Unlicensed Contracting and the Doctrine of In Pari Delicto

Chapter 489, Florida Statutes, regulates the “construction industry” in Florida “in the interest of the public health, safety, and welfare.” § 489.101, Fla. Stat.. The statute addressing the enforceability of a construction contract with an unlicensed contractor provides in pertinent part:

“As 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.” § 489.128(1), Fla. Stat.

The statute plainly applies to all contracts with unlicensed contractors—whether the other party to the contract is a lay person or a licensed contractor—and places the onus for unlicensed contracting on the unlicensed contractor.  The Legislature has imposed a substantial penalty on the unlicensed contractor as the wrongdoer.  Basically, the unlicensed contractor has no rights or remedies for the enforcement of the contract and no defenses against a claim.

Persons holding themselves out as contractors, or offering to contract, without a license are guilty of a first-degree misdemeanor in Florida (for a first offense). Performing contract work without a license is likewise unlawful. If the violation occurs during the existence of a state of emergency declared by the governor, the violator may be guilty of a felony of the third degree. If there is a prior conviction of offering to contract, or contracting, without a license, the violator may be found guilty of a felony of the third degree.

The failure to have a proper license as a contractor where a license is required may have adverse consequences to the party performing the work. Where doing work without a license is a crime, e.g. §§ 489.127 and 489.531, Fla. Stats. (contracting), § 481.223, Fla. Stat. (architecture), and § 471.031, Fla. Stat. (engineering), the person performing the unlicensed work has no enforceable contract and no right to recover pursuant to quantum meruit.

Additionally, in any action against an unlicensed contractor for injuries sustained from the unlicensed contractor’s negligence, malfeasance or misfeasance, the consumer shall be entitled to three times the actual compensatory damages in addition to costs and attorney fees. § 768.0425(2) Fla. Stat.

The Common Law Doctrine of In Pari Delicto

The common law defense of in pari delicto refers to “[t]he principle that a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing.” Black’s Law Dictionary 806 (8th ed. 2004). This principle is based on the relative circumstances of the parties at the time of the execution or performance of the contract and generally may be raised in an action at law or in equity. O’Halloran v. PricewaterhouseCoopers LLP, 969 So.2d 1039, 1044 (Fla. 2d DCA 2007) (“The defense of in pari delicto ‘is both an affirmative defense and an equitable defense’… [that] prohibits plaintiffs from recovering damages resulting from their own wrongdoing.” (quoting Nisselson v. Lernout, 469 F.3d 143, 151 (1st Cir.2006)); see also 22 Fla. Jur.2d Equity § 76 (2005).

As this defense is applied with unlicensed contracting, the unlicensed contractor will typically argue that the other party knew they were unlicensed, yet entered into the illegal contract anyway.  The Department of Business and Professional Regulation (DBPR) may issue a cease and desist notice to and impose fines of up to $5,000 on anyone who knowingly hires an unlicensed contractor. § 455.228(1)-(2), Fla. Stat. However, unlicensed contracting is a crime for which a first offense is a first-degree misdemeanor and a second is a third-degree felony. § 489.127(1)-(2), Fla. Stat.  As such, the wrongdoing is not equal.

The recent Florida Supreme Court case of Earth Trades, Inc. v. T&G Corporation, 2013 WL 264440 (Fla. 2013) demonstrates the unlicensed contracting statute in conjunction with the in pari delicto defense.  In 2004, T & G Corporation, the general contractor on a parking garage project, subcontracted with Earth Trades, Inc., to perform site work on the project. Id. Earth Trades was at all relevant times not licensed under Florida law to perform the work required by the contract.  Id.  After a dispute arose between the parties, Earth Trades filed a breach of contract action against the general contractor, alleging nonpayment for work performed. Id.  T & G counterclaimed that Earth Trades breached the contract and brought a third-party complaint against First Sealord Surety, Inc. (Sealord), claiming that Sealord was responsible for Earth Trades’ breach as surety on the performance and payment bond. Id.

In the ensuing litigation, T & G argued that because Earth Trades was unlicensed, its breach of contract claim against T & G was barred under the plain language of section 489.128, Florida Statutes. Id.  Earth Trades and Sealord countered that T & G also was barred from enforcing the construction contract because the parties were in pari delicto. Id.  Specifically, they alleged that T & G was equally at fault because it was aware that Earth Trades did not hold the contractor license required under chapter 489, Florida Statutes. Id. The Florida Supreme court affirmed the trial court’s rejection of Earth Trades’ in pari delicto defense and upheld the granting T & G’s motion for summary judgment.  Earth Trades, as the unlicensed contractor, did not have any rights in law or equity.

In conclusion, under 489.128, 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. Thus, even if proven, the other party’s knowledge is insufficient as a matter of law to place the parties in pari delicto and cannot be used by the unlicensed contractor as a defense.