United Electric Supply Co. v. Greencastle Gardens Section III Ltd. Partnership

Lowe, J„ delivered the opinion of the Court. Lochinvar’s Web 1 Interlocking close corporate control often provides singular benefits, including the diffusion of legal and contractual responsibility. For whatever reason they were originally spun, fair or foul, the convoluted ownership arrangements of the parties in this case prepared the path followed by the chancellor below. The webs became so entangled that, like Arachne’s, they ultimately ensnared their creators.

Appellee Greencastle Gardens Section III Limited Partnership (Greencastle) employed Della Ratta, Inc, (Della Ratta) as general contractor to construct an apartment project. Joseph M. Della Ratta, the president of Della Ratta, Inc., is also one of the general partners in Greencastle, In his capacity as the former, he subcontracted the electrical work In the apartment project to Bruno’s Electrical Contractors, Inc, (Bruno’s). The project was to be constructed in Montgomery County, and there was In force at the time a ⁷² provision of the county code that, before any electric work could be done there, the electric contractor be licensed: “(a) It shall be unlawful for any person, firm, company, corporation or partnership engaged in business as an electrical contractor to install, repair or maintain any electrical circuit, electrical equipment or electrical apparatus unless such person, firm, company, corporation or partnership shall have first been granted by the county, a business license, entitling the licensee to perform such work.” Mont. Co. Code, Ch. 17, § 17-19 (a).

Bruno’s was not a licensed electrical contractor in Montgomery County, nor, incidentally, did it have in its employ a master electrician, which is a further requirement of the Montgomery County Code: “(b) All installations, repairs, maintenance or other work done under a business license issued pursuant to this chapter shall be by, or under the ultimate supervision of the master electrician or master electrician limited regularly employed by said licensee and designated on such business license as responsible for the work performed thereunder whose active status in accordance with section 17-24 has been certified by the board. For the purpose of this subsection, the words, ‘regularly employed’ shall mean that the master electrician or the master electrician limited shall be available to supervise the installation whenever such work is being performed by any electrician under his supervision for whose work he is responsible. Non-availability on the job for more than a two hour period of any master electrician, or master electrician limited, to supervise the performance of any electrical work performed under the authority of an electrical permit issued to him, shall be cause for the suspension or revocation of his license.” Mont. Co. Code, Ch. 17, § 17-19 (b). ⁷³ When Mr. Della Ratta sought assurance from the president of Bruno’s, Mr. Bruno Tarabocchia, that he could handle the job, the licensing obstacle was disclosed: “A It was a very brief conversation, and Mr. Della Ratta asked me, he said, ‘Bruno, can you handle the job?’ Q What was your response?

A ‘Yes, Joe. I can handle the job. Just I don’t have the license.’, and he said —” Mr. Della Ratta’s further inquiry prompted Mr. Tarabocchia’s suggestion of what appeared to be an acceptable solution: “ ... So he asked me who is supplying the license. ...

I told him Joe Penovich was supplying me with the license.” “Joe Penovich” is the president and owner of Redwood Electric Company (Redwood), which company is licensed to do electrical work under Montgomery County Code § 17-19 (a). It was thus able to obtain the necessary electrical work permit and, in order to comply with subsection (b), Mr. Penovich agreed to “supervise” since he also had a master electrician’s license. But the agreement was not without a motivating thread tying together some of these webs. All of the electrical equipment purchased for the project was to be bought from United Electric Supply Company (United).

Perhaps not coincidentally, Joe Penovich was also the owner and president of United. There was evidence to show that for Redwood’s “quid”, United would receive the material business as its “quo”. Although Penovich equivocated on whether his securing of the permit was contingent upon Bruno’s purchases from United, Mr. Tarabocchia did not: “Q Did you have any discussions with Mr. Penovich concerning your purchase of the equipment of United Electric insofar as that related to obtaining an electrical permit? ⁷⁴ A Yes, we had. Q What was that discussion?

A He said he will supply all the material and will do the supervision in the job, and he will put his permit, he will take out the permit. Q Was it your understanding that unless you purchased all the equipment from him you would not get the electrical permit? A Yes. Q Was it your understanding you could not get the electrical permit, then buy your equipment elsewhere?

A No, the way we was talking, no, I had to buy the material from United Electric Supply. Q You had to buy it from United Electric Supply? A Yes, because he was doing the supervision and he was supplying the materials.” Presumably the webs could not support all of their arachnids, and problems arose concerning electrical equipment, installation acceptance by the power company, and conformity with the original plans. Equipment other than that called for by the plans was placed in the apartment project, and Greencastle failed to pay United for it.

The problems culminated in a hearing before the Circuit Court for Montgomery County on United’s bill of complaint to enforce its mechanics' lien. The chancellor declined to enforce it and entered judgment on behalf of Greencastle. His opinion was convincingly reasoned, but it created, then vaulted, an obstacle the chancellor did not have to face. The opinion commenced with the fundamental principle that an agreement in violation of a regulatory statute 2 is illegal and void, citing generally Marburg v. Mercantile ⁷⁵ Bldg.

Co., 154 Md. 438 and Goldsmith v. Mfgrs’ Liability I. Co., 132 Md. 283 , and quoting from Kirschner v. Klavik, 186 A. 2d 227, 229 , a District of Columbia Municipal Appeals case: “Generally, a contract made in violation of a Maryland statute designed for police or regulatory purposes is void and confers no rights upon the wrongdoer. Neither can the wrongdoer sue in quasi-contract for the value of his services or for the value of the benefits conferred upon the other party. This is true even where, as was shown here, the appellants entered into the contract with appellee knowing ....” Building on this foundation, the chancellor pointed out that a mechanics’ lien must be based upon an underlying contract, express or implied, between the contractor whom the materialman is supplying, and the owner. Moreland v. Meade, 162 Md. 95, 104-105 ; Treusch and O'Connor v. Shryock & Clark, 51 Md. 162 .

If the contract is an illegal one, reasoned the chancellor, the enforceability of the demand for payment connected with it depends upon “ ‘whether the plaintiff must resort to the illegal transaction to aid in establishing his case.’ ” Van Meter v. Wilkinson, 187 Md. 492, 499 . In order to apply that law, the chancellor was compelled to state his factual conclusions. He first found that: “There was no evidence of any direct contract between United Electric and Greencastle.”; and then reasoned: “Thus, United Electric is forced to rely upon the illegal contract between Bruno’s and Greencastle to enforce its lien.[ 3 ] This, it cannot do; and if it cannot use that contract, what other contract is ⁷⁶ available as a foundation for the enforcement of the lien? ” To further emphasize his point the chancellor pointed to Snodgrass v. Immler, 232 Md. 416 and Harry Berenter, Inc. v. Berman, 258 Md. 290 . In Snodgrass , a contract between a property owner and a licensed architect provided that an unlicensed architect would perform the actual services under the supervision of the licensee.

The two architects then contracted that the unlicensed architect receive the lion’s share of the fee. The Court noted that the contract between the owner and the licensed architect was valid standing alone, but that: “ ... when the facts surrounding this contract and its companion contract [were] examined, it [was] at once apparent that the contracts were a subterfuge employed in an attempt to circumvent the licensing statute.” Id. at 422 . The unlicensed architect was denied relief against the licensed architect on his suit as a third party beneficiary of the owner-licensed architect contract. In Berenter, the lienor sought enforcement of a mechanics’ lien, although it was not licensed under the Maryland Home Improvement Law.

The Court refused to enforce the lien, stating that: "... even though the mechanic’s lien is created by statute, nevertheless, such a lien is provided for the