Legal Question in Real Estate Law in California

Re: Homebuilder liability

I take it the subcontractor was a corporation. Creditors of corporations that have failed can sometimes recover from the former owners, directors and/or officers on one or another of several theories. One is the alter ego or "piercing the corporate veil" theory, which requires a fairly high degree of the owner's ignoring the separateness of the corporation from himself; another is the theory that the insiders of failing corporations become fiduciaries of the creditors, and must not make distributions to themselves before the creditors are paid. The problem with this one is that you may not have been a foreseeable creditor at the time the corporation went out of business, or there may have been no assets to distribute.

Other possibilities include that the owner may have given an express or implied personal guarantee, or there may still be a bond of some kind in place.

If the business were only a d/b/a or maybe a general partnership, of course, the principal(s) would remain liable.

Finally, if the compressors were ordered, paid for, but either never were delivered or walked off the job site, there may be a theft involved. The civil equivalent of the crime of theft is called conversion, and it's a tort. Maybe there are sufficient facts to sue the subcontractor for conversion of the compressors.

All of these theories are somewhat of a reach. That's why so many small businesses choose to operate as corporations or LLCs. If they fail, it is close to a bulletproof situation for the ex-owners.