On January 24, 2013, the Florida Supreme Court issued an opinion of importance to contractors and owners engaged in building construction in Florida. In Earth Trades, Inc. v. T&G Corp., No. SC10–1892, 2013 WL 264440 (Fla. Jan. 24, 2013), the Supreme Court held that § 489.128, Florida Statutes, precludes an unlicensed subcontractor from enforcing a contract claim against a general contractor, even where the general contractor knows that the subcontractor does not hold the state-required license to perform the construction work under the contract.
Facts and Procedure: The general contractor on a parking garage project, T & G Corp, subcontracted with Earth Trades, Inc. to perform site work on the project. Earth Trades was not licensed under Florida law to perform the work required by the contract. A dispute arose and Earth Trades sued T & G for breach of contract for nonpayment for work performed. T & G counterclaimed that Earth Trades breached the contract and brought a third-party complaint against First Sealord Surety, Inc. as surety on the performance and payment bond. In the lawsuit, T & G argued that because Earth Trades was unlicensed, its breach of contract claim against T & G was barred under the plain language of § 489.128, Florida Statutes (2005). Section 489.128 provides 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.” Earth Trades and Sealord countered that T & G was barred from enforcing the construction contract because T & G was aware that Earth Trades did not hold the required contractor license or should have become aware of that fact during the performance of the contract. As a result, Earth Trades claimed T & G was equally at fault and could not recover against Earth Trades (a common law defense which arises where the parties stand in pari delicto, i.e., in equal fault). The Circuit Court, Orange County, Florida rejected Earth Trades' defense and granted T & G's motion for summary judgment. The District Court of Appeal, Fifth District, affirmed the trial court’s decision.
Legal Analysis: The Supreme Court upheld the court of appeal’s ruling, reasoning that § 489.128 plainly places the onus for unlicensed contracting on the unlicensed contractor. The Earth Trades court determined that the statute penalizes only the unlicensed contractor because the Legislature amended § 489.128 in 2003, stating that its intent was to “clarify that the prohibition on enforcement of construction contracts extends only to enforcement by the unlicensed contractor.” As a result, although prior to 2003, contracts with unlicensed contractors were unenforceable by either party, the 2003 amendments allow the other party, e.g., consumer, owner or licensed contractor, to seek judicial enforcement of the contract. The Earth Trades court further reasoned that two additions in the 2003 amendment show the comparative disadvantage of the unlicensed contractor under the statute: (i) no lien or bond claim exists in favor of the unlicensed contractor; and (ii) other parties’ rights to enforce contract, lien or bond remedies are not affected by the statute. This is also supported by statutory lien law, § 713.02 (7), which provides that no lien shall exist in favor of an unlicensed contractor and that the unenforceability of a contract under §§ 489.128 and 489.532 shall not affect the rights of other parties to enforce contract, lien or bonds claims or obligations of the surety providing a bond to an unlicensed contractor. Thus, the Supreme Court held that the in pari delicto doctrine did not preclude T & G from enforcing the contract because the Legislature has imposed a substantial penalty on the unlicensed contractor as the wrongdoer.i
The Earth Trades court concluded with the following quote, which is clearly a warning to contractors who fail to comply with Chapter 489, Florida Statutes: “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.”