Jim Porter: Unlicensed contractor must return owner’s payments
Special to the Sun
Contractors and would-be contractors, listen up.
Owner Esual Alatriste hired Cesarand#8217;s Exterior Designs to do landscaping work at his home. They were friends and#8212; emphasis on were and#8212; after this case. Alatriste knew Cesar did not have a contractorand#8217;s license but his son had taken the test and would soon have a landscaping license.
Cesar began work on December 11, 2006 after signing the contract on December 1. He got a license on April 5, 2007. Cesar left the project in May after being paid $57,000. He was still owed $12,000.
Who sues whom?
Did Cesar sue for the $12,000 he was owed? No. Cesar got sued for the $57,000 he had been paid by Alatriste under the theory that Cesar was not properly licensed. In fact, Cesar did not have a license until after the work had started, but they were friends and Alatriste knew he was getting his license. Supposedly the landscape work was perfectly acceptable. Who wins? I am guessing that most of you think Cesar should win because Alatriste knew he was unlicensed and got the benefit of the work.
Contractor licensing law
Section 7031(a) of the Business and Professions Code requires contractors to be licensed and#8220;at all timesand#8221; during performance of the work, and prevents unlicensed contractors from suing for money due. Even if the owner knows the contractor is unlicensed, and even if the contractor is licensed for most of the job.
As the courts frequently write, the strict licensing law and#8220;represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties.and#8221; But it gets worse.
I want my money back
In 2001, the Legislature went one step further by adding subdivision (b) to section 7031, which states that anyone who hires an unlicensed contractor may sue the contractor for monies already paid under the contract. Wow. So if you are an unlicensed contractor and do perfectly good work you must return the ownerand#8217;s payments even if the owner knew you were unlicensed. That is one harsh penalty.
Cesar argued that Alatriste would be unjustly enriched if he had to return the money, besides Alatriste had and#8220;unclean handsand#8221; (one of my favorite legal expressions) and#8212; he himself was dirty because he knew his friend was unlicensed when he hired him.
Cesar also contended he should be able to keep the money he earned after his son got his contractorand#8217;s license. That seems fair, right?
And finally, he argued that at least he should be paid for materials as he had to pay a material supplier. It would really be unfair if Cesar had to reimburse Alatriste for monies Cesar paid for materials. Right?
Be a licensed contractor
The court in an Opinion consistent with recent court rulings, found for Alatriste. Cesar had to return all of the monies he had been paid even though his work was fine and Alatriste knew he didnand#8217;t have a license when the job started.
The important public policy of deterring licensing violations and ensuring that all contractors are licensed trumps any unfairness to an unlicensed builder.
Tip to contractors
Licensed contractors reading this column are probably thinking Cesar was not too smart, and indeed he wasnand#8217;t. But sometimes a properly licensed contractor can inadvertently find himself unlicensed, such as if his workers comp lapses or he fails to renew his license, or changes from a sole proprietor to a corporate license and neglects to transfer the license, or the RMO of the corporation disassociates, or a sub has the wrong classification of license. Those licensing mistakes can be fatal. Sometimes a contractor can prove substantial compliance with licensure requirements, but the substantial compliance exception is very narrow.
Jim Porter is an attorney with Porter Simon, with offices in Truckee, South Lake Tahoe, Incline Village and Reno. He is a mediator and was the Governorand#8217;s appointee to the Fair Political Practices Commission and McPherson Commission, both involving election law and the Political Reform Act. He may be reached at email@example.com or at the firmand#8217;s web site.