California Business and Professions Code § 7031(a) Bars All Claims for Recovery for Unlicensed Contract Work Regardless of Equities

Hydrotech Sys. Ltd. v. Oasis Water Park, 52 Cal. 3d 998 (1991)

Hydrotech Systems Ltd., a New York manufacturer of wave simulation machinery, was hired by a general contractor to build a surfing pool for a California water park.  Hydrotech did not possess a valid California contractor’s license, but the general contractor and Oasis Water Park persuaded Hydrotech to proceed.  The general contractor and Oasis Water Park promised to help arrange for Hydrotech to receive a license and promised to pay for the equipment and services provided by Hydrotech regardless of Hydrotech’s license status.  Hydrotech performed the work without securing a California license.  A payment dispute arose and Hydrotech sued.

Oasis Water Park asserted Hydrotech’s lack of a license as a bar to recovery.  Hydrotech argued that a California license was not required for isolated or exceptional California transactions, and further asserted that, even if California Business and Professions Code § 7031(a) barred Hydrotech’s claims, the statute did not bar Hydrotech from seeking recovery for fraud based on Oasis Water Park’s false promise to pay even if Hydrotech was not licensed.  The trial court sustained Oasis Water Park’s demurrers to both claims.  The court of appeals found that there was no exception to § 7031(a) for Hydrotech’s work, but held that Hydrotech was not barred from raising a fraud claim.

The California Supreme Court rejected both of Hydrotech’s arguments, find that the licensing laws are intended to protect the public from incompetence and dishonesty and that § 7031(a) bars all actions which seek compensation for unlicensed contract work “regardless of the equities.”  The Supreme Court dismissed the fraud claim by noting that “Section 7031 places the risk for bad faith squarely on the unlicensed contractor’s shoulders,” and that the statute is intended to deter contractors from offering or agreeing to perform unlicensed work.