Unlicensed Subcontractor May Sue General Contractor For Payment
(April 2010) By Lydia S. Hu, Esquire
For more information, contact Paul Farquharson.
Alcoa Concrete & Masonry, Inc. v. Stalker Bros., Inc., et al.,
o. 2816 (Md. App., March 31, 2010), available at
http://mdcourts.gov/opinions/cosa/2010/2816s08.pdf
The Court of Special Appeals of Maryland reversed and
remanded the lower court and held that contracts made in violation of regulatory
licensing statutes for the protection of the public are enforceable when they
are executed between the contractor and subcontractor. The lower court's grant
of summary judgment in favor of the contractors was reversed.
The record demonstrated that a contract was signed between
the unlicensed subcontractor and the contractor for masonry work. The two
parties worked together from 2004 until 2007, when the contractor stopped paying
the subcontractor entirely. The subcontractor claimed $53,000 plus interest and
attorneys' fees.
The contractors moved for summary judgment and the
Montgomery County Circuit Court granted the motion on the ground that the series
of subcontracts were illegal and could not be enforced. The lower court was
persuaded by the argument that contracts executed by an unlicensed subcontractor
cannot be enforced. This rule requires courts to inquire whether the purpose of
the business licensing statute was to raise revenue, on the one hand, or to
protect the public, on the other. If the purpose is the former, then courts may
still enforce the contract for compensation for business activity that requires
a license even when made by an unlicensed person. On the other hand, if the
purpose of the licensing requirement is to protect the public, then the courts
will not enforce a contract made by an unlicensed person seeking compensation
for business activity when a license is required.
On appeal, the subcontractor argued that the rule did not
apply because this contract was executed between two businesses. Thus, the
purpose of the rule – to protect the public – is not fulfilled by declining to
enforce the contract between two businesses.
The Court reviewed the line of Maryland appellate decisions
developing the revenue/regulation rule in a number of contexts. The Court of
Special Appeals noted that all of the cases have dealt with the contractor-owner
relationship. In fact, the members of the public who are protected by the
regulatory licensing requirement were owners of a home.
Accordingly, the Court of Special Appeals reversed and
remanded to the Circuit Court for Montgomery County for further proceedings
consistent with this opinion. This case clarifies that precedent which bars an
unlicensed contractor from suing for its fair compensation only applies to
consumer contracts and not commercial litigation.
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