In a startling new decision by the Florida Third District Court of Appeal
on March 2, 1011, the Court in MGM Construction Services Corp. v. Travelers
Casualty & Surety Co. of America, et. Al., held that in certain situations,
even unlicensed contractors have the right to enforce a construction contract.
In this case, the University of Miami hired a contractor who in turn hired
a subcontractor for a portion of the contracted work. The subcontractor
was performing work that does not require a state contractor's license
but does require a local Miami-Dade County specialty contractor's
license. A dispute arose between the contractor and the subcontractor
and the subcontractor sued for money owed by the contractor and owner.
The parties defended claiming that because the subcontractor did not possess
a required local specialty contractor's license, the contract with
it was unenforceable.
At first, the contractor and owner focused on section 489.128(1), Florida
Statutes (2008), which 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."
Furthermore, subparagraph (1)(a) provides in part that "[f]or purposes
of this section,
if no state or local license is required for the scope of work to be performed under the contract, the individual
performing that work shall not be considered unlicensed." (Emphasis
added). Accordingly, the original arguments made by the moving parties
may be fairly summarized as follows: (1) the Miami Dade County Ordinance
(MDCO) requires a local license; (2) the Subcontractor never possessed
such a license; (3) section 489.128 provides that such a contractor is
unlicensed; and therefore (4) under the express language of section 489.128(1),
the subcontract was unenforceable by the Subcontractor.
However, during the case, in 2009, the Florida Legislature amended the
last sentence of section 489.128(1)(a) to read: "For purposes of
this section,if a state license is not required for the scope of the work to be performed under the contract, the individual
performing that work is not considered unlicensed." § 489.128(1)(a),
Fla. Stat. (2009) (emphasis added);
see Ch. 2009-195, § 33, at 1955, Laws of Fla. (detailing amendments to
section 489.128(1)(a)). The Legislature removed the "or local license"
language, and that change applied retroactively not only to contracts
entered into on or after October 1, 2000, but also to "all actions
pending when this act becomes a law," or on October 1, 2009. Ch.
2009-195, §§ 66, 68, at 1972, Laws of Fla. The bottom-line result
of these changes was that the Subcontractor's lack of a local license
no longer triggered the unenforceability provision of section 489.128(1).
This notwithstanding, the contractor and owner maintained their argument
that the contract was unenforceable because of a common law rule in Florida
that 'where a statute pronounces a penalty for an act, a contract
founded upon such act is void, although the statute does not pronounce
it void or expressly prohibit it.' "
Town of Boca Raton v. Raulerson, 146 So. 576, 577 (Fla. 1933) (quoting
Berka v. Woodward, 57 P. 777, 779 (Cal. 1899)). The trial court agreed and ruled that the
subcontractor's contract was unenforceable as a matter of law due
to its lack of specialty contractor's license required by local code.
On appeal, the Third District Court of Appeal reversed this ruling. The
Court stated that there cannot be an inflexible black and white rule which
invalidates all contracts with unlicensed contractors. Instead, despite
precedent in Florida to the contrary, the court held that a trier of fact
must engage in a multi-party analysis to determine whether, in the absence
of a provision in the law or local code which specifically states that
contracts by unlicensed contractors are invalid, to invalidate the contract.
The court stated that the following framework must be followed:
If a party is prohibited from doing an act because of his failure to comply
with a licensing, registration, or similar requirement, a promise in consideration
of his doing that act or his promise to do it is unenforceable on grounds
of public policy if
(a) the requirement has a regulatory purpose, and
(b) the interest in the enforcement of the promise is clearly outweighed
by the public policy behind the requirement.
If the requirement has a regualtory purpose, the next step for the trial
court is to determine whether the public policy behind the licensing requirement
clearly outweighs the interest in allowing the Subcontractor to enforce
the Contractor's promise. To that end, the court held that there are
a number of factors that should be taken into account:
In weighing the interest in the enforcement of a term, account is taken of
(a) the parties' justified expectations,
(b) any forfeiture that would result if enforcement were denied, and
(c) any special public interest in the enforcement of the particular term.
In weighing a public policy against enforcement of a term, account is taken of
(a) the strength of that policy as manifested by legislation or judicial
(b) the likelihood that a refusal to enforce the term will further that policy,
(c) the seriousness of any misconduct involved and the extent to which
it was deliberate, and
(d) the directness of the connection between that misconduct and the term.
The Court pointed out examples where it would be unfair to invalidate the
contract such as where the contractor's license expired due to a mistake
in paying the license fee or an illness that prevented the filing of the
paperwork for licensure.
The Court noted further that, under the specific facts of the case, because
the unlicensed contractor was a subcontractor hired by the general contractor,
the purposes of the licensing statute -to protect owners from shoddy work-are
not advanced by invalidating the contract since the owner hired the general
contract to whom it looks for quality work product.
This case demonstrates that property owners should always ensure that they
hire licensed contractors. But now, even if an unlicensed contractor is
hired, an owner may still have responsibility to abide by the contract
with that unlicensed contractor unless certain factors are present. This,
of course, can only be determined after years of expensive litigation
over the enforceability of the underlying contract.
Alex P. Rosenthal, Esq.
Rosenthal Law Group
2115 North Commerce Parkway
Weston, FL 33326