California Case Highlights Importance of Naming Proper Entities in Construction Contracts

You control two entities with substantially similar names that are general partners. You accidentally name the wrong entity in a construction contract. What could the fallout be from such a minor mistake? As a recent California appellate decision demonstrates, over three and a half years of litigation (so far) and the possible loss of over $2 million in owed payments.

In Panterra GP, Inc. v. Superior Court of Kern County,¹ Panterra GP was a licensed California general contractor and the general partner of an entity named Panterra Development Ltd., L.L.P. (Panterra Development).² Panterra Development was not a licensed contractor. According to a lawsuit by Panterra GP, a building owner intended to contract with Panterra GP to renovate a movie theater in Bakersfield, Calif., but mistakenly listed Panterra Development as the contracting entity.³

The Panterra entities did not notice the mistake and signed the contract.⁴ Panterra GP subsequently completed the work, but the owner refused to pay over $2.6 million owed on the contract.⁵ Panterra Development then recorded a mechanic's lien, following which Panterra GP filed a lawsuit seeking to reform the contract so that Panterra GP was the contracting party and able to obtain compensation for the unpaid work.⁶ The trial court sustained the owner's demurrer to the lawsuit and Panterra GP appealed.⁷

On appeal, the building owner primarily relied on CA BUS & PROF 7031(a), which generally bars lawsuits by unlicensed contractors to obtain payment for work that required a license to perform.⁸ In a 2-1 decision, the Court of Appeal rejected that argument. It concluded that while that law would prohibit Panterra Development from suing for damages, it did not bar Panterra GP's lawsuit because Panterra GP is a licensed contractor.⁹ For the same reason, while the same law prohibits equitable remedies, the Court of Appeal held that the law would only bar Panterra Development from obtaining an equitable remedy, not Panterra GP.¹⁰

Although the Court of Appeal reversed the trial court's decision and ruled the lawsuit could move forward, Panterra GP is not out of the woods yet. As the Court of Appeal noted, the owner could still prevail at trial by proving that Panterra Development really was the entity performing the construction services and the parties were not mistaken in naming Panterra Development on the contract.¹¹

The Court of Appeal also suggested its ruling was relatively limited and would not generally protect unpaid, unlicensed contractors, stating that reformation would "only be an option to those unlicensed contractors who control or can sufficiently influence a licensed contractor" and who can "prove that the written contract fails to express the true intention of the parties to hire the licensed entity as contractor due to mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected."¹²

The lawsuit, which has already been pending for more than three and a half years, now continues. Whether through the appellate process (the building owner is seeking review by the California Supreme Court) or in the trial court, there is no guarantee that Panterra GP will prevail on its over $2 million claim. This case should serve as a reminder of the importance of ensuring that the proper entity is named in a construction contract, especially if only one of several related entities is properly licensed to perform the work.

FOOTNOTES

1 74 Cal.App.5th 697, 289 Cal.Rptr.3d 743 (2022).
2 Id. at 702.
3 Id.
4 Id.
5 Id.
6 Id. at 702-03.
7 Id. at 706-08.
8 Id. at 709.
9 Id. at 709-10.
10 Id. at 714.
11 Id. at 709-10.
12 Id. at 715 (emphasis omitted).