New York Law Review

Tag: Unlicensed Contractor

  • B & F Building Corp. v. Liebig, 76 N.Y.2d 689 (1990): Enforceability of Contracts by Unlicensed Home Improvement Contractors

    B & F Building Corp. v. Liebig, 76 N.Y.2d 689 (1990)

    An unlicensed home improvement contractor cannot enforce a contract for work performed when a license was required but not held, even if the contractor obtains a license after the work is completed and the lawsuit is initiated.

    Summary

    B & F Building Corp., an unlicensed home improvement contractor, sued the Liebigs for breach of contract after they refused to pay the remaining balance for renovation work. The Liebigs counterclaimed for faulty work. B & F obtained a license after commencing the suit and attempted to amend its complaint under CPLR 3015(e) to allege the after-acquired license. The New York Court of Appeals held that CPLR 3015(e) does not permit an unlicensed contractor to enforce a contract if they were unlicensed at the time of contract execution and work performance, affirming the lower courts’ decisions.

    Facts

    William and Suzanne Liebig hired B & F Building Corporation to renovate their cooperative apartment in Manhattan.

    The Liebigs paid B & F over $237,000 as the work progressed.

    The Liebigs refused further payments, claiming B & F breached the agreement.

    B & F, unlicensed at the time of the agreement and work, sued to recover the unpaid balance or to declare a valid mechanic’s lien.

    The Liebigs counterclaimed for expenses to correct faulty work.

    B & F obtained a home improvement contractor license after litigation commenced.

    Procedural History

    Supreme Court granted the Liebigs’ motion to dismiss the complaint and denied B & F’s cross-motion to amend the complaint, holding that the failure to have a license at the time of contract and work rendered the contract unenforceable.

    The Appellate Division affirmed for the reasons stated by the Supreme Court.

    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether CPLR 3015(e) allows a home improvement contractor, unlicensed at the time of contract execution and work performance, to enforce a contract by obtaining a license after commencing the lawsuit and amending the complaint to allege the after-acquired license.

    Holding

    No, because the after-acquired license provision of CPLR 3015(e) applies only when the contractor was licensed at the time the work was performed; it cannot validate a contract prohibited when performed.

    Court’s Reasoning

    The court reasoned that the Home Improvement Business provisions of the Administrative Code of the City of New York were enacted to protect consumers against fraudulent practices and inferior work. Allowing an after-acquired license to validate a contract would undermine these protective goals.

    CPLR 3015(e) was intended to benefit consumers by shifting the burden to the contractor to prove licensure, not to strengthen contractors’ rights.

    The legislative history of CPLR 3015(e) demonstrates no intent to weaken existing protections against unlicensed contractors. The Attorney-General’s Memorandum supporting the bill highlighted case law precluding recovery by unlicensed contractors.

    The court presumed the Legislature was aware of existing law and abrogated the common law only to the extent clearly required by the statute’s language.

    Validating a contract based on a license obtained after work completion affords none of the consumer protections applicable to licensed contractors during the work, such as background checks, performance bonds, and Department of Consumer Affairs oversight. As the court notes, “A license issued after the work is completed affords none of the consumer protections contained in the regulations and applicable to licensed home improvement contractors while the work is being performed.”

    The court emphasized the importance of deterring unlicensed activity: “[T]he protective purposes of the statute and the various licensing laws which CPLR 3015 (e) addresses would be undermined by overturning this body of case law and validating an illegal contract upon the issuance of a license after suit.”

  • Charlebois v. J.M. Weller Associates, Inc., 72 N.Y.2d 587 (1988): Enforceability of Design-Build Contracts with Licensed Professionals

    Charlebois v. J.M. Weller Associates, Inc., 72 N.Y.2d 587 (1988)

    A construction contract requiring a contractor to engage a separately retained licensed professional engineer to perform the design function does not violate Education Law licensing protections or public policy.

    Summary

    Claude and Lesley Charlebois contracted with J.M. Weller Associates, Inc., for the construction of a warehouse and an addition to their existing building. Disputes arose, and the Charleboises refused to make further payments, claiming $600,000 was owed. Weller Associates demanded arbitration, but the Charleboises sued, seeking a declaration that the contract was invalid as against public policy because it violated Education Law §§ 7202 and 7209(4). The New York Court of Appeals held that the contract was valid because it expressly required a separately retained, licensed professional engineer (James M. Weller, P.E.) to perform the design function, thus satisfying the underlying public policy concerns of the Education Law.

    Facts

    The Charleboises contracted with Weller Associates, an unlicensed business corporation, for a construction project. The contract stipulated that an “Architect/Engineer” would be furnished by the Contractor pursuant to an agreement between the Contractor and the Architect/Engineer, specifically naming James M. Weller, P.E., to provide all architectural and structural engineering services. Disputes arose concerning cost, design, and code compliance, leading to the Charleboises withholding payment.

    Procedural History

    The Charleboises sued Weller Associates, seeking a declaratory judgment that the contract was invalid. Supreme Court ruled in favor of Weller Associates, finding the contract valid because a licensed engineer was engaged. The Appellate Division affirmed. The Court of Appeals granted leave to appeal based on a two-Justice dissent at the Appellate Division.

    Issue(s)

    Whether a construction contract entered into between an owner and an unlicensed business corporation building contractor is invalid as against public policy when the contract provides that the project design must be fulfilled by the builder by engaging a specified licensed engineer.

    Holding

    No, because under the contractual arrangements, the builder does not engage in the unauthorized practice of engineering. The engineer engaged to do the professional work is subject to the regulatory mechanisms of the State Education Department, regardless of whether they are a formal signatory to the contract.

    Court’s Reasoning

    The Court of Appeals reasoned that Education Law § 7202 prohibits unlicensed individuals from practicing engineering. However, the contract did not require Weller Associates to perform engineering services. Instead, it explicitly mandated the engagement of a licensed engineer, James M. Weller, P.E., who was subject to the State Education Department’s regulatory oversight. The court distinguished this case from American Store Equip. & Constr. Corp. v Dempsey’s Punch Bowl, where the unlicensed corporation itself prepared architectural plans, a direct violation of public policy.

    The court emphasized that the key factor was the independent professional judgment of the licensed engineer, James M. Weller, P.E., flowing directly to the Charleboises. The court quoted Vereinigte Osterreichische Eisen und Stahlwerke v Modular Bldg. & Dev. Corp., stating that “The rights sought to be protected by the statute are adequately covered when the contractor, manufacturer or builder engages a properly licensed person to perform those tasks which the law specifies call for certified skills.” The court also noted that the Charleboises were occupying the completed structures and operating their business from it and now sought to disaffirm the contract and be forgiven $600,000 in payments.

    The court further stated, “Even if a violation were to be hypothesized for the sake of argument, the public policy that underlies the statute would not be furthered by complete avoidance of this contract.” The court found the remedy of voiding the contract disproportionate, especially since the Charleboises benefited from the completed project and the licensed engineer was subject to professional regulation and potential malpractice liability. The court concluded that forfeitures by operation of law are disfavored and should not be used as a sword for personal gain rather than a shield for the public good.