Latipac, Inc. v. Superior Court of Marin County

• Decision Date: 10 March 1966
• Docket Number: S.F. 22048
• Citation: 411 P.2d 564,49 Cal.Rptr. 676,64 Cal.2d 278
• Parties: , 411 P.2d 564 LATIPAC, INCORPORATED, Petitioner, v. The SUPERIOR COURT OF MARIN COUNTY, Respondent; J. W. LEE & CO., Real Party in Interest.
• Court: California Supreme Court

Page 676

49 Cal.Rptr. 676

64 Cal.2d 278, 411 P.2d 564

LATIPAC, INCORPORATED, Petitioner, v. The SUPERIOR COURT OF MARIN COUNTY, Respondent J. W. LEE & CO., Real Party in Interest.

S.F. 22048.

Supreme Court of California, In Bank.

March 10, 1966.

Rehearing Denied April 5, 1966.

Burd, Hunt & Quantz, Peter Hunt and Herbert J. Friedman, San Francisco, for petitioner.

No appearance for respondent.

Tinning & Delap, Dana Murdock, Robert Eshleman and Robert N. Sanford, Jr., Richmond, for real party in interest.

TOBRINER, Justice.

Latipac, Incorporated (hereinafter defendant) petitions for a writ of prohibition to restrain the respondent superior court from taking any further proceedings in an action on contract brought by the real party in interest, J. W. Lee & Co. (hereinafter plaintiff).

In this case defendant seeks to avoid its contractual obligation to plaintiff by reason of plaintiff's failure strictly to comply with the statutory provisions which govern the licensing of contractors. The statute in question, section 7031 of the Business and Professions Code, denies to unlicensed contractors the use of the courts for the recovery of sums owed to them for contracting services. ¹ In view of the severity of this sanction and of the forfeitures which it necessarily entails, our decisions record our reluctance to construe the statute 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. Examination of the facts of the present case discloses that it falls within the ambit of the doctrine of 'substantial compliance' as that doctrine has been elaborated by our courts in applying section 7031.

Defendant Latipac, Incorporated, seeks to restrain the respondent court from hearing an action brought by plaintiff, J. W. Lee & Co., to recover for labor and materials furnished defendant pursuant to written contract. We must, therefore, resolve the issue of whether section 7031 bars plaintiff's recovery.

On March 22, 1962, plaintiff contracted to grade and fill certain land owned by defendant in Marin County. Plaintiff alleges that of the total contract price of $740,000, well over one-half ($432,370.07) remains unpaid. It seeks to recover this sum on its own behalf and, since it alleges that its claim against defendant is the only substantial asset of the corporation, on behalf of its creditors as well.

The records of the registrar of corporations reveal that plaintiff possessed a valid contractor's license at the time that parties executed the contract. Because of plaintiff's failure to submit a renewal application and the $30 renewal fee, that license expired on June 30, 1963. At the time of such expiration, plaintiff had been performing under the contract for 15 months. It continued to perform and completed the job on April 28, 1964. Plaintiff actually renewed its license on June 26, 1964. Since plaintiff continued to perform under the contract after the expiration of its license, defendant urges that section 7031 bars plaintiff from recovering any part of the contract price.

Nothing in the record suggests that plaintiff's failure to make timely application for renewal of its license evidenced any apprehension on its part that such renewal would be denied. On the contrary, when plaintiff did submit its application and renewal fee, the registrar issued the renewal routinely without further examination. Moreover, plaintiff explains that it assigned the responsibility for renewing the license to its office manager, and that the manager suffered an emotional breakdown and subsequent commitment to a mental institution. As a result the license was not promptly renewed.

Although plaintiff thus failed literally to conform to the commands of section 7031 of the Business and Professions Code, the courts of this state have not insisted upon such strict observance if it would transform the statute into an 'unwarranted shield for the avoidance of a just obligation.' (Gatti v. Highland Park Builders, Inc. (1946) 27 Cal.2d 687, 690, 166 P.2d 265, 266.) If the facts clearly indicate that the contractor has 'substantially' complied with the statute and that such compliance has afforded to the obligor the protection contemplated by the statute, we have rejected the obligor's attempt to escape liability. (Gatti, supra; Weiman v. Superior Court (1959) 51 Cal.2d 710, 336 P.2d 489; Citizens State Bank of Long Beach v. Gentry (1937) 20 Cal.App.2d 415, 67 P.2d 364; Oddo v. Hedde (1950) 101 Cal.App.2d 375, 225 P.2d 929.) As Justice Traynor has stated, the test must be whether the contractor's 'substantial compliance with the licensing requirements satisfies the policy of the statute.' (Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d 141, 149, 308 P.2d 713, 718.) For nearly three decades we have developed and applied to of 'substantial compliance'; during that entire of csubstantial compliance'; during that entire period the Legislature has indicated no hint of disapproval of this construction.

Defendant, indeed, does not attack the doctrine but contends only that the cases which have relied upon it differ in certain particulars from the case before us and that, therefore, we may not properly apply the doctrine here. Although nothing in the prior cases suggests that the doctrine fits only the identical factual patterns there adjudicated, we need not now undertake to define the outer limits of its proper application. Examination of the record reveals that the instant case presents each of the elements upon which the courts have in the past relied for the application of the doctrine of substantial compliance. Since all these elements here concur, we need not determine whether any of them, singly or in more limited combination, would constitute 'substantial compliance.'

We proceed to an examination of these elements: (1) the fact that plaintiff held a valid license at the time of contracting, (2) that plaintiff readily secured a renewal of that license and (3) that the responsibility and competence of plaintiff's managing officer were officially confirmed throughout the period of performance of the contract.

1. Plaintiff held a valid license at the time of contracting.

Plaintiff possessed a valid license at the time its existence was crucial to the decisions of the other contracting party and to the prospective subcontractors and other creditors who might extend credit in reliance upon the validity of that contract. The key moment of time when the existence of the license becomes determinative is the time when the other party to the agreement must decide whether the contractor possesses the requisite responsibility and competence and whether he should, in the first instance, enter into the relationship. The license, as an official confirmation of the contractor's responsibility and experience, then plays its important role. Then, too, it serves as a basic determinant in the decision of prospective subcontractors and other creditors as to whether to extend credit to the contractor on the strength of the contract. At the date of the execution of the instant contract plaintiff held an unquestionably valid contractor's license. Indeed, plaintiff had possessed such a license ever since 1957; plaintiff held that license for seventeen months after the date of the execution of the contract.

In determining whether or not a contractor has 'substantially complied' with the statute and whether such substantial compliance has afforded the other party the effective protection of the statute, the courts have accorded great weight to the significant moment of the entrance of the parties into the relationship. The contractor who holds a valid license at the time of contracting executes a contract valid at its inception both as between the parties and as to third parties who might rely upon it.

In Gatti v. Highland Park Builders, Inc., supra, 27 Cal.2d 687, 166 P.2d 265, plaintiff Gatti held a valid contractor's license at the time he entered into a contract with the defendant. Later, the parties agreed that Gatti should complete his performance in partnership with his foreman. Like Gatti, the foreman had possessed a valid license at the time of the execution of the contract. Defendant sought to escape liability on the contract by reason of the plaintiffs' failure to secure the partnership license required by section 7029. In holding that the plaintiffs had 'substantially' complied with the statute and that the defendant could not find shelter behind section 7031, this court placed stress upon the fact that Gatti and his foreman were licensed at the time of contracting. It found the case distinguishable from prior cases 'in that at the time the contract between Gatti and defendant was made, both plaintiffs possessed contractor's licenses in their own names as individuals.' ² (p. 689, 166 P.2d p. 266.)

Similarly, in Citizens State Bank of Long Beach v. Gentry, supra, 20 Cal.App.2d 415, 419-420, 67 P.2d 364, 366, apparently the first of the substantial compliance cases, the court noted: 'In none of the cases cited by appellant did the party suing have a license at the time of entering into the contract and then make an application for a renewal in any manner, such as was done here.'

As a corollary, the absence of a license at the time of contracting has figured prominently in decisions in which our courts have denied recovery for want of substantial compliance. In Steinwinter v. Maxwell (1960) 183 Cal.App.2d 34, 6 Cal.Rptr. 496, the court thus explained its inability to find substantial compliance 'These cases (Gatti and Gentry) do acknowledge that under certain circumstances substantial compliance with the statute is sufficient. However, it should be pointed out that in each of these cases the contractor did have a valid license at the time...