Wise v. Radis

This is an action to recover a sum which plaintiff claims is due him as his share of a commission jointly earned by himself and defendant in negotiating the sale of certain real property on behalf of the owner. The commission was paid to the defendant by the owner of the property. The complaint, which is cast in the form of a common count for money had and received, alleges that defendant is indebted to plaintiff in the sum of $875 for money received by the former to and for plaintiff's use. From a judgment for plaintiff in the sum sued for the defendant appeals.

It is the theory of plaintiff that he and defendant were partners in the real estate transaction in which was earned the commission that was paid to defendant, and that, therefore, he is entitled to recover from defendant one-half of the commission so received by the latter. Briefly, the facts are these: During the year 1921 each of the parties to the action was a real estate broker engaged in business as such in the city of Los Angeles. Bach maintained an office at his own residence and each had obtained a real estate broker’s license for the year 1921, issued to him individually. In the early part of that year they orally agreed to work together as brokers in negotiating the purchase and sale of real properties. They agreed to divide equally all profits and losses made or incurred by them in each deal. Plaintiff testified that “each deal would be closed up separately”; that upon closing each deal they “would divide the profits after the expenses had been paid,” and that they “arranged to and did work together” on each deal. Some time in the month of November, 1921, the property the sale of which resulted in the payment of the commission here in question was listed by the owner with the parties to this action to negotiate a sale thereof as real estate brokers. Thereupon plaintiff and defendant caused a painted sign to be placed upon the premises which read, in part: “For Sale. See Radis and

Appellant contends: (1) That since he and respondent earned the commission as copartners, the latter must fail in this action for the reason that one partner cannot maintain assumpsit for moneys received by his copartner, but must resort to equity for an accounting; and (2) that to succeed in his action respondent must rely upon a contract which is illegal under the provisions of the Real Estate Brokers’ Act. (Stats. 1919, p. 1252; amended 1921, Stats. 1921, p. 1294.) In reply to appellant’s first point respondent contends that each real estate “deal” jointly participated in by them was a separate partnership transaction, and that while it is the general rule that one partner cannot maintain an action at law for moneys received by his copartner, but must resort to equity for an accounting, there is an exception to this rule

The Real Estate Brokers’ Act contains these provisions: Section 1. “It shall be unlawful for any person, copartnership or corporation to engage in the business, or act in the capacity of, a real estate broker . . . without first obtaining a license therefor.” Section 2. “A real estate broker within the meaning of this act is a person, copartnership or corporation who, for a compensation, sells, or offers for sale, buys, or offers to buy, or negotiates the purchase or sale or exchange of real estate . . . for others, as a whole or partial vocation. . . . One act, for a compensation, of buying or selling real estate of or for another, or offering for another to buy. or sell . . . real estate . . . shall constitute the person, copartnership or corporation making such offer, sale or purchase ... a real estate broker within the meaning of this act.” Section 10. “ ... If the licensee be a copartnership, the license issued to it shall entitle one member of said copartnership to engage in the business of real estate broker within the meaning of this act. For each other member of such copartnership who engages in the business of real estate broker within the meaning of this act the annual fee shall be two dollars ... all licenses shall expire on December thirty-first of each year.” Section 11. “ . . . Each person, firm or corporation licensed as a broker under the

[1] The provision in.section 2 to the effect that a single act, for a compensation, of buying or selling real estate of or for another, or offering for another to buy or sell real estate, constitutes the person, copartnership, or corporation making such offer, sale, or purchase a real estate broker, means precisely what it says. The particularity with which the clause is phrased “leaves no room for any other interpretation than that which its plain terms import.” (Haas v. Greenwald, 196 Cal. 236 [ 237 Pac. 38 ].)

The licenses required by the act do not run from year to year. They automatically expire at the close of each calendar year, and a new license must be applied for and issued for the ensuing year. (Sec. 10, subd. 4; Firpo v. Murphy, 72 Cal. App. 249 [ 236 Pac. 968 ].)

[2] The contract of an unlicensed real estate broker to act for another in the capacity of such broker, for a compensation, is, without doubt, illegal and unenforceable. (Hous

[3] With the above provisions of the statute in mind, we proceed now to a consideration of the legality of the transaction which the parties to this action carried on with the buyer and the seller of the property. It is obvious that the acts performed by appellant and respondent in bringing buyer and seller together and in negotiating the sale of the property on behalf of the latter were acts performed by them as real estate brokers for an agreed compensation. Those acts, therefore, constituted an illegal transaction, unless the requisite license had been issued at the times when the negotiations were being conducted. Equally obvious is it that if the requisite license was not issued, the commission which was paid by the owner to appellant was paid as the result of an illegal transaction.

[4] Under the facts of this case the transaction was illegal whether we regard the relation between appellant and respondent as that of partners, in the true sense of that term, or not—though we incline to the view that they were partners in the full meaning of the word. The profits resulting from the joint venture in which they were engaged, and of which each was to receive an equal share, were “profits” in the strict sense of that term, and did not constitute a compensation to be paid by one to the other for services rendered. Their joint venture was an association of two persons to carry on a definite joint enterprise and to divide the profits and losses. This, in general, constitutes a partnership. (Civ. Code, sec. 2395. See Gray v. Janss

If the relation between appellant and respondent was such that a copartnership existed between them, then, if the strict-letter of the Real Estate Brokers’ Act must prevail, it may be gravely doubted whether a copartnership license, issued to the firm as such, was not an essential prerequisite to the validity of the negotiations which appellant and respondent conducted in bringing the buyer and seller together. The language of section 1 of the act is that it “shall be unlawful for any . . . copartnership to engage in the business, or to act in the capacity of, a real estate broker . . . without first obtaining a license therefor.” There would seem to be some reason to believe that this language, when read in connection with other provisions of the act, means that when a copartnership is acting as a real estate broker its acts are illegal unless a copartnership license has been issued to it, and that the issuance of a license to each copartner as an individual real estate broker will not alone suffice to legalize acts done by them for their firm as copartners. Not only does the statute expressly declare that it shall be unlawful for any copartnership to engage in the business, or act in the capacity of, a real estate broker without first obtaining a license therefor, but it also is provided, in section 10, that “if the licensee be a copartnership, the license issued to it shall .entitle,” etc. And in section 11 it is declared that “each . . . firm licensed as a broker . . . shall be required to have and maintain a definite place of business” in the state “which shall serve as his [its] office for the transaction of business”; and by section 11a that “each . . . firm . . . licensed as a broker . . . shall erect and maintain a sign on the premises wherein it is located his [its] place of business, on which shall be plainly stated that he [it] is a real estate broker.” We confess that we are unable to perceive how a compliance with these regulatory provisions would be possible where the business is conducted by a firm to which no copartnership license has been issued, even though each of its

[5] However, it is not necessary to decide whether a co-partnership license is necessary in a case such as this, and we expressly refrain from doing so; for here one of the joint adventurers neglected to secure a license for the year 1922 until some time after the close of the negotiations which resulted in the sale of the property, i. e., until some time subsequent to the earning of the commission and the accrual of any cause of action therefor. Respondent’s failure to secure such license until after the sale of the property had been fully negotiated and the stipulated commission had been earned rendered the transaction illegal and void, so far as it affects the parties to this action as real estate brokers, even if a copartnership license was not necessary. The performance of services jointly by both respondent and appellant constituted the consideration for the commission which the owner of the property agreed to pay. If any part of this consideration was illegal the entire contract was void. (Civ. Code, sec. 1608.) The rendition of services by respondent subsequent to January 1, 1922, was, as we have seen, unlawful because those services were rendered in direct violation of an express provision of the law and likewise in direct contravention of the express policy of the statute. (Civ. Code, sec. 1667.) It follows, therefore, that even if the parties to this action were not copartners in the strict sense of the term, and even if the procurement of a copartnership license in the firm name was not a necessary prerequisite, still, since appellant and respondent had agreed to render their services jointly, the contract for the payment of a commission became illegal and void after January 1, 1922; or, if the contract did not become illegal, the acts jointly performed by appellant and respondent • subsequent to that date—acts which culminated in the sale of the property through their joint efforts and which constituted the consideration for the commission agreed to be paid them— were illegal, and no recovery of the commission could have been enforced by the parties to this action against the owner of the property. (See Haas v. Greenwald, supra; McIver v. Clarke, 69 Miss. 408 [ 10 South. 581 ]; Hittson v. Browne, 3 Colo. 304 , and Central Trust & S. D. Co. v. Respass, 112

It may be conceded, for the purpose of this decision only, that the “commission” referred to in section 18 of the act means a commission paid by one real estate broker to another for services performed by the latter for the former in the way of assistance rendered in bringing buyer and seller together or in otherwise helping in the negotiations, and that it does not include money sought to be recovered by one partner, as his share of the partnership profits, in an action by him against a copartner who has received the profits. It also may be conceded, for the purpose óf this decision only, that the “compensation” referred to in section 20 of the act means the compensation which is due from the principal to the broker, and that it does not include a partner’s share of such compensation after it has been paid by the principal to one of the members of the brokerage firm which has effected the sale. It is claimed by respondent that if it be conceded, as it is, for the purposes of this decision, that there is nothing in either of these sections of the statute which directly inhibits the recovery by him of his share of the commission paid to his copartner, then he is entitled to such recovery notwithstanding the illegality of his acts in earning the commission. His argument is substantially this: The contract which he and appellant made with the owner of the property was fully executed on the part of the latter, who paid appellant the agreed commission notwithstanding the illegality of the transaction; where an illegal contract or an illegal transaction has been fully executed and one of the parties has the avails thereof, all the harm that can be done to public policy has been done, and therefore, so respondent argues, the party who has the avails can be compelled to pay them, or a proportionate share thereof, to the other party.

[6] We are unable to agree with respondent’s reasoning. No principle of law is better settled than that a party to an illegal contract or an illegal transaction cannot come into a court of law and ask it to carry out the illegal contract or to enforce rights arising out of the illegal transaction. He cannot set up a case in which he necessarily must disclose the

[7] If the issuance of a copartnership license was a necessary prerequisite to the legality of the firm transactions which appellant and respondent jointly carried on as copartners, then, since no such license was ever issued, or was ever even within the contemplation of the partners, the partnership contract was illegal from its inception; for in that case the partnership contract necessarily would involve the performance of illegal acts. And since respondent, in order to establish his case, necessarily must invoke the partnership contract, it follows that, if the issuance of a copartnership license was requisite, the court will not lend its aid to assist either party to the contract in an action against the other, notwithstanding the receipt by the latter of partnership profits, but will leave both parties where it finds them. (Chateau v. Singla, 114 Cal. 91 [ 55 Am. St. Rep. 63 , 33 L. R. A. 750 , 45 Pac. 1015 ]; Moore v. Moore, supra; Woodson v. Hopkins, 85 Miss. 171 [ 107 Am. St. Rep. 275 , 70 L. R. A. 645 , 38 South. 298 ]; Kennedy v. Lonabaugh, 19 Wyo. 352 [Ann. Cas. 1913F, 133, 117 Pac. 1079 ] ; McMullen v. Hoffman, 174 U. S. 639 [ 43 L. Ed. 1117 , 19 Sup. Ct. Rep. 839 , see, also, Rose’s U. S. Notes] ; Vandegrift v. Vandegrift, 226 Pa. St. 254 [18 Ann. Cas. 404, 75 Atl. 365 ]; King v. Winants, 71 N. C. 469 [ 17 Am. Rep. 11 ] .) In Chateau v. Singla, supra, our supreme court held that a partnership formed to carry on the business of letting furnished apartments for the purpose of prostitution is illegal, and that, therefore, one partner could not maintain an action against the other for an accounting of the rents collected by the latter.

The same result must follow if it be held that the issuance of an individual broker’s license to each partner would satisfy the requirements of the statute, and that the issuance of

Respondent testified that each of the transactions in which he and appellant jointly participated was treated separately, and that upon the termination of each “deal” the net profit was divided between them. Hence there was, in effect, a separate oral partnership contract as to each transaction. To entitle respondent to a recovery in this action he must rely upon the contract which he had with appellant to cooperate with the latter in this particular “deal” and to share equally in the commission to be earned, after deducting all expenses. But on January 1, 1922, this contract, as an agreement by two persons one of whom was not a licensed real estate broker, to jointly negotiate the sale of real property, became, and until the final consummation of the deal between the buyer and the seller, continued to be and was, through respondent's fault, an illegal contract—a contract

[8] Our conclusion from the foregoing is that whether the partnership contract be regarded as illegal from the beginning because of the failure of the joint adventurers to take out a partnership license, or whether it became illegal on and after January 1, 1922, by reason of respondent’s failure to maintain his status as a duly licensed real estate broker, in either case the action must be regarded as one to enforce an illegal contract. The courts refuse to enforce such a contract, and permit the defendant to set up its illegality as a defense. While the defense is not an honorable one, yet the courts permit it to be set up even though in doing so the defendant may allege his own moral turpitude. Violators of the law who are parties to such illegal contracts are repudiated by the courts because of the great supervening principle of public policy involved, without reference to the attitude which one of the parties may occupy to the other, where both are in pari delicio. As pungently put in McMullen v. Hoffman, supra: “The court refuses to enforce such a" contract, and it permits defendant to set up its illegality, not out of any regard for the defendant who sets it up, but only on account of the public interest. It has been often stated in similar cases that the defense is a very dishonest one, and it lies ill in the mouth of the defendant to allege it, and it is only allowed for public considerations and in order the better to secure the public against dishonest transactions. To refuse to grant either party to an illegal contract judicial aid for the enforcement of his alleged rights under it tends strongly towards reducing the number of such transactions to a minimum.”

The decisions relied upon by respondent, and now to be adverted to, are clearly distinguishable from this case. In

We do not deem it necessary to prolong this discussion by referring further to specific cases. It is sufficient to say that the better reasoning and the great weight of authority condemns the doctrine of an implied promise in the matter of the division of the profits of an illegal contract between partners or joint adventurers who are in pari delido;

The judgment is reversed.

Works, J., concurred.

I concur, but am not prepared to say that where two brokers engage in a partnership for the sale of a single unit of property and each at the time holds a broker’s license which he retains throughout the transaction, the law requires these brokers to secure a license in the name of a firm to be organized for that particular transaction. This point is in no way involved in the instant case, and I therefore expressly reserve judgment upon it.