903 Prohibition Against Suing for Compensation If One HadNo License

• Jurisdiction: Arizona

(a) Introduction

One who acts as a contractor and is not licensed may not sue for compensation, even if the work is properly performed.

A.R.S. § 32-1153 provides as follows:

No contractor as defined in § 32-1101 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.

As noted in Section 902, this can lead to a situation where a contractor expends substantial sums for labor and materials to benefit an owner, and the owner is benefited, but the owner can refuse to pay the contractor. If the contractor was unlicensed when the contract sued upon was entered into or when the alleged cause of action arose, the contractor has no recourse.

This statute has produced a great deal of litigation. The following cases, discussed in Sections 901 and 902 (as to such questions as who does or does not need to be licensed), arose in the context of whether one was barred from bringing an action for compensation by this statute: Jackling v. Snyder, 3 Ariz. App. 63, 411 P.2d 822 (1966); Thomas v. Lundgren, 9 Ariz. App. 94, 449 P.2d 628 (1969); Security Ins. Co. of New Haven v. Day, 6 Ariz. App. 403, 433 P.2d 54 (1967); Rhodes v. Clark, 92 Ariz. 31, 373 P.2d 348 (1962); Rosen v. Hadden, 81 Ariz. 194, 303 P.2d 267 (1956); Shuey v. Shearman, 77 Ariz. 207, 269 P.2d 607 (1954); Sobel v. Jones, 96 Ariz. 297, 394 P.2d 415 (1964); Linsenmeyer v. Jackson, 2 Ariz. App. 575, 410 P.2d 693 (1966); Newcomb v. Smedal, 6 Ariz. App. 295, 432 P.2d 154 (1967); Tovrea v. San Xavier Rock & Sand Co., 4 Ariz. App. 91, 417 P.2d 725 (1966); Crone v. Amado, 69 Ariz. 389, 214 P.2d 518 (1950); Pace v. Hanson, 6 Ariz. App. 88, 430 P.2d 434 (1967); Miller v. Superior Court, 8 Ariz. App. 420, 446 P.2d 699 (1968); VanWaters & Rogers, Inc. v. Interchange Resources, Inc., 14 Ariz. App. 414, 484 P.2d 26 (1971); Shelton v. Grubbs, 116 Ariz. 230, 568 P.2d 1128 (App. 1977); Kenyon v. Karber Constr. Co., Inc., 144 Ariz. 576, 698 P.2d 1295 (App. 1985).

Section 903 discusses cases which also arose under the statute, on issues other than those discussed in Sections 901 and 902, where the question was whether the statute barred one from bringing an action for compensation.

The court held in Mohave Concrete & Materials, Inc. v. Scaramuzzo, 154 Ariz. 28, 739 P.2d 1345 (App. 1987), that a business which leveled property with the intention of preparing the property for construction for condominiums “undertook residential construction” and thus was a contractor required to hold a contractor’s license. Mohave Concrete argued that it did not have to obtain a license because:

“the mere fact that someone, someday, may construct a residential structure on the property . . . does not give rise to a finding that [Mohave Concrete] was acting as a contractor within the meaning of § 32-1101 when it leveled and graded vacant land devoid of any residential structures.”

Id. at 31. The court of appeals disagreed, holding that a person undertakes residential construction when the person levels property with the intention of preparing the property for residential construction. Id.

In Adams Insulation Co. v. Los Portales Assocs. Ltd. Partnership, 167 Ariz. 112, 804 P.2d 841 (App. 1991), the plaintiff was licensed at the time it entered into the contract. A.R.S. § 32-1153 requires that the plaintiff be licensed both when the contract was entered into and “when the alleged cause of action arose.” The owner argued that on a lien foreclosure action, the cause of action did not “arise” until the lien was filed, and by then the contractor’s license had expired.

However, the court held that the lien relates back to the time that the work was done, and the contractor was licensed at that time. Therefore, the contractor was entitled to sue.

As noted in Section 902(c), a contractor cannot sue if he has the wrong kind of license. In Sanders v. Foley, 190 Ariz. 182, 945 P.2d 1313 (App. 1997), the contractor who had the wrong kind of license also had no claim for quantum meruit because it was “simply an alternative theory advanced in support of his single damages claim.”

However, the Arizona Court of Appeals held in Twin Peaks Constr. Inc. of Nevada v. Weatherguard Metal Constr., Inc., 214 Ariz. 476, 154 P.3d 378 (App. 2007), that A.R.S. § 32-1153 does not bar an unlicensed contractor from filing an administrative complaint for non-payment.

The general contractor Twin Peaks contracted with owner to build improvements to a city park. The general contractor subcontracted the fabrication and installation of a metal ramada to Weatherguard. The owner paid the general contractor but the general contractor failed to pay Weatherguard. Weatherguard filed a ROC complaint alleging the general contractor had violated A.R.S. § 32-1154(A)(11) by failing to pay a subcontractor “when due for materials or services rendered in connection with its operations as a contractor.”

The general contractor sought dismissal of the ROC complaint on the ground that Weatherguard’s complaint was barred under A.R.S. § 32-1153 because Weatherguard was not properly licensed as a contractor. A.R.S. § 32-1153 states in part that no contractor shall commence or maintain any action “in any court of the state” for collection of amounts due on a construction contract. The Twin Peaks court held that A.R.S. § 32-1153 is not a defense in the ROC complaint because Weatherguard did not bring any action in a state court.

(b) Purpose of Statute

The purpose of the statute is protection of the public in dealing with persons engaged in the building-contracting vocation who are unqualified or incompetent. The courts will enforce this provision even if the work is properly performed, and even though this results in a forfeiture.

In Chickering v. George R. Ogonowski Constr. Co., 18 Ariz. App. 324, 501 P.2d 952 (1972), the court summarized Arizona holdings as to the purpose of the statute as follows:

The courts of this State have consistently recognized that the purpose of the foregoing statute is protection of the welfare of the public dealing with persons engaged in the building-contracting vocation who are unqualified or incompetent. Sobel v. Jones, 96 Ariz. 297, 394 P.2d 415 (1964); Northen v. Elledge, 72 Ariz. 166, 232 P.2d 111 (1951); Miller v. Superior Court in and for Pima County, 8 Ariz. App. 420, 446 P.2d 699 (1968); Herman Chanen Construction Co. v. Northwest Tile and Terrazzo Co. of Montana, 6 Ariz. App. 490, 433 P.2d 807 (1967). Equitable considerations cannot serve to relieve a party from compliance with the statutory requisite of a license notwithstanding judicial abhorrence of forfeiture. Northen v. Elledge, supra; Desert Springs Mobile Home Ranches, Inc. v. John H. Wood Construction Co., 15 Ariz. App. 193, 487 P.2d 414 (1971).

Id. at 326. See also the quotation from Herman Chanen Constr. Co. v. Northwest Tile & Terrazzo Co. of Montana, in Section 903(i).

(c) Lack of Discretion in Registrar

The Registrar has no discretion to exempt contractors from the requirement that they be licensed.

In Northen v. Elledge, 72 Ariz. 166, 232 P.2d 111 (1951), the contractor had a license when he entered into a contract to perform construction. During the construction, his license expired and he was unpaid for work done by him beyond that point. The court held that he could not recover.

The contractor alleged that he had been given permission by the Registrar to finish that job. The court held...