Charlebois v. J.M. Weller Associates, Inc.

• Decision Date: 01 December 1988
• Citation: 531 N.E.2d 1288,535 N.Y.S.2d 356,72 N.Y.2d 587
• Parties: , 531 N.E.2d 1288 Claude CHARLEBOIS et al., Appellants, v. J.M. WELLER ASSOCIATES, INC., Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 356

535 N.Y.S.2d 356

72 N.Y.2d 587, 531 N.E.2d 1288

Claude CHARLEBOIS et al., Appellants, v. J.M. WELLER ASSOCIATES, INC., Respondent.

Court of Appeals of New York.

Dec. 1, 1988.

Leslie F. Couch, Albany, for appellants.

Peter A. Firth, Glen Falls, for respondent.

Norman A. Coplan, New York City, for New York State Assn. of Architects, Inc., amicus curiae.

Kriss & Kriss, Albany, for the New York State Soc. of Professional Engineers, Inc., amicus curiae.

Robert E. Diaz, Greenburgh, Frederick W. Burgess and Donald O. Meserve, Albany, for Board of Regents and State Educ. Dept., amicus curiae.

Verne O'Dell, Syracuse, for General Bldg. Contractors of New York State, Inc., amicus curiae.

OPINION OF THE COURT

BELLACOSA, Judge.

Claude and Lesley Charlebois contracted with J.M. Weller Associates, Inc. (Weller Assocs.) for a new warehouse and an addition to an existing building from which the Charleboises operate their beer distributorship business. The contract, a standard agreement of the Associated General Contractors of America, called for a construction team consisting of contractor Weller Assocs., the owners Charleboises, and an architect-engineer, James M. Weller, P.E.

After construction was started, disputes (not the subject of the present action) arose between the parties over cost, design, building code compliance, and other alleged defects. The Charleboises refused to make further payment, allegedly leaving $600,000 in construction costs owed, until the disputes were resolved to their satisfaction..

Page 35

Pursuant to the contract, Weller Assocs. demanded arbitration. The arbitration proceeding was adjourned after the Charleboises instituted this action seeking a declaration that their contract was invalid as against public policy because it violated Education Law §§ 7202 and 7209(4). The Charleboises also sued James M. Weller, P.E., an action not now before us.

On cross summary judgment motions, the lower courts ruled in favor of Weller Assocs. that the contract was valid and the appeal is now before us on a two-Justice dissent at the Appellate Division. We affirm because this contract, with its express requirement for a separately retained licensed professional engineer to perform the design function, does not violate the pertinent Education Law licensing protections or the public policy which underlies them.

Supreme Court found that the contract required the engineering services by James M. Weller, P.E., that he was indisputably a duly licensed professional engineer, and that the policy sought to be protected by the Education Law provisions was adequately addressed by contractor Weller Assocs. engaging a properly licensed person, James M. Weller, P.E. The contract provided that the services of an "Architect/Engineer will be furnished by the Contractor pursuant to an agreement between the Contractor and the Architect/Engineer;" that "all Architectural & Structural Engineering services are provided by James M. Weller P.E.;" and that the contractor would "furnish the architectural, engineering and construction services".

The Appellate Division majority, in affirming, added: "[d]efendant [Weller Assocs.] herein did not agree to perform architectural or engineering services; rather, plaintiffs and defendant agreed that a licensed third party would perform those services" (136 A.D.2d 214, 216, 526 N.Y.S.2d 648). The dissent countered that a design-build contract of this kind would permit the contractor to become a "package dealer," resulting in the frustration of the public policy behind the Education Law licensing requirement.

We are faced with a narrow question of whether this contract, entered into between the Charleboises and Weller Assocs., the latter being an unlicensed business corporation building contractor, should be declared invalid as against public policy when the parties concomitantly provided that the project design had to be fulfilled by the builder by engaging a specified licensed engineer. We hold that the contract is not void because, under the contractual arrangements of the parties, acknowledged by the lower courts and verified independently in the record by plaintiffs themselves and by their separate lawsuit against James M. Weller, P.E., this does not constitute the unauthorized practice of engineering by the builder. Critically here, the engineer actually engaged to do the professional work is inescapably subject to the educational, regulatory and punishment mechanisms of the licensing entity, the State Education Department, without any necessity for him to have been a formal, technical signatory to the contract (Education Law §§ 7205, 7206, 6508, 6509; 8 NYCRR 29.1, 29.3).

Education Law § 7202 provides that "[o]nly a person licensed or otherwise authorized under this article shall practice engineering or use the title 'professional engineer' ". Only a professional corporation exclusively comprised of persons licensed to provide designated professional services may contract to engage in the practice of engineering (see, Education Law § 7209[4]; Business Corporation Law art. 15). Such professional corporations shall not "engage in any business other than the rendering of the professional services for which it was incorporated" (Business Corporation Law § 1506). Weller Assocs. is a business corporation, not a professional corporation, and as such is not qualified to practice engineering nor subject to the regulatory or disciplinary oversight of the State Education Department. Conversely, James M. Weller, P.E., is prohibited from engaging in the contracting trades while employing that professional suffix.

If defendant Weller Assocs. either contracted itself to engage or actually engaged in the practice of engineering, then the licensing proscription would surely have been violated with grave contractual and criminal consequences (see, e.g., Education Law § 6512). We recognize, of course, that when a record establishes substantial performance of a contract, the absence of an appropriate license bars recovery on an agreement, as "the purpose of the regulatory scheme is to protect the public health and safety" (Richards Conditioning Corp. v. Oleet, 21 N.Y.2d 895, 896, 289 N.Y.S.2d 411, 236 N.E.2d 639; see also, Johnston v. Dahlgren, 166 N.Y. 354, 59 N.E. 987; and People ex rel. Nechamcus v. Warden, 144 N.Y. 529, 39 N.E. 686). "So strict has been judicial construction of the statutory requirement through concern for the public health and welfare that the requirement may not be satisfied by employing or subletting" the work to an appropriately licensed person (Vitanza v. City of New York, 48 A.D.2d 41, 44, 367 N.Y.S.2d 820 [Marcus G. Christ, J.] [citations omitted], affd. on opn. below 40 N.Y.2d 872, 388 N.Y.S.2d 273, 356 N.E.2d 1232). Where the company performing the work is not licensed, it is precluded from recovering for the work performed either pursuant to contract or in quantum meruit (see, Richards Conditioning Corp. v. Oleet, supra, 21 N.Y.2d at 896-897, 289 N.Y.S.2d 411, 236 N.E.2d 639; Hammerman v. Jamco Indus., 119 A.D.2d 544, 545, 500 N.Y.S.2d 718; George Piersa, Inc. v. Rosenthal, 72 A.D.2d 593, 421 N.Y.S.2d 91).

On the other hand, these cases do not erect an absolute or per se rule. For example, an exception to the all-or-nothing decisional sanction tied to this statutory licensing prerequisite was recognized early in Bronold v. Engler, 194 N.Y. 323, 87 N.E. 427. There, a builder who himself lacked a statutorily required license was allowed to contract for completion of a structure, including work requiring licensure, if a properly licensed party was retained to perform the regulated work. The builder "would in such case in no fair sense be conducting the [licensed] 'trade, business or calling' * * *. It would be the mere incident of a larger work" (id., at 325, 87 N.E. 427 [emphasis added]; Vitanza v. City of New York, supra, 48 A.D.2d at 45, 367 N.Y.S.2d 820).

In the instant case, application of the pertinent principles satisfies the public policy concerns underlying Education Law §§ 7202 and 7209 because of the contract's express requirement here that the contractor engage a specified licensed person or professional corporation to perform the tasks for which the law specifically requires a license (see, Vereinigte Osterreichische Eisen und Stahlwerke v. Modular Bldg. & Dev. Corp., 64 Misc.2d 1050, 316 N.Y.S.2d 812, mod. on other grounds 37 A.D.2d 525, 322 N.Y.S.2d 976). In that case, the court said:

"It cannot be * * * that an entire contract comprehending many services to be performed, including those calling for the services of licensed professionals, can be stricken because the party furnishing the services is not itself a licensed professional.

"To hold otherwise would mean that * * * builders and general contractors would likewise be incapable of enforcing their contracts because architectural and engineering skills are incidentally involved. * * *

"The rights sought to be protected by the statute are adequately covered when the contractor, manufacturer or builder engages a properly licensed person to perform those tasks which the law specifies call for certified skills." (Id., 64 Misc.2d at 1051, 316 N.Y.S.2d 812.)

Plaintiffs-appellants, the dissenting Justices at the Appellate Division, and the dissenters in this court place significant reliance on American Store Equip. & Constr. Corp. v. Dempsey's Punch Bowl, 174 Misc. 436, 21 N.Y.S.2d 117, affd. without opn. 258 App.Div. 794, 16 N.Y.S.2d 702, affd. without opn. 283 N.Y. 601, 28 N.E.2d 23. There, an unlicensed business corporation contracted for itself to prepare architectural plans and then for itself to remodel a building according to those plans. We, of course, agree that this direct, otherwise unsanctionable, violation of public policy warranted withholding recovery from the offending contractor, but it has no persuasive or binding force on the very different commercial transaction...