George and Fred had been friends and neighbors for 18 years. George had a reputation in the ‘hood as the “handy man.”
He had worked for a number of years for a general contractor, doing all sorts of jobs, from plumbing to designing and installing outdoor barbecues and decks.
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So when George announced that he was going to open his own construction business, Fred was enthusiastic.
“That’s great,” he said. “I have a lot to do in my backyard. Will you be doing landscape work?”
The next day, Fred and George got together at Fred’s house to develop exactly what George would be doing. They agreed on a $50,000 contract to build a new patio with a built-in barbecue. This included labor and materials. It looked like George’s future as a contractor was bright.
At the same time, he’d signed up to take the license exam put on by the California State Contractors License Board. Given the test date and the bureaucratic red tape, he figured he’d have a license in about three months, which would be about two months after he started his work for Fred.
George approached Fred and explained the licensing situation. Fred told him not to worry, that he would still pay George the full contract price, and urged George to get started.
George began assembling a team and meeting with city officials to get the necessary permits. He also bought some of the goods for the job, such as decking material and the barbecue.
George started actual labor on the job seven weeks after his meeting at Fred’s house. About six weeks after that, he got his contractor’s license. All was looking rosy.
Fred had already paid George $17,000 for the materials and an additional $5,000 for labor when he became dissatisfied with the quality of George’s work and how long the process was taking. Things got ugly between the two men. George walked off the job and Fred refused to pay any more money.
When the impasse failed to resolve, George decided to sue Fred for what Fred still owed. George was aghast when his attorney said Fred had cross-complained against George.
In the filing, Fred said not only did he not owe George any more money, but also that George had to give back everything Fred had already paid because George was not a licensed contractor for the entire life of the contract.
George couldn’t believe it. He’d told Fred about the licensing issue, and Fred had encouraged him to begin work without it, promising to pay despite the lack of the license.
If you think George was surprised by Fred’s lawsuit, he almost had a coronary when the judge ruled in Fred’s favor. The judge ordered George to pay back everything to Fred, even the money for the decking and the barbecue.
George told his attorney to appeal the judgment. The attorney offered to do so, but told him about a recent appellate court decision with similar facts going against the contractor.
In Alatriste v. Cesar’s Exterior Designs Inc., Esaul Alatriste, a San Diego man, hired his friend Cesar to do some home remodeling work. The job was to pay almost $100,000. Cesar didn’t have a contractor’s license, but his son was taking the test, so he hoped the business would be fully licensed soon. Alatriste knew all of this but hired Cesar to do the work anyway, promising to pay him despite the lack of a license.
Then, just as what happened between Fred and George, Alatriste fired Cesar, owing him tens of thousands of dollars.
Alatriste then sued Cesar to 1) make a determination that he didn’t owe Cesar any more money, and 2) force Cesar to return everything Alatriste had already paid, including money for materials.
The Court of Appeal ruled that Business & Professions Code section 7031 is a harsh reality lesson for unlicensed contractors. If they perform work that requires a license that they do not have, they do not get to keep any of the money they’ve been paid, including money for materials that the homeowner now has installed at the house, such as plants, trees or barbecues.
The rationale: “The rule was essential to effectuate the important public policy of deterring licensing violations and ensuring that all contractors are licensed.”
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