Asdourian v. Araj

• Citation: 696 P.2d 95,211 Cal.Rptr. 703,38 Cal.3d 276
• Decision Date: 11 March 1985
• Docket Number: S.F. 24658
• Court: United States State Supreme Court (California)
• Parties: , 696 P.2d 95 Krikor ASDOURIAN, Plaintiff and Respondent, v. Ibrahim ARAJ et al., Defendants and Appellants.

Page 703

211 Cal.Rptr. 703

38 Cal.3d 276, 696 P.2d 95

Krikor ASDOURIAN, Plaintiff and Respondent, v. Ibrahim ARAJ et al., Defendants and Appellants.

S.F. 24658.

Supreme Court of California In Bank.

March 11, 1985.

Rehearing Denied April 18, 1985. ^*

Alan B. Axelrod, San Francisco, for defendants and appellants.

Charles O. Morgan, Jr., G. Alfred Roensch, San Francisco, for plaintiff and respondent.

BIRD, Chief Justice.

This case presents two issues. First, is a contractor barred from recovering compensation for work performed on remodeling contracts because he entered and performed the contracts in his own name rather than in the name of his licensed sole proprietorship? Second, is an oral home improvement contract for over $500 rendered void and unenforceable because it was not reduced to written form?

I.

Plaintiff, Krikor Asdourian, came to the United States in 1970. Prior to that time, he had worked as a contractor in Lebanon for 20 years. In 1970, he applied for a contractor's license with the Contractor's State License Board, as required by Business and Professions Code section 7028. ¹ Plaintiff's credentials and qualifications were examined and approved by the board, and he passed the required examination. A license was issued to "Artko Remodeling and Construction" (Artko). Plaintiff's name and signature appear on the license as the "responsible managing party."

At the time the license was issued to Artko, plaintiff had planned to incorporate under that name. However, his business remained a sole proprietorship, and he sometimes did work under his own name. He did not obtain a separate license in his name or have the existing license changed. Since he had taken the examination and received the license, he did not believe that was required.

Defendants are Ibrahim Araj and his wife Dalal Araj. ² Mr. Araj is a grocer who buys and sells real property for investment purposes. He cannot read or write English. Asdourian and Araj were introduced by a mutual acquaintance in 1976 and became friends.

The dispute between the parties involves three contracts for remodeling properties owned by defendants in San Francisco.

Lombard Street Garage

In late September or early October of 1976, ³ the parties entered into a written agreement to convert a garage on Lombard Street into a restaurant. Plaintiff signed his own name to the agreement. The contract contained a description of the work to be done and established a total price of $21,500. Plaintiff drew up the preliminary plans for the garage conversion and submitted them to the Bureau of Building Inspection of the San Francisco Department of Public Works. The bureau did not approve the plans because they failed to comply with a new building code requirement that the entire building be made earthquakeproof, windproof, and fireproof if more than 30 percent of the building were remodeled.

With defendant's knowledge and approval, plaintiff hired an engineer to prepare plans which would comply with the building code. Plaintiff informed defendant that the new plans would require a drastic expansion in the scope of the project with a cost increase of $30,000 to $35,000. Defendant accepted the price increase and directed plaintiff to proceed. ⁴ A permit was finally obtained and work began. It was not until defendant refused to make any further payments that plaintiff stopped working. At this point, the job had been substantially completed.

Lombard Street Flats

In addition to the garage, the Lombard Street building contained four flats. Plaintiff remodeled two of the flats for defendant in 1976 for a price of $11,000. There was no dispute regarding that work, and plaintiff was paid in full. After work on the garage was begun, defendant asked plaintiff to remodel the remaining two flats. No price was discussed. The work was similar to, but more extensive than, the previous remodeling on the other flats. Plaintiff completed this work, but was not fully paid.

San Fernando Way Property

In May of 1977, while plaintiff was working on the Lombard Street property, defendant asked him to perform repairs on a single family residence on San Fernando Way.

After plaintiff began the repairs, defendant requested that the kitchen and the bathroom be remodeled. Plaintiff was told to use "the finest materials" because defendant was thinking of moving into the house himself. No written contract was executed. There was conflicting testimony as to whether the parties agreed orally on a price. Plaintiff completed the remodeling in July of 1977. Subsequently, the house was rented.

When defendant refused to pay for the work on the Lombard Street and San Fernando Way properties, plaintiff obtained a mechanic's lien on the Lombard Street property. An action to enforce that lien was filed, as well as a separate action for the balance due on the remodeling of the San Fernando Way residence. These actions were consolidated. Defendants answered, denied the allegations, and filed a cross-complaint which alleged that plaintiff had not completed the work and had been overpaid.

After a three-day trial, the trial court found that defendant had agreed to compensate plaintiff for the reasonable value of his work, including labor, materials, overhead and profit, on the Lombard Street garage conversion and the remodeling of the Lombard Street flats. The reasonable value of the work performed on the Lombard Street property was found to be $83,812.45. Defendant was found to have paid $45,223.47 of that amount. The court also found that defendant had agreed to compensate plaintiff for the reasonable value of his work on the San Fernando Way residence, which was $19,278.15. Only $12,824.30 had been paid. Judgment was entered for plaintiff in the amount of $38,588.98 for the Lombard Street property, contingent on plaintiff's correction of certain "punch list" items ⁵ and a roof drainage problem. A separate judgment was entered in the amount of $6,453.85 on the San Fernando Way property.

Defendants appeal both judgments. They contend that (1) plaintiff was not licensed as a contractor under section 7031 and so cannot recover compensation for his work; and (2) any agreements between the parties for work on the San Fernando Way residence and the Lombard Street flats were oral and, therefore, void because they violate section 7159, which requires that all home improvement contracts for over $500 be in writing.

II.

Defendants claim that plaintiff is barred from collecting compensation by section 7031. That section provides: "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...." Plaintiff used his own name in these transactions instead of the name which appeared on the license. Therefore, defendants assert, he was not "duly licensed" and cannot bring an action to recover on the contracts.

Section 7031 is a part of the Contractors License Law ( § 7000 et seq.). The Contractors License Law provides a comprehensive scheme which governs contractors doing business in California. The general purpose of the law is " 'to guard the public against the consequences of incompetent workmanship, imposition and deception. In order to procure a license an applicant is required to make a showing of good character and of a degree of experience and general knowledge of the building, health, safety and lien laws of this state, and of the rudimentary administrative principles of the contracting business, as the board deems necessary for the safety and protection of the public.' " (Conderback, Inc. v. Standard Oil Co. (1966) 239 Cal.App.2d 664, 677, 48 Cal.Rptr. 901; see also § 7068.)

Section 7031 has as its purpose the enforcement of the Contractors License Law. That purpose is accomplished by denying a contractor "access to the courts to recover for the fruits of his labor ... when he violates the statute." (Jackson v. Pancake (1968) 266 Cal.App.2d 307, 309, 72 Cal.Rptr. 111.)

However, in exceptional circumstances the purposes of the Contractors License Law are not furthered by strict enforcement of section 7031. "In view of the severity of this sanction and of the forfeitures which it necessarily entails, our decisions record our reluctance to construe [section 7031] more broadly than requisite to the achievement of its manifest purpose. We have not insisted on literal compliance in the situation in which the party seeking to escape his obligation has received the full protection which the statute contemplates." (Latipac, Inc. v. Superior Court (1966) 64 Cal.2d 278, 279-280, 49 Cal.Rptr. 676, 411 P.2d 564.) Instead, this court has employed the doctrine of "substantial compliance" to avoid the harsh consequences of strict application of section 7031.

The substantial compliance doctrine has been applied in several factual contexts. Most often, it has been applied when the contractor's license expired before completion of a project (Latipac, supra, 64 Cal.2d 278, 49 Cal.Rptr. 676, 411 P.2d 564; Airfloor Co. of California, Inc. v. Regents of University of California (1978) 84 Cal.App.3d 1004, 149 Cal.Rptr. 130; Lewis v. Arboles Dev. Co. (1970) 8 Cal.App.3d 812, 87 Cal.Rptr. 539), or where the license was not obtained until after the contract was executed (Gaines v. Eastern Pacific (1982) 136 Cal.App.3d 679, 186 Cal.Rptr. 421; Vitek, Inc. v. Alvarado Ice Palace, Inc. (1973) 34 Cal.App.3d 586, 110 Cal.Rptr. 86).

The doctrine has also been applied where, following a change in the form of the contractor's business, the entity performing the contract was slightly different from the entity named on the contract. (Weiman v. Superior Court (1959) 51 Cal.2d 710, 336 P.2d 489; Gatti v....