not know or reasonably should not have known he was not licensed when he performed the work, and 4) he acted promptly to reinstate his license upon learning it was invalid. That’s a rare circumstance.Jim Porter is an attorney with Porter andamp; Simon, with offices in Truckee, South Lake Tahoe and Reno. He may be reached at firstname.lastname@example.org or at the firm’s web site http://www.portersimon.com. 2007