E. J. Franks Construction, Inc. v. Sahota

Fifth Appellate District (Merced County)

Licensed general contractor operating a sole proprietorship who incorporated and had contractor’s license reissued to the corporation was not barred by Business and Professions Code section 7031 from pursuing quantum meruit damages.

A licensed general contractor operating a sole proprietorship incorporated during a construction project and had his contractor’s license reissued to the corporation. A dispute arose with the owner regarding additional work performed after incorporation and reissuance of the contractor’s license. The owner claimed that Business and Professions Code section 7031 barred the corporation from pursuing any quantum meruit damages because it was an unlicensed contractor at the time the contract was entered. The trial rejected the owner’s argument.

The appellate court affirmed. “Applying section 7031 to the circumstances here would lead to absurd results. Were we to find section 7031 applied, it would effectively preclude licensed sole proprietor contractors from lawfully incorporating and obtaining a reissue of a general contracting license to the new business entity at any time during the construction period. The purpose of 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 the license to the new entity, during a contract period.” (Italics in original.) Further, the damages covered only extra work over and above the contract, and only for the period following the reissuance of the general building contractor license from the individual to the corporation, additionally undermining the owner’s proposed application of section 7031 in these circumstances.