BILL ANALYSIS
AB 678
Page 1
Date of Hearing: May 8, 2001
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Lou Correa, Chair
AB 678 (Papan) - As Amended: May 1, 2001
SUBJECT : Unlicensed contractors.
SUMMARY : Authorizes persons who use the services of an
unlicensed contractor to bring an action in court to recover all
compensation paid to the unlicensed contractor for performance
of any act or contract. However, this authorization does not
apply when the person who used the services of an unlicensed
contractor knew that the contractor was unlicensed prior to the
time that any payments are made.
EXISTING LAW
1)Prohibits unlicensed contractors from bringing an action to
collect compensation for the performance of any act or
contract, regardless of the merits of the cause of action
brought by the unlicensed individual. (Business and
Professions Code section 7031. All further statutory
references are to this code.)
2)Requires anyone who contracts to do construction work to be
licensed by the Contractors State License Board if the total
price of the job is $500 or more and provides that contracting
without a license shall be a misdemeanor. (Sections 7048 and
7028.)
FISCAL EFFECT : Unknown. The bill is not keyed fiscal.
COMMENTS :
Purpose of the Bill . The bill allows individuals who use the
services of an unlicensed contractor to bring an action to
recover all compensation already paid to the unlicensed
contractor. According to the author, the bill is intended to
further encourage unlicensed contractors to become licensed,
consistent with existing law.
The bill is sponsored by San Mateo County Superior Court Judge
Quentin Kopp. In commenting on the need for the measure, the
sponsor states:
AB 678
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Our state's policy since 1939 reflects in Section 7031 of
the Business and Professions Code the intent of the
Legislature that the public be protected from unqualified
contractors. Since 1939, a contractor must be licensed by
the state in order to recover the value of services
rendered with or without a written contract. Licensing
requirements provide minimal assurance that all persons
furnishing construction services in our state possess the
requisite skill and character, understand pertinent local
laws and codes, and know the rudiments of administering a
contracting business. The Legislature had determined that
the importance of deterring unlicensed persons from
engaging in the building or contracting business outweighs
any harshness to an unlicensed party who provides services
and then cannot collect compensation.
According to the sponsor, the bill is intended to address the
recent case of Cooper v. Westbrook Torrey Hills, LP (2000) 81
Cal. App. 4th 1294, in which the court, in an unpublished
portion of the opinion, referred to Section 7031(a) prohibiting
an unlicensed contractor from recovering fees, but not requiring
any refund of compensation already paid to the contractor.
Cooper relied on Culbertson v. Cizek (1964) 225 Cal. App. 2d
451, 473, in which the court permitted the unlicensed contractor
to offset "as a defense against sums due the plaintiffs any
amounts that would otherwise be due Cizek under his contract."
This measure is intended to clearly state that those using the
services of unlicensed contractors are entitled to bring an
action for recovery of compensation paid.
Unjust Enrichment . According to the author, the bill is
intended to protect the public and encourage unlicensed
contractors to become licensed by specifically authorizing an
individual who has used the services of an unlicensed contractor
to bring an action to recover all compensation already paid to
the unlicensed contractor for performance of any act or
contract.
Under the bill, individuals may bring such an action even if the
contractor has fully performed. In that case, those using the
unlicensed contractor have not been harmed in any way, but are
nevertheless authorized to sue to recover compensation paid. As
a result, those using unlicensed contractors are arguably
unjustly enriched because they are able to reap the benefits of
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the work done by the unlicensed contractor and are then
authorized by statute to sue to recover from the contractor all
compensation paid.
On the other hand, the author argues that the Legislature has
intended that the public be protected from unqualified
contractors by requiring that all contractors be licensed. In
order to ensure that this requirement is met, current law
specifically prohibits unlicensed contractors from bringing an
action to collect compensation for the performance of any act or
contract, regardless of the merits of the cause of action
brought by the unlicensed individual. In Hydrotech Systems,
Ltd. v. Waterpark , supra., the court stated "Again, the
Legislature recently underscored its insistence on a strict
application of section 7031 despite the balance of equities.
The 1989 amendments make clear that an unlicensed contractor may
not recover either 'in law or equity,' and that suit is barred
'regardless of the merits of the cause of action ?'" As a
result, the sponsor notes, the measure "is not only consistent
with the historical policy of our state but strengthens that
policy substantially."
REGISTERED SUPPORT / OPPOSITION :
Support
Judge Quentin Kopp (Sponsor)
Opposition
None on file.
Analysis Prepared by : Jay Greenwood / B. & P. / (916)
319-3301