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.
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.
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.
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
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
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
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:
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;
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
motion to dismiss.
appealed and received a warmer welcome in the Court of Appeals, which ruled
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
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
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.