In a recent Oregon case,[i] a builder contracted to construct a residence for $286,271. The builder, however, had its contractor’s license suspended by the Oregon Construction Contractor’s Board (CCB) during performance of the contract because the builder’s liability insurance lapsed. Fourteen-days later CCB reinstated the builder’s license when it obtained replacement liability insurance, and, for six more months, the builder continued to construct the residence.
Ultimately, after construction was complete, the builder claimed that the homeowners had not paid for the construction services and filed a lawsuit for breach of contract, quantum meruit, and account stated. The homeowners responded by filing a counterclaim against the builder for breach of contract, negligence, indemnity, and unlawful trade practices, asserting as an affirmative defense that under Oregon Revised Statute ORS 701.131(1)(b), the builder was barred from commencing an action against them because it had failed to maintain its contractor’s license continuously throughout performance of the contract. ORS 701.131 provides in relevant part:
(1) … a contractor may not . . . commence an arbitration or a court action for compensation for the performance of any work or for the breach of any contract for work that is subject to this chapter unless contractor had a valid license issued by the board [CCB] . . .
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b. Continuously while performing the work for which compensation is sought.
The homeowners moved for partial summary judgment against the builder on grounds that ORS 701.131(1)(b) barred the builder’s lawsuit. The builder opposed the motion contending that the homeowners were developers so, therefore, they fell within an exception of ORS 701.131(2)(c), which does not protect residential developers who seek to escape payment simply because the contractor’s license lapsed.
The trial court granted the homeowners’ motion for partial summary judgment and dismissed the builder’s claims against the homeowners, finding they were not residential developers. On appeal, the appellate court reviewed the history and purpose of the developer exception (ORS 701.131(2)(c)). The court in reviewing the legislative history, determined that the exception was inserted into the statute to benefit consumers (not contractors). By lifting the bar to allow unlicensed contractors to bring third-party claims against others whose action had caused or contributed to construction defects, the provision was intended to allow contractors to recover funds from other responsible parties, and to thereby better ensure that affected consumers were made whole. The court concluded that the exception (ORS 701.131(2)(c)) applied only to construction defect proceedings – not actions for compensation like the builder’s action. Accordingly, the court found that the trial court properly dismissed the builder’s claims.
Comment: Washington’s registration statute RCW 18.27.080 is more contractor friendly than Oregon’s. Washington only requires that the contractor be duly registered at the time of contracting for the performance of the work. As long as the contractor is properly licensed and bonded (registered) at the time of entering into the contract, even if the contractor’s license lapses during performance, the contractor may pursue an action to recover unpaid amounts. This case is an example of how different states treat the licensing issue. In Oregon, the failure of the contractor to maintain its contractor’s license continuously throughout performance resulted in a forfeiture of its claim against the homeowner, irrespective of the merits of the amount due and owing to the builder.
[i] Pincetich v. Nolan, 252 Or.App. 42, 285 P.3d 759 (2012).