By John P McGill, Attorney at Law
Names are tricky things. Easily forgotten, difficult to pronounce; they roll off the tongue and often just fall to the floor. There are any number of ways to remember a name- repeat it twice so the hearer recalls it; write it on the back of your hand; associate it with something in the area at the time. Usually not something to be concerned about though; unless, that is, you’re a contractor and the other side doesn’t want to pay you. Then you may be in for a bit of a problem, especially now that attorneys are looking very closely at licensing as a defense to payments that are due and owing.
Recall that if you are not properly licensed for the entire time you are performing work, you do not have the right to be paid. Worse still, if you are not licensed for the entire time you are performing the work, you not only don’t get paid, you will need to re-pay all of the money that was paid to you. The icing-on-the-cake though is that you get to pay the other side’s attorney fees, just for good measure.
Licensing has taken on new importance and not having a proper license is now attracting a lot of attention from attorneys. Some of the more “creative” attorneys are looking very closely at everything related to your license as a way to defend against your claim for payment. Sometimes this is justified (i.e. - when you are not licensed) but in some instances, it is taken to an extreme. Well- intentioned judges sometimes get it wrong too and legitimate claims are thrown out of court. That is what happened in David E Ball v Steadfast BLK where the trial court ruled that because Ball did not conduct business as the correct dba, he could not bring his claims into court. The Court of Appeals reversed the decision, so there is a happy ending, but there is a lesson to be learned.
In the Ball case, plaintiff was a sole proprietor doing business as Clark Heating & Air Conditioning. Ball was properly licensed as the sole proprietor for the business; he just conducted business under a dba name. He did some work for Steadfast and at the end of the project there was a dispute over payment. Ball recorded a Mechanics Lien, sued to foreclose on it, and included other claims against Steadfast. Steadfast challenged the Mechanic Lien claim by filing a demurrer (a pleading that basically says that ‘even if everything you say is true, you can’t state any cause of action against me’). The demurrer argued that Ball was not properly licensed.
Why? Because Ball apparently had his dba’s mixed up. Instead of doing business as Clark’s Heating & Air Conditioning, he signed the contract as Clark’s Air Conditioning & Heating. According to Steadfast, there was no such entity and therefore Ball was conducting business as an unlicensed contractor. The trial court agreed and sustained the demurrer and also found that because Ball was unlicensed, none of his claims survived and he was out of court.
The Court of Appeals reversed in a thoughtful and appropriate decision. First, they found that Ball was a sole proprietor and regardless of whether it was Clark Heating & Air Conditioning or Clark Air Conditioning & Heating, he was a sole proprietor. Therefore for any dba he operated under, it was still Ball himself as the contractor, and he was properly licensed. It did not matter for purposes of the law regarding payments to unlicensed contractors that he had reversed the dba name. The court reasoned that the only way Ball could operate was as a sole proprietor, he was always properly licensed as a sole proprietor, and therefore his claims survived.
According to the court, this was at best a case for disciplinary action by the CSLB. The name mix up was not the type of problem that the Legislature and courts are trying to discourage by passing laws and handing down decisions that prevent unlicensed contractor from being paid and require disgorging of all payments received. The licensing law is intended to provide the public with minimal assurance that those offering construction services have the requisite skill and understand the law and the business of construction. Ball met those requirements by being properly licensed as a sole proprietor.
The Ball court distinguished the situation where a corporation is the contracting party and the qualifier for the corporation leaves and is not replaced. Referring to the case of Opp v St Paul Fire & Marine, where the qualifier for the corporation left but the president of the company had his own license, the court pointed out that the corporation is a separate entity from the president of the company. In order for the corporation to be licensed, it had to have a qualifier. It did not, and the fact that the president had a license did not mean that the corporation was licensed. The corporation and president were separate entities and each needed to be properly licensed if they were to conduct any contracting business.
In Ball, there was no separate entity- Ball was a sole proprietor. Therefore he could do business as a fictitious business and still be properly licensed. Not so if the contractor is a corporation (or any other business form); in that case, a separate company license is required.
Moral of the story- make sure you have a license and make sure you know the name of the dba you are doing business as- it may avoid lawsuits and it probably helps just as a practical matter.
Bio: John McGill represents general contractors and subcontractors in contract, claims, employment, and transactional matters in before administrative agencies and in judicial proceedings as well as in mediation and arbitration. He is general counsel for a public works general contractor in Novato and Special Counsel at Archer Norris in Walnut Creek. His contact info is: jmcgill@archernorris.com - direct office - 925-952 5403 & cell- 707 337 1932.