Pennsylvania’s Home Improvement Consumer Protection Act (HICPA) became effective on July 1, 2009. Under the law, all parties, including contractors and subcontractors, who perform more than $5,000 of work per year, and whose company is worth less than $50 million dollars, must register with the Pennsylvania Office of Attorney General. HICPA essentially has an all-encompassing effect: If the subcontractor is not registered with the Attorney General or the contract is not in conformity with the Act’s requirements, then it is simply unenforceable. Interestingly, even valid contracts may be rescinded by the homeowner within three days of the signing date without any penalty. Additionally, there are civil penalties for failing to register or violating the Act’s strict requirements of up to $1,000. But how does HICPA square with mechanics liens?
Violating HICPA and Mechanics Liens
Just last week a Pennsylvania appeals court, the Superior Court of Pennsylvania, ruled on a very important dispute in Shafer Electric & Construction v. Mantia. The issue in that case boiled down to whether a subcontractor who was in violation of the Home Improvement Consumer Protection Act could still recover unpaid amounts under the quantum meruit doctrine and a mechanics lien.
The defendants, Raymond and Donna Mantia, hired Shafer to complete a 34′ x 24′ addition to their home. Although Shafer is a licensed contractor in neighboring West Virginia, Shafer was not, at the time of the contract, registered with the Pennsylvania Attorney General. Since Shafer’s work was worth more than $5,000, Shafer was required but failed to register.
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After completing the work, Shafer’s invoice in the amount of nearly $38,000 went unpaid. Shafer filed a mechanics lien on the Mantia’s property on April 29, 2011, and on December 6, 2011, Shafer sued to recover the $38,000 under either breach of contract or quantum meruit. (Quantum meruit essentially allows a party to recover for work already performed even when a valid contract does not exist.)
quantum meruit essentially allows a party to recover for work already performed even when a valid contract does not exist.
On February 21, 2012, the Mantias filed an objection to Shafer’s lawsuit and asked the court to dismiss Shafer’s claims. Specifically, the defendants argued that since Shafer was not registered with the Attorney General, as required by HICPA, the home addition contract was invalid and thus unenforceable in Pennsylvania. After oral arguments were held on the objection, the court agreed with the Mantias and held that Shafer was precluded from recovery under both breach of contract and quantum meruit. Unhappy with the prospect that it would be completely unable to recover any of the $38,000 it was still owed, Shafer appealed.
Fortunately for Shafer (and unfortunately for the Mantias) the Superior Court of Pennsylvania reversed the trial court’s dismissal of the plaintiff’s claims. The court pointed out that, even under HICPA’s strict requirements and consequences:
Nothing in this section shall preclude a contractor who has complied with subsection (a) from the recovery of payment for work performed based on the reasonable value of services which were requested by the owner if a court determines that it would be inequitable to deny such recovery.
Subsection (a) lists all the requirements of a valid contract, including that it must be in writing, signed by all the appropriate parties, contains “the date of the transaction,” and describes the work to be performed, amongst many others. In essence, so long as the contract itself is valid, an unlicensed subcontractor may still have other avenues of recovery despite violating HICPA.
The court held that even without a “valid and enforceable contract” under Pennsylvania law Shafer could still recover under the section quoted above using the doctrine of quantum meruit.
The Superior Court cited its own opinion released a year ago in Durst v. Milroy General Contracting, Inc. to bolster its holding. In Durst an unpaid contractor was able to recover under the quantum meruit doctrine even though the work it performed was based on an oral contract.
Lessons from Mantia
While the court’s holding in Mantia may be a relief to unpaid subcontractors and contractors in Pennsylvania who are in violation of HICPA, one must wonder what the point of the Act is if unpaid parties still have other avenues to recovery even if they have not followed the law. In other words, do the holdings in Mantia and Durst defeat the purpose of the HICPA entirely if unpaid parties can still recover even with an invalid and unenforceable contract.
If the major purpose is to prevent unlawful contractors from getting paid, this extra provision makes no sense.
Perhaps the blame for such an illogical conclusion isn’t with the courts but rather with the legislators that included the “savings clause” (“nothing in [HICPA] precludes a contractor … from the recovery of payment for work … if a court determines that it would be inequitable to deny such recovery”) to begin with. Certainly HICPA provides other protections to homeowners – such as the right to rescind a valid contract within three days of signing – but if the major purpose is to prevent unlawful contractors from getting paid, this extra provision makes no sense.
Until Durst and Mantia are overturned, if ever, even without a valid contract under Pennsylvania’s Home Improvement Consumer Protection Act, unpaid subcontractors and contractors can still recover using quantum meruit.