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District Court of Appeal, Third District, California.


Civ. 6324

Decided: April 04, 1940

Hugh Ward Lutz, of Los Angeles, for appellant. Hulen C. Callaway and Joe Crail, Jr., both of Los Angeles, for respondent.

This is an appeal from a judgment rendered in favor of respondent corporation upon an action brought for an accounting of life insurance commissions earned pursuant to a contract therefor.

The appellant, a life insurance broker, had been writing insurance since 1922 for John G. Bullock of Los Angeles. In 1928, Mr. Bullock desired to take out additional insurance to the amount of $150,000. The appellant Pratt was requested by Mr. Bullock some time in July, 1928, to divide with Mr. Fewel commissions to be earned from the additional life insurance. Mr. Fewel was at that time a son-in-law of Mr. Bullock, and became an officer of each one of the successive corporations involved in this suit.

Mr. Bullock, Mr. Pratt and Mr. Fewel met in Bullock's office July 10, 1928, to discuss the arrangement for a division of commissions between Fewel and Pratt. Pratt objected to working with Fewel's associates and requested that he should handle his part of the agreement by himself. But Mr. Fewel objected to eliminating his business associates. Regardless of this objection, it was agreed that Pratt would divide his commissions with Fewel, each to receive fifty per cent of the earned commissions. On this same day, July 10, 1928, Fewel accompanied Pratt to the latter's office, and the following writing was executed by Mr. Pratt:

“July 10, 1928.

“Mr. Richard W. Fewel, 716 South Spring St., Los Angeles:

Dear Mr. Fewel:

This is to confirm our verbal understanding of this date that we will work together in the purchase of insurance for Mr. John G. Bullock, on the basis of an equal division of the commissions.

Very truly yours,


At the time of the agreement to divide commissions Fewel was a partner in an insurance brokerage firm known as Universal Underwriters. He was planning the organization of a new corporation to take over his insurance business. This new organization, Moore, Fewel & Company, was incorporated July 30, 1928, and it was duly licensed as an insurance broker on August 10, 1928. Mr. Fewel was an officer and director of this company. On September 1, 1928, Mr. Fewel assigned to Moore, Fewel & Company, the new corporation, all of his interest in and to the agreement with Mr. Pratt.

None of the life insurance policies contemplated by the terms of this agreement were obtained until 1930, although it appears that Pratt received a commission in 1929 on a policy taken out in 1922, which was converted in 1929. Numerous policies of insurance were written on the life of Mr. Bullock during the years 1930, 1931 and 1932. The record shows that Mr. Pratt received $23,074.29 as earned commissions on the insurance represented by the various policies. This figure includes the commission received by Pratt in 1929 on the policy taken out in 1922. On July 31, 1930, Pratt and Fewel met in Bullock's office and the first division of commissions was then made. It appears a controversy over paying Fewel any part of the commissions then occurred on the ground that he did not have a broker's license. However, Pratt made a check out to Fewel for $789.08 and took a receipt from him, signed “Moore, Fewel & Devlin, By Richard W. Fewel”. Thereafter other commissions were divided, for which receipts were invariably issued by Mr. Fewel in the name of the corporation and accepted by the appellant. On February 19, 1931, Pratt made the last division of commissions with Fewel, for which a receipt in the name of the corporation was given to Pratt by Fewel. At this time Mr. Pratt claimed that he then informed Fewel the agreement should be terminated and that he would not be further bound thereby. The payments by Pratt to Fewel up to and including this last date amounted to $2,687.75. No payments were made to Fewel after February 19, 1931. Prior to that date arrangements were made between Pratt, Fewel and Bullock, whereby some of the money received as commissions was advanced to Bullock to finance premiums due. Fewel was also in debt to Bullock for money previously borrowed and some of the moneys due to Bullock were credited to the account.

Mr. Bullock died September 15, 1933. This action was commenced December 12, 1935. Judgment was entered in favor of the respondent on June 24, 1936. The findings of fact and conclusions of law determine that Richard W. Fewel was acting for and on behalf of the respective corporations of which he was an officer, and that the agreement of July 10, 1928, was properly assigned to Moore, Fewel & Devlin, Inc., Ltd.; that the agreement was a valid and enforceable contract between Pratt and the respondent corporation; that the contract was not terminated on February 19, 1931; that the cause of action was not barred by statutory provision or by laches; and that upon an accounting had the respondent was entitled to $8,849.39 general damages, and $1,993.30 interest.

About December 12, 1935, respondent levied an attachment upon certain funds held by the executors of the estate of John G. Bullock. After entry of judgment on June 24, 1936, no stay having been obtained by appellant, execution was levied by the respondent against these same funds. The executors thereupon filed an action of interpleader, and paid the moneys into court, alleging that numerous claims had been made thereto by various creditors of said Franklin L. Pratt. Respondent filed an answer and cross-complaint in this action, setting forth its claim to the interpleaded fund. The cross-complaint sets forth and alleges a prior right to the interpleaded fund for the reasons that, (1) the rights of other claimants were based on certain assignments from Pratt which constituted fraudulent conveyances, and, (2) the fund was impressed with a constructive trust and therefore no assignments could be validly made by Pratt.

The court in this interpleader action found that Fewel & Dawes, Inc., were entitled to recover said moneys subject to the right of two other claimants, who held valid assignments from Pratt. The court also found that the interest of Fewel & Dawes, Inc., existed, however, only by virtue of the levy of the writ of attachment and the subsequent levy of a writ of execution. As to the second cause of action, which was predicated on the theory of a constructive trust in the fund for the benefit of respondent corporation, the court found that no such trust existed. The findings of fact determined that the contract of July 10, 1928, was not made with or on behalf of Moore, Fewel & Company; that, on the contrary, the agreement was made with Richard W. Fewel and that it was void, as he was not a licensed life insurance agent or broker at the time of said agreement, nor at any time thereafter; that the claim for the funds in question from the estate of John G. Bullock, deceased, was properly made in behalf of Franklin L. Pratt. The judgment in this interpleader action was entered on November 8, 1937, and became final after time for appeal had elapsed. Appellant sought to introduce that final judgment as evidence in this case to establish it as res adjudicata and to create an estoppel.

There is ample evidence to support the finding that Mr. Fewel was acting for and on behalf of Moore, Fewel & Company when he entered into the agreement with Pratt on July 10, 1928. Mr. Fewel testified that he stated to Pratt in the presence of Mr. Bullock on July 10, 1928, that he would not do business without his associates. This statement was repeated to Pratt in the latter's office on the same day and at which time Mr. Pratt executed the written agreement. If Fewel intended at the time of the agreement to act solely in his own behalf, there is no reason why he should have assigned the agreement to the corporation. If Fewel had intended to act as a broker in his own behalf he could have obtained a license for that purpose. Even though appellant did not contemplate contracting with the assignee corporation as a party to the agreement, he is, nevertheless, estopped by his conduct from contending that the assignment of the agreement by Mr. Fewel terminated the contract. The appellant not only repeatedly accepted, but he requested the execution of receipts for commissions paid to Fewel in the name of respondent's assignors. Receipts executed in this manner were received by appellant up to and including February 19, 1931. Until that date the appellant made regular division of commissions earned under the agreement. It does not appear that any objections were ever made regarding performance on the part of respondent's assignors. The only personal service called for on the part of Fewel was his influence with Mr. Bullock. He was not required to contact the insurance companies or to perform any servicing of the policies. This furnished sufficient consideration and evidence to support the agreement. Performance, to this extent, on the part of Fewel, and in behalf of the respective assignee corporations, did not materially alter the relationship or rights as between the parties. There was no substitution of performance which would impair the rights of appellant under the agreement.

At the time of the execution of the written agreement on July 10, 1928, Fewel was not licensed to act as a life insurance broker. Moore, Fewel & Company, the first assignee, was not then in existence. The contention made by appellant, that the contract is void as contrary to the express provisions of the Political Code, section 633aa, would be well taken, provided Fewel's action on and prior to July 10, 1928, constituted a violation of the provisions of the statute. Section 633aa merely provides in that regard: “No person shall, within this state, act as a life agent of any life insurance company until such person shall have first obtained a license under the provisions of this section from the insurance commissioner authorizing him so to act.”

It cannot be said that Fewel was violating any of the foregoing provisions by merely entering into an agreement with Pratt for a division of life insurance commissions to be earned in the future. He did not thereby “act” as an insurance broker. The written agreement to divide commissions which was signed by Mr. Pratt constituted a binding agreement between the parties, but it did not give rise to performance on the part of Fewel of any act in violation of the statute. The evidence does not disclose any solicitation for insurance or affirmative action on his part in conflict with the statute. Mr. Bullock, the father-in-law of Fewel, was the moving party in procuring the agreement. For reasons of his own, he desired that Mr. Fewel should receive part of the commissions to be earned by Mr. Pratt. Mr. Pratt had previously written insurance for Mr. Bullock for a unmber of years. The evidence shows that the actual work in procuring and servicing the policies to be procured under the agreement was to be performed by Mr. Pratt individually. In fact, there were applications for insurance pending at the time of the execution of the contract for about $150,000. Mr. Pratt had been handling that business. The conduct of Fewel does not constitute a violation of the provisions of Political Code section 633aa.

That section was enacted for the protection of the public. It is true that conduct constituting acts of an insurance broker in violation of its provisions would be void. The real estate brokers' act belongs to this same class of statutes. In concluding that the agreement under consideration was not violative of section 633aa, and that the respondent was entitled to recover commissions, we are strongly influenced by a number of California decisions wherein the licensing of real estate brokers under a similar statute was involved. In Houston v. Williams, 53 Cal.App. 267, 200 P. 55, a leading case on this point, the plaintiff, a real estate broker, entered into an agreement in writing with the defendant. The plaintiff was given the exclusive agency to sell or exchange property belonging to the defendant. At the time of this written agreement, the plaintiff was not licensed under the real estate brokers' act. At the time the plaintiff procured a purchaser under the agreement, however, he had procured a license, authorizing him to engage in the business of a real estate broker. In holding that the plaintiff was not precluded from recovering compensation for his services, the court said, 53 Cal.App. at page 271, 200 P. at page 56: “It is a reasonable construction of the act to hold that it is unlawful for any one to engage in the business of a real estate broker without having secured a license, but he is not precluded from recovering compensation for his services if he had such license at the time his cause of action arose, although his contract may have been executed prior to that time when he had no license. Herein, manifestly, the cause of action arose when plaintiff obtained a purchaser for the property, and it is not disputed that then he had the proper license, and it was so alleged in the complaint.”

It is true that the court in the Houston case based its decision upon the limitation found in section 20 of the real estate brokers' act, St.1919, p. 1259, and that the court concluded that the limitation gave plaintiff his right to maintain the action for compensation. While section 20 of that act was properly considered in determining the invalidity of the contract in question, it also appears that section indicated the time at which the invalidity arose. Section 20 provided that no action could be maintained “without alleging and proving that such person * was a duly licensed real estate broker or real estate salesman at the time the alleged cause of action arose”. (Italics ours.) Obviously, the invalidity of the transaction would exist unless it were shown that the agent had a license at the time of performance. It cannot be deemed that the invalidity of the transaction arose at an earlier date, at the execution of the contract for instance. If the contract was invalid prior to the time of performance, the invalidity could not be cured by subsequently procuring a license. That seems to be a reasonable construction of section 20. It appears to be a fair interpretation of the legislative intent with respect to the real estate brokers' act.

In the present case we conclude that the action on the part of Mr. Fewel in becoming a party to the written agreement did not constitute acts in the capacity of a life insurance broker or agent, within the meaning of the provisions of Political Code section 633aa. The contract was not void merely because it was entered into by an unlicensed individual. The provisions of section 633aa reasonably appear to apply only to acts in furtherance of the performance of life insurance contracts, such as the solicitation or procuring of policies. Mr. Fewel did not perform such acts.

In Fitzhugh v. Mason, 2 Cal.App. 220, 83 P. 282, the validity of a contract, under the act of March 23, 1901, St.1901. p. 641, entitled “An act to regulate the practice of architecture,” was in issue. The act made it a misdemeanor for any person to practice architecture without a certificate. Plaintiff was an architect and he entered into a contract of employment before obtaining an architect's certificate. The court held that a contract for the employment of an architect was not rendered illegal or void because made in advance of the issuance of a certificate, although in order to carry out the contract it would be necessary for the architect to take out his certificate.

Mr. Fewel and Mr. Pratt, having entered into a valid agreement on July 10, 1928, and Moore, Fewel & Company existing as a duly incorporated and licensed insurance broker on August 10, 1928, there was nothing to prevent a valid assignment of said agreement to Moore, Fewel & Company on September 1, 1928. As stated, no performance under this agreement took place until 1930, with the exception of the conversion of one policy in 1929. Although Moore, Fewel & Company was not yet organized at the time of the written agreement, it seems clear that recognized authorities place Fewel in the status of a promoter whose contract would become valid and which might be assigned to a subsequently organized corporation. Scadden Flat Gold–Min. Co. v. Scadden, 121 Cal. 33, 53 P. 440; Michell v. Grass Valley Gold Mines Co., 206 Cal. 609, 275 P. 418; Chater v. San Francisco Sugar Refining Co., 19 Cal. 219, 220.

The record conclusively shows that the respective assignee corporations to which the agreement was transferred were licensed insurance brokers throughout the entire time of performance under the agreement. Moore, Fewel & Company was licensed from August 10, 1928, to June 30, 1930; Moore, Fewel & Devlin, Inc., Ltd., from July 1, 1930, to June 30, 1932; Moore, Fewel & Dawes from July 1, 1932, to October 6, 1933. On October 11, 1933, Moore, Fewel & Dawes, Inc., changed its corporate name to Fewel & Dawes, Inc. There was a lapse in its license from October 6, 1933, to November 10, 1933. Performance under the agreement having come to an end with the death of John G. Bullock, and respondent being a duly licensed life insurance broker at the time of performance and at the commencement of this action, it is not material that there was a lapse in the corporation's license from October 6, 1933, to November 10, 1933.

The agreement of July 10, 1928, was a continuing agreement or contract and there is nothing to show that such contract was not to exist as long as Mr. Pratt procured insurance under said agreement. The evidence shows that Mr. Bullock contemplated taking out $150,000 additional insurance at the time the written agreement was executed. Mr. Pratt had no option to terminate the contract at will. There is no evidence that the contract was terminated on February 19, 1931, as contended by appellant. The contract could only be terminated by the mutual consent of all parties. Findings Nos. 27 and 28 to the effect that the contract was not terminated are supported by the evidence.

Appellant failed to show that he was entitled to expenses incurred in connection with the servicing of the policies, or to reimbursement for traveling expenses. The agreement being in full force on and after February 19, 1931, and no accounting having taken place, the statute of limitations did not begin to run in favor of appellant at this time. It began to run from the date of the last item of the account. Mr. Bullock was receiving a portion of the commissions which went to pay premiums. It is true that the only proved financing of paid premiums in which Fewel directly participated occurred prior to February, 1931. However, the evidence shows that the appellant had the duty of keeping a record of the insurance transactions, and of handling the commissions earned through the procuring of the policies. The evidence shows that sums of money were advanced to the appellant for the purpose of paying premiums as late as February, 1933. The contract between appellant and respondent being in force at that time, and appellant having made no division of commissions since February, 1931, it must be presumed that the contract was still in force. Under such circumstances the statute of limitations did not begin to run against respondent until the death of Mr. Bullock, or at least until it was shown that the last policy of insurance under the agreement had been procured.

There is no merit in the contention that a proper accounting was not had between the parties. An accounting was held and the record failed to show any prejudice to appellant with the exception of the item of interest which was allowed. Respondent introduced in evidence a record containing a list of the companies, the policies and premiums and the commissions which were earned. Appellant reserved the right to check the correctness of this record, and to offer evidence of any error which it might contain. The court found that appellant was paid $23,074.29, as commissions under the agreement, and that respondent's share of fifty per cent thereof amounted to $11,537.14. The court also found that respondent's assignors had been paid by appellant on account of its share of said commissions only the sum of $2,687.75, leaving a balance due to respondent under the agreement of $8,849.39. That finding is supported by the evidence.

The contention of appellant that findings Nos. 24 and 25 with respect to the interest allowed is not supported by the evidence. The record fails to disclose the dates of payments of commissions to appellant. At least it is impossible to determine which dates refer to the specific times when the commissions were received by the appellant. The record therefore fails to show that respondent is entitled to interest on unpaid commissions which were received by the appellant. The judgment should, therefore, be modified by disallowing the items of interest in the sum of $1,933.30.

We are of the opinion it was not the court's province in the suit of interpleader to challenge the judgment upon which execution had issued. The sole issue which was presented to the court in that cause of action was neither involved in nor determinative of the issues in the present suit. The issue before the court in that action raised the question as to whether the appellant, Mr. Pratt, was a trustee of the interpleaded fund, and as such, whether he violated his duty as trustee by assigning that fund to various claimants. A finding that he was not a trustee of said fund for the benefit of the respondent herein did not determine the issues presented in this suit for an accounting. That former judgment, therefore, is not res adjudicata of the issues presented in this case.

In support of the determination that the judgment of interpleader is not res adjudicata of the issues of this case, we quote from the opinion rendered in Lillis v. Emigrant Ditch Co., 95 Cal. 553, 30 P. 1108. In discussing the principles applicable to res adjudicata and estoppel by judgment, the court said at page 561 of 95 Cal., at page 1110 of 30 P.: “If, however, the cause of action or demand upon which the former judgment was rendered is different from the one prosecuted in the second action, it is then necessary to ascertain as a question of fact what issues or matters were determined in the former action, and then to determine as a matter of law whether those issues and their determination were essential to the former judgment; for it is only issues upon which that judgment depends that the parties are estopped from litigating in any other action. * The judgment in such a case does not become an estoppel as to all matters which might have been litigated therein, but only as to such as were actually litigated, and which were necessary to be determined by the court before rendering its judgment upon the demand or the defense.”

An examination of the cases cited by appellant fails to disclose any precedent for the application of res adjudicata or estoppel under the circumstances of this case.

The judgment is modified by striking therefrom the items of interest allowed in the sum of $1,993.30. As so modified the judgment is affirmed. The respondent may recover its costs.

Mr. Justice THOMPSON delivered the opinion of the court.

We concur: PULLEN, P.J.; TUTTLE, J.

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