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A Contractor Without a License is a Contractor Without a Lawsuit


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By Chase Fisher

License? We don't need no stinking License

The contractor was licensed to work on projects valued at less than $100,000. The couple, however, wanted a more substantial home and was unaware of the scope of the contractor’s license. The contractor was faced with a dilemma—the prospect of more money but without the license to support such a project.  Despite the $100,000 limit, the contractor prepared an estimate for the construction of the home, which exceeded $700,000.

As construction of the home progressed, the homeowners and the contractor had several disagreements about the work, cost, and payments.  Thereafter, the contractor stopped working on the house and claimed he was owed approximately $39,000.  The contractor then filed a mechanic’s lien, claiming he was owed approximately $150,000.  

To enforce the mechanic’s lien, the contractor filed a lawsuit.  However, the couple moved for arbitration pursuant to the arbitration clause in their contract with the contractor (arbitration is a process where the parties agree upon an impartial person or group to hear and resolve their dispute).  After the arbitrator was selected, the couple sought to have the whole case dismissed after they discovered that the contractor did not have the appropriate license.  Yet, the arbitrator refused to dismiss their case and, instead, awarded money to the contractor.  The couple appealed and the case made its way to the Supreme Court of South Carolina.

Arbitrator’s “manifest disregard” of the law
Generally, courts favor alternative dispute resolution methods, such as arbitration and mediation.  Yet, when the arbitrators and mediators make rulings that completely disregard the law, their rulings can be overturned.  Here, the arbitrator refused to dismiss the case when the couple presented a defense that the contractor was not properly licensed. The law stated that “[n]o entity or individual may practice as a contractor… without a license issued in accordance with this chapter.”  In fact, the only exception recognized by the South Carolina Supreme Court was when the total cost of construction was less than $5,000, which was clearly stated in the law.  The $700,000 job at issue here was well above $5,000.  Additionally, the law required a valid license in order for a contractor to bring a lawsuit to enforce a contract.

Thus, the South Carolina Supreme Court held that the arbitrator erred in failing to grant the couple’s defense that the contractor was not properly licensed.  Because of the contractor’s failure to get proper licensure, it lost the ability under South Carolina law to bring an action to enforce the contract altogether.

Takeaway
Recently, there has been a lot of news about rising optimism among real estate executives concerning the market.  As such, contractors will hopefully see drastic increases in business in the coming months, and this case should be a reminder to contractors that appropriate licensure could make or break their ability to get paid.

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