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Knowledge of Breach of Contract Law Leads To Per

Knowledge of Breach of Contract Law Leads To Per

The Appellate Division of the Supreme Court of New York, Second Department recently heard the case of Emergency Restoration Services v. Corrado. This case was noteworthy for many reasons – chiefly because it involved a defendant who clearly understood breach of contract law in New York State and was then able to personally profit. This case also loosely involves a conflict between general contract law policy and specific state statutes. Finally, the seeming harshness of the outcome should serve as a cautionary tale to anyone involved in a similar situation.

Background of the Case

Defendant Nicole Corrado owned a house located in Westhampton Beach that was damaged in a flood. She hired the plaintiffs as contractors to do various repairs and renovations to the home in order to fix the flood damage. The contract between the parties agreed that the contractors, Emergency Restoration Services (ERS), would receive the payment from the defendant’s insurance policy covering the flood damaged home.

However, when defendant received the payment, she kept it and refused to pay the contractors the amount owed under the contract. In legal terms the action of keeping the payment is called a ‘conversion,’ but for our purposes it suffices that the defendant clearly did not pay the amount owed under the contract for the work performed.

The plaintiff, as one might imagine, sued the defendant for breach of contract, conversion, and in the alternative, recovery under a theory of unjust enrichment and quasi-contract. Recall from our previous blog posts that the policy of contract law is largely economic – it seeks to prevent unjust profit and return the injured party to the state it would have been in prior to the contract had it not been breached, or alternatively to force the breaching party to perform its duties under the contract.

Why then are we focusing on this case? After all it seems like an open-and-shut breach of contract case – the contract was signed, the work was performed, and payment was never made. There is one more crucial fact – the plaintiff contractors were not licensed to perform home improvement or construction work in the defendant’s Municipality of Suffolk County!

Analysis

This is a situation in which the plaintiff was working as an unlicensed contractor. Remember that licensing is an administrative function of State and local government, promoting the policy that certain entities need to be regulated to avoid harm to the public. Regulation of contractors is no doubt premised on the desire to avoid shoddy or substandard work that may put lives or property at risk. As we will see, this policy may directly counteract and even supersede basic tenets of contract law.

Under the Suffolk County Code Section 563-8, as well as under the precedent established by the cases of JM Builders and Flax v Hommel, the law is quite clear. Unlicensed contractors may not recover for breach of contract, or under any contract or quasi-contract theory!

This is an example of when a specific law trumps general contract law principles. The lawmakers of Suffolk County and the judiciary penning the two opinions cited have made a clear policy decision – the risk to the public of unlicensed contractors is so bad that as a deterrent they are not afforded the protection of contract laws! Thus, any individual who knows the law doing business with an unlicensed contractor in a situation similar to this one may simply not pay them with no consequence!

Understanding the law of contracts may, in some special circumstances, enable an individual to personally profit at the expense of an unlicensed contractor. However before undertaking any such course of action it is imperative to consult with an experienced attorney – please don’t hesitate to contact our office for a consultation.

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