Source: http://fauxlaw.com/2018/04/19/can-they-make-that-claim-and-succeed/
Timestamp: 2019-04-19 14:23:46+00:00

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Can they make that claim and succeed?
The contractor did not use his license on a particular construction project, but bond claims are asserted nevertheless. Typically these claims are for breaches of contract such as and for failures to pay debts not arising from construction projects, although we have also seen claims arising out of auto accidents or other civil torts.
The contractor worked on a construction project out-of-state, but a claim is made against his Nevada license bond.
The contractor on a construction project, although his license has been suspended or revoked.
This article will address each such category in some detail.
The bond principal obtains a loan from a financial institution and fails to repay that loan. The financial institution then asserts a bond claim. Such claims should be denied.
Subsections (a) references “a construction contract” between an owner a contractor for a “property to be improved”, and subsections (b) and (c) reference “the contract” mentioned in (a). The claim must therefore arise from a “construction contract” of “property to be improved”, and a loan agreement unrelated to such a contract does not fit that description.
However, subsection (d) references “a contract” and claimants have tried to distinguish this from the construction contract mentioned in the previous subsection. Claimants have asserted that any breach of contract or civil tort, such as wrongful termination, or even auto accidents fall into this category. Here, a decision of the Nevada Supreme Court in 1969 is helpful. Day & Night Mfg. Co. v. Fidelity & Cas. Co., 85 Nev. 227, 452 P.2d 906. Specifically, NRS 624, the Nevada licensing statute, must state that a particular act is unlawful, as it does with regards to some of the following: Engaging in a business in the capacity of a contractor without a license, Nev. Rev. Stat. § 624.700 (2010); unlawful advertising, Nev. Rev. Stat. § 624.720 (2010); taking a contractor’s examination for another person, Nev. Rev. Stat. § 624.730 (2010); or acting in a joint venture or combination without an additional license, Nev. Rev. State § 624.740 (2010). Breach of a contract is not considered an “unlawful act or omission” contemplated under Nev. Rev. Stat. § 624.273(1)(d), and otherwise unlawful acts, such as embezzlement unrelated to construction funds, assaults and batteries, or driving under the influence or reckless driving are not considered “unlawful acts” by NRS 624.
A California court of appeals dealt with this issue in Brown v. Surety Company of the Pacific, 122 Cal.App.3d 614 (1981). Brown, who had made a construction loan to a contractor, sued the contractor and its license surety with allegations of fraud and breach of contract because of the contractor’s failure to repay the loan. The contractor, however, did not work on the project for which the loan was given. The court noted that on appeal “the critical issue posed is whether a contractor’s license bond covers any and all misdeeds of a person who also happens to be licensed as a contractor.” In denying the claim, the court found that the contractor was not working as a contractor on the project and was not using its license, and that therefore the claim against its license bond was improper.
We are periodically faced with claims against a Nevada contractor’s license bond, where the bond principal worked on an out-of-state project and therefore did not use its Nevada license while doing so. There are two basic reasons why these claims should be denied, and these reasons also can be used to deny similar claims against license bonds in other states. First, the license bond cannot be separated from the license, and second, adjudicating such a claim would necessarily involve the extraterritorial application of Nevada statutes to the conduct of the bond principal on the out-of-state project.
License bonds are required by statute for a Nevada contractor to obtain a license. NRS 624.270. NRS 624.273 regulates who can assert a bond claim and what the rights and duties of the sureties, who issue the bonds, are. The bonds are “in favor of the State of Nevada”. The purpose of licenses and of license bonds is to protect certain categories of claimants (property owners, laborers, materialmen) who deal with contractors, which use Nevada licenses on Nevada construction projects. In the Day & Night case, the Court wrote: “Chapter 624 is a contractors’ licensing statute enacted in the public interest to control and supervise the contracting business in this state.” (Emphasis added) The discussion is the previous section of this article is also applicable here, namely that the bond principal must have used his license on a construction project. He cannot use his license on an out-of-state project.
Evaluating the conduct of the bond principal on an out-of-state project would necessarily involve the use of Nevada statutes and case law. NRS 624.273 regulates, among others, who can make a bond claim, and it states the statute of limitation for asserting such a claim. Accordingly, the use of NRS 624.273 would be an extraterritorial use of Nevada law, and there is a strong presumption against such an application. While the Nevada Supreme Court has not specifically addressed this issue, federal courts and courts in other states have done so. The United States Supreme Court addressed this issue in Morrison v. National Australia Bank LTD, 561 U.S. 247 (2010. In the case, foreign investors filed an action in a federal district court against an Australian bank for alleged violations of the Securities and Exchange Act. In affirming the dismissal of the action, the court noted that the securities transaction had occurred in Australia, and held: “It is a “longstanding principle of American law ‘that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.’ ” EEOC v. Arabian American Oil Co., 499 U.S. 244, 248, 111 S.Ct. 1227, 113 L.Ed.2d 274 (Aramco).. When a statute gives no clear indication of an extraterritorial application, it has none.” (Emphasis added) Ibid., p. 248 See also, Nevares v. M.L.S, 245 P.3d 719 (Utah, 2015).
The courts, which have allowed claims against motor vehicle dealer bonds, have done so for different reasons, and did either not address extraterritoriality or distinguished the case from the basic rule against extraterritoriality. A typical case for that position is Metro Milwaukee Auto Auction v. Coulson, 604 N.W.2d 111 (Minn. App. 2000where the court noted that the dealer committed several acts inside Minnesota to defraud the Wisconsin auctioneer.
Engaging in business or submitting bid without license unlawful; prosecution; damages; bid submitted in violation of section void.
without having an active license therefor as provided in this chapter, unless that person or combination of persons is exempted from licensure pursuant to NRS 624.031.
The obvious grounds for denying a bond claim, where the contractor no longer has a valid license, is the previously-stated principle that the license bond goes with the license, and where there has been no use of the license, there cannot be a proper bond claim. However, here, where there is still an active bond, that principle clashes with the language of NRS 624.273.1(d), which reads that the claimant “(d) Is injured by any unlawful act or omission of the contractor in the performance of a contract.” There is no Nevada case law resolving this conflict, and it is foreseeable that most judges would resolve it in favor of the claimant. The solution would be to cancel the bond as quickly as possible after a license has been revoked or suspended, though the surety is not usually alerted to the fact by the Board.

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