Under California Business and Professions Code 7159, what is the maximum down payment a contractor may collect for a home improvement contract valued at $2,000?
Correct Answer
B) $200 (10% of contract value)
B&P Code 7159(d) limits down payments to $1,000 or 10% of the contract price, whichever is less. For a $2,000 contract, 10% equals $200, which is less than $1,000, so the maximum down payment is $200.
Why This Is the Correct Answer
Under California Business and Professions Code 7159(d), contractors may collect a down payment of $1,000 or 10% of the contract price, whichever is less. For a $2,000 contract, 10% equals $200. Since $200 is less than the $1,000 maximum, the contractor may collect $200 as the maximum down payment.
Why the Other Options Are Wrong
Option A: $200 or 10% of contract value, whichever is less
This option incorrectly states the statutory limit as $200 or 10%, when the actual law sets the limit at $1,000 or 10%, whichever is less. The $200 figure happens to be the correct answer for this specific contract value, but it's not the statutory maximum.
Option D: No down payment is allowed for contracts under $5,000
This is completely incorrect. California law does allow down payments for contracts under $5,000, subject to the $1,000 or 10% limitation in B&P Code 7159(d). There is no prohibition on down payments based on contract value thresholds.
Memory Technique
Remember '$1K or 10%, pick the LESS' - for any contract, calculate both $1,000 and 10% of contract value, then choose the smaller amount as your maximum down payment.
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