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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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