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The rule in California is that a contractor
may not sue to collect compensation
for performance of “any act of contract” requiring a licensing without
alleging that he or she was duly licensed “at all times during the performance
of that act or contract.” Thus, if a general contractor is not licensed
at any point during its performance of the contracting work, the general contractor
is precluded from suing to collect for the services it provided
Over the years, the California Court of Appeal softened the severity of a general
contractor working without a license so long as that contractor substantially
complied with the licensure requirements. It ruled that the prohibition bars
the general contractor from recovering compensation pre license activities under
the contract. However, the general contractor may recover for all performance
rendered under the contract after the license was issued or was otherwise in
effect. Thus, if a general contractor’s license was suspended for not paying
the annual corporation tax of $800, and it takes 8 weeks to reinstate the contractor’s
license, and during that 8 weeks the contractor spent two weeks on a contract
while waiting to get its license reinstated and another 12 weeks after the license
was reinstated, the general contractor can sue to collect for the 12 weeks it
performed on the contract while licensed. The general contractor was only precluded
from collecting for the services it provided for solely the two weeks it was
while waiting to have its license reinstated.
Recently, the California Supreme Court sent a message to general contractors
by closing the “substantial compliance” loophole that courts granted
to contractors. The Supreme Court set a precedence requiring strict compliance
with the statute, i.e., a general contractor is ineligible to recover any compensation
if at any time during performance of an agreement for contractor services he
or she was not duly licensed.
The Supreme Court denied MW Erectors the right to collect $1 million worth of
structural steel in Disneyland Grand Californian Hotel in Anaheim because it
was unlicensed for the first 18 days of the project’s 268 workdays. MW
Erectors Inc.’s claim that there was a brief “technical lapse” and
was otherwise in full compliance with the State’s contractor’s licensinglaws. The Supreme Court rejected the argument holding that the statute is clear
and unambiguous. Either the contractor was fully licensed or it was not. If it
was not, even for one day, the general contractor is precluded from recovering.
NOTICE: McCullogh & Associates has provided the contents of this page
for
general informational purposes only. You should not substitute this information
for personal consultation with a qualified professional in the field, nor should
you rely upon this information in taking any action. No attorney-client relationship
will be created through your use of this letter or its web site.
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