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Construction Law

Unlicensed Arizona 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 Arizona Registrar of Contractors' 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.

 

This article appeared in the March 2004 issue of "The Construction Advisor" published by Lang & Klain, PLC.


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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.

Related Article: Unlicensed Contractor Wins Relief from Order to Pay Full Restitution

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.azroc.gov.