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Neglecting Corporate Formalities Leaves Contractor Businesses Exposed to Liabilities Under HICPA

February 7, 2019Alerts

The Pennsylvania Superior Court recently found an individual liable as a “contractor” under the state’s Home Improvement Consumer Protection Act (HICPA) because his “corporate” entity did not legally exist as a result of that individual’s failure to adhere to corporate formalities. The individual thus found himself liable to the aggrieved homeowners for unsatisfactory renovations. Contractors must make sure their businesses follow legal formalities and are properly incorporated and registered to do business in Pennsylvania or risk individual liability under HICPA.

In this case, the construction proposal bore the name of a construction firm and the homeowners wrote checks to the construction firm. However, at the time of trial, evidence revealed a lack of adherence to corporate formalities that would make the business properly incorporated, registered and legally distinct from its owner under HICPA. Further, the contractor had additional defenses he did not raise and, therefore, had waived. In litigation for these cases, the contractor typically benefits from raising all legal defenses. Lastly, the contractor should have been aware of when to cut losses. Because the individual in this particular case did not resolve the matter after losing at the magisterial level, he found himself faced with a lengthy complaint consisting of 148 paragraphs. The prospect of answering that complaint alone should have affected the contractor’s legal approach.

The takeaway for a homeowner is that it is always important to make sure that the contractor has adhered to legal formalities and has properly registered a contract that complies with HICPA. Both contractors and homeowners can review key information on compliance with Pennsylvania’s HICPA. 

For any questions about this case or related construction law matters, contact Ron Williams at [email protected] or 610.458.4994, or Julie Goldstein at [email protected] or 215.918.3558.