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A Lesson Contractors Still Need To Learn: You Must Have A License To Work

Sooner or later, courts and contractors are going to get a clue.  First, there's California Business and Professions Code section 7031, which requires contractors to be licensed at all times when engaged in, surprising enough, construction.  As if that requirement weren't enough, there's an older California Supreme Court case that ruled when a contractor isn't licensed, it can't collect payment.  That case, Hydrotech Systems, Ltd. v. Oasis Waterpark, came out in 1991, just a few years after I started to practice.

It must have made a big impression on me at the time, because I've never forgotten it.  I was surprised that the court would deny a contractor recovery of more than $1 million it spent building a wave machine in the waterpark out in the desert.  The court, however, saw its ruling as upholding the legislature's licensing requirement to protect citizens of California. 

It was a harsh result meant to teach a lesson, apparently one that still hasn't hit some corners of California.

Take, for example, the recent case of Great West Contractors v. WSS Industrial Construction.  WSS Industrial applied for a contractor's license in August 2001 and then submitted a subcontract bid to Great West.  In October, it sent to Great West the first of two invoices. 

Finally, in December 2001, the California Contractor's License Board approved WSS Industrial's contractor's license.

Great West however, didn't pay WSS Industrial's invoices for $91,000.  WSS sued, and the trial court ruled that WSS had substantially complied with the state's contracting laws, and the jury awarded a verdict in favor of WSS and against Great West for the $91,000. Great West appealed.

The appellate court reversed the ruling on the basis that WSS had not complied with California's Construction Services Licensing Law, and barred any recovery by WSS.  The court said, "For the past 50 years, it has been held that 'courts may not resort to equitable considerations in defiance of section 7031.'  [citations omitted]  That is because the statute 'represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties ... .' "

It's been 50 years, and we're apparently still working on this concept.  Sooner or later, you'd think we'd get it.

Posted by J. Craig Williams on Saturday, May 03, 2008

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