Aesthetic Property Maintenance Inc. v. Capitol Indem. Corp.
| Decision Date | 16 August 1995 |
| Docket Number | No. CV-94-0327-PR,CV-94-0327-PR |
| Citation | 900 P.2d 1210,183 Ariz. 74 |
| Parties | AESTHETIC PROPERTY MAINTENANCE, INC., d/b/a APM Landscape, Plaintiff/Appellant, v. CAPITOL INDEMNITY CORPORATION, a Wisconsin corporation, Defendant/Appellee. |
| Court | Arizona Supreme Court |
We are asked to decide whether substantial compliance with our contractor licensing statute can satisfy the licensing prerequisite to a civil action under A.R.S. § 32-1153. We hold that it can.
Aesthetic Property Maintenance, Inc. (APM) is in the landscaping business. It became a licensed contractor in January, 1990, and renewed its license in December, 1990. It had recently moved and included its new address with the renewal.
In late 1991, the Registrar of Contractors erroneously sent a renewal notice to APM's old address. APM's forwarding order with the post office had since expired. APM therefore did not receive the notice and did not renew its license, which was suspended by operation of law on January 1, 1992. APM discovered its suspension in late June, 1992, and immediately sought and received reinstatement. During the lapse, APM maintained its general liability insurance, workers' compensation insurance and contractor's license bond.
APM entered into a contract with Howell Constructors, Inc. in mid-December, 1991, (and thus before suspension) to do landscaping and irrigation work on a City of Glendale park. APM finished that project on March 5, 1992 (during suspension). In mid-January, 1992, (during suspension) it entered into another contract with Howell to do similar work for Dysart Junior High School. APM finished that project on August 25, 1992 (after reinstatement).
Because Howell failed to pay in full, APM brought an action against it and its surety, Capitol Indemnity Corporation (Capitol), for the balances due. Howell defaulted. Capitol raised the defense of nonlicensure. Acknowledging a preference for ruling otherwise, but believing that it was constrained by our cases, the superior court granted judgment in favor of Capitol on APM's and Capitol's cross-motions for summary judgment.
The court of appeals affirmed. It shared the trial court's concern, but felt similarly limited by earlier case law. It held that A.R.S. § 32-1153 barred APM from recovering for either project because APM was not licensed at the time the cause of action arose for the Glendale project and at the time it entered into the Dysart contract. We granted review to decide whether § 32-1153 is a bar to an action even where there has been substantial compliance with the licensing statute.
APM concedes that it was not licensed during portions of critical times as required by § 32-1153, but argues that we should follow cases from other states and adopt a substantial compliance test. Capitol argues that § 32-1153 requires strict compliance.
A.R.S. §§ 32-1101 to -1170.03 set forth the requirements for obtaining and keeping a contractor's license. Among other things, contractors must qualify under § 32-1122, maintain a surety bond or cash deposit, § 32-1152, and not commit any act or omission listed in § 32-1154(A). A.R.S. § 32-1153 sets forth prerequisites for bringing an action for unpaid work. It provides:
No contractor as defined in § 32-1101 shall ... 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.
Although we have not decided whether substantial compliance with the licensing statute satisfies § 32-1153, we have applied the statute before.
In Northen v. Elledge, 72 Ariz. 166, 232 P.2d 111 (1951), a contractor knowingly allowed his license to expire before finishing a project, and made no effort to renew it. The owner defaulted. Northen brought an action in which the owner raised the predecessor to § 32-1153 as a defense. That earlier statute only required licensing at the time the cause of action arose, and we thus rejected Northen's argument that his license at the time he entered into the contract was adequate. Id. at 171, 232 P.2d at 116. We also rejected his argument that equity favored his recovery, and noted that if contract performance were the only test, the statute would have little effect. Id. at 173, 232 P.2d at 118. But Northen never argued that in addition to performing his contract he substantially complied with the licensing statute. Nor could he have in light of the facts of the case. He knew his license had expired, but continued to work and never bothered to renew it, even up to the time of bringing the action. Thus, this court did not have an opportunity to decide whether substantial compliance with the licensing statute is adequate under § 32-1153. The issue is therefore one of first impression. 1
Our cases suggest that whether a rule of strict or substantial compliance applies depends upon which rule promotes legislative purpose. In Matcha v. Wachs, 132 Ariz. 378, 646 P.2d 263 (1982), we held that substantial compliance with mortgage redemption statutes was "sufficient to perfect a lien creditor's right to redeem." Id. at 379, 646 P.2d at 264. A lienholder tardily filed documents required to redeem foreclosed property and improperly filed copies instead of originals. We said that "[w]hether a statute should be given a strict or equitable interpretation must be decided in accordance with the legislature's intent in enacting that statute." Id. at 381, 646 P.2d at 266. The statute's purpose was to insure that property is sold at a fair price and that creditors are paid in order of priority. A rule of substantial compliance would not defeat that purpose. We considered "the nature and extent of the deviation from the statutory plan, the fulfillment or nonfulfillment of the statutory purpose, and the prejudice or lack of prejudice to junior creditors" whom the statute was designed to protect. Id.; see also State v. McEuen, 42 Ariz. 385, 392, 26 P.2d 1005, 1008 (1933) ( ).
We have found substantial compliance adequate in a variety of statutory settings. E.g., Pima County v. Cyprus-Pima Mining Co., 119 Ariz. 111, 114, 579 P.2d 1081, 1084 (1978) (); State v. Town of Benson, 95 Ariz. 107, 108, 387 P.2d 807, 808 (1963) (); Leeson v. Bartol, 55 Ariz. 160, 167, 99 P.2d 485, 489 (1940) ().
But we have required strict compliance when less would defeat a statute's purpose. For example, in Estate of Ball v. American Motorists Ins. Co., 181 Ariz. 124, 888 P.2d 1311 (1995), we required an insurer to strictly comply with A.R.S. § 20-259.01(B) where failure to do so would compromise the protection afforded an additional insured under the statute.
In short, whether substantial or strict compliance is required is largely a question of which test best promotes legislative purpose. See A.R.S. § 1-211(B) ().
Capitol argues that the purpose of § 32-1153 is to penalize contractors who do not strictly follow the licensing statute. But our cases are to the contrary.
We have repeatedly held that the purpose of § 32-1153 is to protect the public from unscrupulous, unqualified, and financially irresponsible contractors. E.g., Westinghouse Elec. Corp. v. Rhodes, 97 Ariz. 81, 84, 397 P.2d 61, 64 (1964) (); Sobel v. Jones, 96 Ariz. 297, 300, 394 P.2d 415, 418 (1964) (). We have found no case to support the argument that § 32-1153 was designed to punish those who did not strictly comply with its provisions. Indeed, Northen itself acknowledged that the statute was designed to protect the public "against unscrupulous and unqualified persons purporting to have the capacity, knowledge and qualification of a contractor." Northen, 72 Ariz. at 172, 232 P.2d at 115.
Several states with similar statutes have adopted rules of substantial compliance. In Koehler v. Donnelly, 114 N.M. 363, 838 P.2d 980 (1992), problems with mail delivery prevented a contractor from receiving several renewal notices. Its license was ultimately suspended. Five months later, the contractor learned of the cancellation and had its license reinstated. The contractor had entered into a construction contract with Koehler while its license was suspended. Koehler failed to pay and used the same statutory defense that Capitol raises here. In reaffirming...
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