Licensure and Substantial Compliance

The case Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc. addresses license requirements in a subcontract as well as payment to subcontractors during a period of license expiration.

In 2002, Pacific Caisson & Shoring, Inc. ("Pacific") subcontracted with Bernards Bros. Inc. ("Bernards") to complete excavation and ground support work for a project. Under the guidelines of the subcontract, Pacific was required to have a specialty Class C-12 Earthwork and Paving Contractor license. Eventually, Pacific sued Bernards for payment under their subcontract. Pacific had a Class A Engineering Contractor License as well as a Class B General Building Contractor license. Pacific's lack of the specified Class C-12 license created an issue. Business & Professions Code Section 7031(a) indicates that no party acting as a contractor may bring a suit for collection of compensation unless that party was duly licensed at all times during the length of the contract.

The trial court ruled to dismiss the suit, taking into consideration Section 7031(a), as well as Pacific's lack of a Class C-12 license as required by the prime contract. However, Pacific motioned for the courts re-evaluation of their ruling on the basis that the specialty Class C-12 license that the prime contract required was encompassed in Pacific's active Class A license. Bernards argued that the contract required a C-12 license and that Pacific was unlicensed for almost three months. The trial court reconfirmed its ruling.

Upon appeal, there are two issues to be looked at. The first is whether the Class A license was sufficient since the contract called out for a specialty Class C-12 license. The second issue at hand is whether Pacific substantially complied with the licensing requirement when the license was suspended.

The Class A General Engineering license provides credentials for a variety of general construction areas including those areas that make up a specialty Class C-12 license. The Court of Appeal agreed with Pacific that their Class A License was sufficient on this project and does in fact encompass the knowledge and skill necessary for a Class C-12 license.

Despite Pacific's Class A license being sufficient, the trial court never addressed the issue of the three-month lapse in active licensure. Bernards argued that because Pacific failed to make a payment on a judgment, both of Pacific's licenses were suspended from April 1, 2011, through June, 25, 2011, in accordance with the License Law and therefore made Pacific unlicensed.

Business and Professions Code section 7031(e) states in part:

"... the court may determine that there has been substantial compliance with licensure requirements ... 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 ...prior to the ...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."

The trial court never heard argument on the substantial compliance because it had already incorrectly ruled Pacific unlicensed due to Business and Professions Code section 7031(a). The Court of Appeal decided to reverse the judgment in favor of Bernards and sent the matter back to the trial court for trial in order to determine whether Pacific substantially complied with the licensing requirement. The Court of Appeal indicated that the facts of whether Pacific complied with Business and Professions Code section 71031(e) are what should still to be decided.

Download a PDF Copy of Licensure and Substantial Compliance

Kenneth Grossbart is recognized as one of the foremost authorities in California construction law. Over the past 30 years, Ken has become a respected speaker on Mechanic's Liens and other construction related issues. Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients and it does not establish an attorney-client relationship with the reader. This document is of a general nature and is not a substitute for legal advice. Since laws change frequently, contact an attorney before using this information. Ken Grossbart can be reached at Abdulaziz, Grossbart & Rudman: (818) 760-2000 or by E-Mail at ksg@agrlaw.com, or at www.agrlaw.com