Construction contracts with an unlicensed contractor are, in most state, null and void. (The contractor may or may not be able to recover payment on equitable grounds.) The purpose is to protect the public by depriving unlicensed contractors of any rights under an improper contract. It comes as a surprise, then, to find a situation in which the nullity of a contract worked to the benefit of an unlicensed contractor.
A commercial developer awarded a contract to a joint venture, which included an unlicensed contractor. After an injured employee of a subcontractor sued the project owner, the owner demanded indemnification from the contractor under the terms of the construction contract. This was denied, as the owner also had no rights under a contract that was a nullity.
The other two cases in this issue come from the federal courts of appeal. A construction lender failed to insure its project collateral against pre-existing mechanic’s liens. The lender came to regret that decision. And, the surety on a performance bond could recoup from a defaulted contractor’s discretionary payments the surety had made beyond the terms of the performance bond obligation.
