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Alabama Court Holds General Contractor Need Not Pay Subcontractor When Agreement Was Illegal Even When Subcontractor Performed Work

In Construction Services Group, LLC v. MS Electric, LLC, 2019 WL 2710115 (Ala. Civ. App. 2019), the parties entered into an agreement with the Alabama Public School and College Authority. The agreement provided that Construction Services Group, LLC (“Construction Services”) would act as the general contractor on a construction project for additions and alterations to Montevallo Middle School (“the Project”). MS Electric, LLC (“MS Electric”) submitted a bid to perform the electrical work on the Project, which Construction Services accepted.

The total amount of MS Electric’s bid was $198,831.10. MS Electric possessed a valid electrical contracting license from the Alabama Board of Electrical Contractors. However, Alabama Law requires electrical subcontractors to have additional licensure for jobs exceeding $50,000.00. MS Electric did not have this additional subcontractor license.

MS Electric worked on the Project for twelve days, expending $23,650.00. When it never received payment, MS Electric filed a claim against Construction Services for breach of contract in March 2017. That claim was dismissed given the illegality of the contract, but the judge allowed MS Electric to amend its claims.

In August 2017, MS Electric filed an amended complaint against Construction Services stating a claim of unjust enrichment. The trial court found in favor of MS Electric on its unjust enrichment claim, and Construction Services appealed.

On appeal, Construction Services argued that the trial court’s holding was erroneous because the accepted bid pursuant to which MS Electric performed its work on the Project was an illegal contract. Construction Services argued that Alabama law provides that, where a party is precluded from maintaining a breach of contract claim because that claim is based on an illegal contract, that party may not circumvent the law by stating a different claim based on another or equitable theory of recovery.

Alabama’s Court of Civil Appeals agreed with Construction Services’ arguments, holding that the undisputed facts establish that the accepted bid pursuant to which MS Electric performed work was an illegal contract, and that the work itself was illegal. It ruled that Alabama law prohibits MS Electric from recovering for that illegal work regardless of whether it seeks to do so by means of a breach of contract claim, or by means of a claim based on another theory of recovery.

The Court further held that current Alabama law does not recognize any exceptions to the rule that public policy will not permit recovery by an unlicensed contractor, regardless of the conduct by the other party. Accordingly, the Court reversed the trial court’s ruling. It is important for subcontractors—and especially electrical subcontractors—to ensure adequate licensure before submitting a bid and performing work pursuant to that bid.