Business and Professions Code section 7031 requires that all construction contractors have a current license from the Contractors State License Board at all times during a construction project. This statute precludes unlicensed contractors from maintaining actions for compensation, even if they performed the work. Courts have found that the importance of deterring unlicensed persons from engaging in the contracting business outweighs the harshness of this statute upon unlicensed contractors

In 2004, the Sahotas signed a contract with E. J. Franks Construction for construction of a custom home at a price of $964,390.40. Edward J. Franks owned and operated E. J. Franks Construction and operated under Mr. Franks's contractor's license. Mr. Franks incorporated his business under the name E. J. Franks Construction, Inc. ("EJFCI") during the course of construction. Consequently, his original contractor's license expired on April 11, 2005, and EJFCI's new, reissued contractor's license number became valid on April 12, 2005.

During the construction project, the Sahotas made numerous changes and added to the original plans. When the project was about 90% complete, the Sahotas alleged that Mr. Franks began slowing down work and would not return phone calls. The Sahotas refused to permit Mr. Franks to complete the work and hired another contractor to finish the home. EJFCI filed a lawsuit against the Sahotas to recover for the value of his unpaid services. The Sahotas cross-complained against Mr. Franks and EJFCI seeking recovery of the $503,582 they paid to complete construction and to repair construction defects. The jury ruled against the Sahotas and awarded EJFCI $68,949.15 for its unpaid services.

The Sahotas appealed, arguing that Business and Professions Code section 7031 bars EJFCI's claim for unpaid services. They claimed that Mr. Franks and EJFCI did not have a valid contractor's license at all times during the project and therefore could not bring an action for unpaid services. The Court of Appeal disagreed and held that section 7031 did not apply to this matter.

E. J. Franks Construction was a licensed contractor until April 11, 2005. EJFCI was a licensed contractor beginning April 12, 2005. No unlicensed contractor performed work on the Sahotas' home. The purpose of Business and Professions Code section 7031 is to deter unlicensed contractors from recovering compensation for their work. It is not intended to deter licensed contractors from changing a business entity's status, and obtaining a reissuance of a license to the new entity, during a contract period. The Court of Appeal affirmed the jury verdict awarding EJFCI compensation for its unpaid services.

Note:

Project owners should ensure hired contractors and subcontractors have current licenses at the time of hiring and at all times during a construction project. Owners can check the status of a contractor's license at any time before, during, or after the project on the Contractors State License Board's website at http://www.cslb.ca.gov/.

E.J. Franks Construction, Inc. v. Sahota (2014) __ Cal.App.4th __ [2014 WL 2526978].