The California Court of Appeal recently issued another opinion on contractor licensing that has important implications to contractors and owners in California’s construction industry.  In Montgomery Sansome LP v. Rezai, Nos. A130272, A130694, 2012 WL 1021079 (Cal. Ct. App. Mar. 28, 2012), the First Appellate District held that where a contractor’s name on a construction contract does not identically match the name under which it holds its contractor’s license, Business and Professions Code § 7031 (“Section 7031”) does not bar recovery by the contractor so long as “the entity that contracted with [the owner] is the same entity that held a license.”

Montgomery Sansome is important in that it further illuminates the bounds of Section 7031’s bar on suits by unlicensed contractors and disgorgement claims against unlicensed contractors.  Specifically, the case holds that minor variations between the name a contractor’s license is issued under and the name used by the contractor on a construction contract will not prevent the contractor from suing on the contract, so long as the licensed entity is the same entity that entered into the contract.  Although Montgomery Sansome did not specifically address disgorgement claims, it also stands for the broader proposition that a licensed contractor is not required to return all sums paid to it when it enters into a contract under a name that is slightly different from the name under which it holds a contractor’s license.

Case Discussion

In Montgomery Sansome, the contractor filed a certificate of limited partnership for an entity named “Montgomery-Sansome, LP” with the Secretary of State.  Shortly thereafter, the Contractors State License Board (“CSLB”) issued a contractor’s license to a limited partnership named “Montgomery Sansome LTD.”   The limited partnership also filed a fictitious business name statement (“FBN Statement”) that incorrectly identified itself as a general partnership with the fictitious business name “Montgomery Sansome Ltd., L.P.”

A project owner entered into a construction contract with “Montgomery Sansome Ltd. Lp” for work to be done on an apartment building.  After paying the contractor $65,000, the owner terminated the contract.  The contractor filed suit against the owner as “Montgomery Sansome LP,” seeking to recover $203,061.67 for work performed.  The owner moved for summary judgment, arguing that Section 7031, which precludes compensation to unlicensed contractors, barred the contractor’s claims because the contracting entity, Montgomery Sansome Ltd. Lp, was not licensed.  The trial court granted the owner’s motion and the contractor appealed.

On appeal, the owner argued that, based on the rebuttable presumption created by the FBN Statement that the contractor was a general partnership, Montgomery Sansome Ltd. Lp was, in fact, a general partnership and a separate legal entity from the limited partnership that was licensed by the CSLB (Montgomery Sansome LTD).  The owner further argued that, because the general partnership was a separate entity from the licensed limited partnership entity, the contractor’s suit was barred under Section 7031because it was not licensed.  In support of its position, the owner relied on Opp v. St. Paul Fire & Marine Insurance Co., 154 Cal. App. 4th 71 (2007), and WSS Industrial Construction, Inc. v. Great West Contractors, Inc., 162 Cal. App. 4th 581 (2008).  In Opp, the court held that an unlicensed corporation could not rely on its president’s individual contractor’s license in pursuit of its payment claim against a project owner.  Similarly, in WSS, the court held that a corporation could not recover under a subcontract because it was not licensed, and it was irrelevant that the corporation’s president and a related partnership had valid licenses.

In contrast, the contractor that argued that “there [was] a single Montgomery Sansome business entity, and the slightly different names used in different documents [were] just ‘trivial’ variations on the name for that single entity.”  The contractor relied on Ball v. Steadfast-BLK, 196 Cal. App. 4th 694 (2011), to support its position.  In Ball, the court held that an individual, who was licensed as a sole proprietorship and operated under a fictitious business name, could bring suit in his individual capacity, despite entering into contracts in the fictitious entity’s name, because the individual was licensed and he was not bringing suit as a separate legal entity.

In its analysis of these competing positions, the Montgomery Sansome court initially identified the critical, determining factor:  “[W]hether the Montgomery Sansome entity that contracted with [the project owner was] a general partnership and a separate legal entity from the licensed limited partnership.”  The court noted that under Opp and WSS, if the contracting party was a separate legal entity, its suit would be barred.  The court, however, also noted that “if the entity that contracted with defendants is the same entity that held a license, then, under Ball, the use of slightly different names for that entity on different documents . . . would not bar its recovery under [S]ection 7031.”

The Montgomery Sansome court then reviewed the evidentiary record and concluded there was evidence supporting a finding that there was only one Montgomery Sansome partnership.  The court found it significant that the FBN Statement referenced the same address as other documents of the limited partnership and that the FBN Statement referred to the date of the entity’s formation as the same date the CSLB issued its license to the limited partnership.  Ultimately, the court concluded that it appeared that rather than several related Montgomery Sansome entities, those filling out the various forms “were just inconsistent regarding the exact name they used to refer to [the] limited partnership.”  Based on these findings, the Montgomery Sansome court reversed the trial court’s summary judgment ruling in favor of the project owner.