66 Cal.App.5th 90
Cal. Ct. App.2021Background
- Yosef Manela contracted with John D.S. Stone (sole proprietor doing business as Stone Construction Company) for a home remodel on Jan 4, 2015; work began thereafter.
- Stone incorporated JDSS (sole shareholder) on Feb 11, 2015 and executed an assignment agreement on March 15, 2015 purporting to assign the Manela contract to JDSS; the Manelas did not sign that assignment.
- JDSS’s contractor license (reissued from Stone’s license) was not effective until June 22, 2015; Stone performed the work before that date and invoiced as a sole proprietor; JDSS invoices appear only after June 22, 2015.
- Manela sued for defective work and sought disgorgement under Bus. & Prof. Code §7031 after the Stone parties recorded a mechanic’s lien; the trial court compelled arbitration but removed the mechanic’s lien, reasoning the March assignment meant JDSS performed while unlicensed.
- On appeal the court held the assignment (and an unsigned June 10 change order) could not establish JDSS’s performance pre-license, Stone remained personally obligated absent owner consent, §7031 applies to performance period (not assignment), and reversed the lien removal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an assignment to JDSS before JDSS’s licensure establishes JDSS performed under the contract such that §7031 bars recovery | Assignment made JDSS the contracting party effective March 15, 2015, so JDSS performed while unlicensed and forfeits compensation | Assignment alone does not prove JDSS actually performed; Stone personally performed pre-license and remained liable absent owner consent | Assignment cannot, by itself, establish performance for §7031; court reversed lien removal |
| Whether the June 10, 2015 change order and other record items show JDSS performed before June 22, 2015 | Change order on JDSS letterhead and complaint allegations show JDSS providing services pre-license | Change order was unsigned, contemplated future work, invoices to JDSS are dated after June 22, and no owner consent to delegation appears | Change order and record do not compel finding JDSS performed pre-license; no evidence owners consented to assignment |
| Whether the mechanic’s lien was properly removed for probable invalidity under §7031 | Lien invalid because JDSS performed while unlicensed, so lienholders cannot recover | Lienholders likely valid because no gap in licensure during actual performance; §7031 protects performance-period licensure, not assignments | Trial court erred in finding probable invalidity under §7031; order removing lien reversed |
Key Cases Cited
- M.W. Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc., 36 Cal.4th 412 (Cal. 2005) (section 7031 bars recovery only if party was unlicensed during contract performance; execution/assignment while unlicensed not dispositive)
- E. J. Franks Construction, Inc. v. Sahota, 226 Cal.App.4th 1123 (Cal. Ct. App. 2014) (continuity of licensure when an individual contractor incorporates and reissues license avoids §7031 forfeiture)
- Judicial Council of California v. Jacobs Facilities, Inc., 239 Cal.App.4th 882 (Cal. Ct. App. 2015) (contractor performs where it delivers services through others at its request; distinguishes continuity-of-license facts)
- Opp v. St. Paul Fire & Marine Ins. Co., 154 Cal.App.4th 71 (Cal. Ct. App. 2007) (corporation forfeited payment when corporation itself was unlicensed during performance despite its president’s personal license)
- Lambert v. Superior Court, 228 Cal.App.3d 383 (Cal. Ct. App. 1991) (motion to remove mechanic’s lien tests for "probable validity" of the lien)