Monday, February 1, 2016

Can an unlicensed contractor collect money for its work?



Recovery Generally Barred for Unlicensed Contractors

In Utah, “[n]o contractor may...commence or maintain any action...for collection of compensation for performing any act for which a license is required...without alleging and proving that he [or she] was a properly licensed contractor when the contract sued upon was entered into, and when the alleged cause of action arose.” Utah Code Ann. § 58–55–604.  An unlicensed contractor may receive voluntary payments for the work he performs, but he generally is not allowed to use the legal system to compel payment.  This statutory bar against suing for payment is a codification of prior common law.  It extends to all causes of action that could be used to try to collect, including quantum meruit claims and lien foreclosure actions. 

Purposes of Licensing

“Licenses are required basically for one of two purposes: to protect the public against fraud, incompetence, illegality, or irresponsibility; or to solely or primarily raise revenue.”  Fillmore Products, Inc. v. W. States Paving, Inc., 561 P.2d 687, 689 (Utah 1977).  According to Utah courts, unqualified contractors place the property, financial well-being, and even the lives of the public in peril. The requirement of a contractor to be licensed exists to protect the public. The prohibition of unlicensed contractors from suing to collect payment is meant to prevent an unlicensed contractor from illegal providing services and adds to the “other penalties imposed against him expressly by statute including criminal sanctions.”   Id.

Exceptions Allowing Recovery

Prohibiting an unlicensed contractor who provided good work from getting paid is a harsh sanction.  Because it is so harsh, Utah courts have recognized “common law exceptions to the general rule of non-recovery.” Govert Copier Painting v. Van Leeuwen, 801 P.2d 163, 169 (Utah Ct.App.1990).  “The Utah Supreme Court has allowed an unlicensed contractor to recover “from one who is otherwise protected from the harm the licensing requirements were designed to prevent[.]” Govert Copier Painting v. Van Leeuwen, 801 P.2d 163, 170 (Utah Ct. App. 1990) “In order to recover on its contract claim, [an unlicensed contractor] must demonstrate that despite its failure to have a contractor's license, the purpose of the licensing statute was met—the protection of the public.”  Id.  Presently, Utah appellate courts have recognized four circumstances in which an unlicensed contractor may sue to collect payment:
1.      “First, unlicensed contractors have been allowed to recover when the party for whom the work is to be done possesses skill or expertise in the field…

2.      Second, an unlicensed contractor may recover if the work it performed was supervised by a licensed contractor…

3.      Third, if the reason a contractor fails to obtain proper licensure is minor and does not undermine its ability to perform its work, the unlicensed contractor may recover…

4.      Finally, courts have considered whether the contracting party relied on the subcontractor's representations that he was properly licensed and whether the subcontractor has posted a performance bond.”  A.K. & R. Whipple Plumbing & Heating v. Aspen Const., 1999 UT App 87, ¶¶ 13-20, 977 P.2d 518, 522-24
Other circumstances may allow an unlicensed contractor to sue to collect payment.  For example, other jurisdiction have dealt with the issue of persons who specifically hire unlicensed contractors with no intention of ever paying the unlicensed contractors.  For an exception to apply to the general rule of non-recovery, it is not enough for a contractor to show that he provided good work, even if he disclosed that he was not licensed.  The contractor must demonstrate that the public was protected against possible the dangers of hiring an unlicensed contractor.
As always, if you have any questions about your situation, you are welcome to contact one of Whiting & Jardine’s real estate lawyers for legal advice.

For more specific information about this particular subject, please call my office at 801-691-7770 for a free consultation or see the following web pages: 

1.                  Whiting & Jardine, LLC Home Page: www.WhitingJardine.com
2.                  Construction Law: http://whitingjardine.com/practice_areas.php?part=construction
3.                  Collections: http://whitingjardine.com/practice_areas.php?part=collections
4.                  Liens: http://whitingjardine.com/practice_areas.php?part=liens

Disclaimer: This blog is for general information and educational purposes only.  Nothing in this blog should be construed as legal advice for any particular situation.  The statements in this blog may be generalized, contain speculation, be based on opinion, or be made inaccurate by updates or clarifications to the law.  No attorney-client relationship is created by virtue of this blog.  To receive competent legal advice for your situation, you should seek competent, licensed legal counsel in the appropriate jurisdiction and practice area.

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