Fla. SC rules in subcontractor breach case

TALLAHASSEE, Fla. (Legal Newsline) - The Florida Supreme Court ruled that knowledge that a contractor or subcontractor does not hold the state required license to perform the construction work of the contract does not allow the unlicensed party to establish the defense that the parties stand in pari delicto - as equal wrongdoers.

The ruling came in the case, Earth Trades, Inc. v. T&G Corporation, in which Earth Trades, a subcontractor, filed a breach of contract action against general contractor, T&G, regarding work done on a parking garage project.

T&G counterclaimed that Earth Trades breached the contract and it brought a third-party claim against First Sealord Surety, Inc., claiming that Sealord was responsible for Earth Trades' breach as surety on the performance and payment bond.

In the litigation that followed, T&G argued that Earth Trades was unlicensed therefore its breach of contract claim was barred by Florida section 481.128 that provides "as a matter of public policy, contracts entered into on or after October 1, 1990, by an unlicensed contractor shall be unenforceable in low or in equity by the unlicensed contractor."

Earth Trades and Sealord argued that T&G knew that Earth Trades did not have the required contractor license and so T&G was barred as well because the parties were in pari delicto.

The trial court granted T&G's motion for summary judgment and ordered Earth Trades and Sealord to pay damages.

Earth Trades and Sealord appealed to the Fifth District Court of Appeal, arguing that the trial court erred in precluding their use of the in pari delicto defense which was based on T&G's alleged knowledge of Earth Trades' unlicensed status.

The Fifth District, while acknowledging some inconsistency in the districts, affirmed the trial court's conclusion that the statute precluded Earth Trades from raising the in pari delicto defense, concluding that the trial court's decision was "consistent with the clear and unambiguous language of section 481.128, as amended in 2003."

The case then went to the state Supreme Court. Justice Charles T. Canady authored the decision of the unanimous court.

"The common law defense of in pari delicto refers to the principle that a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing. This principle is based on the relative circumstance 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," Canady wrote.

"The defense of in pari delicto, however, does not require simply that both parties be to some degree wrongdoers. Rather, the parties must participate in the same wrongdoing. Accordingly, that both plaintiff and defendant may be wrongdoers does not mean that the parties stand in pari delicto.

"By definition, if the wrong of the party seeking to enforce the contract is not substantially equivalent to the wrong of the defendant, the defense of in pari delicto does not defeat the cause of action.

"Finally, the defense of in pari delicto is not woodenly applied in every case where illegality appears somewhere in the transaction; since the principle is founded on public policy, it may give way to a supervening public policy. And where to allow the in pari delicto defense to prevail would be to defeat some legislatively declared policy, the defense will not prevail.

"Under the principles outlined above, we must determine whether both parties participated in the same wrongdoing and, if so, whether they share equal fault or one party's fault is substantially equivalent to the fault of the other party," Canady continued.

"In the title of the 2003 session law amending section 489.128, the Legislature stated that its intent was to 'clarify that the prohibition on enforcement of construction contracts extends only to enforcement by the unlicensed contractor.'

"Although previously contracts with unlicensed contractors were unenforceable by either party, these amendments empowered the other party to the construction contract -whether a consumer, owner, or licensed contractor - to seek judicial enforcement of the contract, regardless of the unlicensed status of the contractor.

"As explained above, the defense of in pari delicto requires that the parties be wrongdoers of relatively equal fault. In the instant case, petitioners contend that the parties are in pari delicto because T&G knew that Earth Trades was unlicensed."

The Court looked at the penalties for persons who knowingly hire an unlicensed contractor versus the penalties for unlicensed contracting and concluded that the law is much more harsh on the unlicensed contractor.

In addition, the Court notes that the 2003 amendment removed language that made contracts with unlicensed contractors unenforceable by either party and instead declared that only the unlicensed contractor had no enforceable contract or lien rights with regard to the contract.

Canady concluded, "In this case, T&G's alleged knowledge of Earth Trades' licensure status, if proven, would make both parties wrongdoers, but they would not share substantially equal fault. Accordingly, they do not stand in pari delicto.

"The district court in Earth Trades correctly concluded that the defense that parties to a contract are in pari delicto was not available to the unlicensed contractor governed by section 489.128, Florida Statutes."