LOVING EVANS v. BLICK (1947)

On February 8, 1945, Loving & Evans, contractors, a copartnership, hereinafter referred to as respondents, entered into a written contract with Frank R. Blick, hereinafter referred to as appellant, for the repair and remodeling of appellant's premises. The contract was on a ‘10 per cent cost plus' basis. After the work was completed appellant had paid respondents $13,555. Respondents claimed that a balance of $6,839.61 was still due. The agreement provided that in case of any controversy arising between them in reference to the construction or agreement that such controversy might be submitted to arbitration, under the provisions of secs. 1280 to 1293, inc., of the Code of Civil Procedure. On August 24, 1945, a separate written agreement was signed agreeing that ‘all rights and obligations of the parties are subject to arbitration’; that the contractors had provided the owner with bills and statements covering work performed and the amount alleged to be due; that the owner disputed the correctness thereof and that differences have arisen in regard thereto; that it is the intent of the parties to submit ‘said dispute and differences and all matters relating thereto’ and ‘all claims and demands arising therefrom or based on the above-mentioned transaction and the facts and circumstances relating thereto’ to arbitration by F. W. Welsh, an attorney, who shall hear, judge and determine said matters so submitted, and who shall make his award in writing ‘which said final award, it is agreed, shall in all things be well and faithfully kept, observed and performed by the parties hereto * * * and shall constitute and complete a final adjudication of all matters hereby submitted to arbitration’; that the arbitrator may render his award and judgment in the same form as a judgment in any civil action and ‘according to the legal right of the parties'.

In accordance with the agreement, respondents submitted a petition to the arbitrator, setting forth their claim. An answer thereto was filed by appellant alleging unreasonable delay in construction, lack of vouchers to support respondents' charges, nondelivery of items charged, and improper charges. He disputed the claimed balance due and denied a charge of $1877.20, representing 10 per cent of cost to contractors as their fee, for the reason that ‘Loving & Evans * * *’ were not licensed by the State of California to act as contractors at the time the work was performed and the services rendered. He also alleged that originally the parties orally agreed to the construction of his auto-court buildings and that work thereon commenced on February 8, 1945; that it was not until March 12, 1945, that the written agreement was signed.

As a special defense to the entire claim, appellant set up the defense that the copartnership did not have a State Contractor's license to do business at the time the agreement was entered into, and that under the provisions of article 2, chapter 9, division 3 of the Business and Professions Code, respondents were forbidden to engage in such business or to so act prior to August 16, 1945, and that under sec. 7031 thereof they were prohibited from maintaining any action for the collection of compensation for the performance of any act for which a license is required by said provisions, and denied any liability for their claim. Appellant counterclaimed for the sum of $13,500 repayment of the sum already paid them and for $2600 damages for claimed delay in completion, in violation of the agreement.

The arbitrator, on March 22, 1946, made his award in writing reciting that ‘a dispute had arisen * * * in regard to the amount due’ and that an agreement had been signed which ‘provided that the issues of said controversy should be joined by the submission of a petition and answer thereto’ and that the arbitrator should determine ‘the matters submitted to arbitration’ and that the ‘award should constitute a complete and final adjudication’ of all matters submitted; that a hearing was had on ‘all the issues involved’; that after ‘consideration of the evidence introduced’ he awarded Loving and Evans the sum of $5,739.87, as itemized. The contractor's fee was fixed at $1754.08. Thereafter, Loving & Evans filed in the Superior Court of Kern County an application for an order confirming the award of the arbitrator. Attached to the petition was a copy of the agreement of submission and the award. They asked that a judgment be entered accordingly. A notice of motion for such an order was signed. Defendant appeared and objected to the award on the grounds that the arbitrator failed to make a full and final determination of the matters submitted, namely, that the defendant had set up an alleged and special defense that the contractors were not duly licensed to engage in the business as contractors in this state, as alleged in their special affirmative defense, and that by reason thereof, he was not liable to the contractors for any work done or materials furnished; that the arbitrator failed to consider his counterclaim for $2600 damages or pass upon the matters brought in issue by the answer and claimed special defense and the counterclaim as set forth. He prayed that the award be vacated and set aside. Notice of said motion was given stating that it would be based upon the award, the agreement of submission, the petition for award, the answer to the petition (copies of which were attached thereto), and upon the objections to the award, the affidavit of Walter L. Maas, Jr., and the affidavit of Frederick W. Welsh, the arbitrator (copies of which were served therewith). On May 13, 1946, the matter came on for hearing.

The affidavit of the arbitrator recites the filing of the petition and answer, setting out the special affirmative defense; that in the course of the hearing of the matters before him, ‘it was stipulated by the parties * * * that it was true that at all times from the initial negotiations for the work to be performed by the contractors for the owner, one of the partners of the firm of Loving & Evans, to wit, J. P. Loving, held a contractor's license’; that the other partner did not have such a contractor's license and that the firm of Loving & Evans, a copartnership, did not have issued to it such a contractor's license under the Business and Professions Code; that the initial negotiations for the work, which was eventually performed, were conducted between J. P. Loving individually, and the owner, Blick; that prior to February 9, 1945, Evans became a partner with Loving in the contracting business.

The affidavit of Walter L. Maas, Jr., corroborates the affidavit of the arbitrator in reference to the stipulation therein mentioned.

The affidavit of R. S. Woodruff, counsel for respondents, recites the making of the stipulation before the arbitrator; that at all times Loving held a general contractor's license; that the firm did not hold one until after the job was completed and that Evans, individually, did not hold one at all; that the stipulation was made with the express reservation that the admission of such facts did not admit that said contractors had not complied with the provisions of the Business and Professions Code, nor admit that said provisions were applicable under the circumstances nor that the question of a license was a proper matter of defense in said hearing; that evidence was introduced that the original contract for the performance of alterations and construction was executed by J. P. Loving and Blick individually, and that at that time Loving was doing business as an individual and was properly licensed as a general contractor.

The judgment of the court recites that the motions were heard and that it was ordered that the motion for the order confirming the award be granted and that the other motion to set aside the award of the arbitrator be denied. Judgment for $5,739.87 was entered on the award. This appeal is based on the judgment roll alone and is taken from the two orders and judgment mentioned. The County Clerk certified that the documents and papers aforementioned constituted the judgment roll and were prepared in accordance with Rule 5 of the Rules on Appeal. Attached to that certificate is the certificate of the trial judge certifying that the three affidavits heretofore mentioned were used and considered by it in the hearing and that they constituted all of the evidentiary matter so used and considered.

There are two legal issues involved: (1) Whether the respondents, under the undisputed evidence, operated in violation of the law; and (2) if so, whether the award of the arbitrator and its approval by order of the trial court can, be nevertheless or otherwise sustained.

Section 7028 of the Business and Professions Code provides that: ‘It is unlawful for any person to engage in the business or act in the capacity of a contractor within this State without having a license therefor * * *’ Section 7025 provides that: “Person' as used in this chapter includes an individual, a firm, copartnership * * *.' Sec. 7026 defines a contractor. Section 7029 provides that: ‘It is unlawful for any two or more licensees, each of whom has been issued a license to engage separately in the business or to act separately in the capacity of a contractor within this State, to jointly submit a bid or otherwise act in the capacity of a contractor within this State without first having secured an additional license for acting in the capacity of such a joint venture or combination in accordance with the provisions of this chapter as provided for an individual, copartnership or corporation.’ Section 7031 provides that: ‘No person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action in any court of this State for the collection of compensation for the performance of any act or contract for which a license is required by this chapter without alleging and proving that he was a duly licensed contractor at all times during the performance of such act or contract.’

It is true that Loving, at all times, possessed an individual contractor's license, but his partner did not, and the partnership, as such, failed to obtain such a license. Under the undisputed facts there has been a violation of section 7025 and 7028 of the Business and Professions Code by the partnership, as such. We see no escape from this legal conclusion.

Haas v. Greenwald, 196 Cal. 236, 237 P. 38, 59 A.L.R. 1493, was an action to recover compensation for procuring a purchaser for real property. The services were to be performed jointly by two real estate brokers and an attorney. The attorney was a licensed real estate broker. The Supreme Court held that since the contract was void as to the attorney it was void as a whole, because the services of all were the consideration for the contract.

Likewise, Wise v. Radis, 74 Cal.App. 765, 242 P. 90, was an action brought to recover commissions by an unlicensed real estate broker, where two real estate brokers entered into an agreement to work together as brokers in negotiating the sale of real estate. One of them did not procure a license, as required by the Real Estate Brokers' Act. The court there held that the failure to obtain the license required by the Act rendered the transaction illegal and void and no recovery of the commission could have been enforced by the parties against the owner of the property. At page 775 (Syllabus 6) of 74 Cal.App., at page 94 of 242 P. the court said:

‘No principle of law is better settled than that a party to an illegal contract or an illegal transaction cannot come into a court of law and ask it to carry out the illegal contract or to enforce rights arising out of the illegal transaction. He cannot set up a case in which he necessarily must disclose the illegal contract or the illegal transaction as the basis of his claim. In Moore v. Moore, 130 Cal. 110, 62 P. 294, 80 Am.St.Rep. 78, our Supreme Court quotes Judge Duncan in Swan v. Scott, 11 Serg. & R., Pa., [155, at page] 164, as follows: ‘The test whether a demand connected with an illegal transaction is capable of being enforced is whether the plaintiff requires the aid of the illegal transaction to establish his case. If the plaintiff cannot establish his case without showing that he has broken the law, the court will not assist him, whatever his claim in justice may be upon the defendant.’'

And at page 776 (syllabus 7) of 74 Cal.App., at page 94 of 242 P. it is said:

‘If the issuance of a copartnership license was a necessary prerequisite to the legality of the firm transactions which appellant and respondent jointly carried on as copartners, then, since no such license was ever issued, or was ever even within the contemplation of the partners, the partnership contract was illegal from its inception, for in that case the partnership contract necessarily would involve the performance of illegal acts.’

To indicate the apparent harshness of the rule and the extent to which the courts have gone in denying a right of recovery in any action by a person or partnership who or which has failed to obtain a contractor's license, we need but cite Holm v. Bramwell, 20 Cal.App.2d 332, 67 P.2d 114. It was there held that a general licensed contractor is denied the right to recover from an owner moneys paid by him to a subcontractor who was not a licensed contractor. It was there stated that the sub-contract was illegal and void (citing various California cases), and that a party to an illegal contract may not rest his cause or recover judgment based on such a void agreement. See also, Firpo v. Murphy, 72 Cal.App. 249, 236 P. 968, where it was held that the Real Estate Brokers' Act was a statute designed for the protection of the public and that a penalty is prescribed for the violation thereof; that such penalty is the equivalent of an express prohibition and that a contract made contrary to the terms thereof is void; that whenever the illegality appears, whether the evidence comes from one side or the other, the disclosure is fatal to the case. See, also, Citizens State Bank of Long Beach v. Gentry, 20 Cal.App.2d 415, 67 P.2d 364; Levinson v. Boas, 150 Cal. 185, 193, 88 P. 825, 12 L.R.A., N.S., 575, 11 Ann.Cas. 661; Chateau v. Singla, 114 Cal. 91, 94, 45 P. 1015, 33 L.R.A. 750, 55 Am.St.Rep. 63; Moore v. Moore, 130 Cal. 110, 113, 62 P. 294, 80 Am.St.Rep. 78; and Wise v. Radis, supra.

Respondent relies mainly on Gatti v. Highland Park Builders, Inc., 27 Cal.2d 687, 166 P.2d 265, where a judgment in favor of plaintiff contractors was affirmed although no contractor's license in the name of the partnership under which they had been operating had been issued to the two plaintiff contractors as such. But each of the contractors individually, at the time the contract was made, possessed a contractor's license. During the performance of the contract the two plaintiffs and a third party were issued a partnership license. The court therein discussed the general rule and the cases cited, and pointed out that in Wise v. Radis, supra; Holm v. Bramwell, supra, and Phillips v. McIntosh, 51 Cal.App.2d 340, 124 P.2d 835, the contracts were executed at a time when the broker or contractor was unlicensed, and it held that the Gatti case was distinguishable, under the circumstances there related, because, at the time the contract was made, each of the two members of the partnership possessed a license in his own name as an individual. The majority opinion then held that the plaintiffs had substantially complied with the statutory requirements and also held that [27 Cal.2d 687, 166 P.2d 266]: ‘If defendant is allowed to defeat plaintiffs' legitimate claim on this technical ground, resting on an unnecessarily strict construction of the statutory provision for the additional joint contractor's license and denying any effect to the combination license in fact issued to plaintiffs and a third person as above recited, the legislative scheme in relation to the licensing of contractors, intended ‘for the safety and protection of the public,’ would become an unwarranted shield for the avoidance of a just obligation.' The dissenting opinion by Mr. Justice Edmonds points out that the decision is directly contrary to the plain and positive language of the statute regulating the contracting business, and that: ‘Wisely or unwisely, the Legislature has specified that two persons individually licensed may not, as partners, engage in the contracting business without having obtained a license in the name of the partnership.’ And he endeavors to analyze some of the cases cited and relied upon by plaintiffs therein.

The undisputed facts before us indicate a violation of the law, and the decision of the arbitrator, as confirmed by the trial court, is contrary to the plain and positive language of the statutes regulating the contracting business. The Supreme Court may be willing to go one step further and hold here, as it did in the Gatti case, that there was nevertheless, under the circumstances related, a substantial compliance with the law. We, as an appellate court, do not feel justified, under the cases above cited, and in the absence of corrective legislation by the Legislature, to carry the rule further. We will therefore turn our attention to the second question involved.

It is pointed out in Pacific Vegetable Oil Corporation v. C. S. T., Ltd., 29 Cal.2d 228, 174 P.2d 441, that ordinarily the merits of a controversy between parties to an arbitration proceedings are not subject to judicial review, and that arbitrators are not bound by strict adherence to legal procedure and to rules of admission of evidence expected in judicial trials. Under sec. 1288 of the Code of Civil Procedure, the Superior Court has power to vacate an award upon the several grounds there stated. Subdivision (c) states: ‘Where the arbitrators were guilty of misconduct, in refusing to * * * hear evidence, pertinent and material to the controversy; or of any other misbehaviors, by which the rights of any party have been prejudiced.’ ‘(d) Where the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award, upon the subject matter submitted, was not made.’ We must examine the facts established to see if appellant has brought himself within any of these provisions requiring the court to vacate the award.

The agreement of submission to arbitration clearly recites that the correctness of the bills, the amount due, all matters relating thereto, and all claims and demands arising therefrom, or based on the above-mentioned transaction, are submitted to arbitration ‘according to the legal rights of the parties.’ From the record it is apparent that appellant claims that no sum was due respondents at all because of the fact that the partnership was not licensed to do a contracting business at the time, and also, on the same ground, claims a refund of monies already paid to them. These issues were presented by the agreement, petition and answer in the arbitration proceedings. It is equally clear that the arbitrator did receive evidence on the subject. His signed award recites that fact. It also recites that ‘after consideration of all the matters of said controversy as set forth in the agreement of submission and in the allegations of the petition and answer filed herein,’ and ‘after consideration of the evidence introduced at the arbitration hearing,’ he found against the claim of the owner Blick and in favor of the contractors and fixed that sum at $5739.87.

The record establishes that the arbitrator did act on the matters submitted. Whether he acted ‘according to the legal rights of the parties,’ as specified in the agreement of submission, and whether that question is now open to and presentable for judicial review is the question. It is the general rule that in case a submission to arbitration is on both questions of law and fact, and is unqualified and in general terms, however different the judgment of the arbitrators may be upon the law of the case from the opinion entertained by the court, if the arbitrator has acted honestly, the award will not be set aside unless the error appears on the face of the award. In re Frick, 130 Cal.App. 290, 19 P.2d 836; Brodhead-Garrett Co. v. Davis Lumber Co., 97 W.Va. 165, 124 S.E. 600; 6 C.J.S., Arbitration and Award, § 105, p. 252, 6 C.J.S., Arbitration and Award, § 48, p. 190.

On the other hand, if the arbitrators are required, by the terms of the submission or by a statute or rule of court under which the arbitration proceeds, to determine the rights of the parties according to law, a plain mistake in their construction of the law is sufficient ground upon which to avoid the award. 6 C.J.S., Arbitrators and Award, § 105, p. 252; Utah Construction Co. v. Western Pac. R. Co., 174 Cal. 156, 162 P. 631; Howe v. Patrons' Mutual Fire Ins. Co., 216 Mich. 560, 185 N.W. 864; Adams on Equity, p. 192; Greenough v. Rolfe, 4 N.H. 357; White Mountains Railroad v. Beane, 39 N.H. 107; Fudickar v. Guardian Mutual Life Ins. Co., 62 N.Y. 392; Sanborn v. Murphy, 50 N.H. 65; 4 Century Digest (Arbitration & Award) p. 290, sec. 315; 5 Corpus Juris, p. 184, § 470; see also 6 C.J.S., Arbitration and Award, § 105; Bartlett v. L. Bartlett & Son Co., 116 Wis. 450, 93 N.W. 473; Cyclopedia of Law & Procedure, vol. 3, p. 740; Am. & Eng. Encyclopedia of Law, vol. 2, 2d Ed., p. 783; Morse on Arbitration & Award, p. 300.

In Utah Construction Co. v. Western Pac. R. Co., supra [174 Cal. 156, 162 P. 634], the terms of the submission of the controversy to the arbitrator were quite similar to those in the instant case and under the terms of that submission the arbitrator was required to ‘* * * make his judgment and award, according to the legal right of the parties * * *.’ It was there said, quoting from authorities (174 Cal. at pages 160–162, 162 P. at page 633):

‘An award made upon an unqualified submission cannot be impeached on the ground that it is contrary to law, unless the error appears on its face and causes substantial injustice. * * * A different rule is applicable here because of the terms of the submission. ‘Whenever the arbitrators are required, by the terms of the submission, * * * to determine the rights of the parties according to law, a plain mistake in their construction of the law is sufficient ground upon which to avoid the award. * * *’' The court then said: ‘The submission in this case was not without qualification. * * * the provisions above mentioned bound the arbitrator to decide in conformity with the law, and left him without authority to do otherwise. 5 Cor.Jur. 183; Morse on Arbitration, 302.’

This case has been cited in the textbooks as authority for this rule of law, although on page 163 of the decision in 174 Cal., on page 634 of 162 P., it is said:

‘Our final conclusion on the merits renders it unnecessary to determine whether the submission agreement, when properly construed, did or did not empower him to decide the law wrongly as well as rightly. We may assume, for the purposes of the case, that he was empowered only to decide correctly as to the law, and proceed upon that theory without deciding the point.’

In view of the rule of law reiterated by Mr. Justice Shaw in the decision in that case, we must conclude in this case that the submission, in the language of the agreement, that the arbitrator shall make his award ‘according to the legal right of the parties,’ was not a general, unqualified submission but was, on the other hand, a qualified submission and bound the arbitrator to decide in conformity to the law, and left him without authority to do otherwise. 3 Cal.Jur. p. 87, sec. 44.

The affidavits, considered by the trial court, show an invalidity of the contract and a violation of the law; that the partnership had not obtained a contractor's license as required; and the partnership was not authorized to bring or maintain this action or proceeding for the enforcement of its award and judgment for the reasons expressed. Pleaters & Stitchers Ass'n v. Davis, 140 Cal.App. 403, 35 P.2d 401.

It has been held that in passing on a motion to vacate an award, where the motion is supported by affidavits which have not been denied nor controverted, the court must accept as true the facts stated in the affidavits. Giannopulos v. Pappas, 80 Utah 442, 15 P.2d 353.

The appeal from the order denying the motion to set aside the award is, in effect, an appeal from the judgment. Glesby v. Balfour, Guthrie & Co., Ltd., 63 Cal.App.2d 414, 147 P.2d 60.

For the reasons expressed the judgment is reversed.

GRIFFIN, Justice.

BARNARD, P. J., and MARKS, J., concur.