In the fast-paced world of business, contracts serve as the foundation for virtually every transaction and professional relationship. Whether you’re a small business owner, corporate executive, or independent contractor, understanding California’s Business and Professions Code and how it governs contracts is not optional—it’s essential.
At Shaumyan & Derbarseghian, LLP, we routinely help clients navigate contract disputes, draft enforceable agreements, and protect themselves from the costly consequences of vague or noncompliant terms. California’s legal landscape is distinct, especially when it comes to how contracts are interpreted and enforced under its Business Code. Knowing the key provisions can help you stay compliant, prevent litigation, and preserve your business relationships.
Why the Business and Professions Code Matters
The California Business and Professions Code (often abbreviated as BPC) is a vast collection of statutes that regulates everything from licensing and advertising to specific rules for professional conduct. While it doesn’t replace the Civil Code (which lays out general contract law), the BPC includes industry-specific rules and protections that directly affect how contracts must be formed, interpreted, and enforced in the state.
Some of the key areas where the BPC intersects with contract law include:
- Fair business practices
- Disclosure requirements
- Licensing and capacity to contract
- Limitations on certain contractual clauses
- Remedies for breach or fraud
Let’s break down the major provisions business owners, professionals, and individuals should be aware of.
Formation of a Valid Contract Under California Law
While the Civil Code §§ 1550–1590 outlines the core requirements of a valid contract—offer, acceptance, consideration, and mutual consent—the Business and Professions Code introduces additional conditions for certain industries and professions.
For example, licensed contractors must comply with BPC §§ 7150–7191, which govern the form, content, and enforceability of contracts for home improvement and construction. If these contracts lack specific disclosures or fail to include certain clauses, they may be void or unenforceable, regardless of whether both parties agreed to the terms.
This means that even a seemingly minor omission—like failing to disclose a right to cancel within three days—can jeopardize the entire contract.
Licensing and the Capacity to Contract
One of the most critical provisions to understand is BPC § 7031, which states that anyone performing work requiring a license (such as construction, real estate, or certain consulting services) must be properly licensed at all times during the performance of the contract.
Failing to do so can have drastic consequences.
Under § 7031(a), an unlicensed party cannot collect compensation for work performed—even if the work was done perfectly. Moreover, § 7031(b) allows the other party to sue for restitution of any money already paid.
In other words, if you’re not licensed where required, you could lose your entire right to payment and even have to return money you’ve already earned.
Unlawful, Unfair, and Fraudulent Business Practices
California’s Unfair Competition Law (UCL), codified in BPC §§ 17200–17210, plays a major role in how courts evaluate contractual conduct.
The UCL prohibits:
- Unlawful business practices (violating other laws)
- Unfair practices that harm competition or consumers
- Fraudulent practices likely to mislead the public
This has major implications for contracts. If a term or business practice tied to a contract violates the UCL, the entire agreement or certain provisions may be deemed unenforceable.
Businesses that engage in deceptive advertising, hidden fees, or intentionally misleading clauses in service agreements may face not only breach of contract claims, but also civil penalties, injunctions, and restitution orders under the UCL.
Key Disclosure Requirements
The Business Code often mandates specific language or clear disclosures in written contracts—especially in consumer-facing industries.
Here are a few examples:
- BPC § 7163: Requires clear disclosures and contract language for solar energy system installations, including system specifications, performance estimates, and cancellation rights.
- BPC § 17500: Prohibits false or misleading statements in advertising, which frequently affects promotional contract language.
- BPC § 7159: Home improvement contracts must include itemized pricing, start and end dates, and a detailed scope of work, along with mandatory “Notice to Owner” sections.
Failing to meet these disclosure requirements can expose businesses to liability and regulatory action—even if the customer ultimately received the promised service or product.
Limiting Liability: Enforceable vs. Unenforceable Clauses
Many businesses attempt to limit their liability with waivers, indemnification provisions, or limitation of damages clauses. However, California law puts clear restrictions on what types of terms are legally valid.
For example:
- Unconscionable contracts—those that are overly one-sided or exploitative—may be struck down in whole or in part under Civil Code § 1670.5.
- Non-compete agreements are largely unenforceable under BPC § 16600, which provides broad worker protections against restraint of trade.
- Liability waivers cannot protect against gross negligence or willful misconduct, and courts often scrutinize them for clarity and fairness.
If you’re drafting a contract that limits the other party’s rights or exposure, it’s critical to work with an attorney to ensure those provisions hold up in court.
Remedies for Breach of Contract Under the Business Code
When a breach occurs, the remedies available may go beyond what’s written in the contract. In fact, several BPC provisions allow injured parties to recover statutory damages, restitution, and attorney’s fees.
For example:
- Under BPC § 17535, a court can issue an injunction to stop a business from continuing a deceptive or unfair practice tied to a contractual relationship.
- BPC § 7031(b) allows a client to recover all compensation paid to an unlicensed contractor—even if the client benefited from the work.
In addition to traditional remedies like compensatory damages, the Business Code empowers courts to award public interest relief in some cases, making it an especially powerful tool when used strategically in business litigation.
The Role of Attorneys in Business Contract Compliance
While templates and online generators may offer convenience, they rarely comply with California’s unique contract requirements—particularly those embedded in the Business and Professions Code.
As experienced business attorneys, we’ve seen contracts fail in court for reasons that could’ve been easily avoided:
- Missing or outdated disclosures
- Unenforceable waivers
- Noncompliance with licensing statutes
- Vague or one-sided terms
- Improper use of independent contractor agreements
When these issues arise, courts rarely give businesses the benefit of the doubt—especially when consumers, employees, or small vendors are affected. The best defense is proactive legal drafting and review.
How Shaumyan & Derbarseghian, LLP Can Help
Our firm has extensive experience advising entrepreneurs, professionals, and small to mid-sized businesses on contract matters. From formation to enforcement, we help ensure your agreements are legally sound and strategically written to protect your interests under California law.
We offer:
- Contract review and compliance checks tailored to your industry
- Business litigation for breach of contract, fraud, and unfair practices
- Legal guidance on licensing, disclosures, and risk management
- Dispute resolution strategies including negotiation, mediation, and trial representation
Whether you’re creating new agreements or dealing with a dispute involving an existing one, we bring both the legal precision and business savvy required to protect your bottom line.
Final Thoughts
Contracts are the backbone of business, but in California, they’re governed by a complex framework that goes far beyond general contract law. The Business and Professions Code introduces rules that every business should take seriously—because the consequences for getting it wrong can be significant.
A well-written contract protects your rights, reflects your professionalism, and helps avoid expensive legal disputes. But it takes legal insight and attention to detail to get it right.
If you’re unsure whether your current agreements comply with California’s Business Code—or you’re involved in a dispute—don’t wait to find out the hard way.
Contact Shaumyan & Derbarseghian, LLP today for a consultation.
