|
Unlicensed Contractors:
No Automatic Refunds
The law that bars an unlicensed contractor
from suing for payment for work performed
does not force him to return a payment he
has received
The Registrar of Contractor’s licensing
procedures are designed to weed out
contractors that have a history of making
false representations, abandoning jobs or
doing shoddy work. Owners and general
contractors can consider a license to be one
indicator that a subcontractor will deliver
a satisfactory product, particularly if it
is coupled with a history of providing
service without customer complaints.
In Bentivegna v. Powers Steel & Wire
Products, Inc., the Arizona Court of
Appeals clarified one more reason for
checking a prospective contractor’s license
before hiring or writing checks: If an
unlicensed or improperly licensed contractor
performs substandard work, and the buyer –
assuming that the contractor is properly
licensed – pays the contractor anyway, the
court will not order a refund based upon
lack of a license alone.
Background. In 1997, Bentivegna hired
a general contractor to prepare a site and
build a steel warehouse for his new
business. Powers Steel & Wire Products was
hired to build the metal portion of the
warehouse for a price of $85,000, and it
contracted with both Bentivegna and the
general contractor.
At the time Powers entered into the contract
and during the time it performed the work,
Powers was licensed only to perform
reinforcing bar and wire mesh work, not to
build a steel building. Powers did not tell
Bentivegna or the general contractor that it
did not have the correct license until after
the warehouse was completed.
After Bentivegna paid Powers the full
$85,000, Bentivegna discovered material
defects in Powers’ work. (Both Powers and
the concrete foundation subcontractor had
made unauthorized changes to the structural
engineer’s plans.) Bentivegna’s expert
witness estimated that it would cost more
than $97,000, plus engineering fees, to
repair the defects in the $85,000 job.
Bentivegna filed complaints with the
Registrar of Contractors, and the Registrar
in turn issued corrective work orders
against both Powers and the general
contractor. The general contractor complied
with the work order, and he and Bentivegna
reached a settlement of Bentivegna’s claim.
Powers, on the other hand, did not directly
comply.
Instead of going back to the Registrar,
Bentivegna sued Powers in Superior Court.
Bentivegna’s suit alleged negligence, breach
of contract and breach of warranty and
sought restitution from Powers for all of
the monies that Bentivegna had paid to
Powers.
Argument for restitution. On the
restitution issue, Bentivegna argued that,
since
A.R.S. § 32-1153 prohibits an unlicensed
contractor from suing to recover payment for
work performed, the same statute should
require an unlicensed contractor to refund
monies paid for unlicensed work.
In other words, notwithstanding the validity
of his claims of breach of contract and
negligence, Bentivegna wanted the court to
order Powers to refund the monies because,
under his interpretation, mandatory refunds
are among the statutory risks of being
unlicensed.
Powers responded with its own motion for
summary judgment to dismiss the suit
entirely. In its motion, Powers argued that
Bentivegna had elected to pursue an
administrative remedy by filing his
complaint with the ROC and, having failed to
appeal from the ROC’s decision, was barred
from suing in court. In addition, Powers
contended that Powers was an indispensable
party to the settlement between Bentivegna
and the general contractor and, since the
general contractor had complied with the ROC
work order, by extension Powers had
complied, also.
The trial court ruled against Bentivegna
across the board. The court:
-
disagreed with Bentivegna’s interpretation
of A.R.S. § 32-1153 (i.e., the statute
does not require repayment of funds paid
to an unlicensed contractor);
-
found that, Powers had completed the work
ordered by the ROC;
-
denied Bentivegna’s claim for restitution;
-
concluded that, even if Bentivegna’s claim
for restitution was valid, Bentivegna’s
failure to exhaust his administrative
remedies at the ROC level barred
Bentivegna from filing suit; and
-
granted Powers’ motion to dismiss.
Appeal. Bentivegna appealed and
received a warmer welcome in the Court of
Appeals, which ruled that:
-
the trial court erred in finding that
Powers had complied with the ROC’s work
order;
-
a consumer can file a lawsuit before the
ROC investigation and remedies run their
course; and
-
Bentivegna’s claims for breach of contract
and breach of warranty should be decided
in court.
No automatic restitution. However, the Court
of Appeals sided with the trial court in
rejecting Bentivegna’s interpretation of
A.R.S. § 32-1153, stating:
“[I]f an unlicensed person performs work and
is paid for it, the customer then has a
choice: if he is happy with the work done,
he may allow the unlicensed contractor to
keep the funds; if he is unhappy with the
work done, he may pursue his legal remedies
by suing for damages.”
In other words, Bentivegna was within his
rights to file suit, but he could not use
the statute as the basis for requiring
restitution.
The Court of Appeals sent the case back to
Superior Court, where Bentivegna was allowed
to resume his pursuit of awards based on
breaches of contract and warranty.
What this means. There appears to be
no reason why the Court of Appeals’ ruling
in Bentivegna will not apply to contractors
in the same way it applies to project
owners. In a nutshell:
-
An unlicensed contractor has no right to
sue for payment for unlicensed work.
-
However, once the unlicensed contractor is
paid, there is no statutory (i.e., quick)
way to force him to issue a refund. That
obligation is for a court to decide.
It should be noted that the complaint
resolution process offered by the Registrar
can be extremely helpful. Because a
contractor’s license is crucial to the
health of its business, a complaint to the
Registrar is often the speediest way to get
the contractor’s attention and get a problem
resolved.
Before you leap into a working relationship
with a contractor, and particularly before
you make any payment, take a careful look at
the contractor’s license. License inquiries
can be made at
www.rc.state.az.us or by telephone at
602-542-1525 or 1-888-271-9286 (outside
Maricopa County).
Subscribe
|
Article
Index |
