What happens when you accidentally name the wrong entity in a construction contract, when you control two entities with substantially similar names that are general partners?
California construction lawyer Blake Robinson of Davis Wright Tremaine LLP has outlined the mess this mistake caused in an article posted on May 27 at JD Supra.
“What could the fallout be from such a minor mistake?,” Write wrote. “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.”
The case cited, Panterra GP, Inc. v. Superior Court of Kern County, outlines how Panterra GP was a licensed California general contractor and the general partner of an entity named Panterra Development Ltd., L.L.P.
“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, but mistakenly listed Panterra Development as the contracting entity.” (Other documentation indicates the project site was the Studio Movie Grill at 2733 Calloway Dr.)
“The Panterra entities did not notice the mistake and signed the contract. Panterra GP subsequently completed the work, but the owner refused to pay over $2.6 million owed on the contract. 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. The trial court sustained the owner’s demurrer to the lawsuit and Panterra GP appealed.”
“The lawsuit, which has already been pending for more than three and a half years, now continues,” Wright wrote. “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.”