California Supreme Court Rules That Your Contractor License Must Be In Effect At All Times To Recover Compensation
William C. Last, Jr.
Attorney at Law
On July 15, 2005, the California Supreme Court in the case entitled MW Erectors, Inc. v. Ornamental and Metal Works Co. Inc. (36 Cal.4th 412) barred a contractor whose license was not in place until after beginning performance of work on a project from recovering compensation for any of the work that it performed on that contract. The earlier cases that had created a substantial compliance exception to the licensure requirement had been eroded by changes to the licensing laws.
This decision, while intended Ato protect the public,@ limits the possibility of relying on the substantial compliance exception. However, the Court ruled that a subcontractor was not barred from recovering compensation for work if it was unlicensed when the contract was entered into, but acquired a license before it began performance on the contract.
The most significant conclusions of the Supreme Court in the MW Erector case, as stated in the decision, are as follows: A(1) Where applicable, section 7031(a) bars a person from suing to recover compensation for any work he or she did under an agreement for services requiring a contractor's license unless proper licensure was in place at all times during such contractual performance. (2) Section 7031(a) does not allow a contractor who was unlicensed at any time during contractual performance nonetheless to recover compensation for individual acts performed while he or she was duly licensed. (3) The statutory exception for substantial compliance is not available to a contractor who had not been duly licensed at some time before beginning performance under the contract. (4) However, if fully licensed at all times during contractual performance, a contractor is not barred from recovering compensation for the work solely because he or she was unlicensed when the contract was executed.@
In light of the decision in the MW Erectors case contractors should consider the following discussion of other possible adverse impacts associated with working with unlicensed contractor and possible remedial steps if your license lapses.
A license can be lapse for any number of reasons, including failure to timely submit a renewal form prior to the expiration date. When your license is coming up for renewal, it is also important to timely submit a license bond and a workmen compensation policy, if applicable. If your license is renewed after the expiration date, or the renewal form is rejected, the renewal will be considered delinquent, and the license record will show a break in license status. If your license lapses for such a reason, you should petition the Registrar to renew a license retroactive to the renewal date. The petition will only be considered if the following conditions: (1) The Registrar receives the petition within 90 days of the expiration date; and (2) the petitioner establishes that the delay was due to circumstances beyond the contractors control.
There are other aspects of Business and Profession Code section 7031 that can impact unlicensed contractors. Specifically, section 7031(b) provides that Aa person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.@ The Code section provides, however, that a contractor will not be required to disgorge its compensation if it substantially complied with the licensing requirements.
It should also be noted that it is a misdemeanor to knowlingly sell equipment, supplies, or services to an unlicensed contractor. (See Business and Professions Code section 128).
Finally, if you intend to sue another party to collect for work and or materials you supplied, you should obtain a verified certificate from the Contractors State License Board establishing that you were Aduly licensed ... during the performance of any act or contract covered by the action." Due to budgetary restrictions, obtaining such a certificate will require a significant amount of time. The author recommends requesting such a certificate at least two months in advance of the trial.
This article,2005, was written by William C. Last, Jr. of Last & Faoro. Mr. Last is an attorney who has been specializing in Construction Law for over twenty-five years. Mr. Last also holds a California A&B contractors license. If you have any questions Mr. Last can be contacted at 415-764-1990 or 650-425-7679. He has other articles on his web site: lhfconstructlaw.com. This bulletin is published periodically to provide general information about current legal issues. If you have a specific legal question or need legal advice, you should contact an attorney.