Unlicensed Corporations Cannot Recover On A Payment Bond

Law Talk

Sam K. Abdulaziz
Attorney at Law

This is somewhat of a convoluted case. However, the decision is not all that surprising.

William Opp was at all times relevant to this case, a licensed building contractor. Mr. Opp also was president of an entity known as Mountain Connection, Inc., a California Corporation ("MCI"). MCI never held a contractor's license.

In July 2003, Mr. Opp, as president of MCI, signed a subcontract with Mauldin-Dorfmeir, a general contractor for work at California State University, Stanislaus. Mr. Opp inserted his individual contractor's license number where the various contract documents called for a license. St. Paul Fire & Marine Insurance Company issued a payment bond on behalf of Mauldin-Dorfmeir.

Sometime later, Mauldin-Dorfmeir filed for bankruptcy. MCI, sued St. Paul to collect on the payment bond. Not surprisingly, St. Paul stated that MCI was unlicensed and therefore unable to collect. William Opp then filed an amended complaint substituting "William Opp dba Mountain Connection and Mountain Connection, Inc." St. Paul then filed a motion alleging that Mr. Opp was never a party to the contract and therefore could not bring the action.

Mr. Opp responded with two different arguments. First, Mr. Opp tried to establish that he supervised most of the work that was done under the subcontract. Second, he attempted to show that everyone involved, including Mauldin-Dorfmeir, had treated MCI as the alter ego, or fictitious name, under which Mr. Opp did business. Again, not surprisingly, the court disagreed.

The court concluded that MCI was in fact the party to the contract and had performed the work under the contract, and not William Opp. Most importantly, the court also concluded that MCI was not entitled to recover on the payment bond because of Business & Professions Code 7031, kept it from recovery as being an unlicensed corporation. The use of the license number did not make Mr. Opp a party to the contract. That would be like renting your license.

Both the Trial Court and the Appellate Court decided the case against Mr. Opp.

The Appellate Court stated that the issue was not "who did the work" but "who was engaged in a business or acting in the capacity of a contractor". This makes a great deal of sense because many workers might "do the work" as employees. However, being engaged in a business or acting in the capacity of a contractor is what is required. The Court also cited another appellate opinion in G.E. Hetrick:

"In G.E. Hetrick, the corporate plaintiff was alleged to be unlicensed as a building contractor. Gary Hetrick was a licensed contractor doing business as G.E. Hetrick & Associates, a sole proprietorship, and he was the owner of the corporation, G.E. Hetrick & Associates, Inc. The corporation was unlicensed when the contract was made and performed. Gary Hetrick had been continually licensed at all relevant times."

One of the arguments in the G.E. Hetrick case was the doctrine of "Substantial Compliance."

It was therefore also important that the Doctrine of Substantial Compliance be discussed. However, even this would not help the unlicensed contractor. That was because the person who engaged in the business of contracting (MCI), never held a contractor's license. That is one of the requirements for the Substantial Compliance Doctrine.

Opp lost on all fronts