When did you buy the house? You may have a failure to disclose claim by previous owner as it sounds from what you are saying that they actively concealed mold. As to contractor, need to know more. Generally if contractor encounters a hazardous condition that was not known, he should stop and bring it to the owners attention and it may become extra work. However here given the age of the home, contractor arguably should have known maybe. More facts are needed. You will need construction experienced counsel.
Performing work without having the proper classification can be considered performing unlicensed work. Making that determination is a fact intensive process that really could not be done on the AVVO site. Disgorgement might be a possibility.
You need to contact an experienced construction attorney for a consultation.
This is a complicated issue. More facts are needed before determining disgorgement. Generally speaking, the contractor should have called this to your attention. I think your best course of action would be to consult an experienced construction attorney.
This matter should be reviewed by an experienced construction lawyer promptly, so as to avoid the expiration of the statute of limitations. Here are some topics I would address with the lawyer:
Unlicensed contractors in California suffer a severe penalty for performing work without a proper license: forfeiture of all pay for the work. The courts have acknowledged that this sometimes is a very harsh outcome that may result in a windfall to the owner but the policy requiring licensing trumps the contractor's rights to payment.
Mold and asbestos can cause severe environmental and medical problems. If either is negligently disturbed, the party who caused the disturbance is liable for damages and injuries that result from the exposure, even if the party was properly licensed. Concealment of the problem may be considered fraudulent and could theoretically expose the parties to punitive damages if it was done with a conscious disregard for the rights of others.
Some jurisdictions allow for "fear of cancer" damages, where someone has been exposed to asbestos but has not developed illness but does not want to wait to pursue a legal claim.
These comments are for general informational purposes and do not create an attorney-client relationship. Do not rely on this post as "legal advice." Consult with a licensed attorney regarding the specific facts of your case and your rights and liabilities.