UNLICENSED CONTRACTORS CANNOT ENFORCE CONSTRUCTION CONTRACTS BUT COULD BE LIABLE UNDER THOSE CONTRACTS

When two parties commit the same wrongdoing and are equally at fault, the court generally will not get involved in their transaction. That rule is known as the doctrine of “in pari delicto.” The doctrine of in pari delicto generally will apply to various forms of unlawful contracts. For example, if two parties enter into an illegal contract to split the profits of a robbery, neither party can seek to have the court enforce the contract when one party refuses to share the profits. Both parties were equally at fault—or in pari delicto—and the court will leave the parties as they are. Until recently, some Florida courts applied the doctrine of in pari delicto to construction contracts entered into by unlicensed contractors.

In Earth Trades, Inc. v. T&G Corp., 108 So. 3d 580 (Fla. 2013), an unlicensed subcontractor (“Earth Trades”) entered into a construction contract with a general contractor (“T&G”). T&G knew that Earth Trades was unlicensed when it entered into the contract. After a dispute between the parties arose, Earth Trade sued T&G for breach of the contract. T&G countersued for breach of contract against Earth Trade. At that point Earth Trade argued that neither T&G nor Earth Trade could enforce the contract because the contract was unlawful. Earth Trade further argued that because both parties knew that the contract was unlawful, the parties were in pari delicto. The Florida Supreme Court disagreed.

The Florida legislature amended the statute regarding unlicensed construction contractors in 2003. As amended, the statute reads as follows: “contracts entered into on or after October 1, 1990, by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor.” Fla. Stat. § 489.128(1) (emphasis added). The statute therefore explicitly makes the contract unenforceable only by the unlicensed contractor and not the party contracting with the unlicensed contractor. Because the legislature placed the liability on the unlicensed contractor, “the fault of the person or entity engaging in unlicensed contracting is not substantially equal to that of the party who merely hires a contractor with knowledge of the contractor’s unlicensed status.” Earth Trades, Inc., 108 So. 3d at 587. Earth Trades was therefore not in pari delicto with T&G even though T&G knew that Earth Trades was unlicensed.

Earth Trades, Inc. serves as a warning to those engaging in unlicensed contracting. If a construction contract goes sour, the unlicensed contractor will not be able to enforce the contract against the other party. The other party, however, might be able to enforce the construction contract against the unlicensed contractor. As the Florida Supreme Court held, “to avoid the draconian effects of the statute, the unlicensed contractor need only comply with the law.” Earth Trades, Inc. v. T&G Corp., 108 So. 3d at 586-587.

Peter T. Mavrick represents businesses in commercial litigation, labor/employment law, and trade secret and non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.