Construction Litigation Update: Florida Supreme Court Rules that Unlicensed Contractors Cannot Enforce Construction Contracts

Jan 25, 2013   

Jim and Mary Homeowner are newlyweds who used their wedding money to buy their first home, a fixer-upper that required considerable renovations. The happily married couple was given the name of a local handyman, Bob, who was honest, hard-working, and wasn’t too expensive. The Homeowners interviewed Bob and were duly impressed with his plan to accomplish the renovations, and more importantly, with the below-market price which Bob quoted to perform the work. To Bob’s credit, Bob was upfront and fully apprised the Homeowners that he was able to charge such reduced rates because he was not a licensed contractor. Bob was hired on the spot, and the parties entered into an agreement which detailed the scope of work and the price for the job.

Bob finished the project on time and invoiced the Homeowners for the work. Given that the cost of marriage substantially exceeded the limited budgets of the newlyweds, the Homeowners did not pay Bob. Bob sued the Homeowners under the terms of the contract. Bob expected to hammer the Homeowners with the terms of his iron-clad contract.

Fortuitously, the Homeowners’ uncle is a lawyer, and he agreed to represent the newlyweds. After hitting the books, their lawyer asserted that the contract with Bob was unenforceable under Fla. Stat. §489.128(1), which provides, “This statute provides in pertinent part that [a]s a matter of public policy, 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.”

Bob logically countered that the Homeowners knew he was unlicensed, and in fact expressly hired Bob because as an unlicensed contractor, he could charge lower rates. Bob asserted that the doctrine of in pari delicto barred the Homeowner’s defense. In other words, Bob claimed that the Homeowners should not be able to profit from the same wrongful conduct which they themselves willingly participated.

In pari delicto, is derived from the Latin, in pari delicto potior est conditio defendentis, meaning, “In a case of equal or mutual fault . . . the position of the [defending] party . . . is the better one.” The defense is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality. In its classic formulation, the in pari delicto defense was narrowly limited to situations where the plaintiff truly bore at least substantially equal responsibility for his injury, because “in cases where both parties are in delicto, concurring in an illegal act, it does not always follow that they stand in pari delicto; for there may be, and often are, very different degrees in their guilt.” Earth Trades, Inc. v. T&G Corp., 38 Fla.L.Weekly S35 (Fla. January 24, 2013). In short, the in pari delicto defense requires that the parties be wrongdoers of relatively equal fault.

Under the recent decision by the Florida Supreme Court in Earth Trades, Inc., available here, Bob cannot enforce his contract. In Earth Trades, the Supreme Court was asked to resolve conflict between a decision of the Third District and a decision of the Fifth District. Siding with the Fifth District, the Supreme Court concluded “that a party’s knowledge that a contractor or subcontractor does not hold the state-required license to perform the construction work of the contract is legally insufficient to establish the defense that the parties stand in pari delicto.” The reasoning for the decision rested on the finding that public policy’s requirement for contractors to be duly licensed to engage in the practice of construction outweighed any knowledge which the contracting party may have of the statutory noncompliance. Specifically, the Court held:

In order to protect the public and to prod contractors into obtaining the required licensing, the Legislature has, as a matter of state policy, greatly disadvantaged the contractor who chooses not to obtain the legally required license. Thus, to avoid the draconian effects of the statute, the unlicensed contractor need only comply with the law. In light of the state’s policy, we hold that a party’s knowledge that a contractor is unlicensed is insufficient as a matter of law to establish the defense of in pari delicto.

Id. (internal citations omitted). Accordingly, as a matter of public policy, the two wrongs by the parties were not equal, and did not make it right.

The Homeowners received the benefit of their bargain without having to pay Bob for all of his good work. The moral of the story? Make sure your uncle is a good lawyer.