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By John Foust
Howrey LLP
Banis Restaurant Design, Inc. designs kitchens and supplies professional kitchen equipment. After entering into a contract "to provide design labor, materials, equipment and services" for a restaurant called Borgata Serrano, Banis sued the restaurant to collect just over $200,000 allegedly due under the contract for nearly $1.8 million. Banis also recorded a mechanic's lien for more than $200,000 and sued to foreclose on the lien. It sued to foreclose on a stop notice and asserted common counts.
The restaurant demurred on ground that Banis was not a licensed contractor. California Business and Professions Code §7031 prohibits a contractor from suing to recover compensation unless the contractor was duly licensed "at all times during the performance of [the] act or contract." It was undisputed that Banis was not a licensed contractor. Therefore, the restaurant argued that Banis should be barred from suing to recover compensation that it allegedly was owed for work performed at the restaurant. The trial sustained the owner's demurrer, and Banis appealed.
Banis raised three arguments in response to the restaurant's contention that its action was barred by the licensing law. First, Banis argued that it was a supplier and was not acting as a "contractor" within the meaning of the licensing law and therefore was not required to be licensed. Second, Banis argued that at least some of the equipment it supplied to the project came within the licensing law's exemption for sale of materials not permanently affixed to real property . Finally, Banis argued that it should, at the very least, be entitled to recover for those portions of work for which it was undisputed that no license was required.
The California Court of Appeal affirmed dismissal of Banis' lawsuit. Banis Restaurant Design, Inc. v. Borgata Serrano, 134 Cal.App.4th 1035 (2005).
The court rejected the argument that Banis was not "engaged in the business or act[ing] in the capacity of a contractor" and therefore was not required to be licensed. The court acknowledged that Business and Professions Code §§7045 and 7052 exempt from licensing persons who only furnish materials or supplies but do not fabricate them into the project or contract for installation of them. However, the court noted that the mechanic's lien and contract attached to the complaint stated that Banis would provide electrical, mechanical and ceiling plans and drawings, would prepare specifications, and would coordinate architects and engineers. The complaint alleged that Banis provided "design labor" and "services to be used" in the project. The court cited Business and Professions Code §7026, which defines a contractor as "any person who undertakes to or offers to undertake to., or does himself or herself or by or through others, construct, alter, repair, add to, subtract from, improve. or demolish any building or other structure, project, development, or improvement.," and held that Banis, itself and through others, undertook to construct the project.
The court also rejected Banis' argument that at least a portion of the products and services it provided did not involve fixtures. Business and Professions Code §7045 provides that the licensing law does not apply "to the sale or installation of any finished products, materials or articles of merchandise that do not become a fixed part of the structure.." Banis sought to rely on this exemption, but the court disagreed. It noted that Banis had pleaded to the contrary and that mechanic's liens are appropriate only for materials that become fixtures. Banis, by recording a mechanic's lien, conceded that it provided fixtures.
By definition, a mechanic's lien involves fixtures. In filing its lien, under penalty of perjury, [Banis] in essence asserted that the materials it provided were fixtures on the property.. making section 7045 inapplicable.
Finally, Banis argued that it should be entitled to seek compensation for at least that portion of its work for which it was agreed that no license was required. In support of this argument, Banis cited a case in which an unlicensed contractor that undertook to construct a scoreboard for a baseball park was allowed to recover $650 for the sale of a tractor and a mower that were included in the same contract. The court, however, distinguished that case on the basis that the equipment sale did not involve fixtures and was unrelated to the construction activities while the materials Banis supplied were integral to the restaurant project. Thus, the court held that Banis was precluded under §7031 from seeking compensation for any of the work performed on the project.
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For more information about the issues covered in this report, please contact John A. Foust in our San Francisco office at 415-848-4901 or at foustj@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2006 Howrey LLP
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