Mid-Project Transfer of Contractor’s License Does Not Bar Contractor’s Recovery

California’s fifth appellate district has denied an attempt to use Business and Professions Code § 7031 to preclude the quantum meruit recovery of a corporation formed mid-project.

Edward J. Franks, entered into a written contract with the Sahotas to build a custom home. At the time the contract was signed and work commenced, Mr. Franks operated as a sole proprietor and possessed a valid general building contractor’s license. Mid-way through the construction of the Sahotas’ home, Mr. Franks incorporated his business and reissued his contractor’s license to the corporate entity. Work was completed on the home by the corporation, but no new written agreement was ever executed.

A jury awarded the corporation $66,000 in quantum meruit damages for extra work performed by the corporation outside the scope of the original agreement. The Sahotas appealed, arguing that B&P § 7031 precluded the corporation from maintaining their cause of action. B&P § 7031 precludes any unlicensed contractor from bringing or maintaining an action in law or equity to recover damages for work performed that required a contractor’s license.

The court rejected the Sahotas’ argument by pointing out that Mr. Franks’s had a valid contractor’s license at the time the contract was executed, and at all times he performed work at the home as a sole proprietor. The license was transferred to the corporation at the point it took over operations at the Sahota home. In other words, what the Sahotas’ argument overlooked was that at all times – a licensed contractor was working on their home.

The court noted the existence of case law precluding recovery where the contractor’s license had lapsed; where the work was performed before the license was obtained; or where the president of the corporation held a license but the corporation itself did not. The Court rejected these prior cases as not factually similar because at all times relevant, the entity performing work on the Sahotas’ home was duly licensed.

The lesson for contractors in this case is that the court in California continues to identify the holder of a contractor’s license through a narrow lens. California courts do recognize the distinction between a corporate holder of a contractor’s license and an individual holder of a license, even when that individual is the corporation’s president. [See WSS Industrial Construction, Inc. v. Great West Contractors, Inc., (2008) 162 Cal.App.4th 581.] The Sahotas’ argument fell flat because it failed to identify any gap in licensure. E.J. Franks Construction, Inc. had taken the appropriate steps to have the license assigned to the corporation before it began work on the home. To avoid the harsh effect of B&P code § 7031, contractors would be well advised to pay close attention to their license, and make sure any new business form is registered with its own contractor’s license.

The case is E.J. Franks Construction, Inc. v. Bhupinder K. Sahota, 14 C.D.O.S. 6217 [Filed June 5, 2014].

–Michael H. Giacinti

For questions or more information about this topic, please contact Ralph Rhoades
by email: rrhoades@partonsell.com

California’s fifth appellate district has denied an attempt to use Business and Professions Code § 7031 to preclude the quantum meruit recovery of a corporation formed mid-project. Edward J. Franks, entered into a written contract with the Sahotas to build a custom home. At the time the contract was signed and work commenced, Mr. Franks […]