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Hunt v. The Douglas Lumber Company

Supreme Court of Arizona

January 5, 1933

GEORGE W. P. HUNT, Appellant,
THE DOUGLAS LUMBER COMPANY, a Corporation, Appellee

APPEAL from a judgment of the Superior Court of the County of Maricopa. Fred W. Fickett, Judge. Judgment affirmed.

Messrs. Baker & Whitney and Mr. Lawrence L. Howe, for Appellant.

Mr. H. M. Van Denburgh, for Appellee.


Page 816

[41 Ariz. 277] LOCKWOOD, J.

Douglas Lumber Company, a corporation, hereinafter called plaintiff, brought suit against George W. P. Hunt, hereinafter called defendant, and one O. L. Estes, to recover from Estes the value of certain material sold to him by plaintiff, and to foreclose a mechanic's lien on the premises of defendant on which the material was used. The complaint, after the usual formal matters, alleged that the materials for which the lien was claimed were sold to Estes, who at the time had a contract with defendant for the construction of a certain building upon the latter's premises, and "that during all dates and times herein mentioned the defendant O. L. Estes was a contractor duly licensed as is by law required." It then set up the value of the materials ordered by Estes and used in the building aforesaid and that part of such value was paid and part remained unpaid. Estes defaulted, but defendant answered, admitting all the allegations of the complaint except that Estes was a licensed contractor, as set forth above, which was specifically denied, and in connection with such denial it was alleged that Estes had made application for a contractor's license to the proper authorities but had not paid the fee fixed by law therefor, and no license had ever been issued him; that some time after such application he had paid $ 10 on account thereof but had never paid the balance; that it had been the custom of the registrar of contractors to allow contractors to pay the license fee fixed by law in installments and to make contracts prior to the payment of the full amount, which custom was well known to both Estes and to plaintiff. [41 Ariz. 278] Plaintiff demurred to the answer of defendant, which demurrer was sustained, and it having been stipulated that the parties would stand upon their pleadings, judgment went against Estes for the principal sum due for the materials and against defendant that the lien be foreclosed. From said judgment defendant has appealed.

The questions presented are solely of law, there being no dispute as to the facts, and they raise a new and important question, to wit, the constitutionality of chapter 102 of the Session Laws of 1931 and its effect, if constitutional, upon contracts and mechanics' and materialmen's liens. The chapter is lengthy and we therefore state merely its substance. It provides that it shall be unlawful for any persons to act in the capacity of "contractor" within the state of Arizona without having a license as provided by the act, subject to certain special exemptions which are not material in this case. The word "contractor" is defined as ". . . a person, firm, copartnership, corporation, association, or other organization, or any combination of any thereof, who for a fixed sum, . . . or other compensation other than wages, undertakes with another for the construction, alteration . . . of any building, . . . or other structure . . . other than to personality, or any part thereof. . . ."

Applicants for a contractor's license must submit to the registrar of contractors on proper forms a full description of their business and the owners thereof, and a certificate of two reputable citizens of the county that the applicant is of good reputation, and recommending that the license be granted. The application must be accompanied by a fee of $25 which is to be deposited in a special contractor's license fund and used to carry out the provisions of the act, any unencumbered surplus being paid into the general fund at the end of each fiscal year. The [41 Ariz. 279] license issued is not transferable and expires at the end of each fiscal year, but annual renewals may be had upon the payment of a fee of $ 10. A register of the applications and licenses issued must be maintained by the registrar in an office in Phoenix, which is open to public inspection during office hours, and certified copies of any license issued must be furnished anyone upon the payment of a nominal sum. Any person may file a complaint that a contractor licensed under the act has been guilty of one or more of several things, to wit: (a) Abandonment of a contract without legal cause; (b) diversion of funds received under a contract to any purpose not in accordance with the terms of the contract, with intent to defraud creditors or the owner; (c) any fraudulent act as a contractor by which another is substantially injured; and (d) wilful and deliberate disregard of the building codes, the safety or the labor laws of the state, or any subdivision thereof. Upon filing of a complaint, the registrar must investigate it in the manner set forth in the act, and may, upon a proper showing, suspend or cancel the license. An appeal may be taken from his decision to the superior court and then on certain points to the Supreme Court. When a license is canceled, it cannot be renewed except upon proper showing that all loss caused by the conduct for which the license was canceled has been satisfied. It is further made a misdemeanor for any person to act in the capacity of contractor, as defined in the act, without a license.

It is urged by defendant that, under the terms of this act, any contract between an owner and a contractor who has not taken out

Page 817

a license, as provided by the act, is void, and that no rights of any nature can be predicated upon such contract.

It is the position of plaintiff, on the other hand, first, that the act is unconstitutional, and, second, [41 Ariz. 280] that even if it is constitutional, it does not affect plaintiff's right to a mechanic's lien against defendant Hunt's property.

We consider first the constitutional question. The first objection is that the act is in effect a tax levy for revenue and is therefore obnoxious to section 3, article 9, of the Constitution, in that it does not state distinctly the object of the tax. If it is indeed a revenue act, it is unconstitutional, nor does defendant deny this. He contends, however, that it is a police regulation only, and, as such, well within the power of the legislature. This court in the case of Smith v. Mahoney, 22 Ariz. 342, 197 P. 704, had occasion to discuss the difference between a police measure which requires the payment of a license fee merely for regulatory purposes and a revenue measure. In that case we said as follows:

"Whether the enactment was the exercise of the police power of the state or the taxing power depends upon the purposes of the act. Thus we find it stated in 22 Am. & Eng. Enc. of Law, 2d ed., 917;

"The police power must also be distinguished from the taxing power, and the distinction is this: That the taxing power is exercised for the raising of revenue, while the police power is exercised only for the purpose of promoting the public welfare, and though this end may be attained by taxing or licensing occupations, yet the object must always be regulation and not the raising of revenue, and hence the restrictions upon the taxing power do not apply.'

"And in Cooley's Const. Lim. (6th Ed.) p. 242, it is said:

"'A license is issued under the police power; but the exaction of a license fee with a view to revenue would be the exercise of the power of taxation.'

"In another work of the same eminent author, it is said:

"'The right of any sovereignty to look beyond the immediate purpose to the general effect neither is nor can be disputed. The government has general [41 Ariz. 281] authority to raise a revenue and to choose the methods of doing so; it has also general authority over the regulation of relative rights, privileges, and duties, and there is no rule of reason or policy in government which can require the Legislature, when making laws with the one object in view, to exclude carefully from its attention the other. Nevertheless, cases of this nature are to be regarded as cases of taxation. Revenue is the primary purpose, and the regulation results from the methods of apportionment that are resorted to in obtaining the revenue. Only those cases where regulation is the primary purpose can be especially referred to the police power. 2 Cooley on Taxation (3d Ed.) p. 1127.'

"The distinction between the exercise of the police power of the state and the taxing power pointed out in the foregoing authorities has been recognized in numerous decisions of the courts holding that a license fee imposed under the guise of the police power was in legal effect a tax. We cite some of the cases without any attempt to exhaust the list. Ex parte Mayes, 14 Okl.Cr. 696, 174 P. 1181; Ellis v. Frazier,38 Or. 462, 53 L.R.A. 454, 63 P. 642; Pittsburgh, C. & St. L. Ry. Co. v. State,49 Ohio St. 189, 16 L.R.A. 380, 30 N.E. 435; Muhlenbrinck v. Commissioners,42 N.J.L. 364, 36 Am. Rep. 518; North Hudson County Ry. v. Hoboken,41 N.J.L. 71; Mestayer v. Corrige, 38 La. Ann. 707; Pitts v. Vicksburg,72 Miss. 181, 16 ...

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