What's In A Name

Our firm has repeatedly wrote articles telling contractors how important it is to make sure that they are operating under the proper name style and how important it is to use the name that is listed with the CSLB. The reason for this is because of Business and Professions Code section 7031, which basically states that an unlicensed contractor cannot collect in a legal action. If a contractor is utilizing the incorrect name, then they might be considered unlicensed and therefore unable to collect the funds owed to them.

In the recent case of Montgomery Sansome LP v. Zhian Z. Rezai (2012), Montgomery Sansome LP ("Montgomery") was the contractor on a project with Zhian Z. Rezai ("Rezai"). Montgomery was a licensed contractor with the CSLB under the name "Montgomery Sansome LTD" as a partnership, filed with the Secretary of State as "Montgomery-Sansome, LP" as a limited partnership, and filed a fictitious business name statement as "Montgomery Sansome LTD., LP" as a general partnership, which is the name on the contract with Rezai. At first blush, these three names appear to be the same, but there is actually a big difference between "LTD" and "LP" in the business world.

Rezai terminated the contract after making payments in the amount of $65,000. Montgomery filed a lawsuit to foreclose on the Mechanic's Lien as well as other relief for over $200,000. Rezai then moved for summary judgment (a motion asking for the court to rule on the facts as a matter of law with no trial) and the summary judgment was granted. The court entered judgment along with attorney fees in favor of Rezai. Montgomery appealed this decision.

In between the time of the trial court decision and this matter being heard before the Court of Appeal another court case, David E. Ball v. Steadfast-BLK, was decided in the Court of Appeal. The Ball case centered on a contractor that was in a similar situation. The contractor, who was a sole proprietor, was licensed with the CSLB as one fictitious business name and inadvertently transposed one word from the name on the contract it entered into on the particular project. The trial court in this matter initially determined Ball as an unlicensed contractor because he was operating out of name style, thereby dismissing his lawsuit and preventing him from collecting on his Mechanic's Lien cause of action.

Once the Ball matter reached the Court of Appeal, it was decided that any fictitious business name that Ball operated under would still constitute that he was a "licensed" contractor since he was a sole proprietor, however, his operating out of name style could still lead to technical violations with the CSLB but not prevent him from collecting on his Mechanic's Lien action. This case was great news for the not too savvy sole proprietor who might make these erroneous mistakes, giving them a little room to breathe. What about partnerships, corporations, etc?

The Court of Appeal addresses this very question in the Montgomery case by taking the Ball case into consideration during their decision. The Court of Appeal concluded that the Montgomery owners were just inconsistent regarding the exact name of the limited partnership because all evidence showed that the separate Montgomery names all had the same business address and began transacting business at the same time. Accordingly, the Court of Appeal found that the trial court erred in granting the summary judgment because the burden of proof was on Rezai, and that burden was not met.

So, now the Ball decision gives the individual sole owner some breathing room and the Montgomery decision gives the remaining entities some breathing room with respect to their name style when it comes to recovery, but this does not mean that you no longer have to concern yourself with using the correct name style! There are still various technical violations that cause in depth investigation by CSLB Enforcement Representatives as well as disciplinary actions, fines, license suspensions, and even license revocation. Not to mention that any violation could become public record for all of your future customers to see.

It is best to always make sure that everything you are doing is under the proper name style. Not only is it a good foundation for your business, but it is a simple way to avoid trouble now and in the future!

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Kenneth Grossbart is recognized as one of the foremost authorities in California construction law. Over the past 30 years, Ken has become a respected speaker on Mechanic's Liens and other construction related issues. Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients and it does not establish an attorney-client relationship with the reader. This document is of a general nature and is not a substitute for legal advice. Since laws change frequently, contact an attorney before using this information. Ken Grossbart can be reached at Abdulaziz, Grossbart & Rudman: (818) 760-2000 or by E-Mail at ksg@agrlaw.com or at www.agrlaw.comw