Med Plus Properties v. COLCOCK CONST.
1993 Ala. LEXIS 834, 628 So.2d 370, 1993 WL 325178 (1993)
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Rule of Law:
A construction contract with a duly licensed general contractor is not rendered illegal and unenforceable as a matter of law merely because an unlicensed third party is involved in the project. The determination of whether the arrangement constitutes an impermissible 'creative scheme' to circumvent contractor licensing statutes is a question of fact for the jury.
Facts:
- Med-Plus Properties, a partnership of Dr. Ferguson and Dr. McGahey, entered into a contract with Phillips Development Company, owned by the unlicensed Ronald C. Phillips, to build a medical clinic.
- To obtain a necessary building permit, which required a licensed contractor, Phillips contacted Colcock Construction Group, Inc. (CCG), a licensed general contractor.
- The parties' accounts of the subsequent oral agreement differed: Phillips claimed CCG agreed to let him use their license for a fee, while CCG claimed it became the legitimate general contractor with Phillips acting as Med-Plus's agent.
- Phillips and Jones Colcock of CCG presented a new written contract to Dr. Ferguson, which named CCG as the general contractor.
- Dr. Ferguson was told the document was a 'mere formality' or a 'piece of paper' needed to obtain the building permit and signed it without reading it, believing Phillips was still in charge.
- After construction began, conflicts over control of the project, including hiring subcontractors and managing payments, arose between CCG and Phillips.
- Med-Plus directed a payment installment to Phillips instead of CCG.
- Following failed attempts to resolve the control issues, Med-Plus terminated its contract with CCG on November 27, 1990.
Procedural Posture:
- Colcock Construction Group, Inc. (CCG) filed a breach of contract action against Med-Plus Properties in the Alabama circuit court (trial court).
- Med-Plus asserted the affirmative defense of illegality and filed counterclaims for negligent construction and fraud.
- The trial court granted a directed verdict in favor of CCG on Med-Plus's fraud counterclaim.
- A jury returned a verdict in favor of CCG on its breach of contract claim, awarding $125,000 in damages.
- The trial court entered judgment on the verdict and denied Med-Plus's post-judgment motions for judgment notwithstanding the verdict (JNOV) or a new trial.
- Med-Plus Properties (appellant) appealed the judgment to the Supreme Court of Alabama.
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Issue:
Does a construction contract between a property owner and a licensed general contractor become illegal and unenforceable when an unlicensed third party, who initially connected the parties, attempts to superintend the project in violation of state licensing statutes?
Opinions:
Majority - Justice Almon
No. A contract with a licensed general contractor is not automatically rendered illegal and unenforceable simply because an unlicensed party is also involved. This case is distinguishable from precedents where the primary contracting party was unlicensed and attempted to use another's license. Here, the contracting party, CCG, was duly licensed. The central issue was a factual dispute over whether the agreement was a legitimate construction contract or a 'creative scheme' to circumvent licensing laws by allowing the unlicensed Phillips to superintend construction. Because both parties presented conflicting testimony, it was the jury's role to weigh the evidence and determine credibility. The court found there was substantial evidence to support the jury's conclusion that the contract was not an illegal scheme, and therefore, the verdict in favor of CCG was not against the great weight of the evidence and must be upheld.
Analysis:
This decision clarifies that the mere involvement of an unlicensed party does not, as a matter of law, void an otherwise valid contract between an owner and a licensed general contractor. It shifts the determination of whether an arrangement is an illegal 'creative scheme' from a pure legal question to a question of fact for the jury. This strengthens the position of licensed contractors who may find themselves in disputes with unlicensed individuals and makes it more difficult for owners to use the illegality defense to escape contractual obligations unless they can convince a jury that the entire arrangement was a sham from the outset.
