Annotate this Case

168 S.E.2d 18 (1969)

5 N.C. App. 12

AR-CON CONSTRUCTION COMPANY v. Neil ANDERSON and wife, Mrs. Neil Anderson.

No. 6918SC173.

Court of Appeals of North Carolina.

June 18, 1969.

*20 Morgan, Byerly, Post & Keziah, by Edward N. Post, High Point, for plaintiff appellant.

Schoch, Schoch & Schoch, by Arch K. Schoch, Jr., High Point, for defendant appellees.


In entering into and undertaking to perform the contract alleged in the complaint, plaintiff was clearly subject to the provisions of G.S., Chap. 87, Art. 1. For purposes of that Article, G.S. § 87-1 defines a general contractor as "one who for a fixed price, commission, fee or wage, undertakes to bid upon or to construct any building, * * * or any improvement or structure where the cost of the undertaking is twenty thousand dollars ($20,000.00) or more and anyone who shall bid upon or engage in constructing any undertakings or improvements above mentioned in the State of North Carolina costing twenty thousand dollars ($20,000.00) or more shall be deemed and held to have engaged in the business of general contracting in the State of North Carolina." (Emphasis added.) Thus it is the "cost of the undertaking," which in this case plaintiff alleged in its complaint was to be $27,800.00, and not the amount of any separate progress payment, which determines applicability of the Article.

In Bryan Builders Supply v. Midyette, 274 N.C. 264, 162 S.E.2d 507, the North Carolina Supreme Court, in an opinion by Sharp, J., held:

"The purpose of Article 1 of Chapter 87 of the General Statutes, which prohibits any contractor who has not passed an examination and secured a license as therein provided from undertaking to construct a building costing $20,000.00 or more, is to protect the public from incompetent builders. When, in disregard of such a protective statute, an unlicensed person contracts with an owner to erect a building costing more than the minimum sum specified in the statute, he may not recover for the owner's breach of that contract. This is true even though the statute does not expressly forbid such suits."

That case, as the present one, concerned a suit brought by a contractor against the owners to recover the balance allegedly due for construction of a house costing more than $20,000.00. The Supreme Court held that upon the contractor's admission *21 that at the time it entered into the contract it was not a licensed contractor, the trial court had correctly dismissed the contractor's action against the owners for the balance due under the terms of the contract upon which it had sued. Furthermore, the Court held that the unlicensed contractor was also barred from maintaining an action based on any theory of quantum meruit or unjust enrichment, in that connection saying:

"The same rule which prevents an unlicensed person from recovering damages for the breach of a construction contract has generally been held also to deny recovery where the cause of action is based on quantum meruit or unjust enrichment. Annot., 82 A.L.R.2d 1429, § 3(c); 53 C.J.S. Licenses § 59 b (1948) * * * To deny any unlicensed person the right to recover damages for breach of the contract, which it was unlawful for him to make, but to allow him to recover the value of work and services furnished under that contract would defeat the legislative purpose of protecting the public from incompetent contractors. Northen v. Elledge, 72 Ariz. 166, 232 P.2d 111. The importance of deterring unlicensed persons from engaging in the construction business outweighs any harshness between the parties and precludes consideration for unjust enrichment. Lewis & Queen v. N. M. Ball & Sons, 48 Cal. 2d 141, 308 P.2d 713."

In the present case the parties have stipulated that on 6 October 1966, approximately one year prior to making the contract here sued upon, plaintiff was licensed as a general contractor pursuant to G.S., Chap. 87, Art. 1, with a classification of "General Contractor" and limitation of "Limited." This license would have authorized the holder thereof to engage in the practice of general contracting in North Carolina, with the limitation that the holder should not be entitled to engage therein with respect to any single project of a value in excess of $75,000.00. G.S. § 87-10. Thus plaintiff's license, so long as it remained valid, would have authorized it to undertake construction projects such as the one which is the subject of this litigation. The parties stipulated, and based on such stipulation the court found as a fact, that plaintiff's license had expired on 31 January 1967 and was not thereafter renewed. The contract here sued upon was entered into on 12 October 1967 and plaintiff undertook to perform it during the period 21 November 1967 until 26 April 1968. Therefore neither at the time the contract was entered into nor at any time thereafter pertinent to this litigation did plaintiff have a valid contractor's license.

G.S. § 87-10 provides in part that "(c)ertificate of license shall expire on the 1st day of December following the issuance or renewal and shall become invalid on that day unless renewed, subject to the approval of the Board. Renewals may be effected any time during the month of January without reexamination, by the payment of a fee to the secretary of the Board of sixty dollars ($60.00) for unlimited license, forty dollars ($40.00) for intermediate license and twenty dollars ($20.00) for limited license." (Emphasis added.) It is not clear on what basis the parties stipulated that plaintiff's license had expired on 31 January when the statute expressly provides such licenses shall expire on the 1st day of December, but the discrepancy is immaterial insofar as it affects any question presented by this appeal, since in any event there is no dispute between the parties that plaintiff's license had expired prior to its entering into the contract with defendants and had not been thereafter renewed at any time while plaintiff was undertaking performance of said contract.

Plaintiff contends that, having at one time held a valid contractor's license, presumably issued to it only after examination by the North Carolina State Licensing Board for Contractors as required by G.S. § 87-10, it should be held to have "substantially complied" with the requirements of G.S., Chap. 87, Art. 1, and that the purpose *22 of protecting the public from incompetent builders would not be served by applying the rule of Bryan Builders Supply v. Midyette, supra, to the facts of this case. Plaintiff cites Latipac Inc. v. Superior Court of Marin County, 64 Cal. 2d 278, 49 Cal. Rptr. 676, 411 P.2d 564, as supporting this contention. In that case, as in the present one, the contractor had previously possessed a valid contractor's license. However, because of its failure to submit a renewal application and the $30.00 renewal fee, the license in that case had expired after the contract had been entered into and during the period in which the contractor was engaged in performing under the contract. In that case the license was valid and in effect at the time the parties executed their contract and remained in effect for fifteen months thereafter. The contract required 25 months for full performance, and it was only during the last ten months of that period that the contractor was engaged in performance after its license had expired. Under those circumstances a majority of the California Supreme Court found the case to be one in which the protective policy of the licensing statute had been effectively realized and permitted the contractor to maintain its suit to recover from the owner the balance allegedly due under the contract. A reading of the majority opinion in that case reveals that the California Supreme Court laid primary stress upon the fact, present in that case but not in the one now before us, that the contractor did have a valid license at the time of entering into the contract. In this connection the Court said:

"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. * * * * * * "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."

Since the contractor in the case presently before us did not have a valid license at the time of entering into the contract here sued upon, the Latipac case does not support its contention that it had "substantially complied" with the licensing statute.

In further support of its contention of substantial compliance, plaintiff contends that even though in January 1967 it had failed to pay the annual renewal fee required by G.S. § 87-10, it should nevertheless *23 be considered as still licensed and that the annual fee was merely for revenue purposes and not to protect the general public. This contention, however, cannot be made consistent with the express language of the statute, which provides that the license "shall expire on the first day of December following the issuance or renewal and shall become invalid on that day unless renewed, subject to the approval of the Board." Furthermore, the annual renewal fees required by G.S. § 87-10 are in no way related to the license taxes required to be paid by contractors by the North Carolina Revenue Act, G.S. § 105-54. The renewal fees required by G.S. § 87-10 are not part of the State's revenues, but provide the funds by which the North Carolina State Licensing Board for Contractors is enabled to carry out the public purposes for which it was created. Therefore the payment of these fees does bear a direct and substantial relationship to the accomplishment of the public purposes of the statute. Also, by the express language of that section the license is to be renewed annually only "subject to the approval of the Board," and by clear implication of the language of the statute the Board may require reexamination of any contractor who shall have failed to make timely payment of the annual renewal fee. It should also be observed that G.S. § 87-13 makes it a misdemeanor to use an expired license, just as it is a misdemeanor to operate in violation of the statute without ever having procured a valid license in the first instance. In addition, one of the obvious purposes of requiring annual renewal of licenses is to enable the licensing Board to maintain and publish the roster of currently licensed contractors as required by G.S. § 87-8. All of these statutory provisions, when considered together, indicate a clear legislative intent that annual license renewal should be considered an important, and not merely a perfunctory, requirement in order to accomplish the protective public purpose of the statute. Plaintiff cannot be said to have substantially complied with the statute when it ignored this requirement.

Appellant further contends that the order dismissing its action was deficient in that it contained no finding that the requirements of G.S., Chap. 150 had been complied with. That Chapter provides for uniform procedures to be followed in connection with revocation of licenses. It expressly does not apply where renewal of a license is for failure to pay a statutory renewal fee. G.S. § 150-10(3).

Finally, appellant contends there was error in the trial court's refusal to grant its motion for a rehearing on the plea in bar. The stated purpose of the motion for rehearing was to permit plaintiff to present evidence to the effect that prior to and at the time the contract had been entered into the male defendant had been informed that plaintiff's license had already expired. Treating this motion in the same manner as a motion for a new trial upon the ground of newly discovered evidence, it is apparent that the requirements for favorable consideration of such a motion have not been met. Johnson v. R. R., 163 N.C. 431, 79 S.E. 690; 2 McIntosh, N. C. Practice 2d, § 1596(8). There was no showing that appellant did not have full knowledge of the facts referred to in its motion at the time of the hearing on the plea in bar, and no showing as to why, in the exercise of due diligence, appellant had failed to present evidence concerning such facts at the time of that hearing. In addition, though we do not find it necessary so to decide, it is not clearly apparent that upon a new hearing a different result would be reached; nothing in the licensing statute authorizes a person with whom an unlicensed contractor deals to waive the requirements of the statute or grants the unlicensed contractor immunity merely because he advises one of his customers that he is acting in violation of the statute. Other persons, including prospective subcontractors and suppliers of building materials, also have an interest to be protected. *24 In any event, granting of such a motion is within the discretion of the trial court, and there has been no showing of abuse of discretion in this case.

The orders appealed from are


MALLARD, C. J., concurs.

BRITT, J., dissents.