LEGAL UPDATE
NO CONTRACTOR’S LICENSE? CONTRACT IS AN ABSOLUTE NULLITY: RECENT DECISIONS By: Kari “Kiki” A. Bergeron - Partner, Taylor Porter Construction Practice Under La. R.S. 37:2160(A)(1), it “shall be unlawful for any person to engage or to continue in this state in the business of contracting, or to act as a contractor as defined in this Chapter, unless he holds an active license as a contractor...” In Louisiana, the licensing provisions for contractors were enacted to protect the interests of public order. Under La. C.C. art. 2030, a contract in violation of a rule of public order is an absolute nullity, and an absolutely null contract is deemed to have never existed. It is well established in Louisiana law that a construction contract made with an unlicensed contractor is an absolute nullity. Several recent decisions by Louisiana courts have discussed the legal effects of such a finding.
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1. Unlicensed Contractor Prohibited from Recovering under Theory of Unjust Enrichment due to the “Substandard Work Exception.”
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In Quaternary Res. Investigations, LLC vs. Phillips, 2018-1543 (La. App. 1 Cir. 11/19/20), 316 So.3d 448, Quaternary Resource Investigations, LLC (QRI) entered into a home renovation contract with David and Angela Phillips to renovate and add on to their existing home. Prior to entering into a contract, QRI told the Phillipses that it was licensed to conduct this work; however, after QRI’s work began, Mr. Phillips learned that QRI did not possess the proper residential building contractor’s license. Thereafter, the Phillipses terminated the contract with QRI. QRI filed suit against the Phillipses seeking the contract balance. The Phillipses alleged that QRI made false and intentional misrepresentations about its license and alleged QRI’s work was defective, incomplete, and never reached substantial completion. In addition, the Phillipses alleged that the contract was an absolute nullity because QRI was not licensed. Thereafter, QRI amended its petition to add an alternative unjust enrichment claim, and after a bench trial and proceedings before a Special Master, the trial court rendered judgment in favor of QRI in the amount of $141,876.72. The Phillipses appealed. The First Circuit Court of Appeal acknowledged it was undisputed that during the time QRI worked on the Phillipses’ house it did not possess the proper contractor’s license. Therefore, the court concluded that contract violated “La. R.S. 37:2160(A) and La. R.S. 37:2167(A), which are rules of public order requiring contractors to be properly licensed to contract and perform work. Any contract made in violation of the Contractors Licensing Law is null and void…Therefore, we agree with the finding of both the Special Master and the trial court that the June 1, 2010 contract is
an absolute nullity and is void ab initio.” Quaternary at pp. 458-459. The court reviewed whether QRI was entitled to recover under its unjust enrichment claim in light of the absolutely null contract. The Phillipses argued that QRI’s fraud, along with its defective, substandard, and incomplete work, prevented it from recovering under unjust enrichment. The court discussed the general rule that in the case of an absolutely null contract, courts generally limit the recovery of unlicensed contractors to the actual costs of their labor, materials, and services, with no allowance for overhead or profit. The court then discussed Hagberg v. John Bailey Contractor, 425 So.2d 580 (La. App. 3 Cir. 1993) and Dennis Talbot Const. Co. v. Private Gen. Contractors, Inc. 10-1300 (La. App. 3 Cir. 3/23/11), 60 So.3d 102 in detail, which provide exceptions to that general rule of recovery under unjust enrichment. In these cases, if an unlicensed contractor’s actions fall into the “substandard work exception” or the “fraudulently obtained contract exception,” it is not entitled to recover its actual cost of labor, materials, and services under unjust enrichment. Quaternary at pp. 463-467. The court found that the Phillipses specifically pled incompetence, inexperience, and fraud on the part of QRI, which fell under the “substandard work exception” discussed in Hagberg and Dennis Talbot. Accordingly, the court held the trial court erred in granting QRI’s demand and awarding QRI damages under unjust enrichment because QRI’s actions fell within the “substandard work exception.” Hence, QRI was prohibited from recovering its actual costs of its labor, materials, and services under unjust enrichment. 2. The Louisiana Supreme Court applies the “Clean Hands” Doctrine to an Unlicensed Contractor attempting to avoid Contractual Indemnity to Owner under Absolutely Null Contract. In Ioannis Maroulis v. Entergy Louisiana, LLC, et al., 20-226 (La. App. 5 Cir. 2/10/21), 314 So.3d 1002, the issue of contractual indemnity under an absolutely null contract was addressed. The case involved a work-related accident that occurred during the renovation of a Metairie hotel.
