Contractor whose license was suspended for failing to notify state licensing board of judgment against it is not entitled to recover for work performed under the ‘substantial compliance exception.’
Towards the end of 2001, Gold Coast Drilling, Inc. defaulted under a stipulated judgment entered against it. Pacific Caisson & Shoring Inc. (Pacific) — a company owned by the same owners of Gold Coast, the McDaniel’s — later worked under a subcontract with Bernards Bros. Inc. (Bernards). The Contractors’ State License Board (Board) suspended Gold Coast’s license and Pacific’s license (as an associated license of Gold Coast) for two months in 2003 for failing to notify it within 90 days of the unsatisfied stipulated judgment. Later, Pacific sued Bernards for compensation for worked performed. The court found Pacific did not qualify for the “substantial compliance exception” under California Business and Professions Code Section 7031(e) that would entitle it to recover despite the lapse in licensure.
Affirmed. A contractor must be licensed at all times during the performance of work for which it seeks to recover compensation. There is an exception to this forfeiture rule, however. The contractor may recover compensation if it establishes that it substantially complied with Section 7031(e) by satisfying four prongs. Prong two requires that it “acted reasonably and in good faith to maintain proper licensure.” Here, the McDaniel’s acted unreasonably if their failure to notify the board was based on ignorance, given their decades of contracting experience. And if their failure to notify was based on fear of license suspension, they did not act in good faith. Thus, the court was correct that Gold Coast did not meet the substantial compliance exception.