LATIPAC INCORPORATED v. LEE CO (1965)

Real party in interest, plaintiff below, J. W. Lee & Co., a corporation hereinafter referred to as Lee & Co.) sued to recover $432,370.07 plus interest on a construction contract which was signed on March 22, 1962, and completed on January 15, 1964. Defendant, petitioner herein, demurred, answered, and moved for a summary judgment, all on the basis that plaintiff had not alleged and could not prove that it was a licensed contractor ‘at all times during the performance of such act or contract’ as required by Business and Professions Code, section 7031. The motion for summary judgment being denied, petitioner seeks a writ of prohibition.

It is strenuously urged that a writ of prohibition does not lie under the facts of the present case. We are satisfied that the decisions of our courts establish the contrary. There are present here the essential elements for the granting of the writ, namely, acts in excess of jurisdiction and lack of a plain, speedy and adequate remedy in the ordinary course of law. (3 Witkin, Cal.Proc., Extraordinary Writs, pp. 2497 et seq.; City of Los Angeles v. Superior Court (1959) 51 Cal.2d 423, 429, 333 P.2d 745; Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 288, 109 P.2d 942, 132 A.L.R. 715; Rodman v. Superior Court (1939) 13 Cal.2d 262, 269, 89 P.2d 109; Tomales Bay, etc., Corp. v. Superior Court (1950) 35 Cal.2d 389, 392, 217 P.2d 968; Weiman v. Superior Court (1959) 51 Cal.2d 710, 713, 336 P.2d 489 (a case of similar nature).)

The sole question before us is whether or not Business and Professions Code, section 7031, bars the action.

Section 7031 states: ‘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 * * * [there follow two exceptions not applicable here].’

It is undisputed that Lee & Co. was not licensed at all times during the performance of the contract. It was not licensed from July 1, 1963 through June 3, 1964. Also, J. W. Lee, the responsible managing officer¹ of the corporation, himself was not licensed during this period. The histories of other licenses with which J. W. Lee had been recently involved showed that all of them except one had expired and had not been renewed. That one was issued to the San Leandro Rock Company, a corporation, in 1955, and has been continuously renewed through June 30, 1965.

There are numerous cases involving section 7031. Some apply the statute literally in spite of the equities of the particular case, and others hold that the statute is not a bar, as there was substantial compliance with the Contractors License Law.

A leading substantial compliance case is that of Citizens State Bank v. Gentry (1937) 20 Cal.App.2d 415, 67 P.2d 364, wherein a licensed individual signed the contract sued upon and began work; before the job was finished time came for renewal of the license. Upon request the license was not issued to the individual, but to his corporation. The court ruled it would consider the individual licensed at the time the contract was made, and the corporation set up and controlled by him licensed at the time the cause of action arose, as one, and thus avoid what was in its opinion an unjust result.

A more recent case is similar. The individual assigned the contract to his corporation, but there was some period of time (not specified) before the corporation obtained a license. Apparently the individual had a valid license during the entire period. (Weiman v. Superior Court, supra, 51 Cal.2d at pp. 713–714, 336 P.2d 489, citing Citizens State Bank, supra, and Gatti, infra, with approval.)

Gatti v. Highland Park Builders, Inc. (1946) 27 Cal.2d 687, 166 P.2d 265, also approved the Citizens State Bank case, and extended the doctrine of substantial compliance. The contractor Gatti executed a written contract with the defendant to perform certain work. He had a valid individual contractor's license. Sometime later he and his foreman, Moore, who also had an individual contractor's license, agreed that henceforth the defendant's job would be conducted as a joint venture or partnership. This was with the defendant's knowledge and consent. No partnership license was ever granted to Gatti and Moore. However, several weeks later Gatti and Moore, together with a third party (not involved in the case), were issued a partnership license. The defense to the partnership's suit upon the contract was that the partnership was not licensed. The court said, at page 690, 166 P.2d at page 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. Similar considerations were before the court in the case of Citizens State Bank v. Gentry, 20 Cal.App.2d 415, 67 P.2d 364 * * *.'

The other side of the coin is represented by the case of Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d 141, 149–152, 308 P.2d 713, which held that section 7031 did apply to a partnership (subcontractor) which was suing the general contractor, because the partnership never held a license, and only one of the partners ever held a license. The Supreme Court approved both Citizens State Bank and Gatti, among others, but it distinguished Gatti ‘on the ground that there both partners held individual licenses and during the performance of the contract a joint license was issued to them and a third person,’ (p. 149, 308 P.2d p. 718), and it distinguished Citizens State Bank ‘on the ground that in that case, although the plaintiff's license expired while the work was in progress, it was renewed in the name of a corporation controlled by him.’ (P. 149, 308 P.2d p. 718; emphasis supplied.) The court disapproved Matchett v. Gould (1955) 131 Cal.App.2d 821, 281 P.2d 524, which had allowed an action on facts similar to those in Lewis & Queen (48 Cal.2d at pp. 152–154, 308 P.2d 713).

We are persuaded, however, that the comparatively recent cases of Bierman v. Hagstrom Construction Co. (1959) 176 Cal.App.2d 771, 1 Cal.Rptr. 826, 82 A.L.R.2d 1424, and Steinwinter v. Maxwell (1960) 183 Cal.App.2d 34, 6 Cal.Rptr. 496, control here.

In the Bierman case, a subcontractor sued the general contractor, which interposed the defense of section 7031, as the plaintiff was not licensed for five weeks in the middle of the job (he was licensed at the beginning of the contract, and upon its completion). The reason he was not licensed for the five weeks was apparently simply an oversight in paying the renewal fee before June 30. In affirming the summary judgment of dismissal, the court distinguished Gatti, Citizens State Bank and Weiman on the ground that in those cases the individuals involved or their corporations were licensed at all times. But in Bierman there was a period of time when no one was licensed. The court relied not only upon section 7031, but also upon sections 7141–7144, which in effect said that the party could not operate as a licensed contractor until he applied for his renewal. This being so, section 7031 applied (176 Cal.App.2d at pp. 774–775, 1 Cal.Rptr. 826).

In the Steinwinter case, a partnership constructed a residence for the defendant owners. At all times one of the partners had a valid individual license, and the other never did have an individual license; the partnership did not obtain a license until sometime after the action to recover on the contract was filed. (The opinion notes that the partners were the sole stockholders in a corporation which at all times pertinent to the contract sued upon was a duly licensed contractor.) The partnership relied upon Gatti and Citizens State Bank, but the court distinguished both cases upon the ground that in both cases ‘the contractor did have a valid license at the time the contract was executed and therefore at its inception the contract was valid. The effect of the ruling in these cases is that the subsequent changes in the license status of the contractor did not invalidate a contract that was valid at its inception’ (183 Cal.App.2d p. 38, 6 Cal.Rptr. p. 498). The court then discussed the substantial compliance rule, cited Bierman as controlling, and affirmed the summary judgment for the defendants, stating (at p. 38, 6 Cal.Rptr. at p. 499): ‘The application of the substantial compliance rule has been limited to very few cases and we do not feel that it should be extended to this case. The partners knew or should have known, that they were required to have a contractor's license. They had a valid license in their corporation which they could have used. For reasons unknown, they chose not to use it. Accordingly, the court was correct in granting the motion for summary judgment.’

The decisive factor in Bierman was that at some period of time no one was licensed. The court in Steinwinter held that the mere fact that the individuals involved also owned another corporation which was licensed at all times made no difference at all. Taking the two cases together, it becomes obvious that the substantial compliance rule cannot be applied here: Steinwinter requires that we ignore the license held by San Leandro Rock Co.; Bierman requires that someone, either individual or entity recognized by the statute, must be licensed at all times; neither J. W. Lee nor Lee & Co. was licensed from July 1, 1963 until months after the contract was completed.

Lee & Co. seeks to distinguish Bierman and Steinwinter on the theory that they have been negated by the 1961 changes to the Contractors License Law. Senate Bill 473 discloses that the changes were made at the request of the Department of Professional and Vocational Standards. Minor wording was changed in sections 7102, 7106.5 and 7140. The fees were changed in section 7137, and subdivision (e) was added (subd. (f) was added by another chapter of the 1961 statutes). The significant changes were made in sections 7140–7144, the sections relied upon in the Bierman case. Section 7140 used to state that the license was ‘ipso facto suspended’ until a renewal application was properly filed, and there could be no renewal at all unless the renewal application was filed by September 30. Now section 7141 states a grace period of five years instead of three months, and section 7140 speaks of ‘expiration’ and nothing at all of ‘suspension.’ Based upon these changes and new section 7143, Lee & Co. argues that now a license merely expires, and is not suspended, and that a ‘suspension’ occurs only when expressly ordered, or it occurs automatically under section 7068.2; and since the Bierman case relied upon the term ‘suspension,’ and that word has been deleted, Bierman is no longer the law, and a contractor is no longer expressly prohibited from engaging in a licensed activity during the interim (although the logical consequence of such argument is that he can so engage, Lee & Co. does not express this necessary conclusion), and since that is so, its conduct during such a period is not in violation of section 7028 and hence section 7031 is not a bar. This is an ingenious argument, but without merit. First, if the Legislature had intended to change the rule of Bierman, it could have done so in very few words. Further, while section 7140 no longer states the status of an expired license before it is renewed, section 7141 now does: ‘Renewal under this section shall be effective on the date on which the application is filed, on the date on which the renewal fee is paid, or on the date on which the delinquency fee, if any, is paid, whichever last occurs.’ If a license has expired, and is not yet renewed, and renewal has no retroactive effect, we do not believe it can be said that a contractor is still licensed to some degree so that he may legally continue to operate for as long as five years. This is the logical conclusion of Lee & Co.'s argument. We do not find any basis for concluding that the Legislature intended such an unrealistic result.

Lee & Co.'s remaining arguments are equitable in nature, based upon allegations as to excusable neglect contained in the affidavit of J. W. Lee. In Lewis & Queen, supra, the court went into considerable discussion of when courts will and will not enforce an illegal bargain—often they will enforce it if refusal to do so would be ‘disproportionately harsh considering the nature of the illegality’ (48 Cal.2d p. 151, 308 P.2d p. 719). The opinion observes: ‘But we are not free to weigh these considerations in the present case. Section 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and that such deterrence can best be realized by denying violators the right to maintain any action for compensation in the courts of the state. * * *’ (P. 151, 308 P.2d p. 719.)

Let the peremptory writ of prohibition issue as prayed.

FOOTNOTES

1.  A corporation or other business organization cannot obtain a license unless a responsible managing employee or officer appears in its behalf and meets specified qualifications (i. e., is himself licensed). (Bus. & Prof. Code, §§ 7068–7068.2.) It appears that one individual may qualify for an unlimited number of business organizations (§ 7068.1).

SHOEMAKER, Presiding Judge.

AGEE and TAYLOR, JJ., concur.