Under California Business and Professions Code Section 7159, what is the maximum down payment a contractor may collect on 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 Section 7159(d), contractors may collect a down payment of $1,000 or 10% of the contract price, whichever is less. For a $2,000 home improvement contract, 10% equals $200. Since $200 is less than the $1,000 cap, the maximum allowable down payment is $200, making this the correct answer.
Why the Other Options Are Wrong
Option A: No down payment is allowed on contracts under $5,000
This option incorrectly states the general rule without applying it to the specific contract value. While the rule is $1,000 or 10%, whichever is less, for a $2,000 contract, the calculation yields $200 (10% of $2,000), not the full $1,000 amount mentioned in this option.
Option C: $200 or 10% of contract value, whichever is less
This is completely incorrect. California law does allow down payments on contracts under $5,000, subject to the $1,000 or 10% limitation. There is no prohibition on down payments for smaller contracts - the same down payment rules apply regardless of contract size.
Memory Technique
Remember 'Ten or Thousand, Take the Smaller': 10% of contract OR $1,000 cap - always choose whichever amount is LESS. For any contract under $10,000, the 10% will always be the smaller amount.
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