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Court Reaffirms Strength of
Prompt Payment Law
Dissatisfaction with non-invoiced work does
not entitle an owner to withhold payment
when invoiced for other work
A 2007 Arizona Court of Appeals decision in
Stonecreek Bldg. Co., Inc. v. Shure
provides a refresher course on the state’s
prompt payment law and the protections it
offers contractors. The case involves
property owners – Mavis Shure and her
husband, Lanny Hecker – who wished to build
a custom home. They hired Stonecreek
Building Co. as their general contractor.
During construction, the owners complained
to Stonecreek about defective workmanship,
particularly in the masonry work. When
Stonecreek assured the owners that it would
not pay the masonry subcontractor until the
work was corrected to their satisfaction,
the owners continued to make timely progress
payments. The quality of the masonry work
continued to be an issue, to the point that
the owners’ attorney sent a letter to
Stonecreek expressing their dissatisfaction.
The letter also was critical of the HVAC
work that had been done.
A few days later, Stonecreek sent the owners
an invoice for $122,447. The invoice, which
had been approved by the architect, covered
a variety of work, including the HVAC
system. The invoice did not include charges
for masonry work.
The owners, alleging deficiencies in the
masonry and HVAC work, withheld $100,000
from their payment, setting in motion a
series of predictable consequences:
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Stonecreek stopped its work on the
residence.
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The owners, claiming that Stonecreek failed
to remedy deficiencies in construction,
terminated the contract.
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Stonecreek sued the owners.
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The owners counter-sued Stonecreek.
In its suit, Stonecreek claimed that the
owners violated Arizona’s prompt payment law
(A.R.S. §§ 32-1129 to -1129.06) by
withholding payment from an invoice because
of dissatisfaction with masonry work that
was not covered by that invoice. The
contractor also claimed that the owners had
approved its invoice, either because of the
architect’s approval or because it had been
“deemed approved” because the owners failed
to file a timely written objection to the
work that the invoice covered.
The owners, through their attorney’s letter,
had disputed the quality of both the HVAC
and masonry work. However, of those two
issues, only the HVAC work (for which the
owners were billed $26,781) was included in
the invoice. The masonry work was not.
Stonecreek filed a motion for partial
summary judgment, and the trial court
granted it. In granting the motion, the
court ruled that, while the letter from the
owners’ lawyer satisfied the statutory
requirement of a timely written objection,
the prompt payment law allows an owner to
withhold payment only to the extent that the
owner disapproves work included in the
invoice.
As damages for the owners’ violation of the
prompt payment law, the trial court awarded
Stonecreek $73,219 – the $100,000 that the
owners withheld from their payment, minus
the $26,781 for the properly disputed HVAC
work.
Appeal. The owners appealed the trial
court’s award. The owners and Stonecreek
agreed that the only issue to be determined
was whether the prompt payment law allows an
owner, when presented with an invoice, to
withhold payment related to work that is not
included in that invoice.
It is the stated purpose of the prompt
payment law “to establish a framework for
ensuring timely payments from the owner to
the contractor and down the line to the
subcontractors and suppliers whose work has
been approved.”
According to A.R.S. §
32-1129.01(A), an
owner must make progress payments to a
contractor “on the basis of a duly certified
and approved billing or estimate of the work
performed and the materials supplied during
the preceding thirty day billing cycle.”
Those payments are to be made within seven
days after the date the billing or estimate
is certified and approved. The statute goes
on to state:
“A billing or estimate shall be deemed
approved and certified fourteen days after
the owner receives the billing or estimate,
unless before that time the owner or the
owner's agent prepares and issues a written
statement detailing those items in the
billing or estimate that are not approved
and certified.”
In their appeal, the owners argued in part
that they were entitled to withhold payments
for work other than that billed in the
invoice, because some defects in workmanship
may become known only after payment has been
made.
On that point the Court was sympathetic but
unswayed. The Court noted that, when it
comes to latent defects, withholding payment
is not an owner’s only remedy:
“The owner retains all civil remedies for
breach of contract and tort claims against a
contractor. Certification of payment given
during the course of construction is not
regarded as conclusive that the work was
properly performed. … [And] progress
payments do not constitute acceptance of
work that is not in accordance with contract
requirements.”
In the end, to the question of whether the
prompt payment law allows an owner to
withhold payment related to work that is not
covered by the invoice, the Court of Appeals
offered a resounding “no,” ruling that, in
keeping with the purpose of the law, “the
trial court correctly held that withholding
funds for allegedly defective work not
covered in the invoice violated the Act.”
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