Olshan’s client hired a subcontractor, but learned later that the subcontractor was unlicensed and had submitted a phony license number. Before the client learned the truth, it had signed a letter waiving all rights to assert defenses or claims against the subcontractor. The case was complicated by the fact that the subcontractor factored the debt out to a New York lender for collection. California law strictly prohibits paying unlicensed contractors, but New York law has no such rule, and the case was filed in New York by the lender. On appeal, the panel agreed with Scott’s position and ruled that the letter was not legally enforceable due to a lack of consideration and a lack of reliance. The Court wrote that the letter “should not be enforced mechanically… This does not comport with the societal interest in accurate results because California and New York law apparently differ on this point.” The ruling means that the client will not have to pay a debt that was illegal in California but could have been enforceable had the work been done in New York. Read the decision here.
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