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District Court of Appeal, Second District, Division 2, California.


Civ. 15771.

Decided: December 23, 1947

Loeb and Loeb and Herman F. Selvin, all of Los Angeles, for appellant. Roth & Brannen and Frank M. Gunter, all of Los Angeles, for respondents.

Appellant brought this action for declaratory relief to determine his rights under a contract entered into between him and Myron Selznick about December 8, 1941. The agreement was reduced to writing in May, 1942, but was never signed by the parties. After the commencement of the action Selznick died. Respondents Bank of America National Trust & Savings Association and two individuals were appointed executors of his estate. Appellant filed a claim with the executors setting out his contentions as to his rights under the contract. The claim was rejected. The executors were substituted as defendants and appellant filed a supplemental complint alleging the matters contained in the original complaint, the appointment of the executors and the filing and rejection of his claim. Judgment was ordered that appellant is not entitled to recover under the contract, from which judgment he has appealed.

In his lifetime Selznick conducted the business of motion picture agent and representative, licensed under the provisions of the Labor Code relating to employment agencies. Secs. 1550 et seq. About December 8, 1941 Henigson was employed by Selznick to render services in the latter's agency business and he thereafter performed duties as vice president and general manager of the business. The agreement was oral at the beginning of their relationship. About May 2, 1942, they arrived at an understanding as to the terms and conditions under which Henigson was to perform his services and the compensation he was to receive. A draft of the agreement was prepared but was not signed, although it appears that the parties operated under it. Appellant contends that it truly represented the terms on which they had agreed and for the purpose of this decision we shall treat it as a binding contract.

By the terms of the agreement Selznick engaged Henigson to render services in an executive capacity and to compensate him as follows: (a) A fixed compensation of $300 per week; (b) as contingent compensation ‘one half (1/212) of all sums of money or other consideration, in any form, received directly or indirectly by us, or by Myron Selznick, individually, or by any of our affiliated or associated enterprises or companies, from any deal relating either directly or indirectly to a so-called ‘independent set-up’. For convenience Myron Selznick, individually, and/or any of our affiliated and/or associated enterprises or companies are hereinafter jointly and severally referred to as ‘Selznick’. By an ‘independent set-up’ as that term is used herein is meant any deal or arrangement as a result of which there will be produced or financed or distributed a motion picture and from which deal or arrangement there will accrue to ourselves or to Selznick sums of money, proceeds, bonuses, shares of profit, or other consideration, other than the usual commissions normally payable to us as commission by our clients.' (c) Selznick guaranteed that Henigson's contingent compensation should amount to not less than $200 per week ‘as a non-repayable advance against such contingent compensation.’

The agreement provided that the contingent compensation should be computed on an annual basis; the aggregate compensation payable was not to exceed $104,000 per annum; in computing the amount of contingent compensation no deduction was to be made for Selznick's ordinary and current expenses connected with the operation of the agency business or for extraordinary legal or other expenses incurred by Selznick in connection with independent setups unless Henigson had been consulted with respect to the incurring of such expenses and had consented thereto; if Henigson were required to render services outside the City of Los Angeles he was to receive his expenses in addition to his fixed and contingent compensation; while rendering services in and around Los Angeles he was to receive an expense allowance of not to exceed $100 per week; the agreement was deemed to have commenced January 1, 1942; it might be terminated by either party at any time; notwithstanding such termination Henigson's right to contingent compensation should extend beyond the date of termination and until Selznick had received all commissions and other considerations in any form from all independent setups.

Henigson performed services under the agreement until December 31, 1942, when he terminated his employment with the consent of Selznick. There was no claim on the part of Selznick during his lifetime nor on the part of the executors that Henigson had failed to perform his duties in a manner satisfactory to Selznick.

In the absence of any evidence on the subject the court found (1) that notice of the employment of Henigson by Selznick or notice of the agreement was never given to the Labor Commissioner, (2) that such employment was never approved by the commissioner, (3) that an application for a license was never filed stating that Henigson had any interest as a profit sharer in the operation of the agency, and (4) that no license was issued to Selznick or to Henigson, or to both of them, to carry on the agency business. The court further found that although Henigson was employed by Selznick in an executive capacity his position was not different from that of any other of Selznick's employees.

As conclusions of law the court declared (1) that from the time of making the employment agreement on May 2, 1942, Selznick had no license from the Labor Commissioner as required by the laws of California to carry on the agency business that he did in fact carry on after that date; (2) that because the business was not being lawfully conducted during the period in which Henigson was its general manager no valid rights, claims or interests were acquired by Henigson during that period to the anticipated fund from which Henigson, if the agreement had been valid, would have been entitled to receive one half as the contingent compensation referred to in the agreement; (3) that the employment agreement between Selznick and Henigson had been terminated and that Henigson had no claim or valid right or cause of action under it against the estate of Selznick or the executors thereof. The judgment rendered was in accord with the conclusions of law.

Appellant contends that the court erred in concluding that there was no valid basis for any fund out of which to pay Henigson's ‘contingent compensation.’ (Henigson had received $500 per week for the year 1942, this being the amount of the salary plus the nonrepayable advance against the contingent compensation guaranteed by Selznick, amounting to a total of $26,000.) Two additional points are argued in the briefs but appellant concedes that they are not open to him if the trial court is sustained on the point above mentioned.

The determination of the question rests upon the applicability of certain provisions of the Labor Code to which we shall refer, especially on the construction to be placed on section 1595 and the pertinence of that section to the contract. Section 1595 reads as follows: ‘If any licensee sells, transfers, or gives away any interest in or the right to participate in the profits of the employment agency without the written consent of the Labor Commissioner the license of the employment agency shall immediately become void and thereupon be surrendered to the Labor Commissioner.’

By the contract Selznick transferred to Henigson an interest in and to the right to participate in the profits of the agency. The Labor Commissioner was not notified of this arrangement and did not give his consent thereto and Selznick's license therefore immediately became void. Since the agency license was void it follows that any act of Selznick purporting to have been performed as an agent and any contract entered into by him as a purported agent or concerning the agency business was void, including his contract with Henigson. A void contract or one against public policy or against the mandate of the statute cannot be used as the foundation of an action. Hooper v. Barranti, 81 Cal.App.2d 570, 184 P.2d 688.

Appellant contends that since the contract between Selznick and Henigson says nothing concerning profits but states that one half of all receipts and revenue received by Selznick from independent setups should be payable to Henigson, the latter provision means gross revenue and receipts rather than profits and consequently is not forbidden by section 1595. This contention overlooks the fact that gross revenue includes all income, profits as well as operating expenses, and that the division of or the right to participate in the gross revenue or receipts of the agency necessarily effected a pro tanto division of or participation in the profits. The greater the withdrawal of gross receipts or revenue the less profits remaining.

Section 1582, subdivision (e), of the Labor Code requires the written application for a license to state the names and addresses of all persons, except bona fide employees on stated salaries, financially interested either as partners, associates or profit shares in the operation of the agency. Section 1586 provides for the renewal of licenses on March 31 of each year, and section 1587 contains the same provisions relating to applications for renewal as are in section 1582(e) concerning original applications. Henigson was not an employee whose only compensation was a stated salary. He received a stated salary but under the agreement it was to be augmented by the contingent compensation of one half of all considerations received by Selznick from so-called ‘independent setups.’

The palpable intent of the legislature in adopting section 1595 was to prevent an agent from evading sections 1582 (e) and 1587 through obtaining a license for himself and then entering into a contract with another person which he would have been required to disclose if it had been in existence when he obtained an original license or a renewal. Selznick did just what section 1595 was designed to prevent. He had entered into his oral arrangement with Henigson in December, 1941. His license was renewed in March, 1942. The contract was reduced to writing (but not signed) in May, 1942. Never did he reveal to the Labor Commissioner that Henigson had any right whatsoever to a portion of the contingent compensation payable to Selznick in connection with the independent setups. When a contract is void by reason of the failure of the parties to comply with the terms of the statute under which it purports to have been made no claim can be enforced under it (Fewel & Dawes, Inc. v. Pratt, 17 Cal.2d 85, 90, at page 91, 109 P.2d 650) and one of the contracting parties is not estopped from denying the validity of the contract.

The case of Warner v. Marchetti, 52 Cal.App.2d 172, 125 P.2d 838, does not sustain appellant's position. In that case a contract between a talent scout and an employment agent was upheld as not being in violation of section 1595 or of subdivision (e) of section 1582 of the Labor Code on the ground that the talent scout was an independent contractor whose work was completed when he introduced a potential artist to the agent; he was not a profit sharer, partner or associate in the business and had no right to participate in the profits.

In the absence of a finding to the contrary it will not be presumed, as contended by appellant, that he was licensed. In fact there is no suggestion or initmation to that effect either in the record or in the briefs. Even though he had had a license his contract would not thereby be validated. Section 1595 requires the consent of the Labor Commissioner to every transfer of an interest in the profits of an agency and no exception is made of a transfer to another licensed agent.

Appellant contends that if his claim is rejected and the executors are permitted to avoid the payment of his contingent compensation the estate will be unjustly enriched to the extent of the amount that Selznick agreed to pay him. Appellant must suffer whatever penalties result from the invalidity of his contract. He was acting in an executive capacity in the Selznick organization. In view of the terms of the contract and of the duties to be performed by him it must be assumed that he had had experience in the motion picture industry and in agency business. He is presumed to have known the law and to have been cognizant of the requirements of the Labor Code to which we have referred. Since he was to receive a large profit from the contract and since he was employed in an executive capacity he should have seen to it that the law was complied with and that the commissioner's approval of the contract was obtained. A void contract is unenforceable. Fewel & Dawes, Inc. v. Pratt, 17 Cal.2d 85, 90, 109 P.2d 650. The doctrine of unjust enrichment will not lift it above the level on which it has been cast by reason of its illegality. Where a statute prohibits the doing of an act the act is void even though the statute does not expressly pronounce it so. A statute prohibiting the making of contracts of a certain character except in a prescribed manner ipso facto makes them void if made in any other way. Smith v. Bach, 183 Cal. 259, 262, 191 P. 14.

It is unnecessary to refer to the other points raised in appellant's briefs since he has conceded that they are not open for consideration unless we agree with him on the question hereinbefore discussed.

Judgment affirmed.

WILSON, Justice.

MOORE, P. J., and McCOMB, J., concur.

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