When Does a Business & Professions Code Section 7031 Disgorgement Claim Accrue?

Updated on April 19, 2022

What Is the California Business and Professions Code Section 7031?

California Business & Professions Code section 7031 permits a plaintiff to disgorge all monies paid to an unlicensed contractor for work performed due solely to the unlicensed status of the contractor. Disgorgement is permitted even if the contractor performed the work flawlessly. That is because Business & Professions Code section 7031 is intended to punish the contractor for his unlicensed status rather than for any poor workmanship.

Statute of Limitations for Disgorgement

Now, the question is when does the statute of limitations for a disgorgement claim accrue?  The California Court of Appeal, First District, concluded in the case of San Francisco CDC LLC v. Webcor Construction L.P. (2021) 62 Cal.App.5th 266, 278 that the statute of limitations accrues within one year after the unlicensed contractor completes the work under California Code of Civil Procedure section 340(a).

California Code of Civil Procedure section 340(a) imposes a one-year statute of limitations for “[a]n action upon a statute for a penalty or forfeiture, if the action is given to an individual, or to an individual and the state, except if the statute imposing it prescribes a different limitation.”

This is because “disgorgement is a statutory penalty for work performed by an unlicensed contractor.” (San Francisco CDC LLC v. Webcor Construction L.P.(2021) 62 Cal.App.5th 266, 278.)

The Court further ruled that the one-year statute of limitations applies regardless of when the owner became aware that the contract was unlicensed. Thus, the delayed discovery rule does not apply to a claim for disgorgement. In explaining its reasoning for this conclusion, the Court cited Eisenberg Village of Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, Inc. (2020) 53 Cal.App.5th 1201, 1213, stating: “In light of the equitable basis for the discovery rule, it makes little sense to apply the rule to claims for disgorgement under section 7031(b).

A section 7031(b) claim does not require that the plaintiff suffer any injury, or at least an injury in the sense used by the courts to justify an equitable exception to the ordinary rules of accrual.

The fact that a contractor does not have a valid license does not, by itself, cause the plaintiff harm (other than, perhaps, some sort of psychic harm in knowing that he or she hired someone who was not in compliance with the law).” (Id. at 279-280.)

Based on the above reasons, the statute of limitations for a disgorgement claim accrues within one year after the contractor completed the construction regardless of whether the plaintiff discovered the unlicensed status of the contractor within that one-year period.

Need Help Disgorging an Unlicensed Contractor – Code section 7031 ?

Have you found out that an unlicensed contractor worked on your property? If you need help appying Business & Professions Code Section 7031 for disgorgement of monies paid to an unlicensed contractor, contact Schorr Law, APC and schedule a consultation. The real estate contractor dispute attorneys at Schorr Law have extensive experience dealing with contractor disputes.

Also Read – How Contractor’s Licenses Protect Homeowners and Contractors

Why It Is Important to Hire Licensed Contractors

Contractor Licensing Through a Qualifying Contractor