In Pari Delicto Defense Fails for Unlicensed Contractor

Posted on: January 29, 2013

In Earth Trades, Inc. v. T&G Corp., No. SC10-1892 (Fla. 2013), the Supreme Court of Florida reviewed the Fifth District Court of Appeal’s holding that Florida Statute §489.128, which governs construction contracting, precluded an unlicensed contractor from employing the defense of in pari delicto. In pari delicto is a defense that bars a plaintiff from recovering damages resulting from their own wrongdoing. If the plaintiff’s wrongdoing is not substantially equivalent to the wrong of the defendant, then the defense of in pari delicto does not defeat the cause of action.

Earth Trades entered into a contract with a general contractor, T&G, to perform site work for a parking garage. Earth Trades was not licensed to perform the work. When Earth Trades performed its work in a defective manner, T&G terminated the contract. Earth Trades filed a breach of contract action against T&G alleging nonpayment for work performed. T&G counterclaimed with its own breach of contract claim against Earth Trades.

T&G argued that a breach of contract action was barred by Earth Trades because Fla. Stat. §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 contended that a breach of action was barred by T&G because T&G was aware that Earth Trades did not hold the required license and the parties were in pari delicto. The trial court ruled against Earth Trades reasoning that the Legislature’s intent for §489.128 was to solve the considerable problem of unlicensed contractors by precluding them from any affirmative relief or defenses to relief until they obeyed the law and obtained licenses.

On appeal, Earth Trades argued the preclusion of their in pari delicto defense. While acknowledging courts had previously interpreted §489.128 to preclude a party from enforcing a contract against an unlicensed contractor where that party had knowledge of the lack of a license, the district court pointed out that amendments to §489.128 now made construction contracts unenforceable by the unlicensed contractor only. The district court affirmed the trial court’s decision.

The Court’s decision regarding Earth Trades’ in pari delicto defense rested in an analysis of the 2003 amendments to §489.128. The Court reasoned that although previously contracts with unlicensed contractors were unenforceable by either party, the amendment empowered the other party to the construction contract to seek judicial enforcement regardless of the unlicensed status. Under the amended §489.128, the unlicensed contractor has no rights or remedies for the enforcement of the contract. Additionally, the Court stated that while both parties may be wrongdoers, they would not share substantially equal fault. T&G may be fined for knowingly hiring an unlicensed contractor, but Earth Trades committed a crime by performing unlicensed contracting.

The Court concluded that a party’s knowledge that a contractor does not hold the state-required license to perform the construction work of the contract is legally insufficient to establish the defense that the parties stand in pari delicto. Thus, the Court affirmed the decisions of the trial and district courts.