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Getting Paid Can
Depend on
Proper Licensing
In a
split decision, the Court of Appeals blocks the collection efforts of a
contractor who wasn’t licensed at the time he signed the contract
A recent Arizona Court of
Appeals ruling in Crowe v. Hickman’s Egg Ranch, Inc. sends a subtle yet
stern warning to Arizona contractors: Be properly licensed, or lose your right
to payment.
Background. In
1997, Hickman’s Egg Ranch sought the services of a Mississippi contractor,
Richard Crowe Construction Company, which specializes in building commercial hen
houses.
At the time the two
parties entered into the $2.1 million construction contract, and for a time
after Crowe commenced work on the project, Crowe was not licensed in Arizona.
Hickman’s was aware of Crowe’s lack of license and helped Crowe gather the
documentation needed for licensing. (Crowe became licensed and bonded in
February 1998.)
Hickman’s paid Crowe more
than $2 million for Crowe’s services, but Hickman’s allegedly failed to pay
about $105,000 for work performed by Crowe between February 1998 and February
1999, a time during which Crowe was a licensed and bonded Arizona contractor.
Crowe sued in Superior Court to collect the unpaid $105,000.
In a dubious decision,
the trial court dismissed Crowe’s suit on the grounds that Crowe was not a
licensed Arizona contractor when the contract was entered into. The court cited
A.R.S. § 32-1153, which states:
“No contractor … shall act as agent or
commence or maintain any action in any court of the state for collection of
compensation for the performance of any act for which a license is required by
this chapter without alleging and proving that the contracting party whose
contract gives rise to the claim was a duly licensed contractor when the
contract sued upon was entered into and when the alleged cause of action
arose.” (Emphasis added.)
Crowe appealed, and the
Arizona Court of Appeals upheld the dismissal of Crowe’s suit, thus dashing
Crowe’s hopes of collecting the final $105,000 on the contract.
In reaching its decision,
the majority of the three-judge panel raised some issues of which Arizona
contractors and owners should take note.
While the statutory
language quoted above seems final, the judges cited the 1995 Aesthetic
decision in which the Arizona Supreme Court offered contractors some wiggle
room, i.e., that “substantial compliance” with the contractor licensing statute
was sufficient to satisfy the licensing prerequisite. Thus, the question that
the judges sought to answer was whether Crowe “substantially complied” with
A.R.S. § 32-1153 and whether the trial court’s summary judgment against Crowe’s
suit was appropriate.
Unfortunately for Crowe,
the majority ruled that Crowe failed the “substantial compliance test” contained
in Aesthetic. Among their findings were these:
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By not maintaining
liability insurance, a surety bond, and workers compensation, Crowe did not
meet his burden of proof as to financial responsibility.
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Crowe was aware of the
licensing requirement but did not immediately attempt to comply.
Crowe argued
(convincingly, in our view) that, since the work for which he had not been paid
was performed after he became licensed, and since he met the licensing and the
substantial compliance requirements during that time, he should not be barred
from suing to collect.
Crowe also argued that,
since Hickman’s knew that Crowe was not licensed, contracted with Crowe anyway,
requested services from Crowe, and paid Crowe over $2 million, Hickman’s
repeatedly ratified the contract and shouldn’t be allowed to escape
responsibility for payment. But the majority said no, essentially telling Crowe
that he should have been licensed at the time he entered into the contract.
The dissenting opinion in
this case casts Crowe’s and Hickman’s respective positions in, we believe, a
more realistic and common sense light:
“The ‘policy or purpose [of the
statute] is to protect the public from unscrupulous, unqualified, and
financially irresponsible contractors.’ … The public did not need protection
from Crowe for any of the above. Indeed, the word unscrupulous only comes to
mind when one considers Hickman’s involvement in this matter. Again, Hickman
sought out Crowe, entered into a contract with him, although he knew he was
not licensed, sent Crowe materials to help him obtain a license, let Crowe on
the property to do the work, paid him millions of dollars on the contract,
accepted the project, and, if you believe Crowe’s allegation, then refused to
pay over $105,000 for work done. The first, and only time Crowe heard about
his lack of a license ‘at the time he entered into the contract’ is when
Hickman filed his answer and motion to dismiss. “[T]he majority is wrongfully
allowing the statute to be used as a sword to punish Crowe for acting in a
fashion invited by Hickman.”
Warning to all
contractors.
The obvious warning here is that an unlicensed contractor had better obtain his
license and have it in hand before he contracts for work.
The Crowe case
includes a warning for licensed contractors, too: A license to do one specific
kind of work does not authorize you to contract for services outside the scope
of your license, even if you are competent to do the additional work. In other
words, a license to install drywall does not authorize you to paint, even if you
get a painting license before you begin painting but after you enter into the
contract. You will not be entitled to enforce the painting portion of the
contract.
The bottom line: If you
want to be able to sue for payment in an Arizona court, you must hold the
required license before you enter into the contract.
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