Can An Unlicensed Contractor Sue In California ?
Section 7031, subdivision (a) provides that a contractor may not maintain an action for the recovery of compensation for the performance of work requiring a license unless it was "a duly licensed contractor at all times during the performance of that" work.
In Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) the Supreme Court set forth the social policy underpinning section 7031:
Section 7031 states, in relevant part, as follows: "(a) Except as provided in subdivision (d), no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract for which a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person, except that this prohibition shall not apply to contractors who are each individually licensed under this chapter but who fail to comply with Section 7029."
"The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. (Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal. 2d 141, 149-150 [308 P.2d 713].)
The licensing requirements provide minimal assurance that all persons offering such services in California have the requisite skill and character, understand applicable local laws and codes, and know the rudiments of administering a contracting business. (Ibid.; Conderback, Inc. v. Standard Oil Co. (1966) 239 Cal. App. 2d 664, 678-679 [48 Cal. Rptr. 901].)
"Section 7031 advances this purpose by withholding judicial aid from those who seek compensation for unlicensed contract work.
The obvious statutory intent is to discourage persons who have failed to comply with the licensing law from offering or providing their unlicensed services for pay.
"Because of the strength and clarity of this policy, it is well settled that section 7031 applies despite injustice to the unlicensed contractor.
'Section 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and that such deterrence can best be realized by denying violators the right to maintain any action for compensation in the courts of this state. . . .' ( Lewis & Queen, supra, 48 Cal. 2d at p. 151, italics added; see also Brown v. Solano County Business Development, Inc. (1979) 92 Cal. App. 3d 192, 198 [154 Cal. Rptr. 700]; Rushing v. Powell (1976) 61 Cal. App. 3d 597, 605 [130 Cal. Rptr. 110].)" (52 Cal. 3d at p. 995.)
Through a series of cases beginning in 1966, the courts attempted to alleviate the severity of the application of section 7031 by allowing recovery to a contractor who has substantially complied with the licensing statutory scheme. (Asdourian v. Araj (1985) 38 Cal. 3d 276, 283 [211 Cal. Rptr. 703, 696 P.2d 95]; Latipac, Inc. v. Superior Court (1966) 64 Cal. 2d 278, 281 [49 Cal. Rptr. 676, 411 P.2d 564]; Gaines v. Eastern Pacific (1982) 136 Cal. App. 3d 679, 682-683 [186 Cal. Rptr. 421]; Airfloor Co. of California, Inc. v. Regents of University of California (1978) 84 Cal. App. 3d 1004, 1010 [149 Cal. Rptr. 130]; Vitek, Inc. v. Alvarado Ice Palace, Inc. (1973) 34 Cal. App. 3d 586, 590 [110 Cal. Rptr. 86]; Lewis v. Arboles Dev. Co. (1970) 8 Cal. App. 3d 812, 816-817 [87 Cal. Rptr. 539].)
In reaction to this development in the law, the Legislature amended section 7031 in 1989 to add a subdivision (d) which provided that the substantial compliance doctrine shall not apply to that statute. (Stats. 1989, ch. 368, 1, p. 1509; Hydrotech Systems, Ltd. v. Oasis Waterpark, supra, 52 Cal. 3d at p. 996, fn. 5.)
In 1991, the Legislature further amended section 7031 to provide an exception to the prohibition of the substantial compliance doctrine where noncompliance with licensure requirements was the result of inadvertent clerical error or other error or delay not caused by the negligence of the licensee. (See Construction Financial v. Perlite Plastering Co. (1997) 53 Cal. App. 4th 170, 177-178 [61 Cal. Rptr. 2d 574].)
Section 7031, subdivision (d) was amended in 1994 to its present state. the statute reads:
"(d) the judicial doctrine of substantial compliance shall not apply under this section where the person who engaged in the business or acted in the capacity of a contractor has never been a duly licensed contractor in this state. However, the court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) did not know or reasonably should not have known that he or she was not duly licensed. . . ."
An unlicensed contractor may thus avoid the consequences of the prohibition against the substantial compliance doctrine under section 7031, subd. (d) if the contractor proves that it had been licensed before performing work, acted reasonably in trying to maintain a license and did not know or reasonably should not have known that it was not licensed.