Court Opinion

ID: 9534805
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:42:51.083514+00
Date Added: 2024-06-11T13:32:36.372624
License: Public Domain

*1003BROUSSARD, J., Concurring and Dissenting.
I agree with the majority insofar as they hold that Business and Professions Code section 7031 (hereafter section 7031) bars plaintiff’s actions for breach of contract, breach of implied contract, and money due and owing.
However, I must dissent from the determination that the fraud cause of action is also barred. The language of section 7031 has been repeatedly construed by the Courts of Appeal to permit actions for fraud, and the Legislature, despite amending the code section in other respects, has not changed the crucial language. Under the reenactment rule this should end the case. In any event, sound policy requires that the section should not be construed to bar any fraud claims. The majority’s holding, barring some fraud claims but not others, not only rewards fraudulent wrongdoers, but defeats the protective policies of the code section by encouraging intentional wrongdoers to seek out and hire unlicensed contractors, secure in the knowledge that the work need not be compensated.
The complaint clearly alleges a fraudulent scheme whereby defendants with the intent of avoiding payment under their contract insisted that Hydrotech Systems, Inc. (Hydrotech), known to be unlicensed, engage in contracting work for which a license was required. This is not a case where Hydrotech solicited work in California. Hydrotech did not hold itself out as licensed to contract for the design and construction of the pool. Indeed, Hydrotech refused to engage in contracting work. Hydrotech sought only to sell wave-making equipment and sought to avoid involvement in design or construction. Defendants insisted that Hydrotech’s unique expertise in design and construction was essential and refused to contract without Hydrotech’s services. All parties were aware that Hydrotech had a licensing problem. To induce Hydrotech to perform, defendants promised, in addition to paying for the equipment, that arrangements would be made for a California contractor to “work with” Hydrotech on any construction activities which required a California license. Defendants never intended to, and did not, perform their promises. In reliance on defendants’ false promises, Hydrotech furnished the equipment and services in full compliance with the contract. Now defendants, who solicited the contracting services aware that Hydrotech could not lawfully engage in them, seek unjust enrichment because Hydrotech succumbed to their fraudulent promises.
Section 7031 provided at the times relevant here: “No person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action in any court of this state for the collection of compensation for the performance of any act or contract for which a license is required by this chapter without alleging and proving that he was a duly licensed contractor at all times during the performance of such act or contract, except that such *1004prohibition shall not apply to contractors who are each individually licensed under this chapter but fail to comply with Section 7029.” (Italics added.)
Until today, it was settled that section 7031 did not preclude actions for fraud. (Pickens v. American Mortgage Exchange (1969) 269 Cal.App.2d 299, 302-304 [74 Cal.Rptr. 788]; Brunzell Constr. Co. v. Barton Development Co. (1966) 240 Cal.App.2d 442, 446 [49 Cal.Rptr. 667]; Grant v. Weatherholt (1954) 123 Cal.App.2d 34, 42-44 [266 P.2d 185].) In the leading case of Grant v. Weatherholt, supra, the court reasoned: “Plaintiff’s cause of action for fraud is not ‘for the collection of compensation for the performance of any act or contract for which a license is required.’ Plaintiff’s right is the outgrowth of the deceit practiced upon him by the defendants. The validity or invalidity of his contract does not affect that right. Proof of the contract under the cause of action for fraud was merely proof of the circumstances under which plaintiff’s services were rendered and his money was expended.
“Plaintiff’s action for fraud is not barred by the provision of the above sections of the Business and Professions Code. The sections should be construed and applied so as to accomplish their purpose of protecting the public from dealings with incompetent or untrustworthy contractors. The courts will not impose penalties for noncompliance in addition to those that are provided expressly or by necessary implication. The rule expressio unius exclusio alterius has application. [Citations.] The sections of the code which shield from liability those who enter into contracts with unlicensed persons do not purport to shield them from responsibility for their own torts, nor do they relate to actions or proceedings except those that are based upon contract liability .... Inasmuch as plaintiff’s action for fraud is not for the recovery of compensation under the contract or for breach of it, the fact that he was not licensed at all times does not bar his recovery. He does not sue for any act performed by him, but for acts of the defendants which resulted in his being deceived and damaged.” (123 Cal.App.2d at pp. 43-44; see Pickens v. American Mortgage Exchange, supra, 269 Cal.App.2d 299, 303-304.)
The reasoning is unanswerable. The majority characterize the reasoning of Pickens, Brunzell Constr. Co. and Grant as “dicta” (maj. opn., ante, at p. 1000), but this is the basic reasoning of the cases.
The reenactment rule requires us to follow these cases. “ ‘Where a statute has been construed by judicial decision, and that construction is not altered by subsequent legislation, it must be presumed that the Legislature is aware of the judicial construction and approves of it.’ (People v. Hallner (1954) 43 *1005Cal.2d 715, 719 [277 P.2d 393]; People v. Fox (1977) 73 Cal.App.3d 178, 181 [140 Cal.Rptr. 615].)” (Wilkoff v. Superior Court (1985) 38 Cal.3d 345, 353 [211 Cal.Rptr. 742, 696 P.2d 134].) Section 7031 has been repeatedly amended since the 1954 decision in Grant v. Weatherholt (Stats. 1957, ch. 845, § 1, p. 2067; Stats. 1961, ch. 1325, § 1, p. 3105; Stats. 1965, ch. 681, § 1, p. 2059; Stats. 1989, ch. 368, § 1, No. 4 Deering’s Adv. Legis. Service, p. 1262), and it has never provided that fraudulent wrongdoers may take advantage of the section or that denial of access to the courts in cases of fraud is one of the penalties imposed for violation of the licensing law.
The majority pay lip service to this rule. In recognition, they say we should not disapprove Grant, Brunzell, and Pickens. But then they state each should be limited to its facts. (Maj. opn., ante, at p. 1001.) The reenactment rule has always been that the judicial “construction” of a statute has been approved, not merely its application to specific facts.1
Even if the reenactment rule were not controlling, the reasoning of the cases is compelling.
Moreover, sound policy requires that we do not go beyond the legislative determination that contract and implied contracts are barred by section 7031. The purpose of the section is the enforcement of the contractor’s licensing law. The purpose is accomplished under the code by denying the unlicensed contractor the fruits of his labor and unjustly enriching the other party. The Legislature has thus established severe sanctions and forfeitures. (Asdourian v. Araj (1985) 38 Cal.3d 276, 282 [211 Cal.Rptr. 703, 696 P.2d 95].) To further the purpose of deterring unlicensed contractors, the Legislature has provided that the unlicensed contractor may not recover in a contract action or implied contract action. It has never provided that fraudulent wrongdoers may be rewarded under the statute or that unlicensed people may not recover for fraud.
This court should not go beyond the penalties and forfeitures established by the Legislature and establish additional ones on its own. The Legislature has not abolished tort remedies such as fraud, and we should not enrich those who rely upon section 7031 in the perpetration of a fraud or in the consummation of a fraudulent scheme. (See Tenzer v. Superscope, Inc. *1006(1985) 39 Cal.3d 18, 29-30 [216 Cal.Rptr. 130, 702 P.2d 212]; Seymour v. Oerlichs (1909) 156 Cal. 782, 794 [106 P. 88]; Southern Cal. etc. Assemblies of God v. Shepherd of Hills etc. Church (1978) 77 Cal.App.3d 951, 958, fn. 3 [144 Cal.Rptr. 46].)
As the Court of Appeal pointed out in the instant case, the purpose of section 7031 is frustrated by holding that fraudulent wrongdoers may escape their debts by asserting the bar of section 7031. As stated above, the purpose of section 7031 is to deter unlicensed persons from engaging in contracting. Allowing fraudulent wrongdoers to obtain the substantial penalties and forfeitures and be unjustly enriched can only encourage owners and contractors to engage in fraudulent schemes to hire unlicensed persons in anticipation that, when the debts come due, they can turn their backs and refuse to pay in reliance on section 7031. As in the instant case, California contractors and owners will be encouraged to seek out and employ unlicensed out-of-state contractors in the hope of obtaining services without paying for them. We should not encourage such wrongdoing. On the other hand, the legislative policy of deterrence is not furthered by denying recovery for fraud. Unlicensed contractors are not encouraged to undertake the unlawful activity by the remote possibility that, if unpaid, they might be able to prove fraud.
In view of the language of section 7031, its consistent construction by the Courts of Appeal, and its history, it is apparent that the Legislature has balanced the dangers of encouraging fraud against the violation of the licensing statute and concluded against rewarding the fraudulent. We should accept its judgment.
The majority rely at length on Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d 141 [308 P.2d 713] (maj. opn., ante, at pp. 997, 999, 1000-1001), but fail to point out that the court expressly stated that it was enforcing the terms of the statute and need not consider whether the harshness of the forfeiture, the evil of unjust enrichment, and avoidance of encouraging illegal conduct counselled in favor of enforcing the illegal contract. (48 Cal.2d at pp. 151-152.) In the course of its discussion, the court expressly recognized that in some cases “effective deterrence is best realized by enforcing the plaintiff’s claim rather than leaving the defendant in possession of the benefit.” (48 Cal.2d at p. 151.) In short, Lewis & Queen avoided the question whether courts in the absence of a statutory provision imposing a forfeiture penalty would refuse to enforce the illegal contracts violating the licensing law.
The case is of little help to the majority. The majority go beyond the words of the statute, as we have seen. Thus, the majority must show that *1007“effective deterrence is best realized” by leaving the defendant in possession of the benefit. They fail to do so.
The majority appear to take the position that the provisions of section 7031 will be rendered meaningless if an unlicensed contractor can avoid them by alleging fraud. The argument is not a new one. Prior to this court’s decision in Tenzer v. Superscope, Inc., supra, 39 Cal.3d 18, a few Court of Appeal decisions had reasoned that if a plaintiff, by the transparent device of pleading an intention not to perform at the time of entering into a contract, could avoid statutory provisions designed to prevent fraud like the statute of frauds, the statute would be ineffective. However, mere pleading of fraud is not sufficient; the plaintiff must also prove fraud. In Tenzer the court pointed out that the argument in the Court of Appeal decisions assumes the inability of a jury to distinguish between an unkept but honest promise to perform and one which the promisor never intended to perform. As Justice Kaus observed in Southern Cal. etc. Assemblies of God v. Shepherd of Hills etc. Church, supra, 77 Cal.App.3d 951, 958, footnote 3: “The law is otherwise. (People v. Ashley (1954) 42 Cal.2d 246, 263-264 [267 P.2d 271].)” (39 Cal.3d at p. 29.) In Tenzer, the court concluded that the argument that actual fraud must be permitted to effectuate a statute designed to prevent fraud was invalid and disapproved the contrary cases. (39 Cal.3d at pp. 29-31.) In urging that the courts must grant rewards to those who engage in fraudulent conduct, the majority are seeking to resurrect the cases disapproved in Tenzer.
In fairness to the majority, I must recognize that they do not propose to prohibit all actions for fraud brought by an unlicensed contractor. The majority conclude that the proper result was reached in each of the cases, Grant, Brunzell, and Pickens, where the Courts of Appeal held that the cause of action for fraud by an unlicensed contractor was not barred by section 7031. (Maj. opn., ante, at p. 1001.) The majority state that the distinction between those fraud cases and the instant one is that “the primary fraud alleged in each case was external to the construction work as such . . . .” (Maj. opn., ante, at p. 1001.) I am not sure what the distinction is. In each case the claim was that the owner or contractor did not intend to perform. In each case the plaintiff was seeking to recover damages so far as appears measured by the falsely promised performance.
If the distinction sought to be made is between fraud cases where the interest protected is collateral to the licensing law and those where the code section is intended as the instrument of fraud, the majority’s priorities are misplaced, and even were we to apply them, the majority reach the wrong result on the facts of the case. As between fraudulent wrongdoers who seek to take advantage of their victims on the basis of section 7031 and those *1008who indulge in other fraudulent conduct, the law should be most concerned with those whose fraudulent schemes seek to take advantage of the statute. Secondly, under the allegations of the complaint, plaintiff sought to sell its wave-making product to defendant without contracting to do the installation. The sale obviously would not involve a violation of the contractor’s licensing statute. It was the defendants who insisted that plaintiff engage in the installation of the product and undertake work requiring a license. When the lack of a contractor’s license was raised, it was the defendants who promised to arrange for a licensed contractor, never intending to perform their promises. The basic agreement was for the sale of the equipment, and under the test apparently established by the majority, the construction and supervision services appear to be collateral.
I cannot agree that we should reward fraudulent parties and I would affirm the judgment of the Court of Appeal.
Panelli, J., concurred.

 The concurring opinion implies that recent cases have repudiated the reenactment rule. However, in the cases cited, either there was no reenactment (People v. Daniels (1969) 71 Cal.2d 1119, 1127-1128 [80 Cal.Rptr. 897, 459 P.2d 225, 43 A.L.R.3d 677]) or the provisions changed in the reenactment were entirely unrelated to the provision previously construed (Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 300-301 [250 Cal.Rptr. 116, 758 P.2d 58]; Cianci v. Superior Court (1985) 40 Cal.3d 903, 922-923 [221 Cal.Rptr. 575, 710 P.2d 375]).