Judicial Council v. Jacobs Facilities, Inc.

Filed 8/20/15
CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

JUDICIAL COUNCIL OF CALIFORNIA,
A140890, A141393
Plaintiff and Appellant,
v. (San Francisco City & County
Super. Ct. No. CGC-09495036)
JACOBS FACILITIES, INC., et al.,
Defendants and Respondents.

JACOBS PROJECT MANAGEMENT,
CO.,
Cross-complainant and Respondent,
v.
JUDICIAL COUNCIL OF CALIFORNIA,
Cross-defendant and Appellant.

Plaintiff Judicial Council of California, Administrative Office of the Courts (JCC)
entered into a contract with defendant Jacobs Facilities, Inc. (Facilities), a wholly owned
subsidiary of defendant Jacobs Engineering Group Inc. (Jacobs). Performance of the
contract required a license issued pursuant to the Contractors’ State License Law (Bus. &
Prof. Code,1 § 7000 et seq.; CSLL), and Facilities was properly licensed when it

*
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of part II.C.
1
All further statutory references are to the Business and Professions Code unless
otherwise indicated.
commenced work. In the ensuing months, Jacobs, as part of a corporate reorganization,
transferred the employees responsible for performing the JCC contract to another wholly
owned subsidiary. In the process, Jacobs caused the new subsidiary to obtain a
contractor’s license, while permitting the Facilities license to expire. Notwithstanding
the lapse of its license, Facilities remained the signatory on the JCC contract until nearly
a year later, when the parties entered into an assignment of the contract to the new,
licensed subsidiary.
JCC sued Jacobs and the two subsidiaries under section 7031, subdivision (b),
which requires an unlicensed contractor to disgorge its compensation. JCC sought return
of all monies paid to Facilities under the contract, some $18 million. In response, the
defendants contended (1) Facilities had complied with the CSLL, (2) Facilities had
“internally” assigned the contract to the new subsidiary prior to expiration of its license,
(3) JCC ratified the internal assignment when it consented to the assignment to the new
subsidiary, and (4) Facilities had “substantially complied” with the CSLL under the
provisions of section 7031, subdivision (e).
When the matter was called for trial, defendants requested a hearing on the issue
of substantial compliance. The trial court deferred that hearing until after a jury trial on
defendants’ other defenses to JCC’s claim. After the jury found for defendants, the
substantial compliance hearing was never held.
JCC appeals the denial of its motion for judgment notwithstanding the verdict and
the trial court’s award of attorney fees to defendants. We reverse the judgment and
attorney fees award entered on the jury’s verdict, concluding Facilities violated the CSLL
when it continued to act as the contracting party after its contractor’s license expired. We
decline to order entry of judgment for JCC, however, because defendants remain entitled
to an opportunity to prove their substantial compliance under the statute. We remand for
a hearing pursuant to section 7031, subdivision (e).
I. BACKGROUND
JCC is the administrative agency of California’s judicial branch. In 2005, JCC
issued a request for proposals (RFP) for the provision of maintenance and repair services

2
to courthouses and other judicial branch buildings throughout Southern California. The
successful respondent was Facilities, a wholly owned subsidiary of Jacobs, which is a
publicly traded corporation.
JCC and Facilities entered into a three-year facilities maintenance and repair
agreement (the contract) in April 2006. The contract anticipated Facilities would
organize, supervise, and bill for building repair and maintenance, while retaining
subcontractors to perform some or all of the actual repair work. Among the provisions
pertinent to this lawsuit, the contract precluded its assignment by Facilities, “in whole or
in part,” without JCC’s written consent. Facilities also represented and warranted it held
a class B contractor’s license and agreed it would secure and maintain all licenses
required for the performance of work under the contract.
Facilities commenced work under the contract, which covered a total of 121
buildings, in April 2006. In performing the contract, Facilities employees provided only
administrative and oversight services, while retaining subcontractors to perform actual
maintenance and repair work. When work was completed, Facilities recorded its
completion in a dedicated computer system and generated an invoice. The invoices
called for payment to Facilities, but the account to which JCC was directed to remit
payment was a general Jacobs account from which Jacobs allocated payments among its
subsidiaries.
In December 2006, Jacobs undertook a “branding initiative” designed, among
other things, to reduce the costs associated with maintaining its many subsidiaries. As
part of this initiative, Jacobs decided to dissolve Facilities and transfer its employees to
Jacobs. Although the liquidation of Facilities into Jacobs was accomplished pursuant to a
document effective December 2006, Facilities was not actually dissolved as a corporate
entity until September 2010. The change in corporate structure did not affect
performance of work under the contract, which was carried on in the same way by the
same persons, but those persons appear to have become employees of Jacobs in

3
January 2007.2 Throughout the reorganization, Facilities continued to invoice for
payment and execute contractual amendments as necessary, and insurance and bonds
required under the contract continued to be maintained in the name of Facilities.
Defendant Jacobs Project Management Co. (Management) was formed in
January 2008, as a wholly owned subsidiary of Jacobs.3 Under a written agreement,
Jacobs transferred 713 employees, including some former Facilities employees, to
Management, as well as the “fixed assets use[d] by those employees.” It appears all
employees providing services to JCC under the contract became employees of
Management in February 2008, although the record is not wholly clear on this point.4
Throughout 2008, Jacobs allocated compensation received from JCC under the contract
to Management, rather than Facilities. As before, actual work under the contract was
unaffected, and invoices sent to JCC continued to instruct it to remit payment to “Jacobs
Facilities Inc.”
When a corporation applies for a contractor’s license, it must designate a
“qualifying individual,” a corporate officer or employee who is qualified for the same
license classification for which the corporation is applying. (§ 7068, subd. (b)(3).) Once
the license issues, the qualifying individual is “responsible for exercising that direct

2
It is unclear from the record when and how many of the Facilities employees
became Jacobs employees. The Facilities employee who was ultimately responsible for
overseeing the contract, Scott McCallister, became a Jacobs employee in January 2007.
The general import of the testimony was that the other employees who provided services
under the contract were also transferred to Jacobs at this time, as called for by the
reorganization documents. McCallister continued to serve as an officer of Facilities after
his transfer to Jacobs’s employment.
3
As the context requires, we will refer to Jacobs, Facilities, and Management
jointly as “the Jacobs entities” or “defendants.”
4
As with the transfer of employees to Jacobs in 2007, there is testimony that the
employment of McCallister and another employee involved in providing services under
the contract, along with that of unspecified other Facilities employees, was transferred to
Management in February 2008, but the record does not specifically identify those
employees as the persons providing services under the contract. There is no dispute those
persons became employees of Management at some point, and there is no testimony
suggesting any later date for their transfer.

4
supervision and control of his or her employer’s or principal’s construction operations to
secure compliance with this chapter and the rules and regulations of the board.”
(§ 7068.1, subd. (a).) The qualifying individual for the Facilities license was Scott
McCallister. He remained in that position until August 12, 2008, at which time he
voluntarily withdrew. Three days later, Management was issued a class B contractor’s
license, on which McCallister was the qualifying individual. Because Facilities failed to
designate another qualifying individual, its contractor’s license was suspended, and the
license expired by operation of law in November 2008. (§ 7068.2, subd. (c).)
McCallister’s withdrawal as the qualifying individual on the Facilities license was not
legally necessary to permit him to serve in that role for Management, since the Business
and Professions Code permits such overlap. (§ 7068.1, subds. (a), (b).)
At trial, Jacobs claimed to have performed an “internal assignment” of the contract
from Facilities to Management on the date the new license was issued to Management,
but the internal assignment was not documented by a written contract or, it appears, any
other writing. In explaining the internal assignment, Jacobs’s witnesses said the company
assigned performance of the “business functions” of Facilities to Management—
essentially, transferring responsibility for performing “the work” under the contract—as
of the date of Management’s licensure. If the Jacobs entities told JCC of the internal
assignment, it was not until much later.
Although Facilities had begun divesting itself of assets and employees in
December 2006, the Jacobs entities’ first documented mention of the reorganization to
JCC is an e-mail from April 2008, sent in connection with the negotiation of a different
contract. At that time, a Jacobs employee told JCC that, as a result of a corporate
reorganization, Facilities would not be the contracting entity on the new contract. During
a subsequent exchange of e-mails, the employee explained that Jacobs intended to
“novate” existing Facilities contracts to Management, once Management acquired the
necessary contractor’s license. In response, a JCC employee confirmed his
understanding that Jacobs intended to transfer the contract to a new operating entity.

5
 Jacobs did nothing to implement the intended novation of the contract until
December 2008, when a Jacobs employee sent a copy of a proposed novation agreement
to JCC under a “to whom it may concern” cover letter. Although JCC directed the letter
to a responsible JCC employee, neither he nor anyone else at JCC responded to it, and
Jacobs did nothing to follow up until eight months later, in August 2009, when the same
Jacobs employee sent the same proposed novation agreement again, this time addressing
the cover letter to a particular JCC employee. In the meantime, in February 2009, JCC
exercised the first of three discretionary one-year extensions of the contract. McCallister
executed the agreement extending the contract on behalf of Facilities.
Jacobs’s August 2009 letter seeking consent to a novation did raise a response
from JCC, but the parties displayed no urgency in transferring the contract until JCC
learned in October 2009 that Facilities had allowed its contractor’s license to lapse nearly
a year earlier. JCC was particularly concerned about appearances that the
“Administrative Office for the Courts, which represents the justice system, had a
contractor who was not in compliance with the law.” As a cure, the parties entered into
an agreement assigning the contract to Management in November 2009. Hereafter, we
will refer to this agreement as the “assignment,” distinguishing it from Jacobs’s earlier
internal reassignment of duties to Management, which we will refer to as the “internal
assignment.”
JCC filed this action in December 2009 against Facilities and Management. The
operative complaint, JCC’s second amended complaint (complaint), joined Jacobs as
well. The complaint alleges three causes of action: breach of contract growing out of the
expiration of Facilities’ contractor’s license;5 disgorgement under section 7031,
subdivision (b), which allows a person who has employed an unlicensed contractor to

5
In this cause of action, JCC included an allegation that Facilities and
Management “fail[ed] to purchase and manage all materials, equipment, and subcontracts
consistent with sound business practices,” but that contention seems never to have been
pursued. We are unaware of any evidence in the record to suggest the Jacobs entities’
performance of the work was deficient.

6
obtain “all compensation paid” to the contractor; and breach of guaranty against Jacobs.
Management cross-claimed against JCC for compensation payable under the contract that
JCC began to withhold after it learned the Facilities license had expired.
JCC’s statutory and contract claims were bifurcated, and the statutory claims
proceeded to trial in April 2012. Prior to trial, defendants requested a “substantial
compliance” hearing from the trial court. Under section 7031, subdivision (e), a
contractor who has failed strictly to comply with the CSLL can avoid disgorgement if the
“court” determines that the contractor substantially complied, as defined in
subdivision (e). Among other elements, the contractor must show that it “acted
reasonably and in good faith to maintain proper licensure.” (§ 7031, subd. (e)(2).) The
court granted defendants’ request, but it deferred the hearing until “after the case went to
the jury.”
Responding to a special verdict, the jury found Facilities had maintained a
contractor’s license at all times while performing the contract; Facilities had “internally
assign[ed]” the contract to Management prior to the expiration of the Facilities license;
JCC was not “adversely affect[ed]” by the internal assignment; and Management was
owed $4,669,376. The jury also found that Facilities had been paid $18,331,911 by JCC
for its work under the contract, but the jury declined to require Facilities to disgorge that
amount. The deferred substantial compliance hearing was never held.
In November 2013, JCC dismissed with prejudice its contract cause of action, and
Management dismissed the claims in its cross-complaint seeking relief other than
recovery under the unpaid invoices. On motion of the Jacobs entities, the trial court
entered a defense judgment on JCC’s statutory claim and Management’s counterclaim for
unpaid invoices, requiring JCC to pay Management the $4.7 million found by the jury.
The court thereafter summarily denied JCC’s motion for judgment notwithstanding the
verdict (JNOV). In February 2014, the trial court granted the Jacobs entities’ motion for
contractual attorney fees.

7
 JCC appeals the denial of its motion for JNOV and the award of attorney fees.6
II. DISCUSSION
A. Denial of JCC’s JNOV Motion
The evidence is essentially undisputed that Facilities contracted to deliver services
requiring a contractor’s license, allowed its license to expire, and continued to deliver the
services while unlicensed. On its face, this would appear to constitute a violation of the
CSLL, entitling JCC to the remedies specified in section 7031. While it might be argued
that the violation was merely a technical one, given Management’s licensure, this is an
argument for substantial compliance, an issue deferred by the trial court. Accordingly,
the question before the jury, and now before us, was whether defendants strictly complied
with the statute. Any failure of compliance, whether or not technical or de minimis,
requires reversal of the jury’s verdict.
Defendants argue we can affirm the jury’s conclusion the requirements of the
CSLL were met because (1) they did not violate the CSLL because the statute does not
penalize changes in a contractor’s form of business; (2) the internal assignment of the
contract from Facilities to Management prevented a violation; or (3) in executing the
assignment, JCC retroactively ratified an assignment from Facilities to Management as of
the time Management acquired its license, thereby avoiding a violation. We find none of
these arguments sufficient to uphold the verdict.
1. Applicable Law
The CSLL provides “a comprehensive scheme which governs contractors doing
business in California.” (Asdourian v. Araj (1985) 38 Cal.3d 276, 282 (Asdourian).)
“The purpose of the licensing law is to protect the public from incompetence and
dishonesty in those who provide building and construction services. [Citation.] 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.” (Hydrotech

6
The appeals of the two orders were filed separately and have been consolidated.

8
Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 995 (Hydrotech).) For purposes
of the CSLL, “a contractor is any person who undertakes to or offers to undertake to . . . ,
or does himself or herself or by or through others, construct, alter, [or] repair . . . any . . .
structure, project, development or improvement, or to do any part thereof . . . .” (§ 7026.)
There is no dispute the work undertaken by Facilities in the contract required a
contractor’s license.
The two provisions of the CSLL of concern here are designed to enforce
compliance with the CSLL’s licensing requirements. Section 7031, subdivision (a)
provides that no person “engaged in the business or acting in the capacity of a contractor”
can bring an action for compensation for work requiring a contractor’s license if the
person was not properly licensed at all times during the performance of the work.7
Section 7031, subdivision (b) goes further, permitting a person “who utilizes the services
of an unlicensed contractor” to bring an action for disgorgement of “all compensation
paid to the unlicensed contractor.”8 Although the language of the two provisions is
somewhat different, they are interpreted “in a consistent manner, resulting in the same
remedy regardless of whether the unlicensed contractor is the plaintiff or the defendant.”
(Alatriste v. Cesar’s Exterior Designs, Inc. (2010) 183 Cal.App.4th 656, 666 (Alatriste).)
The statutory intent behind subdivisions (a) and (b) is “to discourage persons who have
failed to comply with the licensing law from offering or providing their unlicensed

7
Section 7031, subdivision (a) states in full: “Except as provided in
subdivision (e), no person engaged in the business or acting in the capacity of a
contractor, may bring or maintain any action, or recover in law or equity in any action, in
any court of this state for the collection of compensation for the performance of any act
or contract where a license is required by this chapter without alleging that he or she was
a duly licensed contractor at all times during the performance of that act or contract,
regardless of the merits of the cause of action brought by the person, except that this
prohibition shall not apply to contractors who are each individually licensed under this
chapter but who fail to comply with Section 7029.”
8
Section 7031, subdivision (b) states in full: “Except as provided in
subdivision (e), a person who utilizes the services of an unlicensed contractor may bring
an action in any court of competent jurisdiction in this state to recover all compensation
paid to the unlicensed contractor for performance of any act or contract.”

9
services for pay.” (Hydrotech, supra, 25 Cal.3d at p. 995.) Because the remedies of
subdivisions (a) and (b) of section 7031 are essentially two sides of the same coin in
denying compensation to an unlicensed contractor, we will refer to the remedies jointly as
“forfeiture.” Both aspects of forfeiture are involved here, since JCC seeks disgorgement
of compensation paid under subdivision (b), while the Jacobs entities were awarded a
judgment for compensation withheld by JCC, which subdivision (a) would preclude them
from recovering if a CSLL violation were found.
Because it denies all compensation for a contractor’s work, regardless of the
quality of the work or the reasons for the failure of licensure, section 7031 can have harsh
and seemingly unfair effects. To mitigate these effects, our courts developed, in the
decades prior to 1990, the doctrine of “substantial compliance,” which was applied “in
exceptional circumstances [when] the purposes of the [CSLL] are not furthered by strict
enforcement of section 7031.” (Asdourian, supra, 38 Cal.3d at p. 282.) Recognizing the
“ ‘the severity of th[e] sanction’ ” imposed by section 7031, the courts did not “insist[] on
literal compliance [with the CSLL] in the situation in which the party seeking to escape
his obligation has received the full protection which the statute contemplates.’ ”
(Asdourian, at pp. 282–283.) To excuse a failure of strict compliance with the CSLL by
invoking the doctrine of substantial compliance, “the test [was] whether the contractor’s
‘substantial compliance with the licensing requirements satisfies the policy of the
statute.’ ” (Latipac, Inc. v. Superior Court (1966) 64 Cal.2d 278, 281.)
Judicial discretion in the enforcement of section 7031 came to an end in 1989,
when the Legislature amended section 7031 to abolish the doctrine of substantial
compliance. The new language stated unequivocally: “The judicial doctrine of
substantial compliance shall not apply to this section.” (Stats. 1989, ch. 368, § 1,
p. 1509; see MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc.
(2005) 36 Cal.4th 412, 429 (MW Erectors).) In an extensive discussion of the
amendment, MW Erectors characterized the statutory history as making clear the
Legislature intended “to narrow a ‘loophole’ created by the courts’ use of the substantial
compliance doctrine to avoid ‘apply[ing] the licensing law strictly.’ ” (Id. at p. 430.) The

10
unequivocal language of the amendment communicates unambiguously the Legislature’s
insistence on strict enforcement of section 7031. Although statutory amendments since
1989 have reintroduced a limited defense of substantial compliance, via subdivision (e)
of section 7031, compliance with the terms of subdivision (e) is the exclusive means for
avoiding forfeiture in the event of a violation of CSLL.9 (MW Erectors, at pp. 429, 432–
434; Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc. (2011) 198 Cal.App.4th 681,
694.)
Courts have taken their cue from the Legislature in enforcing the letter of the law,
consoled by the Legislature’s “ ‘ “determination that the importance of deterring
unlicensed persons from engaging in the contracting business outweighs any harshness
between the parties.” ’ ” (MW Erectors, supra, 36 Cal.4th at p. 423, italics omitted.)
Accordingly, if a contractor is unlicensed for any period of time while delivering
construction services, the contractor forfeits all compensation for the work, not merely
compensation for the period when the contractor was unlicensed. (Alatriste, supra,
183 Cal.App.4th at p. 665.) Although construction contractors often make substantial
payments to others for materials and labor, an unlicensed contractor forfeits all money
paid, without offsets for such payments to third parties. (Ahdout v. Hekmatjah (2013)
213 Cal.App.4th 21, 31 (Ahdout).) Because section 7031 is held to apply “ ‘[r]egardless
of the equities’ ” (MW Erectors, at p. 423), unlicensed contractors are prohibited from
asserting equitable defenses, such as estoppel, to forfeiture. (Twenty-Nine Palms
Enterprises Corp. v. Bardos (2012) 210 Cal.App.4th 1435, 1455 (Twenty-Nine Palms).)
On the contrary, “ ‘ “[c]ourts may not resort to equitable considerations in defiance of
section 7031.” ’ ” (Ahdout, at p. 31.) As a result, an unlicensed contractor is subject to
forfeiture even if the other contracting party was aware of the contractor’s lack of a
license, and the other party’s bad faith or unjust enrichment cannot be asserted by the
contractor as a defense to forfeiture. (MW Erectors, at p. 424.) For a contractor failing to

9
As discussed ante, the issue of statutory substantial compliance by the Jacobs
entities under subdivision (e) of section 7031 was raised below but not resolved.

11
qualify under the statutory safe harbor of subdivision (e), section 7031 is truly a strict
liability statute.
“ ‘ “The trial court’s power to grant a motion for JNOV is the same as its power to
grant a directed verdict. [Citation.] The court must accept as true the evidence
supporting the jury’s verdict, disregarding all conflicting evidence and indulging in every
legitimate inference that may be drawn in support of the judgment. The court may grant
the motion only if there is no substantial evidence to support the verdict. [Citations.] On
appeal from the denial of a motion for JNOV, we determine whether there is any
substantial evidence, contradicted or uncontradicted, supporting the jury’s verdict.” ’ ”
(Taylor v. Nabors Drilling USA, LP (2014) 222 Cal.App.4th 1228, 1237.) Where,
however, the trial court’s denial of JNOV is based on an issue of law, our review is de
novo. (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1138.)
2. Penalizing Changes in Business Form under the CSLL
As suggested above, we agree with JCC that, on the basis of what is materially
undisputed evidence, the Jacobs entities failed to comply with the CSLL. The analysis is
straightforward. Facilities contracted with JCC to supply services requiring a
contractor’s license. Although Facilities was licensed at the time the contract was made,
its license expired in November 2008. Yet Facilities continued to deliver services and
accept compensation from JCC as the signatory under the contract until November 2009,
when the assignment was executed. Because Facilities was unlicensed for a portion of
the period of its contract performance, its compensation under the contract is subject to
forfeiture under subdivisions (a) and (b) of section 7031.
Defendants argue section 7031 was not intended to penalize a violation resulting
from a mere change in business form, citing language to similar effect from E. J. Franks
Construction, Inc. v. Sahota (2014) 226 Cal.App.4th 1123 (Franks). In Franks, the sole
shareholder of the plaintiff corporation entered into a home construction contract as a
sole proprietorship. During performance of the contract, he incorporated the business,
creating the plaintiff corporation, and the contractor’s license that had been issued to him

12
in his personal capacity was reissued to his corporation.10 (Franks, at p. 1126.) The
corporation then took over work on the residence. (Id. at pp. 1126, 1131.) The
defendants sought to avoid payment for the corporation’s work under section 7031,
arguing it was not licensed at all times during the performance of the contract. (Franks,
at p. 1126.) The court held section 7031 inapplicable because at no time was work on the
home provided by an unlicensed contractor; rather, the court found, the circumstances
involved a mere change in business entity by a licensed contractor, thereby maintaining
proper licensure throughout. Section 7031, the court concluded, “is not intended to deter
licensed contractors from changing a business entity’s status and obtaining a reissuance
of the license to the new entity during a contract period.” (Franks, at p. 1129.)
While Franks may have reached the correct result on its facts, the broad
interpretation of its language urged by defendants cannot be justified, and the decision
should only cautiously be applied beyond the precise situation before that court. Franks
never mentions the doctrine of substantial compliance, but to the extent the court
purported to approve the delivery of services under a construction contract by an entity
that was not licensed at the time work on the construction began, the court was
necessarily invoking the now defunct doctrine.11 While it may be true that section 7031
was not intended to deter licensed contractors from changing the form of a business
entity, there is nothing in the statute to suggest that a violation of the CSLL occurring
during or as a result of such a change is excused. On the contrary, by restricting the
doctrine of substantial compliance to the circumstances established in section 7031,

10
Under the CSLL, a contractor’s license number may be reissued when an
individual licensee forms a corporation majority-owned by the licensee. (§ 7075.1,
subd. (c)(5).)
11
In fact, Franks does not stand for this proposition. As JCC points out, Franks
also based its holding on the apparently separate ground that the damages awarded to the
corporation “do not pertain to . . . work performed pursuant to the contract Franks, as an
individual or sole proprietor, entered into . . . .” (Franks, supra, 226 Cal.App.4th at
p. 1131.) Instead, the corporation only performed additional work not included in the
contract. (Ibid.) For that reason, JCC reasonably argues, the decision’s pronouncements
about the CSLL are dicta.

13
subdivision (e), the Legislature implicitly ruled that any CSLL violation not satisfying
subdivision (e), regardless of its cause, is subject to section 7031.12
For purposes of this decision, however, we need not decide whether Franks was
correctly reasoned. It is sufficient to note the decision’s rationale rested heavily on the
continuity of licensure resulting from reissuance of the license of the sole proprietorship
to the corporation, in effect perpetuating the license. As the court held, the CSLL was
not intended to deter a contractor from changing its business form and “obtaining a
reissuance of the license to the new entity.” (Franks, supra, 226 Cal.App.4th at p. 1129.)
That is not what happened here. Facilities did not change its business form, nor did it
transfer its license to another entity. Rather, an entirely new entity was created, and a
new contractor’s license was issued to Management. Following the licensure of
Management, Facilities retained both its corporate existence and its license, although the
license was suspended and eventually expired. Unlike the hand-off of both license and
business form that occurred in Franks, Jacobs maintained two separate business entities
and two licenses for a significant period of time. The continuity of license and business
entity that was central to the rationale of Franks was not present here.
Defendants do their best to analogize the circumstances here to those in Franks,
but their situation is different in critical ways. Defendants argue that during the
“challenged period,” which they define as the time between the expiration of Facilities’
license and the execution of the assignment, a licensed contractor, Management, was
performing the contract, and all payments made under the contract during that time were
allocated to Management, thereby preventing an unlicensed entity from receiving

12
If there is any doubt about the applicability of the substantial compliance
doctrine in the circumstances confronting Franks, the answer is found in Weiman v.
Superior Court (1959) 51 Cal.2d 710, in which the Supreme Court excused a failure of
licensure essentially identical to that in Franks by invoking the substantial compliance
doctrine. (Weiman, at pp. 713–714.) Franks does not cite or discuss either Weiman or an
earlier case reaching a similar result, Citizens State Bank v. Gentry (1937) 20 Cal.App.2d
415. Both, of course, were decided prior to the Legislature’s abolition of the substantial
compliance doctrine.

14
compensation. The statute, however, requires licensure throughout a period of “work,”
not merely during a selected time period during the performance of the contract
(Alatriste, supra, 183 Cal.App.4th at p. 665), and the circumstances prevailing
throughout the contract period diverge significantly from defendants’ characterization.
First, because the employees of Facilities appear to have been transferred to the
employment of Jacobs in 2007, and then to Management in February 2008, well before
its licensure, services under the contract were actually performed by unlicensed entities
for over 18 months, from January 2007 to mid-August 2008. Second, Management was
allocated compensation received under the contract for the entirety of 2008, not merely
after November. To the extent the internal allocation of funds is relevant, funds were
credited to an unlicensed entity for the first seven months of 2008.13 Finally, while the
compensation after 2007 may have been allocated to Management by Jacobs, it was
Facilities that collected the money by placing its name on the invoices. An unlicensed
entity therefore received the compensation after October 2008. In short, this was not a
seamless situation, like Franks, in which both license and performance were transferred
from one entity to another at precisely the same time, thereby preventing a period of
noncompliance.
In arguing their corporate reorganization did not result in a violation of the CSLL,
defendants contend disgorgement in these circumstances does not serve the statutory
purposes. Part of the Legislature’s purpose, however, was to impose “strict and harsh
penalties” (MW Erectors, supra, 36 Cal.4th at p. 418) in order to ensure contractor
compliance with the statute. As the Supreme Court noted in Hydrotech: “The purpose of
the licensing law is to protect the public from incompetence and dishonesty in those who

13
Defendants claim in their brief that “no compensation was received by an
unlicensed contractor.” In fact, it was Facilities that invoiced and received all
compensation prior to the assignment, and Facilities was unlicensed for part of that time.
Yet even if we accept defendants’ argument regarding internal allocation of the funds, the
claim is incorrect. The testimony in the record is undisputed that Management was
allocated funds received from JCC under the contract for the entire tax year 2008,
although it was not licensed until August of that year.

15
provide building and construction services. [Citation.] . . . [¶] 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.’ ” (Hydrotech, supra, 52 Cal.3d at
p. 995.) To the extent of serving that deterrent purpose, loss of compensation by the
Jacobs entities was fully within the Legislature’s intent.
Yet we acknowledge penalizing the Jacobs entities for these technical
transgressions only indirectly serves the CSLL’s larger purpose of preventing the
delivery of services by unqualified contractors, since the Jacobs entities were neither
dishonest nor incompetent.14 For better or worse, however, this is beside the point. The
doctrine of substantial compliance, as developed by the courts, attempted to limit the
forfeiture remedy to circumstances in which that remedy served the larger statutory
purpose. In that form, the doctrine was rejected by the Legislature. It is preserved in a
restricted statutory form; thus, courts can no longer exercise discretion in the application
of the doctrine. To avoid forfeiture for a CSLL violation, a contractor must now satisfy
the terms of section 7031, subdivision (e). (See generally MW Erectors, supra,
36 Cal.4th at pp. 432–434.) To the extent the contractor fails to satisfy that exception, the
courts have no choice but to allow forfeiture, regardless of the nature of the violation or

14
We reject JCC’s argument that defendants were in any way dishonest or
incompetent in carrying out the contract. There is simply no evidence in the record to
support either characterization. Jacobs’s failure of licensure was a result of the manner in
which it carried out its corporate reorganization, which had no apparent impact on the
manner in which it performed services under the contract.

16
its relation to the larger ends of the CSLL. “Our function is to ascertain and give effect to
legislative intent, and ‘not to determine whether the Legislature’s policy choices were
right or wrong.’ [Citation.] Courts may not evaluate the desirability of the policies
embodied in legislation. ‘ “[T]he choice among competing policy considerations in
enacting laws is a legislative function.” ’ ” (Alatriste, supra, 183 Cal.App.4th at p. 672.)
While we appreciate the potentially great harshness of this legislation in these
circumstances, any argument for expansion of the substantial compliance doctrine must
be directed to the Legislature.
3. The Effect of the Internal Assignment
Defendants argue Facilities internally assigned the contract to Management after
its acquisition of a license in August 2008, thereby avoiding a violation upon the
expiration of Facilities’ license. We conclude the internal assignment was irrelevant to
the issue of CSLL compliance because Facilities continued to act in the capacity of a
contractor until November 2009, when it was relieved of that role by the assignment.
Facilities was therefore required by the CSLL to maintain a contractor’s license until that
time.15
As a practical matter, the internal assignment shifted responsibility for providing
services under the contract from Facilities to Management. The requirement of licensure
under section 7031, however, does not necessarily adhere to the person who is
performing services under a construction contract. Rather, a license is required for any
person who is “engaged in the business or acting in the capacity of a contractor.” (Id.,
subd. (a).) Following the internal assignment, Facilities did not cease its involvement in
the contract. On the contrary, Facilities continued as the signatory on the contract,

15
JCC contends there is no substantial evidence to support the jury’s finding of an
internal assignment. Well before Jacobs claims to have undertaken the internal
assignment, it informed JCC that it intended to transfer responsibility for the contracts to
Management after Management obtained a license. Management thereafter acquired a
license, and its employees delivered services to JCC under the contract. We assume for
purposes of argument that this constitutes substantial evidence to support the jury’s
finding.

17
executed amendments to it, issued invoices and received payments, and maintained in its
own name on the insurance and bond required under the contract. Because JCC was
given no formal notification of the change, it continued to look to Facilities for
performance. By continuing to serve after the internal assignment as the contracting
entity in connection with work requiring a contractor’s license, Facilities continued to act
“in the capacity of” a contractor, notwithstanding Jacobs’s delegation of performance to
Management. Facilities therefore was required to be licensed until the time it was
relieved of this role by the assignment.
Controlling in this regard is Opp v. St. Paul Fire & Marine Ins. Co. (2007)
154 Cal.App.4th 71. The plaintiff in Opp, an individual, was a licensed contractor who
served as the president of an unlicensed corporation. Opp’s corporation executed a
subcontract for construction services under his individual license number. When Opp
brought an action for payment, the defendant asserted the bar of section 7031,
subdivision (a), arguing the corporate signatory to the contract was unlicensed. (Opp, at
pp. 72–73.) Opp claimed section 7031 was inapplicable because he used his personal
license number in executing the contract, personally supervised the work, and dealt with
the general contractor as a sole proprietor. (Opp, at p. 74.) The court rejected the
argument, distinguishing between Opp’s performance of work under the subcontract and
his corporation’s agreement to deliver that performance. As the court reasoned, the
CSLL does not necessarily require “the person who ‘does the work’ ” to possess a
license, but rather the person who qualifies as a contractor under the statute by acting in
the capacity of a contractor. (Opp, at pp. 74–75.) Such a person, the statute recognizes,
can perform construction services “himself or herself or by or through others.” (§ 7026.)
As the court concluded, “The issue, then, is not who ‘did the work,’ but who was
‘engaged in the business or acting in the capacity of a contractor.’ ” (Opp, at p. 75.)
Because Opp’s corporation undertook to provide construction services by executing the
contract, the court held, the corporation was required by the CSLL to possess a license,
and its failure to possess a license precluded its recovery of compensation for the work.

18
(Opp, at p. 75; see similarly Montgomery Sansome LP v. Rezai (2012) 204 Cal.App.4th
786, 797; Twenty-Nine Palms, supra, 210 Cal.App.4th at pp. 1449–1450.)
Putting aside the issue of ratification, considered below, there is no evidence to
suggest JCC gave its written consent to a transfer of responsibilities, required by the
contract to effect a valid assignment, prior to November 2009. Without the consent of
the obligee, the delegation of a duty by an obligor under a contract does not extinguish
the obligor’s duty. (Rest.2d Contracts, § 318, p. 19.) Accordingly, even if Facilities
unilaterally delegated its duties under the contract through an internal assignment to
Management in August 2008, Facilities remained responsible to JCC for the delivery of
services. Further, as noted above, Facilities continued to act as the contracting party vis-
à-vis JCC, executing contract amendments, maintaining insurance, and sending invoices
in its own name. Under the rule of Opp, Facilities’ delegation of performance under the
contract to Management did not relieve Facilities of its obligation under the CSLL to
remain licensed so long as it was obligated to deliver services under the contract.
For this reason, we conclude the jury’s finding that Facilities maintained a
contractor’s license “at all times while engaged in the business or acting in the capacity
of a contractor in connection with” the contract is not supported by substantial evidence.
The evidence is undisputed that Facilities continued to act as a contractor by remaining
the signatory on the contract and accepting compensation even after its license expired in
November 2008. Defendants contend that Management’s assumption of day-to-day work
under the contact provided evidence to support the jury’s finding but Management’s
performance of such work did not preclude Facilities from continuing to act as a
contractor. In remaining the signatory on the contract, continuing to secure bonding and
insurance, executing contract amendments, and soliciting and receiving payments,
Facilities continued to act as a contractor after the lapse of its license. Management’s
assumption of day-to-day duties is not evidence to the contrary.
Defendants argue that following the internal assignment, Facilities was merely a
surety of Management’s performance and therefore did not require a license, citing
Wiseman v. Sklar (1930) 104 Cal.App. 369 and Cutting Packing Co. v. Packers’ Exch.

19
(1890) 86 Cal. 574, 577. Neither case relieves Facilities of its responsibilities here. In a
sentence quoted only partially by Facilities in its brief, the Wiseman court explained the
effect of an unconsented assignment: “ ‘The obligations of an assignor of a contract
continue to rest upon him and he will be required to respond to the other party to the
contract in the event of a default on the part of the assignee.’ ” (Id. at p. 374.) As a
result, “irrespective of the legality or lack of legality of the assignment, [the assignor]
was at all times responsible to [the other parties] under the contract.” (Id. at pp. 374–
375.) As this demonstrates, Wiseman does not suggest that, following an unconsented
assignment, the obligor under a contract is relegated to the role of surety. Cutting
Packing is similar. While the decision refers to the assignor as a surety, the term is used
only to describe the assignor’s relationship to the assignee; that is, if the assignee failed to
pay, the assignor would be required to pay. With respect to the obligee under the
contract, “the burden of the obligation that rested upon the [assignor] . . . could not be
transferred without the consent of [the obligee]. [Citation.] And as he refused to consent
. . . the relations of himself and the plaintiff as to such burden were not affected by the
assignment of the contract.” (Id. at p. 576.)16 Accordingly, as to JCC, the internal
assignment did not alter Facilities’ duties under the contract.
Yet even if Facilities became a common law surety, it would not have been
relieved of the duty of licensure under the CSLL, given its continued status as the
contracting party after the internal assignment. Section 7044.2, the exception for sureties
cited by Facilities, applies only to an “admitted surety insurer,” and only when it
“engages a contractor to undertake the completion of a contract on which a performance
or completion bond was issued by the surety insurer.” There is no evidence Facilities
was an admitted surety insurer or had issued a bond to guarantee performance. (See

16
The Supreme Court confirmed this principle in Peiser v. Mettler (1958)
50 Cal.2d 594: “It has sometimes been said that the effect of an assignment is to make
the lessee a surety for the assignee. [Citations.] This may be true in a limited sense as
between the assignee and his assignor, the lessee, but as between the lessor and the lessee
the latter remains a primary obligor under his express contract to pay rent.” (Id. at
p. 602.)

20
Code Civ. Proc., § 995.120, subd. (a) [defining admitted surety insurer as “a corporate
insurer or a reciprocal or interinsurance exchange” licensed under the Ins. Code].)
Nothing in the Business and Professions Code outside section 7044.2 exempts a surety
from the requirement of licensure while acting in the capacity of a contractor.
Defendants also argue the internal assignment did not require JCC’s approval
because it resulted from a corporate reorganization. The principle was first suggested in
Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335 (Trubowitch), in which the
plaintiff, an assignee, sought to arbitrate a dispute over nondelivery of fruit under a
contract containing a nonassignment clause. After the contract was made, the original
party, a corporation, was dissolved, and its assets were distributed to its shareholders,
who carried on the business. (Id. at pp. 337–338.) The defendant resisted arbitration
over its nondelivery because it had not consented to an assignment to the shareholders.
(Id. at p. 338.) In considering the issue, the court held, “if an assignment results merely
from a change in the legal form of ownership of a business, its validity depends upon
whether it affects the interests of the parties protected by the nonassignability of the
contract.” (Id. at pp. 344–345.) In finding the assignment valid under this principle,
Trubowitch reasoned the “seller’s financial interests were fully protected” because the
contract involved only the delivery of goods and contained provisions ensuring payment
would be made. (Id. at p. 346.) The court distinguished such a contract from one for the
provision of “services requiring special skill, capacity or taste.” (Ibid.)
In the second decision cited by defendants, People ex rel. Dept. Pub. Wks. v.
McNamara Corp. Ltd. (1972) 28 Cal.App.3d 641 (McNamara), the defendant corporation
was granted a state construction contract. Following its entry into the contract, the
defendant assigned its interest in the contract to its wholly owned subsidiary without
obtaining the state’s consent. (Id. at p. 645.) After performance of the contract was
“brought to satisfactory completion” (ibid.), the state defended against a claim for
payment, in part, by contending the contract was rendered unenforceable as a result of the
lack of consent. While the court quoted Trubowitch in reaching its conclusion, it
ultimately held that the assignment did not render the contract unenforceable because the

21
unconsented assignment was ineffective. Because the parent corporation remained
responsible to the state under the contract, the court held, to deny enforcement “would be
to exalt form above substance.” (Id. at p. 649.)
Accordingly, neither Trubowitch nor McNamara holds that contracts are freely
assignable among the wholly owned subsidiaries of a corporate parent, notwithstanding
the presence of a nonassignment clause. The holding in Trubowitch was actually quite
narrow. The contract was merely for the delivery of goods, and there were provisions in
the contract to ensure the defendant would receive payment for the goods. (Trubowitch,
supra, 30 Cal.2d at p. 346.) The court expressly noted that a different result was likely if
the contract required, as here, “services requiring special skill, capacity or taste.” (Id. at
p. 346.) McNamara, in turn, appears to have based its holding on the ineffective nature
of an unconsented assignment. Just as we have held with respect to Facilities,
McNamara found the defendant, the putative assignor, continued to have an “unaltered
duty . . . to perform the contract” notwithstanding the assignment, since, in the absence of
state consent, the assignment was ineffective to shift the defendant’s obligation to the
state to perform. (McNamara, supra, 28 Cal.App.3d at p. 649.) Both decisions are
therefore consistent with our conclusion that the internal assignment did not relieve
Facilities of its status of obligor under the contract.
The essence of defendants’ argument is that there was no CSLL violation because
Management, following its licensure, began performing day-to-day work under the
contract well before the lapse of Facilities’ license. Indeed, Facilities was incapable of
such work, because the necessary employees and assets had been transferred to
Management. The CSLL is not necessarily satisfied merely because the person or entity
actually performing services under a contract is licensed. (See, e.g., Vallejo Development
Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 940 [unlicensed entity that
entered into contract and claimed merely to be the “ ‘administrator’ ” of work barred
from recovery].) Rather, a license is required for any person who is “engaged in the
business or acting in the capacity of a contractor.” (§ 7031, subd. (a).) In remaining the
responsible party on the contract, Facilities continued to act as a contractor well past the

22
lapse of its license. Further, while Facilities may not have maintained the employees
necessary to perform day-to-day work, it continued in corporate existence and retained
officers, thereby permitting it to carry out such administrative duties as securing
insurance and bonding, soliciting and accepting payment, and executing contract
amendments. Because these activities were in the capacity of a contractor, Facilities was
required to be licensed until execution of the assignment relieved it of that responsibility.
4. Ratification Through the Assignment
Even if the internal assignment was ineffective in avoiding a forfeiture, defendants
argue (1) JCC ratified the internal assignment in executing the assignment and (2) the
assignment itself was retroactive or related back to the date of the internal assignment. It
is by no means clear that a violation of the CSLL can be cured after the fact in this
manner, but we assume its effectiveness for purpose of argument.
The parties to the assignment are JCC and the three Jacobs entities. The recitals of
the assignment state (1) Jacobs, at some unspecified time, notified JCC that due to a
corporate consolidation Facilities would no longer enter into contracts for the type of
services provided under the contract and that such services “are” being performed by
Management; (2) in furtherance of Jacobs’s corporate consolidation, the assignment “is
intended to evidence [Facilities’] assignment of the Contract to [Management], and
[Management’s] assumption of the Contract”; (3) Facilities “desires to memorialize its
assignment of the Contract to [Management]”; (4) Management “desires to memorialize
its assumption of the Contract”; and (5) Management possesses the qualifications to
perform under the contract. The covenants of the assignment include an assignment of
the contract from Facilities to Management,17 a ratification by Management of “all
actions taken by [Facilities] under or with respect to the Contract,” a warrant by
Management of its suitability, a consent by JCC to the assignment, and a guaranty by

17
This covenant states, Facilities “hereby . . . assigns and transfers the Contract to
[Management]. [Management] hereby assumes the Contract from [Facilities], including
all of [Facilities’] rights, . . . responsibilities, and liabilities under or flowing from the
Contract as if [Management] was the original party to the Contract.”

23
Jacobs of Management’s performance. The covenant of assignment states Management
assumes the contract “as if [Management] was the original party to the Contract.” JCC’s
consent states: “The State hereby executes and enters into this Agreement solely for the
purpose of consenting to, and the State hereby consents to, the Assignment and
Assumption of the Contract on and subject to the terms and conditions set forth in this
Agreement.”
Defendants argue the jury could have relied on the assignment as evidence in
finding a ratification of the internal assignment. In making this argument, defendants
seek to convert what would appear to be an issue of contract interpretation into an issue
of fact, thereby invoking the deferential standard of review applicable to appellate review
of findings of fact. We might agree with defendants if there were some other evidence to
support a finding of ratification. That is not the case. There is no indication the parties
even discussed JCC’s ratification of the internal assignment. Instead, Facilities’ only
evidence of a ratification is the effect of the assignment. The issue is therefore one of
contract interpretation, to which we apply de novo review. (Pittsburg Unified School
Dist. v. S.J. Amoroso Construction Co., Inc. (2014) 232 Cal.App.4th 808, 826.)
We find little or nothing in the assignment to support a conclusion JCC ratified the
internal assignment. Most importantly, there is no express covenant of ratification. If the
parties had intended for JCC to ratify the internal assignment, it would have been simple
for them to include such a covenant. To the contrary, in the places in the agreement
where one might expect confirmation of a ratification by JCC, it is absent. Most
obviously, the provision entitled “Ratification” refers only to Management’s ratification
of actions taken by Facilities under the contract; there is no mention of ratification by
JCC of the internal assignment. In addition, the covenant relating to JCC’s consent to the
assignment, another logical place to insert a provision relating to ratification by JCC,
makes no mention of it. That provision states only that JCC consents to the assignment
itself, not to any earlier internal assignment.
As discussed above, the assignment contained a series of recitals that referred
indirectly to the internal assignment. One of these constituted an acknowledgement by

24
JCC that, at some unspecified date prior to the execution of the assignment, Facilities had
notified JCC that Management was actually performing the services being delivered
under the contract. Defendants argue from this and the other recitals that the assignment
should be interpreted as effecting the internal assignment, which occurred over a year
earlier. The language of the covenants suggests otherwise. The language of the
assignment covenant states Facilities “hereby . . . assigns and transfers the Contract” and
Management “hereby assumes the Contract.” Both are phrased in the present tense,
implying the transfer of rights and duties occurred by means of the assignment itself, at
the time of execution of the assignment. There is no reason to construe this language to
ratify or recognize an earlier transfer.
Defendants also argue the language in the assignment covenant stating
Management assumes the contract “as if [Management] was the original party to the
Contract” is evidence of a ratification. The meaning and legal implications of this phrase
are unclear, but there is no reason to construe it as a ratification of the internal
assignment, which did not occur until two years after the execution of the contract. If the
language were taken literally, it would substitute one CSLL violation for another, since
Management did not possess a license until two years after performance of the contract
began.18
Defendants also argue JCC “relinquished its right to object to the [internal]
assignment because a subsequent consent to a prior assignment ‘relates back to the time
of the assignment,’ ” quoting University of Judaism v. Transamerica Ins. Co. (1976)
61 Cal.App.3d 937, 942 (Transamerica). As part of its acquisition of real property, the
plaintiff in Transamerica was assigned a fire insurance policy covering the property,
issued by the defendants. No change in use occurred as a result of the acquisition, since

18
In this connection, defendants cite the long-standing principle that “ ‘if an
agreement can be reasonably interpreted so as to avoid a forfeiture, it is the duty of the
court to avoid it.’ ” (Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751,
771.) For the reasons discussed above, we do not believe it would be reasonable to
construe the assignment as ratifying the internal assignment.

25
the lessee of the property was the same before and after. One month later, the property
burned, and the defendants were not notified of the assignment of their policy until after
the fire. (Id. at p. 939.) They attempted to cancel the policy, citing a clause requiring the
insurers’ consent to any assignment. (Id. at p. 940.)
In denying cancellation, the court noted the purpose of the nonassignment
provision was to prevent an increase of risk of loss due to a change of ownership without
the knowledge of the insurer. (Transamerica, supra, 61 Cal.App.3d at p. 940.) The court
explained: “In this case, had notice been promptly given prior to the loss, defendants
would have routinely approved the assignment of the policy to plaintiff. . . . There is
no evidence that the change of ownership in any way increased the risk to defendants.
Since the change of ownership did not increase the risk to defendants, and they would
have routinely approved the assignment, they cannot claim they suffered any prejudice
from the late notice. [Citation.] [¶] . . . [¶] The language of the provision is consistent
with plaintiff’s theory that defendants should be deemed to have consented to the
assignment, and that such consent relates back to the time of the assignment. . . . To avoid
a forfeiture, plaintiff may, in lieu of express approval, show that the assignment would
have been routinely approved.” (Id. at p. 942, fn. omitted.) The holding of Transamerica
is an exception to the general rule of law, which enforces nonassignment clauses in
insurance contracts. (E.g., Henkel Corp. v. Hartford Accident & Indemnity Co. (2003)
29 Cal.4th 934, 943–945.)
We conclude Transamerica’s finding of deemed approval and relation back must
be restricted to the assignment of standard property insurance policies, the situation
before the Transamerica court. It seems likely, as the court believed, that property
insurers routinely approve the assignment of their policies from the seller to the purchaser
of covered property when the underlying use of the property does not change. In the
absence of a change in use, there is unlikely to be a good faith reason to refuse. Further,
if an assignment is approved, the approval necessarily relates back to the date of the sale
in order to avoid a lapse in insurance coverage. There is no basis, however, for applying
this rule to the assignment of other, less standardized contracts. To do so would cause the

26
enforceability of nonassignment clauses to depend upon an after-the-fact evaluation of
the likelihood of routine approval of a typical assignment, an entirely impractical
standard.
In any event, there was no evidence to suggest JCC would “routinely” consent to
the type of assignment sought by Facilities, as required by Transamerica. JCC engaged
in a formal RFP process in order to find a suitable service provider. Any change in
provider, even if due to a corporate reorganization, would require similar due diligence.
JCC would necessarily have wanted to satisfy itself the assignment posed no business
risk, even if the assignment merely recognized a change in corporate structure. Simply as
a matter of fact, JCC delayed when first approached for a novation, and it refused to sign
an assent to novation and would not consent to the assignment without a guarantee of
performance by Jacobs. There was nothing routine about its consent.19
Nor is there any justification for finding that JCC’s consent relates back to the
time of the internal assignment. As noted above, such consent is necessary in the
insurance context to avoid a lapse in coverage. While defendants argue relation back was
necessary here to avoid the lapse in licensure, there is no reason to conclude JCC’s duty
of good faith required it to absolve Facilities of its lapse in licensure, in the same way the
insurer’s duty of good faith required it to maintain coverage. As noted by Transamerica,
the insurers accepted premium payments made after the assignment; providing coverage
was simply delivering the services for which they had already accepted compensation.
There is no parallel circumstance here.20

19
Defendants argue JCC and Facilities “routinely” entered into written contracts
“long after they had modified their contractual relationship.” While this may be true, it
does not mean that the alteration itself was routinely approved. In any event, there is no
evidence the “contractual relationship” between JCC and Facilities was “modified” by
the substitution of Management prior to execution of the assignment. Any earlier
substitution was a unilateral action by the Jacobs entities.
20
Defendants also argue JCC “led Jacobs to believe it would not object to
[Management’s] assumption” of the contract when a novation was first proposed in 2008.
While that may be true, JCC never suggested to the Jacobs entities that the approval,
when it occurred, would be deemed retroactive. There is no basis for estoppel.

27
 Defendants once again raise Trubowitch and McNamara in this context, arguing,
in effect, that even if the internal assignment was not effective at the time it was entered
into, given JCC’s right of consent, we should view JCC’s eventual consent as retroactive
because the assignment was the result of a mere corporate reorganization and, as the jury
found, did not harm JCC’s interests. (Trubowitch, supra, 30 Cal.2d at pp. 345–346.) At
this point, we run into the abolished doctrine of substantial compliance. As discussed
above, JCC’s interest in the prospective performance of the contract was sufficient to
preclude its free assignment among wholly owned subsidiaries of Jacobs. JCC had the
contractual right to approve such a change, even if it was merely the result of a corporate
reorganization. To find that the assignment had a retroactive effect merely because
Facilities’ breach of the assignment clause did not harm JCC, when the ordinary
principles of law discussed above provide no grounds for finding the assignment to be
effective prior to its effective date, would be to invoke a special rule excusing a
section 7031 remedy because a violation of the CSLL was harmless. This is just the type
of rule-bending precluded by the Legislature when it abolished the substantial
compliance doctrine.
Defendants also argue JCC waived its right to object to the internal assignment by
dealing with Management at a time when it had knowledge of the assignment, citing
Trubowitch. (Trubowitch, supra, 30 Cal.2d at p. 342.) Assuming the applicability of the
principle in this context, the record does not support a finding that the Jacobs entities
informed JCC of the internal assignment prior to execution of the assignment. The initial
notification, in April 2008, merely informed JCC that Jacobs intended to execute a
novation transferring the contract from Facilities to another subsidiary at some point in
the future. Thereafter, Jacobs sent proposals to JCC seeking its consent to a novation,
and it continued to send invoices and execute contractual documents in the name of
Facilities. There is no evidence Jacobs informed JCC it had unilaterally assigned the
contract to Management, and Jacobs’s continued attempts to negotiate a formal
assignment of the contract suggested otherwise.

28
 Defendants additionally contend the internal assignment was not void but
voidable, citing People v. Klopstock (1944) 24 Cal.2d 897 (Klopstock), and argue JCC
effectively affirmed the internal assignment when it entered into the assignment. In
Klopstock, a party’s claim of right in property derived from the assignment of a lease,
which had occurred without the consent of the lessor. After the lessor learned of the
assignment, it objected but “served no notice terminating or declaring a forfeiture of the
lease.” (Id. at p. 899.) The court held that the lessor’s objection to the assignment, in the
absence of a formal declaration of forfeiture, was ineffective to prevent the vesting of
property rights in the assignee. As the court explained, the assignments of the lease
“though made without the written consent of the lessor, were merely voidable, not void;
there was no ipso facto termination of the lease by reason of the lessee’s failure to obtain
the lessor’s written consent to assignment.” (Id. at p. 901.) Because the lessor did not
“take advantage of the exclusive remedy available to it for termination of the lease” by
“declaration of a forfeiture upon proper notice,” the court held, the lessor did not prevent
the passing of property rights through assignment. (Id. at p. 902, italics omitted.)
As the foregoing account suggests, the principle announced by Klopstock is unique
to lease law: the unconsented assignment of a lease can be voided by the lessor’s
declaration of forfeiture, but it is valid unless and until such a declaration has been made.
(Klopstock, supra, 24 Cal.2d at pp. 901–902.) Klopstock does not purport to make this
principle applicable outside lease law, in which there are no comparable procedural
requirements for the rejection of an assignment, and subsequent decisions have applied
the decision solely within that framework. (E.g., Guerin v. Blair (1949) 33 Cal.2d 744,
746–747; Weisman v. Clark (1965) 232 Cal.App.2d 764, 767.) With respect to an
ordinary contract containing a nonassignment clause, an unconsented assignment, rather
than effective until voided, is simply ineffective. Taking the present situation as an
example, it is inconsistent with contract law to claim, following the internal assignment,
that JCC was required to accept performance from Management unless or until it voided
the contract. On the contrary, JCC had the right to insist on performance by
Facilities until or unless it had consented to the assignment. To hold otherwise would, in

29
effect, permit Jacobs to force JCC to accept the internal assignment or forfeit the contract,
a choice inconsistent with JCC’s contractual right to approve any assignment.
Accordingly, JCC’s act in entering into the assignment did not affirm the earlier internal
assignment; rather, it effected an assignment as of the effective date of the assignment.21
5. Conclusion
We view the jury’s verdict as an attempt to reach an equitable resolution, given the
harsh consequences to defendants from the strict application of section 7031. The Jacobs
entities’ violation of the statute, clear as it is, appears to have resulted from the manner of
execution of their corporate reorganization, rather than any attempt to evade licensure
requirements. But though the jury was unwilling to give its imprimatur to the forfeiture
of income, that is the remedy the Legislature has prescribed, and our task is to implement
the Legislature’s prescription. Accordingly, we reverse the judgment.
B. Substantial Compliance
Defendants request that, in the event the judgment is reversed, the matter be
remanded for the conduct of a substantial compliance hearing. We find such a remand
appropriate.
1. Waiver of Hearing
As discussed above, section 7031, subdivision (e) codifies the substantial
compliance defense to enforcement of the forfeiture remedy. 22 Defendants asserted a

21
As a final matter, defendants’ counsel contended for the first time at oral
argument that Management was entitled to recover the unpaid sums awarded by the jury
even if Facilities was not, because the sums accrued at a time when Management, a
licensed entity, was performing the services under the contract. The issue was waived
when defendants failed to raise it in their respondents’ brief. (Benach v. County of Los
Angeles (2007) 149 Cal.App.4th 836, 852.) In any event, Management lacks standing to
recover under the contract because it was not a party to the contract during the time when
the unpaid bills accrued. (Bleavins v. Demarest (2011) 196 Cal.App.4th 1533, 1542–
1543.) While defendants asserted a claim for unjust enrichment in the counterclaim, it is
well-established that equitable theories cannot be employed to overcome a failure of
licensure. (Ahdout, supra, 213 Cal.App.4th 21, 31.)
22
Section 7031, subdivision (e) provides, in relevant part: “[T]he court may
determine that there has been substantial compliance with licensure requirements under

30
substantial compliance defense in their answer to the complaint and requested a
substantial compliance hearing when the parties appeared for trial. The court granted the
request “with the understanding that the hearing would take place after the case went to
the jury and that the type [sic] would rely on trade testimony as the evidentiary hearing
that’s required by statute and that counsel could offer more evidence especially for that
hearing if they needed or wanted to do so.” Counsel clarified with the court that the
hearing would occur “at the conclusion of the trial,” which the court confirmed.
Defendants never thereafter requested a substantial compliance hearing, either at the
close of evidence or after judgment.
JCC contends defendants forfeited such a hearing when they failed to request it
after submission of the case to the jury and before the jury returned with its verdict. We
do not understand the trial court’s ruling to have anticipated that the hearing would occur
immediately after the matter was sent to the jury. On the contrary, because there would
be no way of knowing how long the jury’s deliberations would require, it would make no
sense to hold a hearing immediately after submission. Rather, we interpret the court as
deferring the substantial compliance hearing until after trial, as defendants’ counsel
suggested.
Further, we find no forfeiture. Defendants timely requested a substantial
compliance hearing. The trial court granted the request but deferred the hearing until
after the jury rendered its verdict. Once the defense judgment was entered, a substantial
compliance hearing became superfluous. Defendants should not be deprived of their
right to prove compliance with section 7031, subdivision (e) merely because the trial
court chose to defer the matter and they prevailed at trial. (See Pacific Caisson &

this section if it is shown at an evidentiary hearing that the person who engaged in the
business or acted in the capacity of a contractor (1) had been duly licensed as a contractor
in this state prior to the performance of the act or contract, (2) acted reasonably and in
good faith to maintain proper licensure, (3) did not know or reasonably should not have
known that he or she was not duly licensed when performance of the act or contract
commenced, and (4) acted promptly and in good faith to reinstate his or her license upon
learning it was invalid.”

31
Shoring, Inc. v. Bernards Bros. Inc., supra, 198 Cal.App.4th 681, 693–696 [where court
failed to address issue of substantial compliance in granting summary judgment,
contractor was entitled to remand for a trial on the issue].) The sole case cited by JCC in
support, Maxwell v. Powers (1994) 22 Cal.App.4th 1596, is wholly inapposite.
We also decline JCC’s invitation to find as a matter of law that the Jacobs entities
failed to comply with section 7031, subdivision (e). To demonstrate substantial
compliance, a contractor must show it was licensed prior to performing, acted reasonably
and in good faith to maintain its license, was unaware of any failure of licensure upon
commencement of performance, and acted promptly and in good faith to reinstate its
license upon learning it was invalid. (Ibid.) As the trial court anticipated in its ruling,
this demonstration may require the presentation of evidence on matters that were not
directly relevant to the issues before the jury. Defendants are entitled to a full evidentiary
hearing on the issues relevant to the elements of substantial compliance under
subdivision (e).
2. Nature of Hearing on Remand
In ruling that defendants have not waived their right to a substantial evidence
hearing, we have assumed that section 7031, subdivision (e) requires resolution of the
issue by a judge, rather than jury. That appears to have been defendants’ assumption in
seeking such a hearing from the trial court. Rather than rely on an unexamined
assumption, however, we asked the parties for supplemental briefing regarding the nature
of the hearing to be conducted on remand.23 Reviewing the issue de novo (Hopkins v.

23
In their supplemental briefing, the parties expressed concern that this issue is
being raised for the first time on appeal. As suggested, the issue is potentially pertinent
to JCC’s claim of waiver; if defendants had a right to jury trial on the issue of substantial
compliance but failed to submit the issue to the jury, it was arguably waived. In any
event, the issue is one of law and has been fully briefed by the parties. In aid of the trial
court on remand, appellate courts may address legal issues that necessarily will arise later
in the proceeding. (E.g., Kurtin v. Elieff (2013) 215 Cal.App.4th 455, 482; In re
Marriage of Iverson (1992) 11 Cal.App.4th 1495, 1502, disapproved on other grounds in
People v. Freeman (2010) 47 Cal.4th 993, 1006, fn. 4; see Code Civ. Proc., § 43.)

32
Kedzierski (2014) 225 Cal.App.4th 736, 744), we conclude our assumption was correct.24
On remand, the substantial evidence hearing must be conducted by the court.
Section 7031, subdivision (e) states that “the court may determine that there has
been substantial compliance with licensure requirements under this section if it is shown
at an evidentiary hearing” that the contractor satisfied the statutory requirements. Based
on this language, there is little room for doubt that the Legislature intended the
determination of substantial compliance to be made by a judge, rather than a jury. The
language of the Legislature’s instruction, that “the court” make the determination after an
“evidentiary hearing,” is ordinarily used to indicate resolution by a judge. (Mendoza v.
Ruesga (2008) 169 Cal.App.4th 270, 285; e.g., Evid. Code, § 402 [preliminary
determinations of evidence admissibility to be made by “court” out of the presence of
jury]; Code Civ. Proc., §§ 116.520, 116.610 [“court” to hear matters in small claims
court].) Reflecting trial courts’ similar understanding of this language, the statutory
substantial compliance determinations reviewed in reported appellate decisions have been
made by judges, rather than juries. (E.g., Oceguera v. Cohen (2009) 172 Cal.App.4th
783, 788–789; Construction Financial v. Perlite Plastering Co. (1997) 53 Cal.App.4th
170, 174.)
This conclusion is reinforced by the equitable nature of the substantial compliance
doctrine. Equitable matters are traditionally reserved for resolution by the court. (See
generally Hoopes v. Dolan (2008) 168 Cal.App.4th 146, 155–156 (Hoopes).) Substantial
compliance, a doctrine established long before its adoption in the context of the CSLL, is
considered to arise in equity. (See, e.g., Knapp Development & Design v. Pal-Mal
Properties, Ltd. (1985) 173 Cal.App.3d 423, 436 [referring to “equitable considerations”
in connection with § 7031 substantial compliance]; Roth v. Morton’s Chef Services, Inc.
(1985) 173 Cal.App.3d 380, 387 [substantial compliance is an “equitable defense” in a

24
In its supplemental letter brief, JCC asks us to also address whether (1) the issue
of substantial compliance is subject to summary adjudication and (2) a trial court may
decline to exercise its discretion to find substantial compliance, despite finding the
statutory elements to be satisfied. We decline to do so.

33
wrongful detainer action]; Hill v. Newkirk (1994) 26 Cal.App.4th 1047, 1059 [labeling
substantial compliance an “equitable doctrine” as a defense to failure to comply with
California Tort Claims Act]; Knight v. Black (1912) 19 Cal.App. 518, 525–526
[substantial compliance, asserted to avoid forfeiture of a lease, “appeals to the equity side
of the court”].) Given the equitable nature of the substantial compliance doctrine, it is
unsurprising that the Legislature would assign its determination to the court, rather than a
jury.25
Defendants contend that, regardless of the Legislature’s intent, they have a
constitutional right to the jury determination of substantial compliance. “[T]he state
constitutional right to a jury trial ‘is the right as it existed at common law in 1850, when
the Constitution was first adopted . . . .’ [Citations.] [¶] ‘As a general proposition, “[T]he
jury trial is a matter of right in a civil action at law, but not in equity.” [Citations.]’
[Citation.] ‘[I]f the action is essentially one in equity and the relief sought “depends upon
the application of equitable doctrines,” the parties are not entitled to a jury trial.’
[Citation.] And ‘if a proceeding otherwise identifiable in some sense as a “civil action at
law” did not entail a right to jury trial under the common law of 1850, then the modern
California counterpart of that proceeding will not entail a constitutional right to trial by
jury.’ ” (Franchise Tax Bd. v. Superior Court (2011) 51 Cal.4th 1006, 1010.)
Defendants’ counterclaim for payments withheld under the contract was asserted
under section 7031, but it was premised on the contract. We therefore assume for
purposes of argument that it was legal in nature. Although disgorgement is ordinarily
viewed as an equitable remedy (Cruz v. PacifiCare Health Systems, Inc. (2003)

25
Defendants contend that when interpreted to require court determination,
section 7031 conflicts with Code of Civil Procedure section 592, which states that issues
of fact arising in the context of breach of contract actions are to be tried by a jury.
Section 592 has generally been interpreted as codifying the common law distinction
between law and equity and “does not expand the jury trial right beyond its common law
scope.” (Crouchman v. Superior Court (1988) 45 Cal.3d 1167, 1174.) For that reason,
we do not view the issue of the availability of a jury under section 592 as different from
the issue of its availability under the state Constitution, discussed below.

34
30 Cal.4th 303, 307, 317–318), when, as here, “liability is definite and damages may be
calculated without an accounting, the action is legal,” even though the relief is in the
nature of disgorgement. (American Master Lease LLC v. Idanta Partners, Ltd. (2014)
225 Cal.App.4th 1451, 1483.) JCC’s cause of action is therefore likely legal, as well.
That is not the end of the issue. As Hoopes noted, “Complications arise when
legal and equitable issues (causes of action, requested remedies, or defenses) are asserted
in a single lawsuit.” (Hoopes, supra, 168 Cal.App.4th at p. 156.) In that situation, “The
lawsuit is rarely treated as a single unit for purposes of determining the right to a jury
trial. [Citations.] In most instances, separate equitable and legal issues are ‘kept distinct
and separate,’ with legal issues triable by a jury and equitable issues triable by the court.”
(Ibid.)
When equitable defenses are interposed to a legal cause of action, the “proper
rule” is for the court to hear and dispose of the equitable defenses first, before submitting
the legal claim to a jury. (Swasey v. Adair (1891) 88 Cal. 179, 180 (Swasey); Hoopes,
supra, 168 Cal.App.4th at p. 157 [“better practice” is for the court to decide equitable
issues first]; Stephen Slesinger, Inc. v. Walt Disney Co. (2007) 155 Cal.App.4th 736,
763.) Alternatively, the court may try all issues in one proceeding, with the jury sitting in
an advisory role with respect to factual issues applicable to the equitable issue. (A-C Co.
v. Security Pacific Nat. Bank (1985) 173 Cal.App.3d 462, 473; but see Swasey, at p. 181
[equitable defense that could be asserted in independent suit against the plaintiff must be
heard first].) In that circumstance, it remains “the duty of the trial court to make its own
independent findings . . . . [Citation.] There is no authority for asking a jury’s advice as
to ‘whether injustice can only be avoided by enforcing the promise’ or, more generally,
whether the equitable doctrines of promissory estoppel or unclean hands should be
applied.” (A-C Co., at p. 474.) Whichever approach is adopted, equitable issues retain
their character, despite being raised in the context of a legal claim. A litigant has no
constitutional right to a jury determination of an equitable issue merely because it is
raised in the context of a claim at law.

35
 Defendants argue the substantial compliance doctrine should be viewed as arising
at law in these circumstances because the doctrine “goes to [Management’s] capacity to
recover under the contract.” In making their argument, defendants equate “capacity to
recover” with “capacity to contract” and argue the latter is an element of their cause of
action at law for breach of contract. Contrary to defendants’ premise, however, capacity
to contract and capacity to recover are quite different concepts. Capacity to contract
refers to a party’s power to enter into a binding contract, and it ordinarily depends upon
an individual’s age and mental soundness. (Rest.2d Contracts, § 12, p. 30; Civ. Code,
§§ 38, 39, 1556, 1557.) Defendants suggest no reason why a contractor lacking a license
is legally unable to contract. While, as a result of section 7031, the contractor cannot use
the courts to enforce payment if performance of its contract requires a license, the
contract itself is not void or voidable for lack of capacity. The argument therefore
provides no basis for concluding substantial compliance is a legal doctrine as asserted in
Management’s counterclaim.
Compliance with the CSLL can fairly be characterized as an element of
defendants’ cause of action for breach (§ 7031, subd. (a)), but that alone does not make
substantial compliance a legal doctrine. Rather, in that context, substantial compliance is
an equitable doctrine asserted by defendants to permit recovery in spite of their inability
to prove CSLL compliance, in much the same way the doctrine can be asserted to excuse
a failure to comply with the Tort Claims Act. (See Hill v. Newkirk, supra,
26 Cal.App.4th at p. 1059.) Alternatively, as asserted by defendants in response to JCC’s
claim for disgorgement, substantial compliance is an equitable defense to JCC’s claim.
Either way, the doctrine is equitable in nature. Accordingly, defendants have no
constitutional right to its determination by a jury.26

26
As defendants note, it has been held that courts have the discretion to submit an
equitable defense to the jury when the defense “ ‘is so intertwined with legal claims that
it cannot be separately tried to the judge.’ ” (Unilogic, Inc. v. Burroughs Corp. (1992)
10 Cal.App.4th 612, 623.) There is reason to doubt whether that discretion allows the
submission of the issue of substantial compliance to a jury, since the Legislature has
expressly instructed otherwise.

36
C. Attorney Fees
The Jacobs entities are not entitled to attorney fees because they are no longer the
prevailing party, but we would have reversed the award anyway as unauthorized by the
contractual provisions relied upon by defendants. We review the legal basis for the
attorney fee award de novo. (California Wholesale Material Supply, Inc. v. Norm Wilson
& Sons, Inc. (2002) 96 Cal.App.4th 598, 604.)
There is no prevailing party attorney fees clause in any of the parties’ contractual
documents. Defendants sought attorney fees under a standard indemnity clause in the
contract, under which Facilities agreed to indemnify JCC against claims arising from,
among other things, Facilities’ breach of the contract or its violation of law. The clause
included attorney fees as one of the costs that Facilities agreed to indemnify.27 Although
the indemnity clause imposed a duty only on Facilities, defendants argued it should be
found to impose a mutual attorney fees obligation under Civil Code section 1717,
subdivision (a).
In addition, defendants sought attorney fees under the guaranty executed by Jacobs
at the time of the assignment, which provided that Jacobs guaranteed the payment of
“obligations” by Facilities and Management. The term “obligations” was defined to
include “any and all costs and expenses, including attorney fees and costs, incurred by
[JCC] in enforcing the Contract or this Parent Guaranty . . . .” Again, defendants argued
the reference to attorney fees imposed a mutual obligation.
The indemnity provision in the contract is an ordinary indemnity clause. The
general rule is “the inclusion of attorney fees as an item of loss in a third party claim-
indemnity provision does not constitute a provision for the award of attorney fees in an
action on the contract” because “ ‘an indemnity clause . . . generally obligates the

27
The clause states: “Contractor agrees . . . to indemnify, defend . . . and hold
harmless . . . [JCC] . . . and any and all of their . . . employees . . . from any and all
claims, lawsuits, losses, costs (including attorney fees and costs), liabilities, and damages
arising from, related to or in connection with . . . [¶] . . . Contractor’s . . . negligent acts or
omissions, . . . [or] [¶] . . . Contractor’s breach of its obligations under this Agreement.”

37
indemnitor to reimburse the indemnitee for any damages the indemnitee becomes
obligated to pay third persons.’ ” (Carr Business Enterprises, Inc. v. City of Chowchilla
(2008) 166 Cal.App.4th 14, 20 [denying direct action attorney fees under a standard
indemnity clause].) To find a right to attorney fees in a direct action under an ordinary
indemnity clause, such as the clause in the contract, would invest every agreement
containing an indemnity clause with an attorney fees clause, even if, as occurred here, the
parties omitted such a clause. This is particularly inappropriate because Civil Code
section 1717, which governs the award of contractual attorney fees, applies only when
the contract “specifically provides that attorney’s fees and costs, which are incurred to
enforce that contract, shall be awarded either to one of the parties or to the prevailing
party.” (Id., subd. (a), italics added.) The indemnity clause in the contract does not
“specifically” refer either to actions to enforce the contract or to the prevailing party.
Defendants cite two decisions in which attorney fees were awarded in direct
actions under indemnity clauses, Zalkind v. Ceradyne, Inc. (2011) 194 Cal.App.4th 1010
and Wilshire-Doheny Associates, Ltd. v. Shapiro (2000) 83 Cal.App.4th 1380. Both
decisions recognized that indemnity clauses generally cover only third party claims, but
they also held each clause must be interpreted individually to determine whether direct
actions were intended to be included as well. (Zalkind, at pp. 1023–1024; Wilshire-
Doheny, at p. 1396.) In both decisions, the court described at length the unique
contractual terms indicating an intent to permit recovery in the particular direct action at
issue. (Zalkind, at pp. 1027–1029; Wilshire-Doheny, at p. 1397.) There is no similar
language here. The contract’s indemnity clause is a garden variety clause that must be
interpreted according to the ordinary rule.
Similarly, the guaranty contained no clause “specifically provid[ing] that
attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded
either to one of the parties or to the prevailing party.” (Civ. Code, § 1717, subd. (a).)
The guaranty merely provided that Jacobs would pay any obligation incurred by the other
Jacobs entities under the contract. There is no reason to believe the guaranty, the purpose
of which was merely to ensure the payment of any debts to JCC of the other two Jacobs

38
entities, was intended to expand their obligations under the contract by creating a right to
attorney fees not otherwise available under the contract—in other words, to permit an
award of attorney fees under circumstances in which the contract itself did not permit
such an award. On the contrary, the guaranty specifically provided that Jacobs’s liability
under the guaranty was not to be greater or less than Facilities’ and Management’s
liability under the contract. We decline to construe the guaranty to create an independent
right to attorney fees beyond the rights created by the contract.
III. DISPOSITION
The judgment of the trial court is reversed. The matter is remanded to the trial
court for an evidentiary hearing on substantial compliance pursuant to section 7031,
subdivision (e). If the Jacobs entities are successful in demonstrating statutory
substantial compliance, the trial court shall reinstate the judgment. If defendants are
unsuccessful, the trial court shall enter judgment against defendants in the amount of
$18,331,911, plus taxable costs and interest, if appropriate. Unless the prevailing party
can demonstrate a valid basis for an award of attorney fees other than those already
asserted by the Jacobs entities, it shall not be awarded attorney fees. JCC shall recover its
costs on appeal.

_________________________
Margulies, Acting P.J.

We concur:

_________________________
Dondero, J.

_________________________
Jones, J.


Presiding Justice of the Court of Appeal, First Appellate District, Division Five,
assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.

39
Trial Court: San Francisco County Superior Court

Trial Judge: Hon. Wallace P. Douglass

Counsel:

Reed Smith, Paul D. Fogel and Dennis Peter Maio; Sedgwick, Marilyn Klinger and
Jonathan T. Rodriguez for Plaintiff, Cross-defendant and Appellant.

Gibson, Dunn & Crutcher, Daniel M. Kolkey, Theane Evangelis, Kimberly A. Nortman
and Alexander M. Fenner; Keesal, Young & Logan, Samuel A. Keesal, Jr., Albert E.
Peacock, III, and David A. Tong for Defendants, Cross-complainant and Respondents.

40