A recent Alabama case highlights the dire risk to general contractors that are not properly licensed. In this case, the property owners entered into an oral contract with an unlicensed contractor to build an addition on their property. The unlicensed contractor stated that it was a licensed contractor. However, it did not present its license nor did it clarify that it was only licensed in the city of Florence. The owners’ property was not located in Florence. The unlicensed contractor left the job incomplete at the end of July 2004.
Ala. Code § 34-8-1 defined “general contractor” as someone who, for a price, undertook to construct or repair any building or structure in the state of Alabama where the cost of the undertaking was greater than $50,000. In September 2004, the unlicensed contractor sued the owners for breach of contract, alleging that it was owed $48,484 for its services. The owners counterclaimed, alleging that the unlicensed contractor had breached its contract to remodel their building and that the unlicensed contractor had misrepresented to the owners that it was licensed. The trial court awarded $30,000 to the unlicensed contractor on its breach of contract claim.
On appeal, the owners argued that, under Alabama law, where any person performed work as a “general contractor” as defined by the code and failed to obtain a general contractor’s license, the contract was declared null and void. The owners argued that the unlicensed contractor had engaged in the practices of a general contractor as defined by the code because the amount of the labor and supplies on the project constituted an undertaking greater than $50,000.
The unlicensed contractor argued that the scope of the work did not exceed $50,000, asserting that the cost of materials should not have been included because the unlicensed contractor did not pay the suppliers directly. Essentially, the general contractor argued that, since the scope of its undertaking was less than $50,000, it had not performed work as a general contractor. Accordingly, its unlicensed status did not render the contract void.
The court noted that, even though the unlicensed contractor did not pay the suppliers directly, it was in full control of the materials. Therefore, the cost of materials was included in the cost of the “undertaking.” The amount for supplies in addition to the amount requested by the unlicensed contractor for its labor brought the total for the undertaking well over $50,000. As a result, the unlicensed contractor was performing the work of a general contractor within the meaning of the code. Because the unlicensed contractor was not licensed at the time it performed general contractor work for the owners, its oral contract for the construction of that project was unenforceable.
Dabbs v. Four Tees, Inc., 2008 Ala. Civ. App. LEXIS 710 (Ala. Civ. App. Nov. 7, 2008)