Business And Professions Code 7031, A Forgotten Party & Reformation

• Published date: 20 April 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Contracts and Commercial Law
• Law Firm: Wood, Smith, Henning & Berman LLP
• Author: Mr Thomas Fama

California Business and Professions Code 7031 is a provision prone to drawn out court battles with confusing fact patterns. In the recent case of Panterra GP, Inc. v. Superior Court, 74 Cal. App. 5th 697, 289 Cal. Rptr. 3d 743 (2022), review filed (Mar. 10, 2022), the justices were persuaded by the conclusion that the application of this section often results in a harsh outcome for many plaintiffs. Given that, they found that a licensed contractor who was not properly named in the contract could have its day in court to seek reformation of the contract to reflect the true intent of the parties.

Facts

Panterra, GP claims that it performed a renovation project for Studio Movie Grill and other defendants in Bakersfield, CA. Panterra, GP is a licensed general contractor. The contract between the parties, however, mistakenly named Panterra Development as the contractor and that entity is not licensed. Despite the mistake, Panterra GP contends that the defendants "knew, intended and agreed" that Panterra GP was the contractor on the project. Panterra, GP actually performed the work in question and is seeking full payment from defendants. The permits issued by the City of Bakersfield all refer to Panterra GP as the contractor on the project.

Once the project was complete defendants refused to pay Panterra GP the $2.6 million owed under the contract because Panterra Development had recorded a mechanic's lien claiming that it was the contractor on the project. Panterra GP then sued the defendants for recovery under a mechanic lien release bond, breach of contract, account stated and open book account.

The trial court dismissed the case without leave to amend basing its decision on Business and Professions Code section 7031 subdivision(a). The court found that Panterra GP could not utilize equitable contract remedies to reform the contract when it was not a party identified in the contract and the entity listed in the contract was not a licensed general contractor, as required by that statute. The Court of Appeal vacated this decision finding that 7031 subdivision(a) is not applicable to the claims at issue in this case because Panterra GP was a licensed contractor.

Section 7031, Subdivision(a) is Not Applicable in This Case

The Business and Professions Code section 7031(a) prohibits a contractor from pursuing an action to collect under a contract where that party is unlicensed. Subdivision(a), "prevents unlicensed entities from recovering compensation regardless...