CSLL Does Not Bar Successor Entity’s Compensation Claims After Contractor’s Change of Business Entity During Construction

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A recent decision by the California Court of Appeal imposed a sensible limit on the prohibition of compensation claims by unlicensed contractors under the Contractors’ State License Law (“CSLL”), specifically California Bus. & Prof. Code section 7031.

 

In E.J. Franks Construction, Inc. v. Sahota, --- Cal.Rptr.3d ---, 2014 WL 2526978 (Cal. App. June 5, 2014), a properly licensed sole proprietorship entered into a contract to build a house for the defendants.  During construction, the sole proprietorship was incorporated and the sole proprietor’s contractor’s license was reissued to the corporation.  The sole proprietorship’s license was valid until April 11, 2005.  The license was reissued to the corporation on April 12, 2005, and the corporation continued the work the sole proprietorship began.

 

The corporation sued the defendants under a quantum meruit theory for extra work performed on the project after April 12, 2005.  The case proceeded to trial and the jury reached a verdict in favor of the corporation.  Ultimately, a judgment for monetary damages and costs was entered against the defendants, and the defendants appealed.

 

The defendants argued that Section 7031 barred the corporation’s quantum meruit claim because the corporation was not licensed when the contract was executed and, therefore, was not licensed “at all times” during the performance of the contract.  The court of appeal rejected this argument, holding that adopting the defendants’ position “would not advance the [CSLL’s] goal of precluding unlicensed contractors from maintaining actions for compensation.”

 

Unlike the cases cited by the defendants, E.J. Franks did not involve claims for work performed by an unlicensed contractor.  All of the work performed on the defendants’ house was performed by a licensed contractor – first by the sole proprietorship, and then, without any gap in time or lapse of license, by the corporation.  As the court stated:  “The purpose of [S]ection 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 the license to the new entity, during a contract period.”

 

 

Topics:  Appeals, Construction Contracts, Contract Disputes, Contractor's License, Contractors, General Contractors, Licenses, Subcontractors

Published In: Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Construction Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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