Opinion ID: 1207008
Heading Depth: 2
Heading Rank: 2

Heading: gross' action for breach of contract was barred by as 08.18.151

Text: A person acting in the capacity of a contractor who is unregistered at the time of contracting is barred from bringing an action in state court for breach of contract. AS 08.18.151. [3] A critical issue in this case is whether the trial court erred in holding that the Gross/Bayshore contract was a contract for the sale of homes, and that registration as a contractor was not required. Bayshore argues that the February 6, 1981 contract is one for which registration is required under AS 08.18.151 because the contract obligated Gross to undertake construction. Moreover, according to Bayshore, Gross held himself out as a contractor, and Bayshore relied upon Gross' representations. Gross contends that the contract was a land sale agreement, rather than a construction contract, and thus no registration was required under the statute. Furthermore, he argues, he was not acting in the capacity of a contractor when he signed the contract with Bayshore, and Bayshore was not in the class the statute was designed to protect. And, in the alternative, Gross contends that he is excused from the registration requirement under the equitable doctrine of substantial compliance. Resolution of this issue requires us to focus upon three questions: (1) whether Gross was a contractor within the meaning of AS 08.18.171(2); (2) whether Bayshore was an intended beneficiary of the registration statute; and (3) alternatively, whether Gross substantially complied with the registration requirements, such that AS 08.18.151 does not bar Gross' action.
AS 08.18.171(2) states that a contractor is a person who undertakes or offers to perform, or claims to have the capacity... to construct a fixed structure. [4] In Industrial Power & Lighting Corp. v. Western Modular Corp., 623 P.2d 291 (Alaska 1981), we stated that the word `undertakes' as it is used in AS 08.18.171(2) is not limited to a contractual undertaking, but must be understood in the more general sense of setting about, engaging in, or entering upon an activity described in the statute. Id. at 296 (footnotes omitted). This court held that Industrial Power fell within the definition of contractor under AS 08.18.171(2). Industrial Power was undertaking construction since the contract to purchase the prefabricated units was certainly the beginning of Industrial Power's undertaking to accomplish the project it had planned. Id. In the present case, Gross' purchase of the lots and his agreement to start construction on those lots by July 1, 1982 must be viewed as undertaking construction under the Industrial Power definition. By agreeing to purchase lots and to begin building homes, Gross may be deemed a contractor under AS 08.18.171(2). This view is bolstered by the fact that Gross represented himself as a contractor, and Bayshore relied on that representation. Additionally, Gross admitted in a stipulation between the parties that his capacity as a construction contractor was material to the agreement entered into between the parties. (Emphasis added). Thus, Gross claim[ed] to have the capacity to construct a fixed structure within the meaning of AS 08.18.171(2), and should have been registered as a contractor when he contracted with Bayshore. Gross argues that the contract was for the purchase of lots, and not the construction of homes. However, the trial court found that there was a contractual requirement that homes be built upon the Bayshore lots, a requirement which related to the profitable overall development of [Bayshore's] subdivision as well as the protection of [Bayshore's] subordinated interest. We agree with the trial court and Bayshore that Gross contractually committed himself to undertake construction.
The Industrial Power opinion indicated that an important step in analysis focused on the intended beneficiaries of the AS 08.18 registration requirements. The majority rejected the dissent's contractual commitment standard because such a standard would exclude contracts between builders and suppliers which do not commit a professional builder to build anything, and would deny suppliers the protection afforded by the bond requirement of AS 08.18. 623 P.2d at 296-97. Under the terms of the Gross/Bayshore contract, Bayshore was a subordinated seller who had the value of its lots and its surrounding lots in the subdivision at risk. [5] As a subordinated seller, Bayshore had an interest in Gross' construction skills and the houses which would ultimately stand in the Bayshore subdivision. Bayshore expressed this interest by requiring that Gross meet certain conditions precedent to the purchase agreement: (1) that Gross begin construction by July 1, 1982, and complete construction within three years; and (2) that Gross present house plans to Bayshore for approval. Furthermore, as Bayshore points out, land holding companies like Bayshore are very often the only entities which, as a practical matter, can exact compliance with the statutory registration requirement. Where a land holding company subordinates its lien to allow the contractor to obtain construction financing, the contractor may build on speculation and without a contract with a buyer. Thus, the ultimate home sale would not involve a contract for construction. Bayshore concludes that in this situation a contractor need never register since no penalty can be incurred either deriving from the contractor's dealing with the land supplier or the ultimate home buyer. Bayshore asserts that by contracting with Gross, in reliance upon his representation that he was a registered contractor, Bayshore was protecting its own interests as well as those of the ultimate home buyer. If Gross were to build defectively on one or more of the lots he purchased from Bayshore and then default in the real estate contract to Bayshore before selling the property in question to a third person, he might be liable to Bayshore if his improper work was so defective as to impair the original value of the property. See, e.g., Cousineau v. Walker, 613 P.2d 608 (Alaska 1980) (where a real estate sale is rescinded, and the vendee has damaged the building on the property and removed large amounts of gravel, the vendee is liable). Morris v. Weigle, 270 Ind. 121, 383 N.E.2d 341, 344 (1978) (where a vendee defaults, the vendee is liable to the extent that waste impairs the vendor's security in the property); Robison v. Katz, 94 N.M. 314, 610 P.2d 201, 207 (N.M.App. 1980) (where a real estate sale is rescinded, the vendee must account for any waste). Such liability would be covered by the bond required under AS 08.18.071. We agree with Bayshore that it falls within the class of intended beneficiaries of the statute. Therefore, we hold that Gross was a contractor within the meaning of AS 08.18.171(2), and that he was required to comply with the registration requirements of AS 08.18.011.
Gross maintains that he substantially complied with the registration requirements of AS 08.18; hence his suit should not be barred. He argues that because he had a valid bond and insurance as required under the statute, he satisfied the essential elements of the statute. We do not believe that Gross has sufficiently complied with the statute for us to utilize the equitable doctrine of substantial compliance. Registration as a construction contractor under AS 08.18 requires: a registration fee, [6] a surety bond, [7] and public liability and property damage insurance. [8] Registration must be renewed annually. [9] In addition, no person registered under one name may act in the capacity of a contractor under any other name unless that name also is registered. [10] Registration was intended by the legislature to ensure competence and financial responsibility in those who undertake work as contractors. Sumner Development Corp. v. Shivers, 517 P.2d 757, 763 (Alaska 1974); see also Industrial Power, 623 P.2d at 303 (Rabinowitz, C.J., concurring in part, dissenting in part). When the contract was formed on February 6, 1981, Gross was not registered with the State of Alaska as a general contractor. [11] In fact, he had not been registered since March 1978, although he submitted an application in May 1981 which he subsequently withdrew. Gross was insured and had a $5,000 surety bond in the name of Creative Builders. The statutory bar precluding legal actions by contractors unless the contractor is registered at the time of contract formation may be avoided by the contractor's substantial compliance with the registration requirements. Jones v. Short, 696 P.2d 665, 668 (Alaska 1985) (the contractor, in renewing his registration, had filed all necessary documents with his insurance carrier who then failed to promptly process the application for renewal). Substantial compliance involves conduct which falls short of strict compliance with statutory registration requirements, but which affords the public the same protection that strict compliance would offer. Alaska Protection Services v. Frontier Colorcable, 680 P.2d 1119, 1122 (Alaska 1984). A contractor who has not registered at all, not filed the required surety bond, nor obtained insurance has not substantially complied with the registration requirements of AS 08.18.151. State ex rel Smith v. Tyonek Timber, 680 P.2d 1148, 1155 (Alaska 1984). The burden of compliance is solely the responsibility of the unlicensed contractor. Id. A contractor who is registered, bonded, and insured, but who contracts under an unregistered name, has substantially complied with AS 08.18.051 since he has sufficiently `afforded the other party the effective protection of the statute.' Frontier Colorcable, 680 P.2d at 1122 (quoting Latipac, Inc. v. Superior Court, 64 Cal.2d 278, 49 Cal. Rptr. 676, 411 P.2d 564, 566 (1966)). Gross has not substantially complied with the construction contractor's registration requirements because Gross' failure to register at all prevented the public from ascertaining his status. In fact, state records available to the public [12] at the time of the contract's formation would have shown that Gross had not been registered since 1978, and that Creative Builders was involuntarily dissolved in September 1980. Gross' registration did not lapse for a short period, due to an insurance broker's negligence as in Jones. On the contrary, Gross has not been registered since 1978. Two months before signing the contract, Gross filed and then withdrew his application for registration. Consequently, he was well aware of his non-registered status at the time of contract formation. Moreover, Gross was not registered with the State under another trade name, as in Frontier Colorcable.