Under Business and Professions Code § 7031, Contractor Must be Licensed Prior to Preparing Shop Drawings or Ordering Materials for Construction Project

Great West Contractors, Inc. v. WSS Ind. Constr., Inc., 162 Cal. App. 4th 581 (2008)

WSS Industrial Construction, a steel subcontractor, sued general contractor Great West Contractors, to recover for work performed on a public works project in Riverside, California. At the time that WSS submitted its bid proposal to Great West, WSS had applied for but not yet obtained a corporate contractor’s license. WSS did receive a license after the bid was accepted, but only after it had already ordered multiple sets of shop drawings and some of the material necessary for the project. WSS initiated the lawsuit by suing Great West and its surety, Fidelity and Deposit Company of Maryland, for $91,000 due under the contract and subsequent change orders.

At trial, Great West and Fidelity moved for a nonsuit on the grounds that WSS was statutorily barred, pursuant to Business and Professions Code section 7031, from any recovery because WSS was not duly licensed at all times during performance of the contract. The trial court determined that WSS’s president had held valid individual licenses at all times and that, in any event, WSS was not required to have a license for the work that it performed prior to receiving its license. The court held that “there was substantial compliance with the licensing during the contract and work was performed in good faith.” The jury awarded WSS $220,000 in damages, including statutory penalties and interest. Great West and Fidelity appealed after the court rejected their post-trial motions for a new trial, vacation of judgment and judgment notwithstanding the verdict.

On appeal, WSS argued that it was not barred from recovery by section 7031 because the only work it performed prior to receiving its license was work which did not required a license and it should be allowed to segregate acts requiring a license from acts not requiring a license. WSS further argued that it had substantially complied with section 7031 because its RMO, the president, had previously qualified a separate WSS partnership and held various individual contractor’s licenses. The court of appeal rejected both arguments. The court of appeal found that preparing shop drawings and ordering material were acts performed in furtherance of the subcontract, and thus WSS had performed work without a license. Furthermore, the court of appeal found that the “substantial compliance” exception to section 7031 was not applicable to WSS because WSS had never held any California contractor’s license. The contract at issue was between Great West and WSS. The fact that the RMO had held individual licenses, and had also previously qualified a partnership involving WSS, was irrelevant because WSS itself had never held a license. In closing, the court of appeal reaffirmed that section 7031 applies regardless of equitable considerations or the harshness of the result.