LOVING EVANS v. BLICK (1948)

This case presents for consideration the propriety of a judgment entered upon an arbitration award in compensation of certain contractors for work performed and services rendered under a building contract. The legality of the award is challenged upon the ground that the contractors at all times in question had failed to comply with the state licensing requirements and were therefore not entitled to enforce their claim. An examination of the record shows this point to be well taken, for the award cannot be reconciled with the settled public policy of this state as expressed in our statutory law.

On February 8, 1945, Loving and Evans, a copartnership, respondents herein, entered into a written contract with Frank R. Blick, appellant herein, for the repair and remodeling of the latter's premises. The contract was on ‘a cost plus ten per cent (10%) basis,’ and it provided that any controversy arising between the parties should be submitted to arbitration. After the work was completed, appellant paid to respondents the sum of $13,555.00, but respondents claimed that a further amount was still due. To settle this point of dispute and in line with their previous understanding, the parties on August 24, 1945, entered into a separate ‘Agreement of Submission to Arbitration’ of all their rights and obligations, under the provisions of sections 1280 to 1293, inclusive, of the Code of Civil Procedure. The agreement empowered the chosen arbitrator to hear the evidence, judge and determine the controversy, and ‘according to the legal right of the parties' render a ‘final award,’ which should ‘constitute a complete and final adjudication of all matters * * * submitted to arbitration’ and ‘be in the same form’ as a judgment in any civil action.

In accordance with the agreement, the following pledings were submitted to the arbitrator: (1) respondents' petition setting forth their claim; and (2) appellant's answer wherein he (a) denied the correctness of respondent's various charges and demands, (b) urged as a ‘separate and special defense’ that respondents as contractors could not recover on the building contract in the absence of proof that they were duly licensed as required by article 2, chapter 9, division 3 of the Business and Professions Code, and (c) counterclaimed for the sum already paid to respondents and for damages by reason of respondents' alleged failure to complete the construction work within the time provision of the contract. On March 22, 1946, the arbitrator made his award declaring that ‘a dispute had arisen * * * in regard to the amount due’ under the parties' building contract, and that they thereupon signed an agreement which ‘provided that the issues of said controversy should be joined by the submission of a petition * * * and an 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 of the issues involved’; and that ‘after consideration of the evidence introduced’ he found in favor of the contractors in the sum of $5,739.87.

Thereafter, respondents served upon appellant and filed in the superior court an application for an order confirming the award of the arbitrator. Appellant appeared and objected to the award upon the ground that the arbitrator failed to ‘make a full and final determination of the matters submitted’ in that he gave no consideration to the special defense presented by appellant in his pleading of respondents' noncompliance with the state licensing provisions as a bar to their recovery on the contract. Accordingly, appellant served and filed his notice of motion to set aside the award, stating that it would be based upon the award, the agreement of submission, the petition for the award, and the answer to the petition copies of all of which were attached thereto and upon the objections to the award, the affidavit of the arbitrator, and the affidavit of appellant's counsel copy of each of which was served therewith. The affidavit of the arbitrator recited 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 and Evans, to wit: J.P. Loving, held a contractor's license and held such license throughout the progress of the work and until the completion thereof,’ and that during all of said time ‘the other partner, H. D. Evans, did not have such a contractor's license’ nor did ‘the firm of Loving and Evans, a partnership, hold or have issued to (it) a contractor's license under the provisions of the Business and Professions Code of the State of California’; that ‘the initial negotiations for the work eventually performed were conducted between J. P. Loving and Frank R. Blick, the Owner’; that ‘prior to February 9, 1945, H. D. Evans became a partner with J. P. Loving in the contracting business and thereafter the work * * * was carried on by * * * (the) partnership.’ The affidavit of appellant's counsel corroborated the affidavit of the arbitrator with reference to the stipulation therein mentioned.

On May 13, 1946, the matter came on for hearing and was submitted for decision. In addition to the above documents and papers stating the positions of the parties, there was also before the court the affidavit of respondents' counsel. That affidavit admitted the making of the stipulation before the arbitrator with respect to the licensing status of respondents that ‘at all times * * * J. P. Loving held a general contractor's license * * *; that the firm of Loving and Evans did not hold such a license until after the termination of (the) job; that H. D. Evans, individually, did not hold such license’ but declared 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 ‘admit that the question of license was a proper matter of defense in said hearing’; that ‘at said (arbitration) hearing evidence was introduced that the original contract for the performance of the * * * work was executed by J. P. Loving and Frank R. Blick’ individually, and that ‘at said time J. P. Loving was doing business as an individual and was properly licensed as a general contractor.’

On May 17, 1946, it was ordered that respondents' motion for an order confirming the award be granted and that appellant's motion to set aside the award be denied; and accordingly judgment for $5,739.87 was thereupon entered on the award. This appeal is taken from the two orders and the judgment. The county clerk certified the documents and papers aforementioned in accordance with Rule 5 of the Rules on Appeal. 22 Cal.2d 1, 4-6. Attached thereto is the certificate of the trial judge certifying that the three affidavits above reviewed were ‘used and considered’ by him at the hearing, and that they constituted ‘all of the evidentiary matter so used or considered.’ Cf. Engasser v. Engasser, 75 Cal.App.2d 80, 82, 170 P.2d 116, 118.

There are two legal issues involved: (1) whether 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 court order can be sustained.

The following provisions of the Business and Professions Code must be considered in determining the first question. Section 7028 states 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 declares ‘person’ to include ‘an individual, a firm, copartnership, * * *.’ Section 7026 defines ‘a contractor’ as ‘any person * * * who in any capacity other than as the employee of another with wages as the sole compensation, undertakes to or offers to undertake to or purports to have the capacity to undertake to or submits a bid to, or does himself or by or through others, construct, alter, repair * * * or demolish any building * * * or other structure, project, development or improvement, or to do any part thereof, * * *.’ Section 7029 specifies 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.’ And 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.’

There can be no question but that this case presents a clear violation of the statutes regulating the contracting business. Thus, while respondent Loving at all times possessed an individual contractor's license, his respondent partner Evans did not, and the partnership, as such, failed to procure such a license. As appellant maintains, it has been repeatedly declared in this state that ‘a contract made contrary to the terms of a law designed for the protection of the public and prescribing a penalty for the violation thereof is illegal and void, and no action may be brought to enforce such a contract’ (Gatti v. Highland Park Builders, Inc., 27 Cal.2d 687, 689, 166 P.2d 265, 266; see, also, Haas v. Greenwald, 196 Cal. 236, 247, 237 P. 38, 59 A.L.R. 1493; Wise v. Radis, 74 Cal.App. 765, 774-776, 242 P. 90; Holm v. Bramwell, 20 Cal.App.2d 332, 335-337, 67 P.2d 114; Phillips v. McIntosh, 51 Cal.App.2d 340, 343, 124 P.2d 835); and that ‘whenever the illegality appears, whether the evidence comes from one side or the other, the disclosure is fatal to the case.’ Firpo v. Murphy, 72 Cal.App. 249, 253, 236 P. 968, 969; see, also, 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; Levinson v. Boas, 150 Cal. 185, 193, 88 P. 825, 12 L.R.A., N.S., 575, 11 Ann.Cas. 661.

To overcome the force of these settled principles, respondents unavailingly seek to align their status under the licensing regulations with that prevailing as a distinguishable consideration in Gatti v.Highland Park Builders, Inc., supra, 27 Cal.2d 687, 166 P.2d 265. There a judgment in favor of plaintiff contractors was affirmed although no license in the name of the partnership under which they had been operating had been issued to the two plaintiff contractors as such. But in the Gatti case these factors were matterial to its disposition: (1) At the time the contract was performed, both plaintiffs possessed contractor's licenses in their own names as individuals; and (2) during the performance of the contract, a joint contractor's license was issued to plaintiffs and a third party not concerned in the action so that ‘thereby any matters which might form the basis of legitimate inquiry by the licensing board as a condition precedent to the issuance of an additional partnership or joint venture license to plaintiffs, though involving a third party, were necessarily considered, and favorable action was taken thereon.’ Page 689 of 27 Cal.2d, page 266 of 166 P.2d. Accordingly, it was concluded at page 690 of 27 Cal. 2d, at page 266 of 166 P.2d, that plaintiff contractors had ‘substantially complied with the statutory requirements,’ for otherwise their legitimate claim would be defeated on a ‘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, (and) 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.' As was further said in the Gatti case at page 690 of 27 Cal.2d, at page 266 of 166 P.2d, ‘similar considerations' with respect to a contractor's claim prevailed in Citizens State Bank v. Gentry, 20 CalApp.2d 415, 67 P.2d 364, and ‘justified the denial of defendant's (a) motion for a nonsuit, predicated on a rigid application of the licensing requirement,’ where the ‘contractor's license expired while the work was in progress but was renewed in the name of a corporation, organized by and bearing the contractor's name, and in which he was the dominant and controlling factor; and where the work was completed under the auspices of the corporation.’ But no comparable situation is presented here, for under the undisputed facts the contracting partnership of Loving and Evans did not hold a license ‘until after the termination of (the) job’ in question and though from ‘all times from the initial negotiations * * * throughout the progress of the work and until the completion thereof,’ respondent Loving ‘held a contractor's license,’ his partner, respondent Evans, during all of said times ‘did not have such a contractor's license.’ Thus, it is apparent that the licensing regulations enacted ‘for the safety and protection of the public,’ by prohibiting inexperienced persons from engaging in contracting work, were at no time here material permitted to function in determining the qualifications of respondent Evans therefor. Such disregard of the public policy underlying the state's licensing requirements cannot be correlated with the rationale governing the Gatti and Gentry cases, and it renders the entire transaction between respondents and appellant ‘illegal and void,’ for completion of the contract ‘necessarily would involve the performance of illegal acts.’ Wise v. Radis, supra, 74 CalApp. 765, 776, 242 P. 90, 94.

There now remains the question of the premise of appellant's objection to the enforcement of the award in favor of respondents. It must be conceded at the outset that ordinarily with respect to arbitration proceedings ‘the merits of the controversy between the parties are not subject to judicial review’ (Pacific Vegetable Oil Corp. v. C.S.T., Ltd., 29 Cal.2d 228, 233, 174 P.2d 441, 445) and that ‘arbitrators are not bound by strict adherence to legal procedure and to the rules on the admission of evidence expected in judicial trials.’ Ibid, page 241 of 29 Cal.2d, page 449 of 174 P.2d. But, as will hereinafter appear, the rules which give finality to the arbitrator's determination of ordinary questions of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised in a proceeding for the enforcement of the arbitrator's award. When so raised, the issue is one for judicial determination upon the evidence presented to the trial court, and any preliminary determination of legality by the arbitrator, whether in the nature of a determination of a pure question of law or a mixed question of fact and law, should not be held to be binding upon the trial court.

It is generally held that ‘a claim arising out of an illegal transaction is not a proper subject matter for submission to arbitration, and that an award springing out of an illegal contract, which no court can enforce, cannot stand on any higher ground than the contract itself.’ 6 C.J.S., Arbitration and Award, s 12. Aptly illustrative of this well-settled principle is the fairly recent case of Smith v. Gladney, 128 Tex. 354, 98 S.W.2d 351, where a dispute arose between the parties as a result of trading in ‘futures' upon the Chicago Board of Trade. The matter was submitted to arbitration. When suit was brought upon the award and it was affirmed ‘on the theory that (it) was final,’ the appellate court, in reversing the judgment, said at pages 351, 352 of 98 S.W.2d: ‘It appears to be almost universally recognized that a claim arising out of an illegal transaction, such as a speculation in futures, is not a legitimate subject of arbitration, and an award based thereon is void and unenforceable in courts of the country. Tandy v. Elmore-Cooper Live Stock Commission Company, 113 Mo.App. 409, 87 S.W. 614, 618; Benton v. Singleton, 114 Ga. 548, 40 S.E. 811 (58 L.R.A. 181); Lum v. Fauntleroy, 80 Miss. 757, 32 So. 290, 92 Am.St.Rep. 620; Hall v. Kimmer, 61 Mich. 269, 28 N.W. 96, 1 Am.St.Rep. 575; Polk v. Cleveland Railway Company, 20 Ohio App. 317, 151 N.E. 808. * * * A claim that cannot be made the basis of a suit cannot be made the basis of an arbitration. The mere submission of an illegal matter to arbitrators and reducing it to an award does not purge it of its illegality.’ See, also, In re Gale, 176 Misc. 277, 27 N.Y.S.2d 18, 21-23.

In ruling here upon the propriety of the arbitrator's decision, the trial court had before it and considered the affidavits of the arbitrator, of counsel for appellant, and of counsel for respondents showing the invalidity of the contract stemming from respondent partners' failure to comply with the state licensing requirements and the partnership's consequent lack of authority to bring or maintain an action or proceeding for the enforcement of the award. Pleaters & Stitchers Ass'n v. Davis, 140 Cal.App. 403, 406, 35 P.2d 401. Such affidavits were neither denied nor controverted, and, being entirely in accord on the facts showing the invalidity of the contract, the court was required to accept as true the facts therein stated. Giannopulos v. Pappas, 80 Utah 442, 15 P.2d 353, 355. Since an unlawful transaction cannot be given legal vitality by the arbitration process, there is obviously no force to respondents' argument that they are in a distinguishable position because they are not bringing ‘any action in any court’ on their claim, within the meaning of section 7031 of the Business and Professions Code, but are only seeking judicial confirmation of an arbitration award, and therefore their noncompliance with the statutory licensing regulations would not preclude their right to enforce a recovery. In this connection it was said in Tandy v. Elmore-Cooper Live Stock Commission Co., 113 Mo.App. 409, 87 S.W. 614, at page 618: ‘The laws in support of a general public policy and in enforcement of public morality cannot be set aside by arbitration, and neither will persons with a claim forbidden by the laws be permitted to enforce it through the transforming process of arbitration.’ See, also, Smith v. Gladney, supra, 128 Tex. 354, 98 S.W.2d 351, 352. To hold otherwise would be tantamount to giving judicial approval to acts which are declared unlawful by statute. Wise v. Radis, supra, 74 Cal.App. 765, 775, 776, 242 P. 90; Massie v. Dudley, 173 Va. 42, 3 S.E.2d 176, 180, 181; In re Gale, supra, 176 Misc. 277, 27 N.Y.S.2d 18, 21-23.

In conclusion, however, it appears appropriate to make reference to certain claims made by respondents, and also to make further comment upon the state of the record on this appeal. Respondents set forth in their briefs and petition for hearing certain alleged facts as the basis for the claim that they had substantially complied with the licensing requirements. Their statement of these matters is prefaced by the remark ‘Although the record does not reflect the following facts and they are recited here merely for example, the facts concerning the license of respondents are as follows: * * *’ Appellant not only disputes the correctness of the facts stated by respondents but likewise contends that it is improper for respondents to attempt to bring before this court alleged facts which do not appear in the record on appeal. We are of the opinion that this contention of appellant must be sustaioned. Under the authorities above cited it seems clear that when a party seeks to use the processes of the courts to obtain confirmation of an arbitrator's award, and an issue is raised concerning the alleged illegality of the contract upon which the award is based, the trial court is the tribunal which must determine such issue of illegality upon the evidence presented to it. If this were not the rule, courts would be compelled to stultify themselves by lending their aid to the enforcement of contracts which have been declared by statute to be illegal and void. A party seeking confirmation cannot be permitted to rely upon the arbitrator's conclusion of legality for the reason that paramount considerations of public policy require that this vital issue be committed to the court's determination whenever judicial confirmation is sought.

Turning to the record, it appears that the only evidence before the trial court showed without contradiction that the contract upon which the award was based was illegal and void because of respondents' failure to comply with the licensing requirements. According to the application for confirmation and according to the award, which was attached as an exhibit, the contract upon which the award was based was a contract made on February 8, 1945, between ‘Loving and Evans, a copartnership, Contractors,’ and ‘Frank R. Blick, Owner.’ All the evidence before the trial court, including the affidavit of counsel for respondents, showed that ‘the firm of Loving and Evans did not hold such a (contractor's) license’ and that ‘H. D. Evans, individually, did not hold such (contractor's) license’ either at the time of the making of the contract or at any time while the work was in progress. No evidence purporting to show any attempted compliance with the licensing requirements at any time was offered to the trial court.

This appeal is not in the nature of a so-called judgment roll appeal, and the rules governing the latter can have no application here. The transcript contains the several affidavits submitted to the trial court, and the certificate of the trial judge certifies that said affidavits were ‘used and considered by me’ and that ‘said affidavits constitute all of the evidentiary matter so used or considered by me in the hearings of said motions (motion for order confirming award of the arbitrator and motion to set aside award of arbitrator).’ Under these circumstances, this appeal must be determined upon the facts appearing in the record on appeal (Cf. Engasser v. Engasser, supra, 75 Cal.App.2d 80, 82, 170 P.2d 116), and it follows from what has been said that the trial court erred in confirming the award. It is unnecessary here to enter into the realm of conjecture by discussing the effect, if any, of the disputed facts which are set forth in the briefs but which do not appear in the record. Upon reversal, respondents may present to the trial court any matters which they may claim will show a substantial compliance with the licensing requirements so as to avoid the charge of illegality with respect to the contract in question.

The judgments and orders subject of this appeal are, and each of them is, reversed.

I concur in the judgment but do not join in that portion of the majority opinion which approves and reaffirms the decision in Gatti v. Highland Park Builders, Inc., 27 Cal.2d 687, 166 P.2d 265.

I dissent. The question whether there had been a substantial compliance with the licensing statute was a matter within the scope of the arbitration. The record on this appeal shows that this question was in issue before and was considered by the arbitrator, but the evidence thereon was not before the trial court. The award in favor of the plaintiffs established a prima facie case of substantial compliance. The award speaks for itself and in the absence as here of evidence taken befoer the arbitrator which would impeach it the plaintiffs are entitled to the benefit of the presumption established by subdivision 18 of section 1963 of the Code of Civil Procedure ‘that all matters within a submission to arbitration were laid before the arbitrators and passed upon by them.’ I would affirm the judgment.

I dissent.

The problem here presented for determination is whether a recovery should be allowed when a contract was entered into by a duly licensed contractor who subsequently found it necessary to enter into a partnership for financial reasons, the partnership, through no fault of its own, being unable to procure a partnership contractor's license until the completion of the work.

This case presents extenuating circumstances similar to those which prevailed in the cases of Gatti v. Highland Park Builders, Inc., 27 Cal.2d 687, 166 P.2d 265, and Citizens State Bank v. Gentry, 20 Cal.App.2d 415, 67 P.2d 364, and a similar result should be reached. In both cases it was held that where there having been substantial compliance with the licensing statutes, recovery should be allowed to prevent a manifestly unjust and inequitable result.

The only record before us is a so-called judgment roll consisting of an application by Loving and Evans for Order Confirming Award of Arbitrator, Objections by Blick to Award of Arbitrator, Notice of Motion by Blick to set Aside Award of Arbitrator, Affidavit of Arbitrator, Affidavit of Walter .l. Maas, Jr., one of the attorneys for Blick Affidavit of Roland S. Woodruff, one of the attorneys for Loving and Evans, Order Confirming Award of Arbitrator, and judgment on award of arbitrator. With the exception of the above mentioned affidavits, no evidence was offered in the trial court, and the evidence taken before the arbitrator was not introduced at the trial and is not a part of the record in this case.

In the affidavit of Roland S. Woodruff which was before the trial court at the time it made its order confirming the award of the arbitrator, he states with reference to the proceeding before the arbitrator:

‘That at said hearing evidence was introduced that the original contract for the performance of the alteration, remodeling and repair work was executed by J. P. Loving and Frank R. Blick; that at said time J. P. Loving was doing business as an individual and was properly licensed as a general contractor under the laws of the State of California.

‘Evidence was further introduced showing the relationship between J. P. Loving and H. D. Evans, when that relationship was commenced, and other facts relating thereto which were relevant to the question of whether or not said persons had complied with, or were required to comply with, the provisions of the Business and Professions Code of the State of California relating to Contractors' licenses.’

In this state of the record it must be presumed that all evidence necessary to support the judgment was received. We may, therefore, assume any state of fact necessary to support the judgment which is not contrary to the admissions and stipulations of the parties appearing in the record. This is the rule announced by this court in the recent case of Transportation Guarantee Company v. Jellins, 29 Cal.2d 242, 174 P.2d 625. At pages 245 and 246, of 29 Cal.2d, at page 627 of 174 P.2d, the court said: ‘Contrary to the rule contended for by defendant we must, on this appeal, in determining whether the judgment shall be reversed or affirmed, construe all ambiguities in the contracts against defendant and in favor of plaintiff. This is true, if for no other reason, than that on a judgment roll appeal it will be presumed that all evidence necessary to support the findings was received. (Freeman v. Gray-Cowan, Inc. (1933), 219 Cal. 85, 88, 25 P.2d 415. In accordance with such rule it is to be presumed that evidence was received establishing that the contracts in question, at least insofar as any ambiguous language is concerned, were prepared and formulated by defendant and hence are to be construed against him. (Civ.Code, s 1654; Payne v. Nueval (1908) 155 Cal. 46, 508 99 P. 486.) This rule would prevail as to the ambiguous language, under the circumstances shown here, even though it is asserted in plaintiff's brief that ‘it is plain from the face of each contract in suit that a stock form of contract was used.’ The admission that a ‘stock form of contract’ prepared by plaintiff was used, does not, on a judgment roll appeal by defendant, require us to assume in favor of reversing the judgment, that any particular clause was formulated by the plaintiff. Obviously, the contract forms were specially filled in to cover the details of the agreement in each case. Such forms, it is entirely possible, and hence, it must be presumed, if necessary, to support the judgment, were furnished in blank by plaintiff to defendant and filled in by the latter in respect to the disputed language. In any event, the construction most favorable to sustaining the judgment must be indulged. (2 Cal.Jur., s 511 pp. 871-3; id., s 515, pp. 879-81.) It is also a rule of construction that a contract ‘must receive such an interpretation as will make it lawful * * * if it can be done without violating the intention of the parties.’ (Civ.Code, s 1643), and ‘may be explained by reference to the circumstances under which it was made, and the matters to which it relates.’ (Civ.Code, s 1647.)' (Emphasis added.)

In view of the state of the record as above narrated and the rule applicable thereto as announced in the Jellins case, supra, we are justified in assuming the factual situation outlined in respondents' briefs and petition for hearing in this court which is substantially as follows:

Respondent Loving, a contractor who held a license from the State of California as required by Article 2, Chapter 9, Divisions 3, of the Business and Professions Code, entered into an oral contract for construction work with appellant Blick. The contract was to be performed on a ‘cost plus 10% basis.’ Loving, finding that he would be unable to handle the cost of the work alone, entered into a partnership agreement with respondent Evans whereby Evans was to act solely as financing partner for the partnership. After the work had started, the oral contract was reduced to writing, the only change being that the partnership appeared as contractor, rather than Loving alone. Evans had nothing to do with the actual construction work. His only active participation in the business was the approval of bills incurred.

In section 7026 of the Business and Professions Code ‘contractor’ is defined as synonymous with ‘builder.’ Respondent Evans, who never held a license as a contractor, did not come within the meaning of the licensing statutes. He was technically a member of the partnership, but actually it was as if money had been loaned by a bank which had then insisted on supervising the financial affairs of the partnership to protect its investment.

Furthermore, the formation of the partnership with Evans as a financing partner brought about no change in the construction work. In Gatti v. Highland Park Builders, Inc., supra, at page 689 of 27 Cal.2d, at page 266 of 166 P.2d, it was said: ‘While it is true that during the progress of the work plaintiffs, deeming it advisable and with defendant's approval, entered into a partnership arrangement for the completion of the contract, it does not appear that such association effected any change in the performance of the contract, which proceeded as from its inception under the direction of both plaintiffs.’ (Emphasis added.) The quotation from the Gatti case is applicable here.

The purpose of the licensing regulations is to protect the public by prohibiting inexperienced persons from engaging in contracting work. The public, or the individual member of the public here concerned, was at all times during the performance of the contract fully protected because the state had licensed Loving as a qualified contractor and he was the only member of the firm who actively engaged in the construction work.

In Stephens v. Southern Pacific Co., 109 Cal. 86, 89, 41 P. 783, 784, 29 L.R.A. 751, 50 Am.St.Rep. 17, the court quoted from Richmond v. Dubuque, etc., R. R. Co., 26 Iowa 191, as follows: ‘The power of the courts to declare a contract void for being in contravention of sound public policy is a very delicate and undefined power, and, like the power to declare a statute unconstitutional, should be exercised only in cases free from doubt.’

In Goodhart v. Mission Publishing Co., 18 Cal.App. 394, 399, 123 P. 210, 212, it was said: ‘Before relief may be denied because of the unlawful nature of a contract, whereby some rule of public policy is claimed to have been violated, it must appear clearly that the case comes within that class, and that the agreement of the parties in its essential obligations is tainted from improper motives.’

Although it is not material, where a contract is sought to be held void as against public policy, that no actual injury to the public did result, it is material to decide whether or not such a contract comes within the class of evil which the statute sought to prevent, and whether actual injury to the public could have resulted.

As respondent Loving was at all times a duly licensed contractor and was at all times in complete charge of the construction work, no injury could have resulted to the public.

‘Whether a contract is against public policy is a question of law for the court to determine from all the circumstances of each case. The rules which hold a contract void as against public policy should not be unduly extended.’ 17 C.J.S., Contracts, s 211d; Howard v. Adams, 16 Cal.2d 253, 105 P.2d 971, 130 A.L.R. 1003; McAllister v. Drapeau, 14 Cal.2d 102, 92 P.2d 911, 125 A.L.R. 800; National Auto. Ins. Co. v. Winter, 58 Cal.App.2d 11, 136 P.2d 22; Nichols v. Hitchcock Motor Co., 22 Cal.App.2d 151, 70 P.2d 654; Andrews v. Horton, 8 CalApp.2d 40, 47 P.2d 496.

To hold the contract in question here void as against public policy would be to extend unduly and give an unnecessarily strict construction to the licensing requirements.

As a further argument that the requirements of the statute were substantialy complied with, the partnership did obtain a partnership license as required by law. When the partnership made application for its license at the time the partnership agreement was entered into, the State Contractor's Licensing Board sent them the wrong application papers. These were returned and a delay was experienced before the proper ones were sent. When the correct papers were received, one of the partners was ill and there was a further delay before the papers were filled out. When the application was finally approved by the Licensing Board and the partnership license issued, the work had been completed.

‘Where a person complies so far as he can with the requirements of the license law but is unable to procure a license through no fault of his own * * * it is not unlawful for him to engage, without a license, in an occupation or business which is otherwise lawful, and he may enforce contracts made in the course thereof.’ 37 C.J. 260, s 139, 53 C.J.S., Licenses, s 59.

Meade v. Lamarche, 150 App.Div. 42, 134 N.Y.S. 479, 481, quotes People ex rel. Nugent v. Police Commissioners, 114 N.Y. 245, 21 N.E. 421, 422: ‘It is both unreasonable and unjust to the citizen to hold that in any case he is subject to a penalty imposed by law for non-performance of a duty when such performance, without fault on his own part, is prevented by law. It is far more agreeable to reason to construe such a statute as containing an implied undertaking on the part of the state that performance shall not be hindered or prevented by any legal authority within the limits of the state, and, as a necessary consequence, that when thus hindered and prevented the statute shall not operate as against the citizen or officer thwarted in the attempt at performance.’ (Emphasis added.)

As the partnership license was eventually issued by the State Contractor's Board, the delay having been caused through no fault on the part of the partners, any matters which might have formed the basis of inquiry as to the qualifications of the partnership must have been considered and favorably passed upon.

If the respondents are not allowed to recover the just obligation owed to them by the appellant when they have substantially complied with the licensing regulations, the result will be an unjust enrichment of the appellant at the expense of the respondents. As was said in the Gatti case, supra, at page 690 of 27 Cal.2d, at page 266 of 166 P.2d: ‘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 * * * 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.' And, as was said in the Gentry case, supra, at page 420 of 20 Cal.App.2d, at page 366 of 67 P.2d: ‘In our opinion, where a manifestly unjust and inequitable result would follow from a holding that plaintiff contractor was without capacity to sue on his contract, the individual plaintiff in whose name the license stood at the time the comract was made and the corporate entity organized by him in whose name the license stood at the time the cause of action accrued, should be considered as one.’

This case presents a stronger argument for allowing recovery on the contract than does the Gentry case. In the Gentry case, the license of the contractor who entered into the contract and who did the actual work was allowed to expire during the performance of the contract. Although a license was taken out in the name of the corporation which was organized by the contractor and which bore his name of the one who did the actual work was not licensed at all times during the performance of the contract as is required by law. In this case, Loving, the one who was actively engaged in the actual construction work, was licensed at all times during the performance of the contract.

The conclusion is therefore inescapable, that the licensing requirements of the statute have been substantially complied with by the respondents and to deny them recovery would bring about a manifestly unjust, inequitable and unreasonable result. Speaking frankly, I do not appreciate the morality which denies in such cases any rights to the individual whose money or other property has been thus appropriated. The law countenances no such wretched ethics. Its command always is to do justice.

It was provided in the contract that any controversy arising between the parties should be submitted to arbitration. After the completion of the work, appellant paid to the respondents the sum of $13,555.00, but respondents claimed that an additional amount was due. To settle this dispute, the parties entered into a separate ‘Agreement of Submission to Arbitration’ of all their rights and obligations pursuant to sections 1280 to 1293, inclusive, of the Code of Civil Procedure. Under this agreement the arbitrator was empowered to hear the evidence, judge and determine the controversy, and ‘according to the legal right of the parties' render for them a ‘final award’.

The policy of the law in recognizing arbitration agreements and in providing by statute for their enforcement is to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing. The statutory provisions are designed to avoid useless proceedings and to make the practice simple and as speedy as would be consistent with justice. Since it is the policy of the law to favor arbitration, every reasonable intendment will be indulged to give effect to such proceedings. 3 Cal.Jur. 36, sec. 6; Utah Const. Co. v. Western Pac. Ry. Co., 174 Cal. 156, 162 P. 631.

The Code of Civil Procedure, section 1281, provides that two or more persons may submit in writing to arbitration any controversy existing between them at the time of the agreement to submit, which arrises out of a contract or the refusal to perform the whole or any part thereof or the violation of any other obligation.

Appellant contends that the award of the arbitrator in favor of the respondents must be vacated by the court because he was guilty of a ‘misbehavior’ by which appellant's rights were prejudiced. The ‘misbehavior’ of the arbitrator consisted in not allowing the special defense of the appellant that the respondents had not complied with the licensing requirements. The arbitrator was not guilty of prejudicial error in finding in favor of respondent contractors as they had substantially complied with the licensing regulations.

It was held in Pacific Vegetable Oil Corp. v. C. S. T. Ltd., 29 Cal.2d 228, 174 P.2d 441, that arbitrators need not find facts and give reasons for their awards. The court in Van Doren v. Burns, 106 Cal.App. 224, 288 P. 1107, said that the decision of the arbitrator will be held conclusive and can be impeached only for fraud, or for gross mistake amounting to fraud. There was no fraud or gross mistake here. The contractors, having substantially complied with the licensing regulations, were entitled to recover their just claim from the appellant. For the arbitrator to find otherwise would be to allow one man to be unjustly enriched at the expense of another a policy which is not favored by the law. A man is entitled to receive compensation for his honest, lawful labor when such is the intent of the parties. And the intent of the parties, one to labor and receive compensation and the other to receive the benefits of that labor and give compensation for it, is evidenced by the contract between them.

In Dugan v. Phillips, 77 Cal.App. 268, 246 P. 566, it was held that a party is not permitted to speculate upon the action of the arbitrators and then refuse to be bound by an adverse award. To permit a man, capable of contracting, to refuse to be bound by the award of the arbitrator, would be to permit him to breach his own contract, into which he entered voluntarily, with the sanction of the court.

‘Generally, unless there is a contrary provision in the submission, a valid award operates as a merger and bar of all claims and defenses embraced in the submission and award.’ 6 C.J.S., Arbitration and Award, s 96; Stockwell v. Equitable F. and M. Ins. Co., 134 Cal.App. 534, 25 P.2d 873.

There is ample authority to the effect that in the absence of a provision to the contrary in the arbitration agreement an arbitrator has power to determine questions of law as well as questions of fact. Matter of Wenger & Co. v. Propper S. H. Mills, 239 N.Y. 199. 203, 146 N.E. 203; see 6 C.J.S., Arbitration and Award, ss 48, 95, and cases there cited. ‘Traders may prefer the decision of the arbitral tribunal to that of the courts on such questions. When they have selected their tribunal, the court ought not to interfere with them unless very substantial reasons are shown.’ Matter of Wenger & Co. v. Propper S. H. Mills, supra, at page 203 of 239 N.Y., at page 204 of 146 N.E. ‘The reason for the high degree of conclusiveness which attaches to an award made by the arbitrators is that the parties have by agreement substituted a tribunal of their own choosing for the one provided and established by law, to the end that the expense usually incurred by litigation may be avoided and the cause speedily and finally determined. To permit the dissatisfied party to set aside the award and invoke the judgment of the court upon the merits of the cause would be to destroy the purpose of the arbitration and render it merely a step in the settlement of the controversy, instead of a final determination of it.’ Johnson v. Wells, 72 Fla. 290, 297, 73 So. 188, 190.

The majority opinion states: ‘But, as will hereinafter appear, the rules which give finality to the arbitrator's determination of ordinary questions of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised in a proceeding for the enforcement of the arbitrator's award. When so raised, the issue is one for judicial determination upon the evidence presented to the trial court, and any preliminary determination of legality by the arbitrator, whether in the nature of a determination of a pure question of law or a mixed question of fact and law, should not be held to be binding upon the trial court.’ (Emphasis added.)

The foregoing statement finds no support in any of the decided cases and is in direct conflict with every reported decision on the subject of arbitration and award. 3 Cal.Jur. sec. 27, p. 67; 6 C.J.S., Arbitration and Award, s 94; 6 C.J.S., Arbitration and Award, s 103; 3 Am.Jur. sec. 130, p. 951. The latter text states the rule as follows:

‘The award of arbitrators acting within the scope of their authority determines the rights of the parties as effectually as a judgment secured by regular legal procedure, and is as binding as a judgment until it is regularly set aside or its validity questioned in a proper manner. Their decision on matters of fact and law is conclusive, and all matters in the award are thenceforth res judicata, on the theory that the matter has been adjudged by a tribunal which the parties have agreed to make final a tribunal of last resort for that controversy. This rule is universally applied with respect to matters actually presented by the parties for the decision of the arbitrators, and it has been held true even in case one of the parties neglects to present portions of his claim, for the reason that the arbitrators proceed pursuant to the contract of the parties and one so contracting who fails to take advantage of his opportunity to present his full case to the arbitrators should be concluded by the award and denied further relief. To hold otherwise, it is said, would defeat the object of arbitration, which is to avoid litigation, and would, instead, encourage resort to the courts. In other jurisdictions, however, the courts refuse to regard an award as conclusive upon matters embraced in the submission but not actually laid before the arbitrators. Nevertheless, an award which professes to cover everything in the submission is conclusive unless it clearly appears or is proven that such matters were not considered in reaching the decision.

‘An award, if otherwise sufficient, is conclusive and binding irrespective of the question of whether or not the party in whose favor it is made originally had a legal cause of action with respect to the matters submitted.’ (Emphasis added.) (p. 951.)

The majority opinion further states: ‘Turning to the record, it appears that the only evidence before the trial court showed without contradiction that the contract upon which the award was based was illegal and void because of respondents' failure to comply with the licensing requirements.’

This statement entirely ignores the evidence presented to the arbitrator which is referred to in the affidavit of Roland S. Woodruff, counsel for respondents, herein-before quoted, which we are required to consider under the rule announced in Transportation Guarantee Company v. Jellins, supra. To avoid the effect of this rule the majority opinion states: ‘This appeal is not in the nature of a so-called judgment roll appeal, and the rules governing the latter can have no application here.’ By this mere ipse dixit the majority would place upon the prevailing party in an arbitration proceeding the burden of presenting to the trial court the evidence he had presented to the arbitrator which was presumptively ample to support the award. The effect of this holding is to entirely destroy the efficacy of an arbitration proceeding. For if a prevailing party in such a proceeding must produce evidence in court to prove that the arbitrator was justified in making an award in his favor, he might just as well bring a court action in the first instance and introduce evidence to prove that he is entitled to the relief demanded in his complaint. It is obvious that by proceeding before the arbitrator he has accomplished nothing even though the evidence presented to the arbitrator is abundantly sufficient to support the award. 3 Am.Jur. sec. 103, p. 951.

The majority has advanced no reason whatever why the determination by the arbitrator of the factual issues in a case such as this should not be binding upon the court. In the connection the majority opinion merely states that: ‘the rules which give finality to the arbitrator's determination of ordinary questions of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised in a proceeding for the enforcement of the arbitrator's award.’ (Emphasis added.) Why such rules are inapplicable does not appear. None of the cases cited in the majority opinion purport to hold that the determination by an arbitrator of the facts of a controversy is not binding upon the court. All that those cases purport to hold is, that where the illegality of the transaction appears as a matter of law, the award of an arbitrator is not binding upon the court. I agree with the holding of these cases, but it has no application to the case at bar as the majority concede that there was a factual situation to be determined by the arbitrator, but it insists that the determination of the facts by the arbitrator was not binding upon the court. This is where the majority and I disagree, and it has nothing to support its position but a mere ipse dixit. The statutes, court decisions, text writers and any rational concept of the objectives to be achieved by arbitration are diametrically opposed to the position taken by the majority on this issue. 6 C.J.S., Arbitration and Award, s 94.

The majority opinion states: “In ruling here upon the propriety of the arbitrator's decision, the trial court had before it and considered the affidavits of the arbitrator, of counsel for appellant, and of counsel for respondents showing the invalidity of the contract stemming from respondent partners' failure to comply with the state licensing requirements and the partnership's consequent lack of authority to bring or maintain an action or proceeding for the enforcement of the award.'

The foregoing is a bald misstatement of the contents of the affidavits appearing in the transcript. The affidavit of Roland W. Woodruff, counsel for respondents, contains the following statement:

‘That at said hearing evidence was introduced that the original contract for the performance of the alteration, remodeling and repair work was executed by J. P. Loving and Frank R. Blick; that at said times J. P. Loving was doing business as an individual and was properly licensed as a general contractor under the laws of the State of California.

‘Evidence was further introduced showing the relationship between J. P. Loving and H. D. Evans, when that relationship was commenced, and other facts relating thereto which were relevant to the question of whether or not said persons had complied with, or were required to comply with, the provisions of the Business and Professions Code of the State of California relating to Contractors' Licenses.’

The majority must not have read the foregoing before making the above quoted statement. It is the settled rule that an award of an arbitrator gives rise to a presumption that the evidence prosented to the arbitrator was sufficient to show that the party in whose favor the award was made, was entitled to the relief awarded, 6 C.J.S., Arbitration and Award, s 130; see, also, s 131, and 3 Am.Jur. sec. 165, p. 979. The latter text states the rule as follows: ‘Once an award regular on its face is established by satisfactory proof, a prima facie case is made, and every presumption is in favor of its validity, the burden of introducing evidence to overthrow the award resting on the party who attacks the award. In the absence of evidence to the contrary, it will be presumed that the arbitrators decided on all points submitted, and that questions passed upon in the award necessarily connected with the transaction or by fair implication within the submission were submited and were to be acted upon by them.’ (p. 980.) Therefore, the fact that the arbitrator made an award in favor of respondents in the case at bar gives rise to a presumption that the evidence presented to him was sufficient to show that respondents had complied with the requirements of the licensing statute, and the trial court was justified in indulging in such presumption. In the absence of any showing by appellant either in the trial court or this court that such evidence was not presented to the arbitrator, there is no basis for holding that the arbitrator did not have before him ample evidence that respondents had complied with the licensing statute and the contract here involved was valid and enforceable.

The general rule with respect to the finality of the award of an arbitrator is stated in 6 Corpus Juris Secundum, Arbitration and Award, s 95 as follows: ‘As an adjudication or judgment, an award, which is regular on its face and has not been impeached finally concludes and binds the parties on the merits of all matters properly within the scope of the award, both as to the law and the facts, and the courts will make no inquiry as to whether the determination thereon was right or wrong, for the purpose of interfering with the award, unless there is a statute providing for a court review of an award on the merits, or preventing the award from becoming conclusive before the entry of judgment thereon. The general rule is particularly applicable where the parties have expressly agreed that the award whall be final and conclusive, or that there shall be no appeal therefrom. Ordinarily, however, such a stipulation is not essential to the conclusiveness of the award, for it will usually be given that effect without its being so stipulated, unless it is expressly provided that the award shall not be final or conclusive; but the award is not conclusive, where so-called arbitrators act in a ministerial capacity only, unless the agreement of submission contains a stipulation to that effect, or an intention to be bound conclusively is fairly inferable therefrom.’ (Emphasis added.) This rule finds support in all of the decisions of this court and the District Courts of Appeal in this state which have given consideration to the problem here involved. Utah Construction Co. v. Western Pac. Ry. Co., 174 Cal. 156, 162 P. 631; Carsley v. Lindsay, 14 Cal. 390; Peachy v. Richie, 4 Cal. 205; In re Frick, 130 Cal.App. 290, 19 P.2d 836. Notwithstanding these authorities the majority opinion states that the trial court was not bound by the factual determination of the arbitrator in this case and reverses the judgment approving and confirming the award of the arbitrator and sends the case back to the trial court with the following direction: ‘It is unnecessary here to enter into the realm of conjecture by discussing the effect, if any, of the disputed facts which are set forth in the briefs but which do not appear in the record. Upon reversal, respondents may present to the trial court any matters which they may claim will show a substantial compliance with the licensing requirements so as to avoid the charge of illegality with respect to the contract in question.’ The effect of this holding is that the determination of the issue of fact relative to whether or not respondents has substantially complied with the requirements of the licensing statute was not for the arbitrator but for the trial court. As stated before, the majority opinion cites no authority supporting this holding and all of the authorities are contrary thereto. In legal effect, this holding can result in but one conclusion and that is whenever the question of illegality is raised, or can be raised, in any case where the parties desire to submit a controversy to arbitration, and where such question of illegality is a question of fact, or a mixed question of law and fact, the determination of this issue by the arbitrator is a nullity, as it must be redetermined by the trial court in the event the losing party desires to have the matter relitigated. This is indeed a backward step in the science of jurisprudence and in the administration of justice, as the law favors the submission of matters to arbitration since it affords an expeditious and inexpensive method for determining disputes and relieves the courts of some of their burdens and consequent congestion arising from the necessity of hearing and determining controversies.

Finally, there is no legal basis for the introduction in evidence in the trial court of the affidavits of counsel for the respective parties and the affidavit of the arbitrator which were filed in this case. This conclusion must follow from the settled rule that the award of an arbitrator is conclusive evidence of all matters contained therein and that such an award cannot be impeached or attacked except for fraud or misconduct or unless the error appears on the face of the award. 3 Am.Jur. sec. 166, p. 980; 6 C.J.S. Arbitration and Award, s 131; Utah Construction Co. v. Western Pac. Ry. Co., supra; Carsley v. Lindsay, supra; Peachy v. Richie, supra. In American Jurisprudence, supra, the rule is stated thus:

‘In general, the award is the best evidence of the matters determined by the arbitrators; and in proceedings to enforce it, the award itself is conclusive evidence of all matters therein contained, provided the arbitrators have not exceeded the powers delegated to them by the agreement of submission. The courts regard matters submitted as concluded by the award, and in an action thereon they will not review the merits of the arbitrators' findings. However, the mere fact that certain persons signed the award is not, in itself, sufficient evidence that they were the persons selected by the parties to decide the controversy.

‘Parol evidence, of course, is admissible to establish an oral award or an oral submission; but extrinsic evidence cannot be admitted to alter an award. The award generally speaks for itself, and cannot be altered any more than the verdict of a jury. It is not open to proof of any understanding or meaning of the arbitrators different from that which it carries with it and is warranted by its terms.’ (p. 980.) (Emphasis added.)

In 6 Corpus Juris Secundum, Arbitration and Award, s 131, the rule is thus stated: ‘Impeachment of award. It is often declared broadly that an arbitrator is not a competent witness to impeach his own award, and that his admissions or declarations are not admissible for that purpose. Hence, an arbitrator is not a competent witness to prove his own fraud or misconduct, or the misconduct of a party involving also misconduct of the arbitrator; and admissions made by an arbitrator, after the filing of an award, are not competent evidence for that purpose. However, an arbitrator who has refused to join in the award may testify to acts of partiality or misconduct on the part of other arbitrators; and he may testify as to conduct of a party tending to influence his decision.’

It follows from the foregoing authorities that the affidavits presented to the trial court in the case at bar, and on which the majority relies for a reversal of the judgment, were not competent evidence and should not have been considered by the trial court or this court in determining the finality of the award made by the arbitrator.

While the proposition is not discussed in the majority opinion, it is obvious that under the rule therein announced, appellant will not only defeat recovery by respondents of the sum of $5,739.87 awarded to them by the arbitrator, but may also recover from respondents the sum of $13,555.00 voluntarily paid by appellant to respondents before the award was made. Miller v. McKinnon, 20 Cal.2d 83, 124 P.2d 34, 140 A.L.R. 570; Salada Beach Public Utility Dist. v. Anderson, 50 Cal.App.2d 306, 123 P.2d 86; Miller v. City of Martinez, 28 Cal.App.2d 364, 82 P.2d 519; County of Shasta v. Moody, 90 Cal.App. 519, 265 P. 1032. I cannot believe it was the intention of the framers of this statute or of the members of the Legislature who adopted it that it could ever be invoked to perpetrate such an outrageous injustice. Certainly no injury can result to the public from a holding that the provisions of the statute were substantially complied with in this case. It is the public interest and not private gain which should be given paramount consideration in the interpretation and application of statutes of this character.

For the foregoing reasons, the judgment should be affirmed.

SPENCE, Justice.

GIBSON, C. J., and TRAYNOR, J., concur.