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The Importance of State Registration

By: James C. Busch

On March 14, 1994, in the case of City of Savannah v. Norman J. Bass Construction Co., Case No. S94A-0298, the Georgia Supreme Court made its most recent ruling on the necessity of state registration. This case is important since it further clarifies the Georgia Supreme Court’s position regarding state registration and illustrates the severe sanctions that can be imposed if a party fails to register in the states in which it conducts business.

In City of Savannah v. Norman J. Bass Construction Co., Bass brought an action against the City of Savannah to recover money due it under a contract on a public works project. Bass sought to recover under O.C.G.A. Section 36-82-102 on the grounds that the city had failed to obtain a payment and performance bond “in the manner and form required”. The city moved to dismiss Bass contending that Bass was a non-resident contractor that had not registered with the State Revenue Commissioner as required nor had he executed and filed with the Revenue Commissioner the payment and performance bond required by O.C.G.A. Section 48-13-32 and, therefore, Bass was not entitled to recover payment for performance on the contract with the City of Savannah in the Courts of Georgia. Bass responded by contending that O.C.G.A. Section 48-13-32 only prohibited actions to recover on contracts and was, therefore, inapplicable to recover on a payment and performance bond. The trial court denied the city’s Motion to Dismiss. Bass and the Georgia Court of Appeals dismissed the City’s application for immediate review. The Georgia Supreme Court then granted review of the case reversed the trial court’s ruling.

In reaching its hold, the Georgia Supreme Court held that under O.C.G.A. Section 48-13-37, the alleged failure to obtain a proper payment and performance bond was irrelevant since Bass’s action was for the recovery of payment due it for work performed under its contract. O.C.G.A. Section 48-13-37 in part states that a non-resident contractor who fails to register with the State Revenue Commissioner as required by this article or who fails to comply with any provision of this article shall not be entitled to maintain an action to recover payment for performance on a contract in the courts of this state. Thus, the Court held that O.C.G.A. Section 48-13-37 applied and precluded any action in which the relief sought was the recovery of payment for performance under a contract.

Bass by failing to comply with O.C.G.A. Section 48-13-37 and register with the State Revenue Commissioner was barred from recovering in the State of Georgia for breach of contract. The lesson to Bass, and all others operating in a state other than those in which they are registered, is that states seldom afford non-residents many benefits when benefits are not being derived from the non-resident. In Savannah, if Bass had simply registered with the State Revenue Commissioner, paid a small fee and taxes, their position would have probably been viewed with more concern and likely a different outcome.

It is also important to note that not only do many states fail to afford unregistered non-residents with equal footing but such non-residents are often actively penalized or prohibited from taking any action within the state they are not registered.

Any contractor or supplier operating in more than one state should take steps to ensure that they are properly registered in each state. The registration process is typically a simple one requiring the completion of an application and payment of a small fee. Keep in mind this process can take anywhere from one day to weeks to finalize. Therefore, it is wise to initiate the process as soon as it is certain services will be rendered in a state in which one is not registered. In addition, whenever a resident contractor or supplier is in a dispute with a non-resident entity, it is important to determine if that non-resident is registered since their failure to do so could preclude their claims.

Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia

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