Law & Business · Module 1
Contract Basics and the Home Improvement Contract
What every contract needs under California law, and what the Business and Professions Code adds when you work on someone's home. You will learn the $500 threshold for a home improvement contract, the items and notices B&P 7159 requires, the down payment cap, the three day (five day for seniors) right to cancel, the simpler Service and Repair contract for small calls, and what really happens when a contract is missing or incomplete.
Key Takeaways
- Civil Code 1550 lists four essentials of any contract: parties capable of contracting, their consent, a lawful object, and sufficient consideration.
- A home improvement contract whose price exceeds $500 must be in writing and signed by both parties before work starts (B&P 7159).
- The contract must show your name, business address and license number, the contract price, a project description, approximate start and completion dates, and the required notices.
- The down payment may not exceed $1,000 or 10 percent of the contract price, whichever is less, and progress payments may not get ahead of the work (B&P 7159.5).
- A buyer can cancel until midnight of the third business day after receiving a signed and dated copy of the contract, or the fifth business day if the buyer is 65 or older (Civil Code 1689.6). Sunday and listed holidays are not business days.
- The cancellation notice must be in at least 12-point boldface type (B&P 7159).
- A Service and Repair contract (B&P 7159.10) is available only when the price is $750 or less, the customer called you, you sell only what fixes the problem, and no payment is taken until the work is done.
- A licensed contractor who skipped the written contract is not automatically barred from being paid (Asdourian v. Araj), but faces CSLB discipline and possible criminal penalties.
- An unlicensed contractor cannot sue to collect, and the customer can sue to recover everything paid (B&P 7031).
Why This Matters
Contracts show up in two places for a C-36 contractor. First, on the job: the contract is your proof of what the customer agreed to buy and what you agreed to deliver. Second, on the Law and Business exam: CSLB's study guide lists "Contract Requirements and Execution," including contracts and payments, as one of the exam's major sections. The rules below come straight from the California Business and Professions Code (B&P) and Civil Code, so you can learn them once and use them on every residential job.
The Four Essentials of Any Contract
California Civil Code 1550 says it is essential to the existence of a contract that there be:
- Parties capable of contracting. Under Civil Code 1556, all persons can contract except minors, persons of unsound mind, and persons deprived of civil rights.
- Their consent. Civil Code 1565 says consent must be free, mutual, and communicated by each party to the other. A customer who says nothing has not communicated consent.
- A lawful object. Civil Code 1596 says the object of the contract must be lawful when it is made.
- A sufficient cause or consideration. Civil Code 1605 describes consideration as a benefit conferred or a prejudice suffered as an inducement for the promise. In plain terms, each side gives something: you give work and materials, the customer gives money.
These four apply to every contract, commercial or residential, written or oral.
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