Opinion
EAGLESON, J.*
Section 7031 of the Business and Professions Code* 1 states that one may not sue in a California court to recover “compensation” for “any act or contract” that requires a California contractor’s license, unless one “alleges and proves” he was duly licensed at all times during the [992] performance. We granted review to decide two questions. The first is whether section 7031 permits an unlicensed nonresident to sue upon an “isolated transaction” in California where “exceptional circumstances” exist, even though there was no substantial compliance with California’s licensing law. The second—an issue of potentially broad importance—is whether section 7031 bars an unlicensed contractor’s fraud action against the person for whom the work was done.
We conclude, as did the Court of Appeal, that section 7031 contains no implied exception for foreign entities, isolated transactions, or other “exceptional” circumstances. We also hold, contrary to the Court of Appeal, that the statute bars an unlicensed contractor’s claim for fraud when the primary deceit alleged is a false promise to pay, and the damages primarily consist of, or are measured by, the price or value of the work and materials furnished. Any other result would circumvent the clear statutory policy of deterring unlicensed contract work. We therefore affirm in part and reverse in part the decision of the Court of Appeal.
Facts
Plaintiff Hydrotech Systems, Inc. (Hydrotech), a New York corporation, manufactures and installs patented equipment designed to simulate ocean waves. Hydrotech claims that its product, and its skills at installing and maintaining the equipment are unique. Defendant Oasis Waterpark (Oasis), a California corporation, owns and operates a water-oriented amusement park in Palm Springs. Defendant Wessman Construction Company, Inc. (Wessman), was Oasis Waterpark’s general contractor for construction of the park.
In July 1985, Hydrotech contracted with Wessman to design and construct in the park a 29,000-square-foot “surfing pool” using Hydrotech wave equipment. The total contract price was $850,000. Wessman was entitled to hold back specified portions of this amount pending satisfactory completion and operation of the pool.
Hydrotech later sued Wessman and Oasis Waterpark and its principals (collectively Oasis). Hydrotech’s suit claimed that more than $110,000 in “retainage” amounts were still being withheld although the pool had long since been completed and was performing as specified. The second amended complaint, filed November 29, 1988, asserted claims against all defendants for fraud, breach of implied contract, and money due and owing, and against Wessman for breach of written contract. The complaint also asserted that full payment had been made for Hydrotech’s construction services, and that the unpaid balance was only for equipment and materials.
[993] In its fraud count, Hydrotech alleged as follows: Because it was concerned about licensing problems, Hydrotech wished only to sell and deliver its equipment and to avoid involvement in design or construction of the pool. However, Oasis insisted that Hydrotech’s unique expertise in design and construction was essential. To induce Hydrotech to contract for these services, and “in response to repeated queries by Hydrotech,” defendants promised that Wessman would arrange for a California contractor to “work with” Hydrotech on any construction activities which required a California license. Defendants also promised to pay in full for Hydrotech’s wave equipment and for “associated equipment and services.” In reasonable reliance on these promises, which defendants never intended to honor, Hydro-tech furnished equipment and services in full compliance with its contract. Had Hydrotech known defendants’ promises were false when made, it would not have performed under the contract, and therefore suffered damage according to proof.
Defendants demurred on grounds, inter alia, that the complaint failed to allege Hydrotech possessed a California contractor’s license. Hydrotech conceded it had no California license. However, Hydrotech asserted that it sought only unpaid amounts for sale of equipment, for which a license was not required.2 In the alternative, Hydrotech claimed that application of section 7031 was unnecessary and unjust because Hydrotech possesses unique expertise in its field and provided construction services only at its customer’s insistence. Hydrotech also argued that section 7031 does not bar tort actions for fraud.
The trial court sustained Wessman’s demurrer to the written-contract count but granted Hydrotech leave to amend. The demurrers to all other causes of action in Hydrotech’s complaint were sustained without leave to amend. The trial court entered an order dismissing all defendants save Wessman from the action.
Hydrotech appealed the dismissal order.3 It argued first that the protective purposes of the licensing law are not served by applying section 7031 to a nonresident who subcontracted at its customer’s specific request to provide unique construction skills in an “isolated” California transaction. Hydrotech also repeated its contention that section 7031 does not bar claims of fraudulent inducement to enter a construction contract.
[994] The Court of Appeal rejected the former argument but accepted the latter. It reversed that portion of the trial court’s judgment which dismissed Hydrotech’s fraud count, but affirmed the dismissal of Hydrotech’s complaint in all other respects.
Hydrotech sought review on the “isolated transaction” issue, and defendants sought review on the fraud question. We granted both petitions. As we explain, defendants’ contentions have merit, but Hydrotech’s do not.4
Discussion
1. Section 7031 applies despite the “exceptional circumstances” of this transaction.
Hydrotech renews its contention that the “exceptional circumstances” of its dealings with Oasis make application of section 7031 unnecessary and unjust. Hydrotech points to its allegations that it reluctantly provided construction services on a one-time basis only because Oasis solicited its specialized wave-generation expertise, which was available nowhere else. Hydrotech argues that the “isolated” provision of such specialized services by a mere subcontractor should be deemed exempt from section 7031. The law, however, is otherwise.
Section 7031 states clearly that, with exceptions not relevant here, “[ri\o person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action” in a California court to recover “compensation for the performance of any act or contract for which a [contractor’s] license is required . . . without alleging and proving” that he or she “was a duly licensed contractor at all times during the performance of [the] act or contract . . . .” (Italics added.)
[995] Section 7026 provides that, for purposes of the license requirements, “a contractor is any person, who undertakes to or offers to undertake to ... , or does himself or by or through others, construct. . . any . . . structure, project, development or improvement, or to do any part thereof, . . . whether or not the performance of [such] work . . . involves the addition to or fabrication into any [such] structure, project, development or improvement ... of any material or article of merchandise. The term contractor includes subcontractor and specialty contractor.” (Italics added.) The numerous express exemptions from the licensing law (§ 7040 et seq.) do not include foreign contractors, isolated transactions, or “unique” building services and capabilities.
The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. (Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d 141, 149-150 [308 P.2d 713].) The licensing requirements provide minimal assurance that all persons offering such services in California have the requisite skill and character, understand applicable local laws and codes, and know the rudiments of administering a contracting business. (Ibid.; Conderback, Inc. v. Standard Oil Co. (1966) 239 Cal.App.2d 664, 678-679 [48 Cal.Rptr. 901].)
Section 7031 advances this purpose by withholding judicial aid from those who seek compensation for unlicensed contract work. The obvious statutory intent is to discourage persons who have failed to comply with the licensing law from offering or providing their unlicensed services for pay.
Because of the strength and clarity of this policy, it is well settled that section 7031 applies despite injustice to the unlicensed contractor. “Section 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and that such deterrence can best be realized by denying violators the right to maintain any action for compensation in the courts of this state. [Citation.] . . .” (Lewis & Queen, supra, 48 Cal.2d at p. 151, italics added; see also Brown v. Solano County Business Development, Inc. (1979) 92 Cal.App.3d 192, 198 [154 Cal.Rptr. 700]; Rushing v. Powell (1976) 61 Cal.App.3d 597, 605 [130 Cal.Rptr. 110].)
Hydrotech concedes that it had no California license, yet seeks contract compensation for activities which required such a license. It simply urges that California courts have recognized “exceptional circumstances” in which literal application of section 7031 would not further the purposes of the licensing law.
However, the authorities Hydrotech cites all relate to the well-established doctrine of substantial compliance. Under this rule, a contractor was not [996] barred from a just recovery if his licensure was defective only in form and the defendant had received the “full measure” of protection intended by the Legislature. (E.g., Asdourian v. Araj (1985) 38 Cal.3d 276, 282-289 [211 Cal.Rptr. 703, 696 P.2d 95]; Latipac, Inc. v. Superior Court (1966) 64 Cal.2d 278 [49 Cal.Rptr. 676, 411 P.2d 564]; Gatti v. Highland Park Builders, Inc. (1946) 27 Cal.2d 687 [166 P.2d 265].)
Such is not the case here. The protective purposes of the licensing law cannot be satisfied in full measure unless the “continuing competence and responsibility” of those engaged in the work for which compensation is sought have been officially examined and favorably resolved. (See, e.g., Asdourian, supra, 38 Cal.3d at pp. 285-289.) Hydrotech does not state that it ever sought or obtained any such favorable official determination of its qualifications, or those of its agents involved in the pool construction. There is no basis for an inference that the law’s full protective purposes were served despite the entire absence of necessary licensure. Hence, Hydrotech has not alleged its “substantial” compliance with the licensing law.5
Hydrotech claims the law’s interests in competence and public protection were not disserved in this case because its agreement to design and construct the surfing pool for Oasis was an “isolated” California transaction. However, as the Court of Appeal observed, “It is manifest that the concern for the public inherent in section 7031 is just as applicable to a project done by an out-of-state contractor with few jobs in California as to a project done by a California contractor who performs only one job in California before going out of business.” That Hydrotech’s activities in California were “isolated” is not clear from the pleadings, but even if they were, there is no implied exception for “isolated” transactions by foreign contractors. (Cf. Power City Communications, Inc. v. Calaveras Telephone Co. (E.D.Cal. 1968) 280 F.Supp. 808 [§ 7031 bars federal diversity suit by Washington contractor for value of unlicensed California work].)
Hydrotech also begs the question by suggesting that Oasis’ need for its unique skills should exempt it from section 7031. As noted, the licensing law achieves its protective purpose by requiring that a contractor’s competence and qualifications, however unique, be examined and certified by the expert agency charged with the law’s enforcement.
Hydrotech’s “reluctance” to engage in design and construction activities, and Oasis’ insistence that it do so, are also irrelevant. Perhaps Hydrotech’s [997] good faith alters the balance of equities in its favor. As we have seen, however, the deterrent purpose of section 7031 outweighs any harshness in a particular case.6
Finally, we dismiss Hydrotech’s claim that the law’s protective purpose was served because Hydrotech acted only as a subcontractor and did not hold itself out to the public. Subcontractors are governed as such by the licensing law. (§ 7026.) Both owners and general contractors are entitled to protection against illegal subcontract work by unlicensed persons. Hence, an unlicensed subcontractor may not recover compensation for his work from either the owner or the general contractor. (Lewis & Queen, supra, 48 Cal.2d at pp. 152-154; see Pickens v. American Mortgage Exchange (1969) 269 Cal.App.2d 299, 302 [74 Cal.Rptr. 788].)
We therefore conclude, as did the Court of Appeal, that Hydrotech has alleged no “exceptional circumstances” which would exempt it from the operation of section 7031.
2. Section 7031 bars Hydrotech’s fraud claim.
The Court of Appeal accepted Hydrotech’s alternative claim that even if section 7031 eliminates contractual and quasi-contractual claims seeking “compensation” for unlicensed work, it does not bar Hydrotech’s recovery of tort damages arising from defendants’ fraud which induced Hydrotech to contract and perform. Defendants assert that the Court of Appeal thus erred. We agree.
Regardless of the equities, section 7031 bars all actions, however they are characterized, which effectively seek “compensation” for illegal unlicensed contract work. (Lewis & Queen, supra, 48 Cal.2d at pp. 150-152.) Thus, an unlicensed contractor cannot recover either for the agreed contract price or for the reasonable value of labor and materials. (See Davis Co. v. Superior Court (1969) 1 Cal.App.3d 156, 159 [81 Cal.Rptr. 453]; Grant v. Weatherholt (1954) 123 Cal.App.2d 34, 41-42 [266 P.2d 185].) The statutory prohibition operates even where the person for whom the work was performed knew the contractor was unlicensed. (Pickens, supra, 269 Cal.App.2d at p. 302; Cash v. Blackett (1948) 87 Cal.App.2d 233 [196 P.2d 585].)
[998] It follows that an unlicensed contractor may not circumvent the clear provisions and purposes of section 7031 simply by alleging that when the illegal contract was made, the other party had no intention of performing. Section 7031 places the risk of such bad faith squarely on the unlicensed contractor’s shoulders. “Knowing that they will receive no help from the courts and must trust completely to each other's good faith, the parties are less likely to enter an illegal arrangement in the first place. [Citations.]” (Lewis & Queen, supra, 48 Cal.2d at p. 150, italics added.)
Hydrotech alleges that it was induced to enter and perform an illegal contract by a false promise to pay; that it would not have performed had it known the promise was false when made; and that it therefore suffered damage “according to proof.” The complaint states no facts suggesting that the “damage” to be proven and recovered is anything other than that asserted elsewhere in the complaint—i.e., the unpaid contract balance or its quantum meruit equivalent.
In sum, Hydrotech proposes that defendants’ unenforceable promise to pay for illegal work is actionable because defendants made the promise in bad faith. Such transparent pleading cannot be used to avoid section 7031.
The Court of Appeal concluded that disallowance of fraud claims like Hydrotech’s would contravene the protective policies of the licensing law by encouraging professional contractors such as Wessman to seek out unlicensed subcontractors, secure in the knowledge that the work obtained would not have to be compensated. Justice Broussard expresses similar concerns that such a result would encourage the cheating of unlicensed contractors. (Cone, and dis. opn. of Broussard, J., post, at pp. 1003, 1006, 1008.) We are not persuaded, however. A general contractor may be disciplined for subcontracting with knowledge that the subcontractor is unlicensed. (§ 7118.) Moreover, the unusual circumstances of this case aside, it is unlikely that a rational general contractor would intentionally risk liability for claims that the subcontractor’s unlicensed subcontractor had performed substandard work.
In any event, the statutory disallowance of claims for payment by unlicensed subcontractors is intended to deter such persons from offering their services, or accepting solicitations of their work. That policy applies regardless of whether the other party’s promise to pay for the work was honest or deceitful.
Hydrotech suggests that the allowance of fraud claims would not nullify the protective purposes of section 7031 because, in many cases, unlicensed contractors would not be able to prove that the promise to pay was false [999] when made, or that reliance on the fraudulent promise was “justified.” (See, e.g., Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30 [216 Cal.Rptr. 130, 702 P.2d 212].) The point, however, is that the deterrent and protective purposes of section 7031 preclude recovery even when the person who solicited the unlicensed work did act in bad faith. (See Lewis & Queen, supra, 48 Cal.2d at p. 150.) In other words, the falsity of the promise to pay is irrelevant, and the unlicensed contractor will not be heard to say that he “reasonably” relied upon it.7
Hydrotech relies heavily on three Court of Appeal decisions suggesting in particular contexts that section 7031 does not bar an unlicensed contractor’s claims for fraud. We are not persuaded that those cases control our ruling here.
In Grant v. Weatherholt, supra, 123 Cal.App.2d 34, owners of undeveloped land persuaded plaintiff, who was not a licensed contractor, to invest in a development venture. Plaintiff advanced funds, performed improvement work, and furnished materials, based on promises that his compensation would be credited toward the purchase price of a homesite. The owners had represented that the land was free of encumbrances, though in fact it was subject to a $25,000 deed of trust. When the deed of trust was foreclosed, plaintiff sued for breach of contract and also sought tort damages for defendants’ false representation of the state of title.
The Court of Appeal dismissed the contractual count but upheld the fraud claim. The court declared that section 7031 bars only claims “based upon contract liability” and does not shield persons who contract with unlicensed contractors from responsibility for their own torts. (123 Cal.App.2d at p. 43.) In the Grant court’s view, plaintiff’s fraud cause of [1000] action sought recovery not “for any act performed by him, but for acts of the defendants which resulted in his being deceived and damaged . . . .” (Id., at p. 44.) Among the “damages” recoverable, the court concluded, were the “money and services” plaintiff had advanced in reliance on the false representation. (Id., at pp. 44-45.)
In situations similar to Grant’s, two other Courts of Appeal have also upheld fraud claims by unlicensed contractors. In Brunzell Constr. Co. v. Barton Development Co. (1966) 240 Cal.App.2d 442 [49 Cal.Rptr. 667], a contractor licensed only in Nevada agreed to construct an apartment building on defendants’ California property in return for cash and notes. Defendants and the contractor planned a joint venture to own and operate the building. The contractor was to invest in the venture by surrendering some of its notes for the contract price. After the contractor incurred preliminary expenses, but before construction actually began, defendants sold the land. The contractor sued for anticipatory breach and for fraud, alleging that defendants had concealed the sale negotiations. The court rejected the contractual claims as barred by section 7031. However, citing Grant, the Court of Appeal ruled that if plaintiff had been induced to enter an arrangement defendants never intended to perform, a claim for fraud would lie. “In such case, plaintiff’s [anticipatory] expenditures would serve as a measure of compensatory damages . . . , although not recoverable as compensation under the contract . . . .” (P.446.)
Pickens v. American Mortgage Exchange, supra, 269 Cal.App.2d 299, presented facts almost identical to those in Grant. Plaintiff, an unlicensed contractor, alleged he changed his residence and did remodeling work on defendants’ property in reliance on promises that he would have an option to buy the property and that his labor and expenses would be credited against the purchase price. According to plaintiff, defendants told him the property was encumbered by a $30,000 trust deed but failed to mention an additional $25,000 encumbrance; they also promised to pay but never intended to do so. Relying on Grant, the Court of Appeal held that these omissions and misrepresentations, if proved, would support a fraud claim not barred by section 7031. (Pp. 303-304.)
Dicta in these decisions suggest that tort damages are not prohibited “compensation,” and that section 7031 is inapplicable whenever the unlicensed contractor asserts he was induced to do illegal work by “fraudulent” promises or representations. Taken out of context, such a rule is naive, [1001] overbroad, unsupported by the authority cited,8 and impossible to reconcile with our reasoning in Lewis & Queen, supra, 48 Cal.2d 141.9
Nonetheless, we stop short of disapproving Grant, Brunzell, and Pickens insofar as they might apply to this case. The Legislature amended section 7031 several times between 1954, the year Grant was decided, and 1986, the year Hydrotech apparently finished its unlicensed work for Oasis. During that time, however, the Legislature expressed no disagreement with this line of decisions. The Legislature’s inaction is some indication that it accepted existing judicial limitations on section 7031. (See, e.g., Wilkoff v. Superior Court (1985) 38 Cal.3d 345, 353 [211 Cal.Rptr. 742, 696 P.2d 134]; People v. Hallner (1954) 43 Cal.2d 715, 719 [277 P.2d 393].)
We conclude, however, that Grant and its progeny are properly interpreted in the context of their particular facts. In each case, the plaintiff’s involvement as an unlicensed contractor was incidental to the overall agreement or transaction between the parties. By the same token, the primary fraud alleged in each case was external to the arrangement for construction work as such, and was thus unrelated to any protective concern of the licensing law. Under these extraordinary circumstances, the Courts of Appeal understandably concluded that the peripheral involvement of unlicensed contract work did not shield defendants from all tort liability.
[1002] No California case has squarely held that an unlicensed contractor may transform a barred claim into a permissible one simply by alleging that the unenforceable promises of payment which induced him to perform were false when made. For reasons already stated, we decline to extend Grant’s reasoning to the situation presented here. In a garden-variety dispute over money owed an unlicensed contractor, the contractor cannot evade section 7031 by alleging that the express or implied promise to pay for the contractor’s work was fraudulent.10 However artful the pleadings, if the primary fraud alleged is a false promise to pay for unlicensed construction work, and the primary relief sought is compensation for the work, section 7031 bars the action.11
Disposition
The judgment of the Court of Appeal is reversed insofar as it upholds Hydrotech’s cause of action for fraud, and affirmed in all other respects.
Lucas, C. J., Mosk, J., and Kennard, J., concurred.
ARABIAN, J.
I concur in the judgment.
However, rather than attempt to distinguish the three Court of Appeal decisions on which Hydrotech relies (Grant v. Weatherholt (1954) 123 Cal.App.2d 34 [266 P.2d 185]; Brunzell Const. Co. v. Barton Development Co. (1966) 240 Cal.App.2d 442 [49 Cal.Rptr. 667]; Pickens v. American Mortgage Exchange (1969) 269 Cal.App.2d 299 [74 Cal.Rptr. 788]), I would overrule them as patently inconsistent with the statutory language and intent. The mere fact that the Legislature did not act to overrule these cases does not imply legislative approval. As we have pointed out on more than one occasion, “something more than mere silence should be required before that acquiescence is elevated into a species of implied legislation. . . .” (People v. Daniels (1969) 71 Cal.2d 1119, 1127-1128 [80 Cal.Rptr. 897, 459 P.2d 225, 43 A.L.R.3d 677]; accord Cianci v. Superior Court (1985) 40 Cal.3d 903, 923 [221 Cal.Rptr. 575, 710 P.2d 375]; Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 300-301 [250 Cal.Rptr. 116, 758 P.2d 58].)