Are you a contractor? Get properly licensed or you may lose
One of the most difficult jobs in the world is that of a contractor. First you have to find a client a project, then you sharpen your pencil and submit a bid, relying in part on the wild estimates of subcontractors hoping your bid is the lowest, but not so low its apparent you missed something.Then you begin a new business relationship with the owner and an unknown construction lender, both of whom essentially want you to finance the project and get reimbursed later all the while demanding the extraordinary in an unrealistic timeframe.Of course, you need a top-notch crew to complete the work in a timely fashion and beat the weather. In fact, building is the easy part.It goes without saying that a contractor must be properly licensed. That should be a snap, but as todays case tragically illustrates, there is no room for error.
Great West Contractors had the contract for the construction of the New Middle School for the Deaf in Riverside, WSS Industrial Corporation was the subcontractor providing steel work. A $200,000 dispute arose between Great West and WSS which, proceeded to trial. WSS did all the steel work but Great West argued that WSS was not licensed at all times during the performance of the project. The jury found for WSS and awarded over $220,000 to the sub. The general appealed.
One of the few code sections I can remember by number is Business and Professions Code 7031. Thats the one requiring all builders to be licensed at all times during performance of a contract.There is only one exception, called the substantial compliance doctrine that a contractor may recover despite being unlicensed at sometime during the performance of a contract if 1) he had been duly licensed prior to performance, 2) acted reasonably and in good faith to maintain proper licensure, 3) did not know or reasonably should not have known that he was not licensed when performing under the contract, and 4) acted promptly to reinstate the license upon learning that it was invalid.The penalty for not being properly licensed is not being able to go to court to collect monies due even if the work was done timely and perfectly. It is also a misdemeanor in California to engage in the business or act in the capacity of a contractor without holding a valid license.
WSS, the steel sub, made two basic arguments. First, WSSs president, Henry Ramirez held a valid individual license at all times during the performance of the work at the School for the Deaf, and WSSs corporate contractors license had been applied for before the job began. Second, WSS argued hardly any work had been done before it obtained a corporate license, only preparation of shop drawings, fabricating $2,000 of specialized anchor bolts delivered to the project, and ordering many of the materials for the job. Before any physical work began on site WSS obtained its corporate license and signed a contract with the general Great West.Was WSS properly licensed at all relevant times, such that it could recover the $220,000 awarded by the jury?
As I would predict, the Court of Appeal overturned the jury and ruled the steel sub could not recover monies due, because it was not properly licensed at all times during the performance of the contract. Any work done in furtherance of the project before licensure bars recovery for any of the work. It does not help the corporations president was licensed, the corporation itself must hold the license.The Court of Appeal wrote, Thus, irrespective of Ramirezs good faith, confidence and his prior license history, section 7031 bars the corporation from maintaining this action the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and such deterrence can best be realized by denying violators the right to maintain any action for compensation in the courts of this state. So contractors, keep your license and bond in good standing.
Jim Porter is an attorney with Porter andamp; Simon, with offices in Truckee, South Lake Tahoe and Reno. He may be reached at email@example.com or at the firms web site