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Maryland Home Improvement Act Does Not Render Contract Between Licensed General Contractor and Unlicensed Subcontractor Unenforceable
Stalker Brothers, Inc. v. Alcoa Concrete Masonry, Inc.
Here, the Maryland Court of Appeals held that the Maryland Home Improvement Act, codified at MD. CODE ANN., BUS. REG. § 8-101, et seq., does not render a contract unenforceable as between a home improvement general contractor and an unlicensed contractor.
In the case below, 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. Thereafter, the subcontractor sued claiming $53,000, plus interest and attorneys’ fees.
The trial court granted the contractor’s Motion to Dismiss on the grounds that the contract was unenforceable as it violated the Maryland Home Improvement Act due to the fact that the subcontractor was unlicensed.
The Court of Appeals agreed with the Court of Special Appeals, which reversed the trial court. To the appellate courts, the rule declaring a home improvement contract unenforceable between an owner and an unlicensed contractor did not apply to a subcontract between a licensed contractor and an unlicensed subcontractor.
The issue in this case involved whether the distinction between regulatory and revenue statutes should apply to the Act. 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.
The Court agreed with the subcontractor’s argument that Maryland’s revenue/regulatory cases did not involve the contractor/subcontractor relationship and that overall, the Act was not intended to be a shield for contractors to elude paying their debts. Consequently, the fact that the Act was a regulatory measure did not bar the subcontractor from recovering on its subcontract with the general contractor. Moreover, this claim involved persons in the same business field who contracted with each other with knowledge of their respective qualifications. And in fact, under the Court’s interpretation, the public was benefited to the extent that a general contractor loses incentive to enter into a contract with an unlicensed subcontractor. This decision makes clear that a general contractor cannot use the Maryland Home Improvement Act to escape its obligations under a contract with an unlicensed subcontractor.
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