ALJDEC

00F-2234-ROC · Registrar of Contractors · 2000-10-17

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Pursuant to due notice, this cause came on for a formal hearing on October 17, 2000, in Phoenix, Arizona, before Administrative Law Judge Neal H. Jordan, Office of Administrative Hearings.

APPEARANCES For Complainant: David Probst, Its President appearing pro se.

For Respondent: Lee Price, Its President appearing pro se.

FINDINGS OF FACT Based upon all the evidence of record, the following findings of fact are determined: Complainant contracted with Respondent to provide materials and labor for the installation of a new air conditioning unit, additional duct work and a line voltage thermostat on a HUD 203(K) project located at 7840 S. 12th Street, Phoenix, for which Respondent was the general contractor. The work agreed to be performed by Complainant was completed on or about June 15, 1999.

Complainant has performed similar work for Respondent on three other HUD 203(K) projects in the immediate past. Notwithstanding the payment terms specified in the contract provisions, Complainant admittedly waived progress payments agreeing to accept full and final payment when the work was completed not only on this project, but also on the three past projects. On those three prior projects, payment in full was promptly made after all work had been completed. On the instant job, payment has not been made although all work required by the contract was completed on or about June 15, 1999. Respondent is embroiled in an ongoing dispute with the owner of this project effectively causing all HUD funds to be locked in escrow with no payments being approved or released until the dispute is resolved. Respondent’s president states that without the release of the HUD funds escrowed for this job, Respondent lacks the capacity to independently make any payment to Complainant. This testimony was uncontroverted. It is undisputed that Complainant is owed the sum of $3,800.00 for the work performed under the contract in this case.

CONCLUSIONS OF LAW The Office of Administrative Hearings has jurisdiction over the subject matter and the parties hereto pursuant to A.R.S. §41-1092 - 1092.12 (1998). The burden of proof, unless otherwise provided by law, is on the party asserting a claim, right, or entitlement in a contested case or appealable agency action. A.A.C. R2-19-119(B)((1); See also Utah Construction Company v. Berg, 68 Ariz. 285, 205 P.2d 367 (App. 1949). The standard of proof in such matters is that of the preponderance of evidence. A.A.C. R2- 19-119(A); See also Shelby School v. Arizona State Board of Education, 192 Ariz. 156, 962 P.2d 230 (App. 1998); Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996). The Citation and Complaint issued in this matter charges the Respondent with the violation of A.R.S. §32-1154(A)(7) and (11). The relevant portions of this statute are as follows: * * * 4) The doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured.

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(11) Failure by a licensee or agent or official of a licensee to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee's operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.

The law frowns on “pay when paid” clauses in agreements as creating conditions precedent. Such agreements will only be enforceable when clearly stated in unambiguous terms where the intent of the parties is established that all payments for work performed will come exclusively from the owner and not from the general contractor’s separate funds. Pioneer Roofing Co. v. Mardian Construction Co., 152 Ariz. 455, 733 P.2d 652 (App. 1986). This case represents an attempt to create a verbal condition precedent which by its nature and content must fail. That is not to suggest that a contractor is precluded from waiving precisely agreed upon payment terms in favor of a different schedule. In this case, Complainant effectively waived progress payments and agreed to accept a full and final payment on completion of the work. However, it is contrary to the evidence that Complainant waived payment indefinitely pending the outcome of the dispute between Respondent and the owner, a dispute not involving the workmanship of Complainant. It is clear, based upon the foregoing, that when analyzing this case from a strictly contractual perspective, Respondent must be found to be in default in the payment of the sum of $3,800.00, which is rightfully due and owing to Complainant. Without more, this would constitute a violation of A.R.S. §32-1154(A)(7) and (11) on its face. However, subsection (11) of this statute provides that a failure to pay monies must be determined in light of a licensee’s capacity to make a payment. In particular that statute states that “…if the licensee lacks the capacity to pay, (then payment is to be made) when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.” Clearly the intention of the legislature was to condition a finding of violation on a determination that the licensee has capacity to pay such monies and fails to do so. It is undisputed that Respondent lacks the capacity to make any payments to Complainant from its separate funds. Therefore, the statute provides that a violation can only then be found when Respondent has received sufficient monies from the project to make a payment to Complainant. The monies for this project are locked in escrow and presently remain unavailable to Respondent for any purpose. Until such time as these monies are released to Respondent, or Respondent’s financial position improves so as to create a capacity to pay, no violation of A.R.S. §32-1154(A)(11) and, consequently, (7) can be found. While subsection (11), cited above, is decidedly in abrogation of the common law on this issue, the statutory provisions take precedence since the jurisdiction of the Registrar of Contractors to impose discipline on a contractor’s license is strictly statutory and is, therefore, controlling.

RECOMMENDED ORDER In view of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED this case, cited as No. 00-2234, and the Citation and Complaint issued therein, be closed. ENTERED this day, October 18, 2000.

______________________________________ Neal H. Jordan Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2000, to:

Registrar of Contractors Michael P. Goldwater Attn: Joyce Armijo 800 West Washington, 6th Floor Phoenix, AZ 85007

By ___________________________

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826