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Mississippi Contractor Working in Arizona Cannot Sue for Payment When It Obtained License after Contracting


July 15, 2002


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(A revised version of this article will appear in The Construction Lawyer, Volume 22, No. 3, Summer 2002, published by the American Bar Association's Forum on the Construction Industry.)


By John W. Ralls
Thelen Reid Brown Raysman & Steiner LLP

An experienced Mississippi contractor agreed to build new hen houses for the owner of an Arizona farm. At the time the contract was signed, the contractor was not licensed in Arizona, a fact openly discussed by the contractor and owner. After a small amount of work was performed on the project, the contractor obtained its contractor's license and bond. The owner made progress payments over the course of construction but ceased making payments late in the job when a dispute over quality arose.

The contractor filed a complaint seeking payment for work performed while it was a licensed in Arizona and bonded. The trial court dismissed the entire action based on the contractor's failure to be licensed when the contract was signed. The Arizona Court of Appeal affirmed. Crowe v. Hickman's Egg Ranch, Inc., 41 P.3d 651, 2002 Ariz. App. LEXIS 33 (Ariz.App. 2002).

Arizona Revised Statutes §32-1153 provides: "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."

The contractor claimed it had substantially complied with the licensing requirement. Applying the factors to evaluate substantial compliance set forth by the Arizona Supreme Court in Aesthetic Property Maintenance, Inc. v. Capital Indemnity Corp., 183 Ariz. 74, 900 P.2d 1210 (1995), the court noted that the contractor had made no effort to obtain a license or bond before entering into the contract and was fully aware of the licensing requirement. "[T]he trial court correctly determined that the substantial compliance doctrine did not save [the contractor]."

The contractor also asserted a contract ratification theory on the ground that the owner ratified the contractor's behavior because it was fully aware that the contractor was unlicensed. The Court of Appeal found that the contractor had waived this argument by failing to raise it with the trial court. However, the court said that even if the ratification theory had been raised below, the court would not create a judicial exception to the explicit language of §32-1153.

A dissenting justice took a different view of substantial compliance and said compliance is adequate when it satisfies the general policy or purpose of the statute. The dissenting justice asserted that the policy and purpose of the licensing statute were satisfied because the general contractor sought payment only for the time it was licensed and bonded.

As for the inequity of the result, the majority quoted from an Arizona Supreme Court case: " 'Permitting an unlicensed contractor to recover on the ground that a loss would result to him otherwise would completely nullify the statute since every unlicensed contractor would sustain a loss or forfeiture unless he were allowed recovery. The remedy, if any, lies with the legislature.' " Quoting Northern v. Elledge, 72 Ariz. 166, 232 P.2d 111 (1951).


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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-369-7210 or at jralls@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.





©2002 Thelen Reid Brown Raysman & Steiner LLP

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