by Quenda Behler
The California Supreme Court recently made a
decision that I personally disagree with. Does the court care
what I think? I'm sure it doesn't. Do you care? Well, you
should — even if you're in another state — because
if you don't keep your license current, you could face the same
problem as the unfortunate subcontractor in this case.
An Expired License
The case involved a subcontractor who signed a contract, began
working on the project, and then discovered he had allowed his
license to lapse. He immediately filed the necessary papers to
get relicensed, but he had already done part of the work while
Can't sue if unlicensed. Like most states, California has a law
that prevents unlicensed contractors from suing customers for
payment. When the sub wasn't paid, he sued the contractor to
the tune of more than a million dollars.
"You can't sue me, you weren't licensed," said the
"Hey," the sub said, "I was licensed for most of the work, so
even if I can't sue for the work I did while I wasn't licensed,
surely I can sue for the work I did while I was
It sounds like a reasonable argument to me, but guess what? The
According to the California court, if you aren't licensed when
you start the job, you can't come to court —
I disagree with this position for several reasons.
Purpose of the law. First, the
purpose of the no-sue law is to force contractors to get their
licenses. Since states don't have platoons of inspectors
cruising the streets looking for unlicensed contractors, they
provide motivation to get that license by saying, in effect,
"If you don't have a state license, don't expect the state
courts to help you get paid."
But this guy did get his license. Maybe he didn't do it in the
timeliest fashion — but there didn't appear to be any
intent to evade the requirement of the law.
Consumer protection. Another argument
against this decision has to do with the intent of the
In some states, such as California, licensing laws have evolved
into "consumer protection laws." In addition to pressuring
contractors to get their licenses, these laws are intended to
protect consumers from guys who think they're carpenters just
because they own a hammer.
That's why in most states you have to pass a test before you
can get a license. Requiring a test is supposed to protect the
consumer from guys who really don't know what they're
But in this case, the guy who was trying to collect was a sub.
He wasn't trying to get money out of some naive consumer; he
was trying to collect from another contractor.
Did this contractor need to be protected from an unlicensed
sub? Sounds to me like it was the other way around.
Which brings us to the next argument. What about the customer
who stands there and watches the work being done, knowing that
the contractor will not be able to sue when the customer
doesn't pay — so the customer doesn't pay?
Isn't that fraud, or at least unjust enrichment?
I would argue — and did successfully argue some years
back in another state — that this outcome was not
intended by the licensing law. To allow someone who has
benefited from work done for him to evade all payment is
inequitable. (That's a legal word meaning not fair.) It would
be unjust enrichment.
Different standard of payment. A
lawsuit based on unjust enrichment is different from one based
on debt collection. In an unjust-enrichment lawsuit, the
nonpaying customer has to pay for the value of what he
received, not what he originally promised to pay.
For example, let's say you were the unlicensed contractor and
were suing for payment of the $100,000 contract price. In a
lawsuit based on unjust enrichment, the court would ignore the
contract price and instead focus on the fair-market value of
what the customer received.
So if you built a beautiful pergola, expecting $100,000 in
payment, and the court determined that the value of that
pergola was only $20,000, you would win — but only
$20,000. That would be true even if $20,000 didn't cover the
cost of your materials and labor.
But in the case of the subcontractor whose license lapsed, the
California court specifically rejected those kinds of
unjust-enrichment lawsuits on the grounds that if the state
legislature had intended to provide for such a situation, the
statute would have been worded differently.
Take No Chances: Renew!
So what's the most important lesson you should take away from
this case? That if you're careless about keeping your license
up-to-date, you could find yourself in a boatload of
"Not me," I hear you saying. "I don't live in
Okay, but how do you know the courts in your state won't
suddenly rule on this the same way the California court
This kind of thing happens all the time: A judge in one state
sees the way a judge decided a case in another state and is
influenced by it.
If you get careless with those renewal dates, you may find out
that your state court judge thinks the California decision was
a good one.
So just do it right in the first place.
And here's another word of warning: Although the state usually
sends you a renewal notice, don't rely on that happening. If
for some reason you don't receive the notice, it's unlikely
you'll be able to use that as a defense for being
So get a calendar — paper or electronic — and mark
down those renewal dates. File for renewal in a timely manner
and then check to see that the state follows through by calling
or by visiting the state Web site that allows customers to
check their contractor's license.
Believe me, this is trouble you don't want to know about from
Story, author of The Contractor's
Plain-English Legal Guide, has practiced and taught law for
more than 25 years.