City of Lawrence v. Falzarano

• Decision Date: 04 March 1980
• Citation: 380 Mass. 18,402 N.E.2d 1017
• Parties: CITY OF LAWRENCE et al. 1 v. Francis G. FALZARANO et al. 2 (and a companion case). 3
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1017

402 N.E.2d 1017

380 Mass. 18

CITY OF LAWRENCE et al. ¹ v. Francis G. FALZARANO et al. ² (and a companion case). ³

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Nov. 7, 1979.

Decided March 4, 1980.

Warren G. Miller, Boston, for Francis G. Falzarano.

Edward J. Grimley, Jr., City Sol., for the City of Lawrence.

Beforer HENNESSEY, C. J., and QUIRICO, KAPLAN, WILKINS and ABRAMS, JJ.

QUIRICO, Justice.

These are appeals from the denial of a motion to confirm, and the granting of a motion to vacate, an arbitration award handed down in favor of Francis G. Falzarano, a contractor doing business as Falzarano Construction Company, and certain subcontractors.

The case arises out of a contract for a major renovation of the Bessie M. Burke Memorial Hospital, a municipal hospital operated by the city of Lawrence (city). The judge of the Superior Court who ruled on the motions found the following facts. The contract was entered into by Falzarano and the city on November 23, 1971. On the next day the city learned that a new law had been passed, St. 1971, c. 1080, which had become effective on November 15, 1971, and which required that a determination of need be made by the Massachusetts Department of Public Health (DPH) before any major renovation work could be commenced on a health care facility. The city informed Falzarano of this state of affairs, and substantially no work was performed under the contract, although on November 30, 1971, Falzarano signed contracts with various subcontractors to perform work on the proposed renovation of the hospital, and certain equipment was moved to the hospital site. Subsequently the city attempted to obtain a certificate of need from the DPH but was not successful. ⁴ In March and April, 1972, Falzarano wrote to the mayor of the city concerning the delay. On May 26, 1972, the contract between Falzarano and the city was terminated by agreement of both parties, but Falzarano reserved his right to claim recovery for damages incurred before that date.

On June 11, 1975, in accordance with a provision in the contract for the arbitration of disputes thereunder, ⁵ Falzarano filed a demand for arbitration with the American Arbitration Association, claiming damages for breach of contract. Hearings were commenced before a panel of arbitrators on January 29, 1976, at which time the city moved to dismiss the proceedings on the ground that the contract, including its arbitration clause, was illegal and unenforceable. The arbitrators denied this motion, and proceeded to hear evidence. On March 19, 1976, they made an award in favor of Falzarano and his several subcontractors in the amount of $74,225.00, of which some $58,500.00 was to go to Falzarano himself. ⁶

The city then filed an application in the Superior Court seeking to vacate the award on the grounds that there was no valid contract and therefore no valid agreement to arbitrate, and that the arbitrators exceeded their authority in making the award. G.L. c. 251, § 12(a )(3) and (a )(5). Falzarano filed a separate application in the same court to confirm the award. G.L. c. 251, § 11. The two applications were consolidated and heard together on statements of counsel and certain documentary evidence.

After the hearing the judge allowed the application to vacate and denied the application to confirm the award. In his accompanying order the judge held that, although the contract was legal, performance under it was illegal, which illegality was fundamental to the contract. He held therefore that there was no valid contract and no agreement to arbitrate, and that the arbitrators exceeded their powers in concluding otherwise.

From the judgments in these two actions Falzarano appealed to the Appeals Court which upheld the decision of the judge, although on different grounds. Lawrence v. Falzarano --- Mass.App. --- ^a, 389 N.E.2d 435 (1979). We granted further appellate review.

The issues raised are as follows: 1) was the contract, and the agreement to arbitrate contained in it, valid despite the fact that St. 1971, c. 1080, prohibited performance under the contract absent a certificate of need? ⁷ 2) was the contract valid despite the fact that it did not contain a certification by the city auditor that sufficient money had been appropriated for it, as required by G.L. c. 44, § 31C? 3) if the contract was valid, does the illegality of performing under the contract nonetheless require vacating the arbitration award? 4) were the arbitrators within their authority in granting an award which included damages both for delay and for lost profits?

We answer the first, second, and fourth issues in the affirmative, and the third in the negative, and therefore hold that the award was properly made and should have been confirmed.

1. Validity of the contract in light of St. 1971, c. 1080.

Statute 1971, c. 1080, ⁸ requires that no substantial construction or renovation of a public health facility be commenced unless a certificate of need has been issued by the DPH. Its purpose is "(t)o prevent unnecessary expansion of health care facilities . . . and encourage appropriate allocation of resources for health care purposes." Commissioner of Pub. Health v. Bessie M. Burke Memorial Hosp., 366 Mass. 734, 735, 323 N.E.2d 309, 310 (1975). The statute does not expressly state, as it might have, that contracts for such work made in the absence of a certificate of need were to be void. See Broussard v. Melong, 322 Mass. 560, 561, 78 N.E.2d 623, 624 (1948). "If the statute does not declare a contract made in violation of it to be void, and if it is not necessary to hold the contract void in order to accomplish the purposes of the statute, the inference is that it was intended to be directory, and not prohibitory of the contract. . . . " Id., quoting Bowditch v. New England Mut. Life Ins. Co., 141 Mass. 292, 295, 4 N.E. 798 (1886).

The statute did make illegal and subject to injunction the performance called for by this contract so long as no certificate of need had issued. However, "(m)any contracts cannot lawfully be performed without securing a permit, license, or approval from some governmental officer or board, and yet the contracts are not deemed illegal." Nussenbaum v. Chambers & Chambers, Inc., 322 Mass. 419, 423, 77 N.E.2d 780, 783 (1948). See S. Williston, Contracts § 1767 (3d ed. 1972). If a certificate of need had been secured before the termination of the contract, Falzarano would have been hard put to contend that the contract was void because illegal ab initio.

Further, the statute prohibits the "commenc(ing of) construction." In the present case no illegal construction was commenced, and no recovery is sought for the value of goods or services illegally provided. In this respect it can be distinguished from cases cited by the city in which recovery for such performance was denied. Hawes Elec. Co. v. Angell, 332 Mass. 190, 124 N.E.2d 257 (1955). Tocci v. Lembo, 325 Mass. 707, 92 N.E.2d 254 (1950). There is no argument that, apart from the lack of certification of need, the renovation contracted for was an illegal purpose or one contrary to public policy. Upholding the legality of the contract is not inconsistent with the purpose of the statute to institute centralized control over the allocation of health care resources to prevent unnecessary and costly duplication of services. See Commissioner of Pub. Health, supra. "Courts do not go out of their way to discover some illegal element in a contract or to impose hardship upon the parties beyond that which is necessary to uphold the policy of the law." Nussenbaum v. Chambers & Chambers, Inc., supra, 322 Mass. at 422, 77 N.E.2d at 782. See Town Planning & Eng'r Assocs. v. Amesbury Specialty Co., 369 Mass. 737, 745-747 (1976). The present case raises no such necessity, and the contract need not be held invalid on this ground. Valley Stream Teachers Fed. Credit Union v. Commissioner of Banks, --- Mass. ---, --- ^b, 384 N.E.2d 200 (1978).

2. Validity of the contract in light of G. L. c. 44, § 31C.

General Laws c. 44, § 31C (St. 1964, c. 693, s1), ⁹ requires that the certification of the city auditor or other official, stating that an appropriation covering the amount of a municipal building contract is available therefor, must appear on the contract before it "shall be deemed to have been made." No such certification appears on the face of the contract. However, there was in evidence before the judge a certified copy of an order adopted by the Lawrence city council duly appropriating $1,500,000 for the renovation of the hospital, an amount well over Falzarano's total contract price of $969,610.

We have stated generally that "(p)ersons dealing with a municipality must take notice of limitations . . . upon the contracting power of the municipality and are bound by them and cannot recover upon contracts attempted to be made in violation of them." Marlborough v. Cybulski, Ohnemus & Assocs., 370 Mass. 157, 160-161, 346 N.E.2d 716, 717 (1976). Sancta Maria Hosp. v. Cambridge, 369 Mass. 586, 595, 341 N.E.2d 674 (1976). In a series of cases we have required strict conformity with the provision of G.L. c. 44, § 31, the purpose of which section is to provide central municipal control over irresponsible municipal spending, Amherst-Pelham Regional School Comm. v. Department of Educ., --- Mass. ---, --- ^c, 381 N.E.2d 922 (1978), and "to set rigid barriers against expenditures in excess of appropriations. . . ." Rich & Son Constr. Co. v. Saugus, 355 Mass. 304, 307, 244 N.E.2d 300, 303 (1969), quoting from Flood v. Hodges, 231 Mass. 252, 256, 120 N.E. 689 (1918).

We believe, as did the Appeals Court, that c. 44, § 31C, entitled "AN ACT PROVIDING THAT PAYMENT FOR CERTAIN PUBLIC CONSTRUCTION CONTRACTS SHALL NOT BE BARRED BY REASON OF BEING IN EXCESS OF APPROPRIATIONS," discloses a very different legislative purpose from that of c. 44, § 31. We concur in the Appeals Court's statement of...