CACI No. 4560. Recovery of Payments to Unlicensed Contractor - Essential Factual Elements (Bus. & Prof. Code, § 7031(b))

Judicial Council of California Civil Jury Instructions (2022 edition)

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4560.Recovery of Payments to Unlicensed Contractor - Essential
Factual Elements (Bus. & Prof. Code, § 7031(b))
[Name of plaintiff] claims that [name of defendant] did not have a valid
contractor’s license during all times when [name of defendant] was
[performing services/supervising construction] for [name of plaintiff]. To
establish this claim and recover all compensation paid for these services,
[name of plaintiff] must prove all of the following:
1. That [name of plaintiff] [[engaged/hired]/ [or] contracted with]
[name of defendant] to perform services for [name of plaintiff];
2. That a valid contractor’s license was required to perform these
services; and
3. That [name of plaintiff] paid [name of defendant] for services that
[name of defendant] performed.
[[Name of plaintiff] is not entitled to recover all compensation paid if
[name of defendant] proves that at all times while
[performing/supervising] these services, [he/she/nonbinary pronoun/it] had
a valid contractor’s license as required by law.]
New June 2016; Revised November 2020, May 2021
Directions for Use
Give this instruction in a case in which the plaintiff seeks to recover money paid to
an unlicensed contractor for service performed for which a license is required. (Bus.
& Prof. Code, § 7031(b).) Modify the instruction if the plaintiff claims the defendant
did not perform services or supervise construction, but instead agreed to be solely
responsible for completion of construction services. (See Vallejo Development Co. v.
Beck Development Co. (1994) 24 Cal.App.4th 929, 940 [29 Cal.Rptr.2d 669].) For a
case brought by a licensed contractor or an allegedly unlicensed contractor for
payment for services performed, give CACI No. 4562, Payment for Construction
Services Rendered - Essential Factual Elements. (See Bus. & Prof. Code, § 7031(a),
(e).)
The burden of proof to establish licensure or proper licensure is on the licensee.
Proof must be made by producing a verified certificate of licensure from the
Contractors State License Board. When licensure or proper licensure is controverted,
the burden of proof to establish licensure or proper licensure is on the contractor.
(Bus. & Prof. Code, § 7031(d).) Omit the final bracketed paragraph if the issue of
licensure is not contested.
A corporation qualifies for a contractors license through a responsible managing
officer (RMO) or responsible managing employee (RME) who is qualified for the
same license classification as the classification being applied for. (Bus. & Prof.
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Code, § 7068(b)(3).) The plaintiff may attack a contractors license by going behind
the face of the license and proving that a required RMO or RME is a sham. The
burden of proof remains with the contractor to prove a bona fide RMO or RME.
(Buzgheia v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374, 385−387 [70
Cal.Rptr.2d 427].) Whether an RMO or RME is a sham can be a question of fact.
(Jeff Tracy, Inc. v. City of Pico Rivera (2015) 240 Cal.App.4th 510, 518 [192
Cal.Rptr.3d 600].)
Sources and Authority
Action to Recover Compensation Paid to Unlicensed Contractor. Business and
Professions Code section 7031(b).
Proof of Licensure. Business and Professions Code section 7031(d).
“Contractor” Defined. Business and Professions Code section 7026.
“The purpose of the licensing law is to protect the public from incompetence
and dishonesty in those who provide building and construction services. 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.” (Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52
Cal.3d 988, 995 [277 Cal.Rptr. 517, 803 P.2d 370], internal citations omitted.)
“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. [Citation.] . . .’ (Hydrotech Systems, Ltd., supra, 52 Cal.3d at p. 995,
original italics.)
“The current legislative requirement that a contractor plaintiff must, in addition
to proving the traditional elements of a contract claim, also prove that it was
duly licensed at all times during the performance of the contract does not change
this historical right to a jury trial.” (Jeff Tracy, Inc., supra, 240 Cal.App.4th at p.
518, fn. 2.)
“[T]he courts may not resort to equitable considerations in defiance of section
7031.” (Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d 141, 152 [308 P.2d
713].)
“In 2001, the Legislature complemented the shield created by subdivision (a) of
section 7031 by adding a sword that allows persons who utilize unlicensed
contractors to recover compensation paid to the contractor for performing
unlicensed work. Section 7031(b) provides that ‘a person who utilizes the
services of an unlicensed contractor may bring an action in any court of
competent jurisdiction in this state to recover all compensation paid to the
unlicensed contractor for performance of any act or contract’ unless the
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substantial compliance doctrine applies.” (White v. Cridlebaugh (2009) 178
Cal.App.4th 506, 519 [100 Cal.Rptr.3d 434], internal citation omitted.)
“It appears section 7031(b) was designed to treat persons who have utilized
unlicensed contractors consistently, regardless of whether they have paid the
contractor for the unlicensed work. In short, those who have not paid are
protected from being sued for payment and those who have paid may recover all
compensation delivered. Thus, unlicensed contractors are not able to avoid the
full measure of the CSLLs civil penalties by (1) requiring prepayment before
undertaking the next increment of unlicensed work or (2) retaining progress
payments relating to completed phases of the construction.” (White, supra, 178
Cal.App.4th at p. 520.)
“In most cases, a contractor can establish valid licensure by simply producing ‘a
verified certificate of licensure from the Contractors’ State License Board which
establishes that the individual or entity bringing the action was duly licensed in
the proper classification of contractors at all times during the performance of any
act or contract covered by the action.’ [Contractor] concedes that if this was the
only evidence at issue, ‘then - perhaps - the issue could be decided by the court
without a jury.’ But as [contractor] points out, the City was challenging
[contractor]’s license by going behind the face of the license to prove that
[license holder] was a sham RME or RMO.” (Jeff Tracy, Inc., supra, 240
Cal.App.4th at p. 518.)
“[T]he determination of whether [contractor] held a valid class A license
involved questions of fact. ‘[W]here there is a conflict in the evidence from
which either conclusion could be reached as to the status of the parties, the
question must be submitted to the jury. [Citations.] This rule is clearly applicable
to cases revolving around the disputed right of a party to bring suit under the
provisions of Business and Professions Code section 7031.’ (Jeff Tracy, Inc.,
supra, 240 Cal.App.4th at p. 518.)
“We conclude the authorization of recovery of all compensation paid to the
unlicensed contractor for performance of any act or contract’ means that
unlicensed contractors are required to return all compensation received without
reductions or offsets for the value of material or services provided.” (White,
supra, 178 Cal.App.4th at pp. 520−521, original italics, internal citation
omitted.)
“[A]n unlicensed contractor is subject to forfeiture even if the other contracting
party was aware of the contractors lack of a license, and the other party’s bad
faith or unjust enrichment cannot be asserted by the contractor as a defense to
forfeiture.” (Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239
Cal.App.4th 882, 896 [191 Cal.Rptr.3d 714].)
“Nothing in section 7031 either limits its application to a particular class of
homeowners or excludes protection of ‘sophisticated’ persons. Reading that
limitation into the statute would be inconsistent with its purpose of “deterring
unlicensed persons from engaging in the contracting business.” (Phoenix
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Mechanical Pipeline, Inc. v. Space Exploration Technologies Corp. (2017) 12
Cal.App.5th 842, 849 [219 Cal.Rptr.3d 775].)
“By entering into the agreements to ‘improve the Property’ and to be solely
responsible for completion of infrastructure improvements - including graded
building pads, storm drains, sanitary systems, streets, sidewalks, curbs, gutters,
utilities, street lighting, and traffic signals - [the plaintiff] was clearly contracting
to provide construction services in exchange for cash payments by [the
defendants]. The mere execution of such a contract is an act ‘in the capacity of a
contractor,’ and an unlicensed person is barred by section 7031, subdivision (a),
from bringing claims based on the contract. [¶] . . . [¶] . . . Section 7026
plainly states that both the person who provides construction services himself
and one who does so ‘through others’ qualifies as a ‘contractor.’ The California
courts have also long held that those who enter into construction contracts must
be licensed, even when they themselves do not do the actual work under the
contract.” (Vallejo Development Co., supra, 24 Cal.App.4th at pp. 940-941,
original italics.)
“[Contractor] has not alleged one contract, but rather a series of agreements for
each separate task that it was asked to perform. It may therefore seek
compensation under those alleged agreements that apply to tasks for which no
license was required.” (Phoenix Mechanical Pipeline, Inc., supra, 12 Cal.App.5th
at p. 853.)
“Section 7031, subdivision (e) states an exception to the license requirement of
subdivision (a). Subdivision (e) provides in part: ‘[T]he 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) acted
promptly and in good faith to remedy the failure to comply with the licensure
requirements upon learning of the failure.’ (C. W. Johnson & Sons, Inc. v.
Carpenter (2020) 53 Cal.App.5th 165, 169 [265 Cal.Rptr.3d 895].)
“[I]t is clear that the disgorgement provided in section 7031(b) is a penalty. It
deprives the contractor of any compensation for labor and materials used in the
construction while allowing the plaintiff to retain the benefits of that
construction. And, because the plaintiff may bring a section 7031(b)
disgorgement action regardless of any fault in the construction by the unlicensed
contractor, it falls within the Supreme Court’s definition of a penalty: ‘a recovery
‘without reference to the actual damage sustained.’ Accordingly, we hold
that [Code Civ. Proc., §] 340, subdivision (a), the one-year statute of limitations,
applies to disgorgement claims brought under section 7031(b).” (Eisenberg
Village of Los Angeles Jewish Home for the Aging v. Suffolk Construction
Company, Inc. (2020) 53 Cal.App.5th 1201, 1212 [268 Cal.Rptr.3d 334], internal
citation and footnote omitted.)
“[W]e hold that the discovery rule does not apply to section 7031(b) claims.
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Thus, the ordinary rule of accrual applies, i.e., the claim accrues “when the
cause of action is complete with all of its elements.” In the case of a section
7031(b) claim, the cause of action is complete when an unlicensed contractor
completes or ceases performance of the act or contract at issue.” (Eisenberg
Village of Los Angeles Jewish Home for the Aging, supra, 53 Cal.App.5th at pp.
1214-1215, internal citation omitted.)
Secondary Sources
1 Witkin, Summary of California Law (11th ed. 2017) Contracts, § 491
12 California Real Estate Law and Practice, Ch. 430, Licensing of Contractors,
§ 430.70 (Matthew Bender)
10 California Forms of Pleading and Practice, Ch. 104, Building Contracts, § 104.83
(Matthew Bender)
5 California Points and Authorities, Ch. 50A, Contracts: Performance, Breach, and
Defenses, § 50A.52 et seq. (Matthew Bender)
29 California Legal Forms, Ch. 88, Licensing of Contractors, § 88.18 (Matthew
Bender)
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