The Law Review has analyzed a few instances where a contractor has been denied collection of a fair amount owed by an owner because the contractor was not “properly authorized at all times during the execution of the work” . In most cases, the contractor did not have a license due to a technical issue with the license. For example, a contractor licensed as a sole proprietor cannot sue for costs if he subsequently incorporated because the new business must be licensed. Scary stuff for builders.
Worse yet, if the contractor is not properly terminated, not only can he not go to court to recover the money owed, but he is subject to reimbursement of the money paid by the owner – restitution.
CASE OF THE INTERCONTINENTAL SAN FRANCISCO HOTEL
The InterContinental hotel entered into a construction contract in September 2005 with Webcor Construction, Inc. dba Webcor Builders, Webcor was the general.
In July 2007, around halfway through construction, Webcor Construction, Inc. merged with Webcor Construction, LP (limited partnership). Webcor Construction, LP was licensed as a contractor prior to the merger, while Webcor Construction, Inc.’s license was allowed to expire in December 2007.
A completion notice was registered in 2009 when the hotel project was completed. Total payments by the InterContinental hotel $ 144 million.
In 2013, the hotel discovered flaws in some windows and legal action was filed. The parties had gone to the races with their lawyers. At that time, many years after the project ended, InterContinental learned of the merger. He claimed that the general was not properly dismissed.
BUSINESS AND PROFESSIONAL CODE ARTICLE 7031
InterContinental sued for reimbursement of all monies it paid, claiming that the general contractor had not obtained the appropriate license at all times during the execution of the work given the merger and the expiration of the original business license, despite the fact that Webcor Construction, LP, the successor construction entity, was properly licensed.
Webcor Construction, LP defended the lawsuit, saying InterContinental was to bring an action within one year of project completion – no more than eight years after project completion. The first appeal district court of appeal ruled against InterContinental allowing Webcor Construction, LP to dodge a very large bullet. The obvious point being that entrepreneurs should pay attention to the details of their license, especially if any changes are made to the business entity.
Jim Porter is a Porter Simon attorney licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOA, contracts, personal injury, accidents, mediation, and other transactional matters. He can be contacted at firstname.lastname@example.org or http://www.portersimon.com.