Contractor Maintained a Valid License, Even Though It Changed Its
Corporate Structure during a Construction Project
Business and Professions Code section 7031 requires that all construction contractors have a
current license from the Contractors State License Board at all times during a construction
project. This statute precludes unlicensed contractors from maintaining actions for compensation,
even if they performed the work. Courts have found that the importance of deterring unlicensed
persons from engaging in the contracting business outweighs the harshness of this statute upon
unlicensed contractors
In 2004, the Sahotas signed a contract with E. J. Franks Construction for construction of a
custom home at a price of $964,390.40. Edward J. Franks owned and operated E. J. Franks
Construction and operated under Mr. Franks's contractor's license. Mr. Franks incorporated his
business under the name E. J. Franks Construction, Inc. ("EJFCI") during the course of
construction. Consequently, his original contractor's license expired on April 11, 2005, and
EJFCI's new, reissued contractor's license number became valid on April 12, 2005.
During the construction project, the Sahotas made numerous changes and added to the original
plans. When the project was about 90% complete, the Sahotas alleged that Mr. Franks began
slowing down work and would not return phone calls. The Sahotas refused to permit Mr. Franks
to complete the work and hired another contractor to finish the home. EJFCI filed a lawsuit
against the Sahotas to recover for the value of his unpaid services. The Sahotas cross-complained
against Mr. Franks and EJFCI seeking recovery of the $503,582 they paid to complete
construction and to repair construction defects. The jury ruled against the Sahotas and awarded
EJFCI $68,949.15 for its unpaid services.
The Sahotas appealed, arguing that Business and Professions Code section 7031 bars EJFCI's
claim for unpaid services. They claimed that Mr. Franks and EJFCI did not have a valid
contractor’s license at all times during the project and therefore could not bring an action for
unpaid services. The Court of Appeal disagreed and held that section 7031 did not apply to this
matter.
E. J. Franks Construction was a licensed contractor until April 11, 2005. EJFCI was a licensed
contractor beginning April 12, 2005. No unlicensed contractor performed work on the Sahotas'
home. The purpose of Business and Professions Code section 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 a license to the
new entity, during a contract period. The Court of Appeal affirmed the jury verdict awarding
EJFCI compensation for its unpaid services.
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© Liebert Cassidy Whitmore
E.J. Franks Construction, Inc. v. Sahota (2014) __ Cal.App.4th __ [2014 WL 2526978].
Note:
Project owners should ensure hired contractors and subcontractors have current licenses at the
time of hiring and at all times during a construction project. Owners can check the status of a
contractor's license at any time before, during, or after the project on the Contractors State
License Board's website at http://www.cslb.ca.gov/.
This article was written by Christopher Fallon, an associate from the Los Angeles office of Liebert
Cassidy Whitmore. Christopher is a member of the firm’s Business and Facilities practice group
which assists public agency clients in matters including construction, contracts, purchase
agreements and real property. Christopher can be reached at (310) 981-2000 or at
cfallon@lcwlegal.com. For more information regarding the update above or about our firm please
visit our website at http://www.lcwlegal.com/business-and-facilities, or contact one of our offices
below.
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