Contractor’s State License Law Does Not Preclude Change in Business Entity’s Status During Contract Period

Section 7031 of the California Business and Professions Code precludes unlicensed contractors from maintaining actions for compensation.  The provision is strictly applied and precludes recovery even in the face of injustice to the unlicensed contractor.

In E. J. Franks Construction, Inc. v. Sahota, (2014) 226 Cal. App. 4th 1123, a California appellate court held that the provision does not preclude recovery by a licensed contractor that changed its business status during the construction of the defendant’s home pursuant to a home construction agreement.  In the June 5 case, the plaintiff contractor commenced work as a licensed sole proprietor, E. J. Frank Construction.  During the course of construction, E. J. Franks Construction incorporated and the license was reissued to the corporation.  The court allowed the corporation to recover on a quantum meruit basis.

The court stressed that the purpose of Section 7031 is to deter unlicensed contractors from recovering compensation for their work, not to deter licensed contractors from changing their business entity status.  Therefore, as long as a contractor ensures that its license is reissued to the new entity it may change its status during a contract period.