YOUNG v. HAMPTON (1950)

Plaintiff contractor sued to enforce a mechanic's lien for the construction of a dwelling house and garage on defendants' lot. The trial court found that the work had been done on a cost-plus contract, with a balance due of $2,839.00, adjudged a lien accordingly, and directed its foreclosure if not paid.

Settled statement of oral proceedings on appeal, in lieu of reporter's transcript, has been filed. This statement presents the following facts essential to an understanding of the case:

Defendants, husband and wife, were young people. He was just about to become twenty-one years old when discussions were begun between him and his wife, and plaintiff, relative to building a house. The wife was nineteen. The husband was a veteran of the second world war. And they wanted a home of their own.

Plaintiff gave defendants a letter, stating that she would build them a house and garage, for $8,500, on a lot to be purchased by them. This was to enable defendants to apply to a bank for a veterans' loan for the cost of the house, garage and lot.

They all knew that such a loan would be, in part, guaranteed by the federal government. But, they made a side agreement, that defendants would pay plaintiff the actual cost of the improvements, plus plaintiff's contractor's compensation of 10%, with a maximum of $9,000. Thus, the money secured by the veteran on a veterans' loan was to be used, first, to buy the lot, and secondly, to pay the contractor as far as it would go. Then, the veteran and his wife agreed to pay plaintiff the balance of the cost of the home, together with 10% commission.

After appraisals were made for the Veterans' Administration and for the bank, plaintiff and defendants made and executed a writing, by which plaintiff agreed to build the house and garage, and defendants agreed to pay plaintiff $8,283 for the work. This contract was presented to the bank, with defendants' application for the loan, although, as stated, it did not represent the agreement of the parties.

Upon these representations, the loan was made by the bank, and in part guaranteed by the United States government. Then, before construction was begun, and without advising the bank or the Veterans' Administration, these parties made and executed a second writing, evidencing their real agreement—that the work would be done on a cost-plus basis.

Thereupon, the house and garage were built. And it was the cost-plus contract which was enforced by judgment of the Superior Court.

The government guaranty of part of the loan was based upon the representation that the improvements would be complted for the figure named in the first writing. The bank and the government provided the money and credit upon the assurance that the borrowers would not be required to pay to any one more than the represented appraised value of the lot and improvements. Plaintiff and defendants violated the provisions of the Servicemen's Readjustment Act of 1944, 38 U.S.C.A. § 694 et seq. Young v. United States, 9 Cir., 178 F.2d 78.

‘Any bargain is illegal if either the formation or the performance thereof is prohibited by constitution or statute.’ Rest., Contracts, sec. 580. Also see Sections 598 and 604 of the same work; Civ. Code, secs. 1550, 1598, and 1667; MacRae v. Heath, 60 Cal.App. 64, 212 P. 228; Napa Valley Elec. Co. v. Calistoga Elec. Co., 38 Cal.App. 477, 176 P. 699.

Therefore, the cost-plus contract may not be enforced.

This, then, presents the question whether the entire transaction is illegal and void to the extent that the law will deny relief to all parties. Bank of Orland v. Harlan, 188 Cal. 413, 206 P. 75.

Five progress payments were to be made by the bank from the loan, each to be 20% of $8,283. Plaintiff was paid four of these payments. The last payment has not been made, and presumably, remains to the credit of the defendants. If the parties are left as the law finds them, defendants will have a house built by plaintiff, for which they have paid four-fifths of less than the actual cost. Plaintiff will lose not only the balance due under the first contract but everything additional which she has put into the improvements.

Shakespeare's Portia demonstrated the futility of exact, literal enforcement of any legal rule. In the multitude of situations incident to human relations, no rule has yet been found to exactly fit every one.

In Restatement's comment to Section 598, Contracts, it is said:

‘The statement that all illegal bargains are void is not wholly accurate. It is true that many such bargains are entirely without effect on the legal relations of the parties and that a court will only under very exceptional circumstances enforce specifically an illegal agreement, but the rule of public policy that forbids an action for damages for breach of such an agreement is not based on the impropriety of compelling the defendant to pay the damages. That in itself would generally be a desirable thing. When relief is denied it is because the plaintiff is a wrongdoer, and to such a person the law denies relief. * * *

‘* * * A rule to that effect would have unfortunate consequences, since in many cases it would protect a guilty defendant from paying damages to an innocent plaintiff, or would otherwise produce undesirable results.’

The rule has not been strictly enforced when necessary to prevent a harsh forfeiture, Rest., Contracts, sec. 600; when one of the parties entered into the contract under desperate circumstances, McAllister v. Drapeau, 14 Cal.2d 102, 92 P.2d 911, 125 A.L.R. 800; and in a number of cases when parties have been permitted to recover when the aid of the illegal contract was not required to establish a case. Wayman Investment Co. v. Wessinger & Wagner, 13 Cal.App. 108, 108 P. 1022; Moore v. Russell, 114 Cal.App. 634, 300 P. 479; Welder v. Director, 118 Cal.App. 124, 4 P.2d 793; California Cured Fruit Association v. Stelling, 141 Cal. 713, 75 P. 320; Butler v. Agnew, 9 Cal.App. 327, 99 P. 395.

In this case the plaintiff should recover the remaining 20% of the first contract, and no more. Extras are included in this statement.

Plaintiff urges that the settled statement of oral proceedings, in lieu of reporter's transcript, is insufficient as a substitute for a reporter's transcript on appeal, and that this case must be decided in accordance with the rules applicable to an appeal on the judgment roll alone.

The record complies with Rule 7 and its several sub-paragraphs, and Rule 4(e) of the Rules on Appeal, adopted by the Judicial Council of this state. This Court is, therefore, required to take into consideration the facts therein set forth. While the statement may be fragmentary and uncertain, it represents a sincere effort by the trial court to comply with the rules. The judge who originally tried the case retired, and the work of settling the statement was done by another judge.

Any change in appellate practice which will save the neverending burden of reading thousands of pages of reporter's transcript should be welcomed by reviewing courts. The present method almost universally in use in California, which presents for review a shorthand writer's verbatim report of everything said on a trial, results in loss of brevity in records, exactitude of argument in briefs, and dispatch in deciding an ever-increasing number of appeals.

Defendants contend that they should have rent for plaintiff's delay in completing the house and garage. The covenant in the contract is to prosecute the work diligently and continuously to completion; the only statement in the substitute for the reporter's transcript is that the work was begun and completed on specified dates, and nothing appears from which want of diligence in the construction work may be predicated. Therefore, the trial court's finding in this respect is controlling.

The appeal from the order denying motion for new trial is dismissed, and the judgment is modified that the plaintiff have judgment against the defendants for $1,689.00; and, as so modified, is affirmed.

DRAPEAU, Justice.

WHITE, P. J., and DORAN, J., concur.