Construction Law Update

July 21, 2005

Message from the Partners

The California Supreme Court recently ruled that a contractor may not maintain an action to recover compensation for work performed where he or she was unlicensed at any time during performance.  Below is a summary of the case, which reaffirms the importance of contractors maintaining valid California contractors licenses at all times. 
Give us a call if you have any questions concerning this case or licensing in general.

Kyle Kring

MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Company, Inc.

By Kyle D. Kring, Esq. Kring & Chung, LLP

On July 14, 2005, the California Supreme Court issued an opinion that highlights the importance of contractors maintaining valid licenses. In MW Erectors, Inc. v. Niederhauser Ornamental and Metalworks Company, Inc., 2005 DJDAR 8415 (July 14, 2005), the Supreme Court held that a subcontractor who performed $1 million worth of structural steel work on the Disneyland Grand Californian Hotel could not recover the money it was owed, because it had worked without a license for the first 18 days of the project.

     Under the Contractors’ State License Law (Bus. & Prof. Code, §7000 et seq.), a contractor may not maintain an action to recover compensation for work performed unless he or she was properly licensed for the duration of the project, notwithstanding the merits of his or her claim. Prior to the instant case, California appellate courts had issued several decisions reducing the severity of the licensing law in order to protect contractors, one of which allowed compensation for part of the project, performed while the contractor was licensed. The California Supreme Court eliminated this exception with its holding in MW Erectors, concluding that where a subcontractor performed any work while it was unlicensed, it could not sustain an action to recover any compensation for work performed on the project.

    Another exception set forth by California appellate courts permitted recovery where the contractor was in “substantial compliance” with licensing requirements.  The legislature subsequently modified the substantial compliance exception to require that a contractor have held a valid California contractor’s license at some point before the beginning of performance, in order to be considered to have substantially complied with licensing requirements.  In MW Erectors, the Supreme Court confirmed this interpretation of the law, holding that MW Erectors did not substantially comply with licensing requirements, as it had not previously been licensed to perform the work in California.        

    The good news is that, after evaluating the legislative intent behind the Contractors’ State License Law, the court held that the law does not preclude recovery for a contractor who is unlicensed at the time he or she enters into a contract to perform work, but who maintains a valid license throughout actual performance of the work. Thus, the instant case was remanded to the trial court to determine whether MW Erectors could recover for ornamental steelwork which it performed while it was licensed, although it was unlicensed when it contracted to perform the work.

    It is essential that contractors pay heed to this decision, pursuant to which the law concerning contractor licensing has reverted back to its original exacting legislative structure.

About The Author

Kyle D. Kring, Esq. is the managing partner of Kring & Chung, LLP. Mr. Kring specializes in serving the legal needs of the construction industry. For more information or with questions regarding this article, please contact Mr. Kring at (949) 261-7700 or via email at kkring@kringandchung.com

Kring & Chung, LLP is one of California’s fastest growing full-service law firms. With over forty attorneys, the firm practices business, corporate, construction, real estate, labor & employment, insurance, estate planning and family law. The construction department of the firm serves the construction industry in relation to construction and design defect litigation, mechanic’s liens, stop notices, construction bonds, public works construction disputes, change orders, bid protests and delay claims.