Arturo Guillen is president and the majority stockholder in..

Arturo Guillen is president and the majority stockholder in..

Arturo Guillen is president and the majority stockholder in Hydra-zone

Systems Inc., a small company that manufacturers and installs patented equipment designed to simulate ocean waves. Hydra-zone is incorporated in the state of New London and is a duly licensed contractor in that state. Mirage Water-park Company owns and operates water-oriented amusement park in the neighboring state of Ada. ON 1/15/22011, Guillen contracted on behalf of HZ with Mirage to design and manufacture for the park a 29,000 square foot surfing pool using HZ wave equipment. Mirage was representing by its president, Anna Patton. The contract provided for a price of 750,000 for equipment, and a maximum of 250,000 in fees for services “as necessary to assist in installation.” The contract provided that HZ would charge an agreed hourly rate for the services of its employees in assisting with installation. The contract stated that delivery was to be completed in time to allow for installation by May, 15, 2011. Patton said that Mirage would primarily use its staff in installation and use a local contractor, if necessary. Mirage was entitled to hold back “10% of total charges as retainage,” pending satisfactory completion and operation of the pool.
After signing the contract with Mirage, Guillen became concerned about Ada’s contractor licensing statute which he understood would apply to the new installation. Guillen wrote to Patton on February 1, 2011, stating that HZ wished only to sell and deliver its equipment and to avoid involvement in installation or construction of the pool because of the licensing law. IN a letter dated February 9, 201, Patton responded that “HZ expertise is essential to proper installation of the equipment” and that Mirage would “hold HZ to its commitment to assist in construction.” Patton also promised that she would arrange for a friend who was an Ada licensed contractor “to sign any necessary paperwork and accept any formal liability for the work.” After this exchange of correspondence, HZ started delivery of the equipment and began assisting Mirage staff in initial layout on March 1, 2011.
By March 15th Guillen became concerned again that no state licensed contractor was involved in the installation. Upon inquiry by Guillen, Patton stated that her friend was tied up, but would help with assisting later. Guillen then stated that HZ would cease work until a licensed contractor was brought on board. Patton responded by stating that Mirage would refuse further payment, even for the 250,000 of equipment that had been delivered, and would hold HZ liable for any lost profits if the wave pool was not operational by the beginning of the summer 2011 season. Because his company was fully extended financially due to three concurrent projects, Guillen needed prompt payment from Mirage to meet his regular operating expenses. Thus, although he continued to complain regularly, Guillen directed HZ employees to continue with the installation. By May, 15th the pool was completely installed, primarily by HZ employees. Guillen had charged the full 1,000,000 for equipment and services, and had been paid 800,000. Patton never arranged for an Ada contractor to work with HZ.
The wave pool performed as specified in the contract during the 2011 summer season. After requesting payment of the 200,000 balance, Guillen received on August 1, 2011 a check for 100,000 which he had his financial manager deposit. Patton, however, refused to release the final 100,000 in retainage that had not been paid to HZ. When Guillen complained to Patton, she told him that his last progress payment of 100,000 had been accompanied by a letter that stated it was final payment in full discharge of the contract. Guillen checked his files and discovered in fact that a form letter with a great deal of fine print had been enclosed with the check and that it had included such language. Neither Guillen or his financial officer had read the form letter before negotiating the check. HZ then filed suit against Mirage to collect the final 100,000.
Assume that you are a law clerk for the magistrate who will be supervising a settlement conference to be held with the parties. The Magistrate would like your assessment of the legal issues that are likely to arise if the case goes to trial and the arguments that may be presented to each side to encourage settlement. The state licensing law is given below. What is your assessment?
Business and Professional Code 7031: (1) NO individual person, partnership or corporate entity engaged in the business or acting in the capacity of a contractor, may bring or maintain any action in Ada court to recover compensation for the performance of any act or contract for which a contractors’s license is required without alleging and proving maintenance of status as a duly licensed contractor at all times during the performance of act or contract.
(a) A license is required for any erection, construction, or renovation of a fixed structure upon real property.
(b) A license may be obtained by satisfactory completion of the contractors competency examination and payment of a fee of $500 for individuals and $1,000 for partnerships or corporate persons.
(2) The penalty for noncompliance with this provision shall be a fine equal to double the fees that should have been properly paid.