Opinion
NOT TO BE PUBLISHED
Superior Court County of Ventura No. CIV231384, Glen M. Reiser, Judge.
Law Offices of Steven P. Scandura, Steven P. Scandura for Plaintiff, Cross-defendant and Appellant.
Jacky P. Wang for Defendants, Cross-complainants and Respondents.
GILBERT, P. J.
In Estate of De Cigaran, our Supreme Court said that it is vain for the courts to argue against the injustice of statutory rules governing the law of succession. (Estate of De Cigaran (1907) 150 Cal. 682, 688.)
Our Supreme Court pronounced a similar lamentation in Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988 (Hydrotech) regarding contractor licensing law. The contractor law applies "despite injustice to the unlicensed contractor. '[It] 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.'" (Id. at p. 995, italics omitted.) However unjust the law may be in a particular case, the law is clear and we are compelled to rule as we must. If the Legislature deems a change appropriate, it will act.
Precision Manufactured Developments, Inc. (Precision) appeals from the judgment entered after a court trial in favor of the Neilson Family Trust, Roy Neilson and Kristy Neilson, cotrustees, respondents. The judgment "expunged" Precision's mechanic's lien on property at 948 Main Street in Piru (hereafter lot 15). The judgment also ordered foreclosure of respondents' deed of trust on lot 15.
Precision contends that the trial court erroneously concluded that its mechanic's lien is unenforceable because it was not duly licensed as a contractor at all times during the performance of its work on lot 15. We disagree and affirm.
Factual and Procedural Background
On July 24, 2003, Precision and Marvin Simons entered into an agreement. Precision would install manufactured homes and construct garages on lots owned by Simons, including lot 15, the subject of this action. More specifically, their contract states, "Contractor will furnish all labor, equipment, tools, materials, transportation, supervision, and all other items required for safe operations to complete the installation of manufactured homes and construction of garages as contemplated by the contract document costs provided directly to the home owners and this agreement."
On the date the contract was signed, Precision's sole shareholder, Glenn R. White, was a licensed general building contractor. White was doing business as (dba) Precision Manufactured Developments.
"The designation 'dba' or 'doing business as' simply indicates that [a person] operates his sole proprietorship under a fictitious business name. (See Bus. & Prof. Code, § 17900 et seq. [regulating fictitious business names].)... The business name is a fiction, and so too is any implication that the business is a legal entity separate from its owner." (Providence Washington Ins. Co. v. Valley Forge Ins. Co. (1996) 42 Cal.App.4th 1194, 1200.)
In 2002 or 2003, White applied to the Contractors State License Board (Board) with a request that his license number be reassigned to Precision. White, however, "never heard back" from the Board. On December 31, 2003, White sent a second application and request to the Board. Finally, on July 23, 2004, the Board issued a general building contractor's license to Precision. The license bore the same number as White's license. The Board's records show that White was designated as the responsible managing officer of Precision.
Before Precision received its license in July 2004, it provided general contracting services for the project, including lot 15, and substantially completed the project in December 2004. Most of the work on lot 15 was completed by early October 2004. On December 29, 2004, Precision filed a mechanic's lien of $348,747.26 on lot 15. Twenty-three days before the recording of the mechanic's lien, a deed of trust on lot 15 was recorded. The deed of trust secured Simons' $85,000 promissory note in favor of respondents.
"'A mechanic's lien is a procedural device for obtaining payment of a debt [owed] by a property owner for the performance of labor or the furnishing of materials used in construction.'" (North Bay Const., Inc. v. City of Petaluma (2006) 143 Cal.App.4th 552, 555.)
On February 22, 2007, Precision filed a second amended complaint seeking foreclosure of its mechanic's lien on lot 15. Respondents were named as defendants. Precision alleged that "between Spring, 2002, and December 31, 2004, [it had] performed the work and labor for, and furnished all necessary services, materials, and equipment to be use[d] or consumed in and which were actually used or consumed in the work of improvement [on lot 15]...." Precision sought an order "determining that [respondents'] deed of trust is junior to [its] mechanic's lien[]...." Respondents filed a cross-complaint seeking foreclosure of their deed of trust.
The trial court ruled that, pursuant to Business and Professions Code section 7031, subdivision (a), Precision was barred from foreclosing on its mechanic's lien on lot 15 because it had not been duly licensed as a contractor at all times during the performance of its work on lot 15. The court relied on MW Erectors, Inc. v. Neiderhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412 (MW Erectors).
Unless otherwise stated, all statutory references are to the Business and Professions Code.
The trial court entered judgment in respondents' favor on Precision's second amended complaint. The judgment ordered that Precision's mechanic's lien on lot 15 be "expunged." The court entered judgment in respondents' favor on their cross-complaint.
Discussion
Section 7031, subdivision (a) provides in relevant part: "Except as provided in subdivision (e), no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person...." (Italics added.)
Subdivision (e) of section 7031, formerly subdivision (d), added in 1989 (Stats. 1989, ch. 368, § 1), concerns the judicial doctrine of substantial compliance. Prior to the enactment of former subdivision (d), courts had invoked this doctrine to avoid strict compliance with section 7031, subdivision (a). "[A] contractor was not barred from a just recovery if his licensure was defective only in form and the defendant had received the 'full measure' of protection intended by the Legislature." (Hydrotech, supra, 52 Cal.3d at pp. 995-996.) Former subdivision (d) of section 7031, as amended in 1994 (Stats. 1994, ch. 550, § 1), "limit[ed] application of the substantial compliance doctrine to those contractors who, at some time before beginning performance, had held valid California contractor's licenses." (MW Erectors, supra, 36 Cal.4th at pp. 431-432.) "[T]he Legislature has recently indicated it intends the substantial compliance doctrine, now set forth in subdivision (e) of section 7031, to apply in exactly this way." (Id. at pp. 433-434.) Section 7031, subdivision (e) provides: "The judicial doctrine of substantial compliance shall not apply under this section where the person who engaged in the business or acted in the capacity of a contractor has never been a duly licensed contractor in this state. However, ... the 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, (3) did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced, and (4) acted promptly and in good faith to reinstate his or her license upon learning it was invalid."
In MW Erectors, our Supreme Court held as follows: "(1) Where applicable, section 7031(a) bars a person from suing to recover compensation for any work he or she did under an agreement for services requiring a contractor's license unless proper licensure was in place at all times during such contractual performance. (2) Section 7031(a) does not allow a contractor who was unlicensed at any time during contractual performance nonetheless to recover compensation for individual acts performed while he or she was duly licensed. (3) The statutory exception for substantial compliance is not available to a contractor who had not been duly licensed at some time before beginning performance under the contract. (4) However, if fully licensed at all times during contractual performance, a contractor is not barred from recovering compensation for the work solely because he or she was unlicensed when the contract was executed." (MW Erectors, supra, 36 Cal.4th at p. 419.)
Precision acknowledges that "[t]he facts are not disputed" and that the issues "are those of law." Exercising our independent review, we conclude that, pursuant to MW Erectors, Precision is barred from enforcing its mechanic's lien. It cannot recover compensation for any contractual work performed on lot 15 because it was not duly licensed at all times during contractual performance. The statutory exception for substantial compliance is inapplicable because Precision was not licensed before beginning performance under the contract.
Precision claims that the forfeiture of its mechanic's lien is contrary to section 7075.1, subdivision (c)(4), which permits the reassignment of a person's license number "[t]o a corporation when the corporation is formed by an individual licensee and the individual licensee maintains ownership directly or indirectly of shares evidencing more than 50 percent of the voting power." Precision's claim is without merit. Section 7075.1, subdivision (c)(4) merely permits an individual licensee who incorporates to retain the same license number. It does not follow that, because the corporation has the same license number as the individual licensee, the corporation may recover compensation for services it performed while unlicensed so long as the individual licensee was licensed during this period. The individual licensee and the corporation are different entities. "Generally, 'a corporation is a distinct legal entity, separate from its shareholders and officers. The rights and liabilities of corporations are distinct from the persons composing it.'" (Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 150.)
Moreover, only the individual's license number, not the actual license, can be reassigned to the corporation. Section 7075.1, subdivision (a) provides: "No license, regardless of type or classification, shall be transferable to any other person or entity under any circumstances." The corporation must apply for and obtain its own separate license before it can perform work for which licensure is required. Precision erroneously asserts: "[T]he law provides that an individual can incorporate and transfer his or her license to the corporation." "In the present case, Precision properly and legally transferred the license from the DBA to the corporation." "As applied by the trial court, [section 7031] works to deny Precision its right to transfer its license under section 7075.1(c)...."
On its Internet website, the Board clearly states that no such transfer is permitted. Pursuant to Evidence Code sections 452, subdivision (h), and 459, we take judicial notice of the following statement from the Board's website: "A new license is required whenever the business entity changes (such as sole owner to corporation, sole owner to partnership, partnership to corporation, etc.) or when specific changes occur with the business structure. Licenses are associated with a business entity and not necessarily the qualifier. Therefore, licenses are not transferable from one business to another, even if the qualifying individual is the same for both (Business and Professions Code, Section 7075.1.)" (http://www.cslb.ca.gov/Contractors/MaintainLicense/Change BusinessEntity.asp)
General Ins. Co. v. Superior Court (1972) 26 Cal.App.3d 176 (General Ins. Co.) and WSS Industrial Construction, Inc. v. Great West Contractors, Inc. (2008) 162 Cal.App.4th 581 (WSS Industrial Construction) support the trial court's ruling. In General Ins. Co., a licensed contractor, Harley Weed, incorporated his sole proprietorship contracting business. Weed "became the corporation's sole owner, president, chairman of the board and responsible managing officer." (Id. at p. 178.) He did not obtain a license for the corporation until after it had completed work on a mobile home park. Weed mistakenly believed "that his personal license was sufficient." (Ibid.) Weed "was at all times personally licensed and personally managed and supervised all of [the corporation's] business activities including the performance of labor and furnishing of materials on the [mobile home park] job here in question." (Id. at p. 183.) The appellate court concluded that the corporation was precluded from maintaining an action to foreclose a mechanic's lien on the mobile home park. The court reasoned: "[P]laintiff corporation was not licensed at the time it executed the contract nor at any time during its performance. Under these circumstances, to disregard its corporate existence [citation] would nullify that part of the licensing law requiring a separate license for a corporation [citation], and to hold that plaintiff has nevertheless substantially complied with... section 7031, requiring that it be duly licensed at all times during performance, would emasculate the statutory language and nullify the section's purpose of pragmatically enforcing the Contractors License Law." (Id. at p. 184.)
In Asdourian v. Araj (1985) 38 Cal.3d 276, 287-288, our Supreme Court disapproved General Ins. Co. to the extent that it failed to apply the judicial doctrine of substantial compliance. But as MW Erectors later noted, "Asdourian, a 1985 decision, applied the judicial doctrine of substantial compliance, which was abrogated by the Legislature in 1989." (MW Erectors, supra, 36 Cal.4th at p. 439, fn. 16; see also WSS Industrial Construction, supra, 162 Cal.App.4th at p. 594 ["Asdourian no longer states the law"].) In view of the abrogation of the judicial doctrine of substantial compliance as expressed in Asdourian, General Ins. Co. appears to have been resurrected from the ashes of disapproval to the vitality of precedent.
In WSS Industrial Construction, a corporate subcontractor (WSS) sued a general contractor to recover for work performed under a subcontract. WSS performed some of the work before it obtained a contractor's license. WSS contended that it had "substantially complied with the licensing requirements because... the corporation's RMO [responsible managing officer]... [had] previously qualified a WSS partnership for a contractor's license and [had] held various individual contractor licenses of his own at all times before and after the corporation obtained its license." (WSS Industrial Construction, supra, 162 Cal.App.4th at p. 594.) The appellate court rejected this contention. It observed: "The contract at issue was between [the general contractor] and WSS, the corporation, the entity which bid the project and the only entity to have performed work for which recovery was sought in this action, not WSS, the partnership or [the RMO] as an individual." (Ibid.) The court concluded that the substantial compliance doctrine was unavailable to WSS because it "does not and cannot argue it was ever licensed as a contractor or held that status at a time that preceded its performance in this case." (Id. at p. 596.)
WSS Industrial Construction recognized that this result was harsh, but "[i]f the bar of section 7031 applies, it applies regardless of equitable considerations." (WSS Industrial Construction, supra, 162 Cal.App.4th at p. 596.) The court reasoned: "[T]he Supreme Court has determined the statute '"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...."'... We are bound by this reasoning.... WSS was never licensed before it commenced work under the subcontract. That lack of prior licensure precludes application of the statutory substantial compliance exception. Thus, irrespective of [the RMO's] good faith, competence and his or the WSS partnership's prior license history, section 7031 bars the corporation from maintaining this action." (Ibid., citations omitted.)
Precision forcefully argues that a decision in respondents' favor will wreak havoc in the contracting industry: "[Such a result] would have a chilling effect upon the entire construction industry by preventing those who are awaiting reassignment [of their license number to a corporation] from entering into contracts, and by forcing them to abandon all work in progress once the reassignment application is submitted.... In the instant situation, [Precision] would have had to wait from the time it submitted its application for reassignment, from 2002 through July 23, 2004, before it could work on any contract. Further, it would have to abandon all work in progress or risk losing the right to recover anything... if the reassignment were approved before work was completed. If [Precision] had entered the contract as a 'dba, ' the mechanic's lien again would be unenforceable because the license transferred during the contract. Denying a substantial compliance exception in this type of case prevents contractors from enforcing their rights under the contract, and would in essence cause a cessation of all contracting during the period in which a contractor was changing its business form. This cannot be the intent of the legislature."
It remains to be seen whether the following is a possible solution to this dilemma. An individual licensee who has applied to incorporate his contracting business could insert in the construction contract a clause that provides that the contract shall be automatically assigned to the corporation upon the issuance of a corporate contractor's license. Until the corporate license is issued, the individual would perform solely in his capacity as a sole proprietor. Upon the issuance of the corporate license, the corporation would complete any remaining performance required under the contract. Under this arrangement, both the individual licensee and the corporation would be duly licensed at all times during their contractual performance.
In any event, pursuant to the doctrine of stare decisis, we are bound by the holding of MW Erectors. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.) Precision is barred from enforcing its mechanic's lien on lot 15 because it was not licensed at all times during contractual performance. The statutory exception for substantial compliance is inapplicable because Precision was not duly licensed at some time before beginning performance under the contract. We cannot accept Precision's contention that the "licensing issue is a technicality that should fall under the 'substantial compliance' exception because [it] did everything within its power to follow the letter of the law and to effectuate a proper reassignment of the license."
Precision argues that, by refusing to enforce its mechanic's lien, the trial court violated its right to such a lien under article XIV, section 3 of the California Constitution. Precision further argues that the trial court violated the statutory provision that "[n]either specific nor preventive relief can be granted to enforce a... forfeiture in any case, ... except... as otherwise provided by law." (Civ. Code, § 3369.) But these constitutional and statutory provisions afford no protection to unlicensed contractors who perform work for which licensure is required. "[S]ection 7031 bars all actions, however they are characterized, which effectively seek 'compensation' for illegal unlicensed contract work." (Hydrotech, supra, 52 Cal.3d at p. 997; see also Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 939 ["The California courts have consistently applied section 7031 to foreclose actions seeking to enforce a mechanic's lien"].)
Article XIV, section 3 of the California Constitution provides: "Mechanics, persons furnishing materials, artisans, and laborers of every class, shall have a lien upon the property upon which they have bestowed labor or furnished material for the value of such labor done and material furnished; and the Legislature shall provide, by law, for the speedy and efficient enforcement of such liens."
MW Erectors offers these precatory words, "As we noted in Hydrotech, supra, 52 Cal.3d 988..., section 7031 'advances [its] purpose [of protecting the public from the incompetent or dishonest provision of building and construction services] by withholding judicial aid from those who seek compensation for unlicensed contract work.' (Hydrotech, supra, at p. 995..., italics added.) But nothing in the statute precludes the satisfied beneficiary of such work from paying for it voluntarily. Business considerations may persuade the beneficiary to ignore license lapses it deems insignificant, and to continue compensating the contractor, in order to avoid disruption of progress on the project." (MW Erectors, supra, 36 Cal.4th at p. 430, fn. 10.) In this case such business considerations apparently were not persuasive.
Disposition
The judgment is affirmed. Respondents shall recover their costs on appeal.
We concur: YEGAN, J., PERREN, J.