Unlicensed Contractors Be Warned: Your Clients Will Be Entitled to Reimbursement for All Amounts Paid

April 13, 2010

Alatriste v. Cesar's Exterior Designs, Inc. (2010) 2010 DJDAR 5125 is the most recent example of how far the courts will go to protect consumers from unlicensed contractors. Cesar's Designs entered into a contract with Alatriste for landscaping work December 1, 2006 and commenced work December 11, 2006. Cesar's Designs claimed that it told Alatriste it was unlicensed and that it was waiting to test and secure its license. In fact, it obtained its license April 5, 2007 while still working on the project. Cesar's Designs left the project about two months later after Alatriste stopped paying. Prior to that, Alatriste had paid $57,500 on the project. After Cesar's Designs left the project, Alatriste sued for reimbursement.

The court affirmed the trial court ruling which entered judgment against Cesar's Designs to reimburse Alatriste the entire amount paid it had been paid. This included more than $20,000 paid for materials used in the project, and $12,000 for labor provided after Cesar's Designs became licensed. Alatriste's knowledge of the fact that Cesar's Designs was unlicensed was of no import as the Legislature intended full recovery even in the face of actual knowledge of the contractor's lack licensing.

Similarly, the fact that Cesar's Designs became licensed during the project did not bar the reimbursement claim and, worse, did not even allow it to offset the reimbursement claim by the amounts billed once it became licensed. Under this reasoning, a contractor could be unlicensed on day 1, sign a contract on day 2, begin work work on day 3, become licensed on day 4, and be subject to a reimbursement claim for payments made thereafter.

Finally, the court affirmed a prior decision which required reimbursement of all amounts paid, without an offset for the value of materials provided to the project. The court noted that the "Legislature was specifically aware that permitting reimbursement may result in harsh and unfair results to an individual contractor and could result in unjust enrichment to the homeowner, but nonetheless decided that the rule was essential to effectuate the important public policy of deterring licensing violations and ensuring that all contractors are licensed."