We are occasionally asked whether an unlicensed contractor is entitled to collect compensation for work provided to a contracting party. A corollary of this issue is whether the monies already paid to the contractor must be refunded to the contracting party.
HRS 444-9 requires that no person shall “act or assume to act, or advertise” as a contractor (under the definition contained in HRS 444-1) without a license previously obtained by the licensing board. Further, HRS chapter 444 imposes penalties for violation of this statute, including but not limited to HRS 444-22. HRS 444-22 provides that:
The failure of any person to comply with any provision of this chapter shall prevent such person from recovering for work done, or materials or supplies furnished, or both on a contract or on the basis of reasonable value thereof, in a civil action, if such person failed to obtain a license under this chapter prior to contracting for such work.
HRS 444-22 prohibits unlicensed contractors from recovering for work performed, materials and/or supplies furnished. There is a strong public policy behind this rule. The Hawaii Supreme Court has explained this policy:
HRS chapter 444, providing for the licensing of contractors, expresses a very strong public policy that contractors in this state should apply for, and retrieve licenses, and the provisions of HRS 444-22, which are sweeping in their terms, are obviously intended to produce harsh results in furtherance of this policy.
Butler v Obayashi, 71 Haw. 174, 177 (1990).
It has been contended that parties contracting with unlicensed contractors should be barred from bringing suit since they too are parties to the illegal contract. However, the Hawaii Intermediate Court of Appeals (“ICA”) in Jones v Phillipson found this argument unpersuasive. Jones v Phillipson, 92 Haw 117, 124-126 (1999). The ICA held that “a contract with an unlicensed contractor is not void ab initio, and this section [HRS 444-22] does not bar a member of the public, who is party to such a contract, from bringing suit to recover breach of contract damages from an unlicensed contractor”. Id at 126. The ICA determined that any other result “would defeat the purpose of protecting the public by providing a shield from litigation for an unlicensed builder.” Id; citing Domach v Spencer, 101 Cal.App.3d 308, 311 (1980) (In Jones the Hawaii Supreme Court cited Domach, a California case, because it recognized that the California statue was similar to the Hawaii statute).
Similarly, in Butler the Hawaii Supreme Court decided that, regardless of whether a contracting party knew that the contractor was unlicensed, an unlicensed contractor is still prohibited from recovering for work pursuant to HRS 444-22. Butler at 177. These two Hawaii cases, Butler and Jones, clearly establish that a party contracting with an unlicensed contractor may bring suit against the contractor regardless of whether they knew that the contractor was unlicensed.
In an analogous case, Domach v Spencer, the homeowners filed a claim against the contractor for breach of contract for failing to provide “workmanlike construction”. Domach at 308. In that case, the contractor demanded greater compensation than was originally contracted for to complete the home. Id. at 310. Although the homeowners paid the contractor the agreed amount, at trial the homeowners demanded that all the monies be returned since the contractor was not licensed. The Domach court found in favor of the homeowners and awarded an amount necessary to pay for reparation of any “unworkmanlike” construction. Id. at 314. Regrettably, the Domach opinion does not explain the extent to which damages were awarded (including whether the homeowners were allowed to recover the money paid to the contractor or simply money paid for repair of the defective construction).