Charles A. DUGGAN, Plaintiff and Respondent, v. John HASSO, et al., Defendants and Appellants.
In this case we hold that the provisions of section 10136 of the Business and Professions Code, which require any person to be licensed in order to collect compensation for real estate sales services, was designed to protect the public from the unskilled or unscrupulous real estate agent but not to shield a real estate investor from liability for false promises of future partnership profits resulting from joint purchases and sales of certain real estate.
Defendants John Hasso, Elissa, N.V., Pacific Midlands N.V., and Rumba N.V. appeal from a $1,642,908.75 judgment entered on a jury verdict against them. Although we conclude that liability was properly established, we reverse because of error involving accrual and computation of plaintiff Charles Duggan's damages.
I. THE FACTS AND PROCEDURE
Prior to emigrating from Argentina where he was born, plaintiff Duggan practiced law there. In 1969, Duggan became an instructor at Pacific Union College in Napa County. A number of years later, Duggan met Jennifer Hasso who was a student at the college and the daughter of John and Hebe Hasso. At about the same time, defendant John Hasso moved his family to the Napa Valley from the Middle East where he had been a distributor for a number of major American companies. Duggan and the Hassos became social friends after Jennifer introduced him to her parents.
In the spring of 1977, Hasso and Duggan discussed their mutual interests in real estate investment. Duggan told Hasso that he was familiar with the real estate market in Napa County and knew how to subdivide and develop property. Hasso, in turn, told Duggan that he hoped to avoid paying a ten percent broker's commission at the time of purchasing real estate and wanted to work with somebody who would “ride with him.”
As a result of their conversation, Duggan took Hasso to view two potential purchases, the Noonan Winery and the Plateau Ranch. They discussed working together in a partnership arrangement with Hasso providing funds to purchase, maintain and develop properties and Duggan assuming responsibility for locating, evaluating and negotiating the purchase and sale of the properties. They agreed that Hasso would receive an 85 percent interest and Duggan a 15 percent interest in the capital of the partnership and in the partnership profits. They did not agree at that time on further details of the arrangement, such as the meaning of “capital.” However, by promising to loan Duggan $50,000 for living expenses (after Duggan indicated that his partnership responsibilities would require him to take a leave of absence from his teaching duties), Hasso demonstrated his own belief that they had formed a working relationship.
Shortly thereafter, Hasso left on a trip to the Middle East. While he was away, Hasso maintained communications with Duggan regarding the progress of Duggan's activities. Based on those communications, Duggan negotiated the purchase of the Noonan Winery and Plateau Ranch properties. Despite the fact that the properties were being acquired as part of the joint undertaking, the purchase contracts Duggan executed indicated that title was to be taken in his name, rather than in the name of both men. However, when escrow closed, title to the winery property was taken in the name of Hebe Hasso and the ranch title was taken in the name of Kim Susan Hasso, one of the Hassos' daughters.
During his overseas trip, John Hasso obtained tax advice from an English attorney who suggested that he form a corporation in the Netherlands Antilles, a tax haven, and take title to the properties being purchased in the name of that entity. Based on that advice, Hasso incorporated an entity he named Elissa, N.V., and later had title to the Plateau Ranch transferred to it from his daughter. When Elissa was liquidated in 1979, the assets held in its name were transferred to Pacific Midland N.V. and Rumba, N.V., two other Netherlands Antilles corporations that were nominally owned by John Hasso's mother-in-law, but which were actually managed and controlled by Hasso.
While Hasso was still outside the United States, Duggan located several more properties for possible acquisition, the Watts property, the Valley View property and two Lake Tahoe condominiums. When Hasso returned, he agreed that Duggan should ask attorney George Humphreys to prepare a formal partnership agreement. Although Duggan had never been admitted to practice law in California, he and Humphreys had previously formed a partnership in which Duggan purported to be authorized to render international legal advice.1 Hasso and Duggan later met in Humphrey's law office and executed a memorandum of understanding concerning their joint undertaking.2 Humphreys, who was supposedly representing Hasso's interests, told Hasso that the memorandum was a temporary, incomplete, document because it did not identify the property involved. Duggan mentioned that future acquisitions would require separate joint venture agreements and expressed his concern that the memorandum did not reference Hebe Hasso or Elissa, N.V. He was also concerned that the meaning of partnership “capital” was not defined.
In the months which followed execution of the memorandum of understanding, the previously identified properties (Watts, Valley View, Lake Tahoe) were purchased. Two other properties, Trancas Avenue and Main Street, were also acquired. Title to the Lake Tahoe condominiums was taken in Hebe Hasso's name, while all the other properties were purchased in the name of Elissa, N.V. Hasso and Duggan agreed that Duggan was to receive a 15 percent interest in the five properties which he had located and negotiated to purchase. In the case of the Trancas Avenue and Main Street properties, they agreed that Duggan would receive lesser interests (5 and 10 percent, respectively) because they were located by Hasso. The total amount paid for all of the properties was $1,649,355.08.
About five months after the memorandum of understanding was executed, Duggan presented Hasso with a draft joint venture agreement that had been prepared by attorney Humphreys. In addition to Duggan and Hasso, Elissa, N.V. was named as a party to the agreement. It provided that no party had the right to withdraw capital from the venture without the written consent of the other parties. Blanks were left in the draft agreement so that the properties it covered could be identified and other blanks were left for the percentage interests in capital and income held by each party. Hasso told Duggan that he found the agreement too complicated and declined to sign it. However, he agreed to put Duggan's name “in title for 15 percent on the property.” Several weeks after Duggan and Hasso discussed the draft agreement, Hasso wrote to Duggan, describing their past arrangement as one of “business partners.” In the letter, Hasso informed Duggan that he saw no need to come to a proposed meeting to discuss the partnership agreement because he, Hasso, was terminating their relationship.
Duggan later filed a complaint naming John Hasso, Hebe Hasso, Kim Susan Hasso, and Elissa, N.V. as defendants. He requested general and punitive damages based on a fraud claim and sought dissolution and an accounting of the partnership alleged to have been formed by oral agreement. Prior to trial, Duggan amended his pleading in order to name Pacific Midland, N.V. and Rumba N.V. as additional defendants. He also added a quantum meruit claim for the reasonable value of his services. The claims against the Hassos' daughter were dismissed prior to trial.
At trial, Duggan presented evidence from which the jury could infer that defendant Hasso's net worth was in excess of $10 million. The legal claim (fraud) was tried to a jury while the equitable claims were simultaneously tried by the court. Duggan prevailed on both his fraud theory and on his quantum meruit theory.
By its unanimous general verdict, the jury found that Hasso and the three Netherlands Antilles corporations had committed intentional fraud. It awarded Duggan $541,359 in general and $1,101,549.75 in punitive damages. The jury also found against Hasso on his claim against Duggan.
With regard to Duggan's partnership dissolution and accounting requests, the court found that despite Duggan's and Hasso's intentions to form a partnership or joint venture, no such relationship had ever arisen because, among other things, they had failed to agree upon the percentage of profits and losses assigned to each. However, it found that the parties had both acted in reliance on Hasso's promise of partnership profits. It also found that the memorandum of understanding (1) had been tainted by Humphrey's conflict of interest in purporting to represent Hasso while representing the interests of Duggan, (2) constituted an agreement to agree, and (3) was executed by Hasso (a) without a clear understanding of its consequences and (b) based on his belief that a complete agreement would be executed later. It ruled, therefore, that there was nothing to dissolve or subject to an accounting.
Finding that it would be unjust and inequitable for Hasso to retain the benefit of Duggan's efforts, the court awarded Duggan $156,435 on his quantum meruit claim. It reached its determination of the reasonable value of Duggan's services by taking judicial notice of the fact that 10 percent of the sale price was a commonly used brokerage commission for sales of unimproved property. (With respect to the Trancas Avenue property, the court used a 5 percent factor.) In response to defendants' contention that Duggan could not recover on his quantum meruit theory because he was not licensed as a real estate broker, the court found that plaintiff had acted with the intention of becoming a partner or joint venturer with defendant Hasso. It also found that the parties intended to form a partnership and had taken steps to do so. Based on those findings, the court ruled that Duggan had not engaged in activities falling within the real estate licensure requirements and was entitled to recover based on the exception to those requirements discussed in Claudine v. West (1952) 109 Cal.App.2d 726, 241 P.2d 580. Finally, the court also found that Elissa, N.V., Pacific Midlands N.V. and Rumba N.V. were John Hasso's alter egos.
Duggan elected to have judgment entered on the jury's fraud verdict. Based on defendants' request for a statement of decision, the court directed Duggan's counsel to prepare a proposed statement addressing those claims and issues the court had decided. Entry of judgment was deferred until the final statement of decision was entered. After judgment was entered, defendants brought motions for a new trial and to vacate the judgment. Although the court expressed its personal disagreement with the fraud verdict returned by the jury, it ruled that there was sufficient evidence to support the verdict and concluded that there was no necessary conflict between its statement of decision and the jury's verdict. Accordingly, it denied defendants' motions. Defendants filed a timely notice of appeal from the judgment.
A. Plaintiff's Fraud Claim Was Not Barred by His Lack of a Real Estate Broker License.
Defendants contend that the judgment must be reversed because Duggan, an individual not licensed as a real estate broker, was improperly permitted to recover on what amounts to a claim for real estate broker services. We disagree. Although the argument might have some plausibility in the context of the trial court's quantum meruit award, it makes no sense with regard to plaintiff's fraud claim.
It is the general rule that individuals who engage in acts defined in the Real Estate Act may not maintain or recover on claims for services rendered unless they are properly licensed.3 However, there are several well-settled exceptions to the licensing requirements. A person who acts solely as a finder is exempt. (Tyrone v. Kelley (1973) 9 Cal.3d 1, 8, 106 Cal.Rptr. 761, 507 P.2d 65; see also Tenzer v. Superscope (1985) 39 Cal.3d 18, 31, 216 Cal.Rptr. 130, 702 P.2d 212.) More importantly, a person acting as a principal, rather than as agent for another, is also exempt. (Bus. & Prof.Code, § 10131; 4 Jolton v. Minister Graf & Co. (1942) 53 Cal.App.2d 516, 520, 128 P.2d 101 [real estate transactions]; cf. Tufts v. Mann (1931) 116 Cal.App. 170, 2 P.2d 500 [real estate transactions]; Epstein v. Stahl (1959) 176 Cal.App.2d 53, 1 Cal.Rptr. 143 [unlicensed contractor defense where plaintiff had been acting as a principal].) “The purpose of the Real Estate Act is not to raise revenue, but to protect the public [citation], and therefore it does not by its specific terms require a person to be licensed in order to act with regard to his own property or affairs.” (Williams v. Kinsey, (1946) 74 Cal.App.2d 583, 592, 169 P.2d 487.)
As we have already noted, here, the trial court found that plaintiff did not engage in activities requiring licensure, relying upon Claudine v. West, supra, 109 Cal.App.2d 726, 241 P.2d 580. Although the judgment which was entered was not based on that finding because plaintiff elected fraud damages as his remedy, the trial court was the only trier of fact to consider that issue.
Defendants' efforts to distinguish Claudine v. West, supra, 109 Cal.App.2d 726, 241 P.2d 580 are unpersuasive. In that case, Claudine was the owner of two residential buildings that rented for $26 per month. He orally agreed that West would attempt to procure the sale or lease of the property to a federal agency. They agreed that if the rentals on the property were increased through West's actions, they would be divided between the two. West's efforts resulted in the agency reconstructing the buildings and leasing them for $165 per month. In order to comply with a lease provision prohibiting the lessor from having secured the lease by promising to pay a brokerage fee or commission, Claudine represented that West was his partner.
For the first three years, West received 40 percent and Claudine received 60 percent of the rents pursuant to their oral agreement. They then executed a written agreement to the same effect which also granted West a right of first refusal if the property was sold and a percentage interest in the sales price if he elected not to exercise the right of first refusal. After six years, Claudine filed an action to cancel the contract, to recover the funds that he had paid to West under the oral and written agreements and for a declaration that West had no interest in the property. Among other things, Claudine argued that West had acted as an unlicensed real estate broker, thereby barring any compensation for his efforts.
The Court of Appeal concluded that West was not barred from receiving compensation because the relationship between the parties was either a joint venture or a partnership, there was no fraud or unjust enrichment on West's part, Claudine received all that he had bargained for, the percentage paid to West was not typical of a broker's normal commission and the increased rentals would not have been received in the absence of Claudine's representation that West was his partner. It held, therefore, that West had not violated the real estate licensing law.
In the present case, the jury found defendant Hasso committed intentional fraud. To permit him to ignore his promise to pay plaintiff 15 percent of the profits of the proposed partnership would unquestionably result in Hasso's unjust enrichment. Here, as in Claudine, the percentage of profit to be paid to plaintiff was not typical of a broker's compensation. By its general fraud verdict, the jury implicitly found that Duggan acted in reliance on Hasso's promise of a partnership interest. Just as in Claudine, where Claudine represented that West was his partner, here Hasso wrote to plaintiff Duggan and characterized their relationship as “business partners,” long after all seven properties were acquired.5 When fairly analyzed, the present case is very close to the facts of Claudine and not dissimilar as defendants suggest. These parties each acted as principals and intended to realize profits from their joint activities, not from the one-time purchase or sale of a property as is frequently the case in an owner-broker relationship.
This case is also distinguishable from Weber v. Tonini (1957) 151 Cal.App.2d 168, 311 P.2d 132; where the parties explicitly provided that defendant Tonini was the agent of plaintiff Weber for purposes of sale, exchange or rental of the subject property. Here, the parties intended to create a partnership, not merely an agency, and defendant himself described the relationship as one of “business partners.” In addition, in this case, Duggan executed many of the operative documents in his own name. This was not a mere owner-broker relationship.
We are sensitive to the possibility that creative attorneys and parties may seek to overcome the bar of section 10136 by routinely alleging fraud. However, of equal concern is the need to preclude those familiar with the real estate licensing law from seeking out unlicensed individuals and inducing them to expend time and effort in locating properties under a promise of a future percentage of partnership profits from the acquired properties, all the while intending to be able to lawfully refuse to compensate the individuals who performed such service based on promises of partnership. Clearly, section 10136 was never intended to bar an action to recover damages for this type of obviously fraudulent scheme.
Here, plaintiff was acting as a principal as to several of the properties where he signed contracts and/or escrow instructions and/or closing documents in his own name (the Noonan Winery, the Plateau Ranch, and the two Lake Tahoe condominiums). In the case of the four remaining properties (Watts, Main Street, Valley View and Trancas Avenue), plaintiff executed the purchase contracts, escrow instructions and/or closing documents under a valid power of attorney from Elissa, N.V., defendant Hasso's alter ego. That power of attorney granted plaintiff broad and sweeping authority to act on behalf of Elissa, N.V., Hasso's alter ego, unlike the limited agency powers usually delegated to a real estate broker.
Contrary to the customary situation in which a real estate broker is compensated by a percentage commission at the time of the initial acquisition or sale based upon the sale price of the real property in question, here plaintiff was not to be compensated for his various activities until after the acquired properties were sold and then only if the properties were sold for a profit. Further, the percentage of profits promised to plaintiff in order to induce his activities was larger than real estate commission percentages which are customary in the brokerage business for such properties. Unlike the typical real estate broker who is paid his or her commission whether profits are generated or not, here plaintiff was intended to share in the risk that there would be no profits at all. Finally, the loan of substantial funds by Hasso to Duggan for living expenses was atypical of a normal broker-client relationship. In sum, with regard to his fraud claim, plaintiff was not seeking a real estate broker commission based on broker activities—he was seeking damages arising out of a fraudulent promise on which he relied to his detriment in acting as a principal.
B. There Was No Necessary Conflict Between the Jury Verdict and the Court's Statement of Decision.
Defendants argue that the trial court should have granted their post-trial motions based on the purported conflict between the jury's fraud verdict and the trial court's statement of decision. The contention is without merit.
The jury clearly determined that defendant Hasso knowingly and falsely promised plaintiff Duggan a partnership interest to induce his actions. That conclusion is not inconsistent with the court's additional determination that the parties did not take sufficient steps to actually create the promised partnership. We find no error in this regard.
C. Plaintiff's Compensatory Damages Were Improperly Computed.
We summarily reject defendants' assertion that plaintiff's damages were limited to a percentage of the value of the properties in question at the time defendant Hasso terminated his relationship with plaintiff. Weber v. Tonini, supra, 151 Cal.App.2d 168, 311 P.2d 132, and Spielberg v. Granz (1960) 185 Cal.App.2d 283, 8 Cal.Rptr. 190, cited by defendants, each involved contract claims based on claimed breaches of alleged joint venture or partnership agreements. Thus, they are inapposite to the unique facts and fraud theory of this case. If the law were as defendants suggest, a party intending to commit fraud under facts similar to these could minimize or eliminate a plaintiff's damages resulting from the fraud simply by giving notice as soon as the real estate purchases were complete. Such a party could thereafter hold the subject property for several more years before selling it and achieving a significant net profit, thus further successfully benefitting from their fraudulent conduct. This is not the law.
While we conclude that plaintiff was entitled to recover fraud damages based on the injuries he suffered as a result of defendants' deception, we hold that the judgment must be reversed because certain of the damages evidence was improperly admitted over defendants' valid objections. Plaintiff Duggan repeatedly maintained that he was entitled to 15 percent of the net profits from the sales of each of the properties he located and a lesser percentage of the profits for the remaining properties. Nevertheless, Duggan was permitted to introduce evidence regarding the value of the Noonan Winery property at the time of trial, a date several years after that property had actually been sold. The value of that property after it was sold was clearly irrelevant to the amount of damages suffered by Duggan when defendant Hasso refused to pay him the promised 15 percent of the net sale profits. Similarly, although one-half of the Trancas Avenue property had been sold before trial, Duggan was improperly allowed to introduce evidence regarding the value of the entire property at the time of trial. For this reason, we must reverse the judgment and remand for a retrial of the damages issues.
We further conclude that the question of the amount of compensatory damages related to the properties that had not yet been sold was also erroneously determined because of the unique facts of this case. The measure of damages in a fraud action is the difference between what the defrauded party has received and that which he would have received and had a right to expect, but for the fraud. (Civ.Code, §§ 1709, 3333.) 6 This was not a case of anticipatory breach of contract in which Duggan could seek future damages at trial for sales that had not yet occurred. Even under Duggan's theory of the case, defendant Hasso was free to hold the subject properties for as long as he desired without being required to sell them in order to determine whether a profit would be earned. (This was particularly emphasized by Hasso's refusal to execute the proposed written partnership agreement which would have granted plaintiff rights in this regard.) Only upon the sale of the properties did Duggan expect to receive a percentage of the net profits from those sales. In short, the only fraud damages incurred by the time of trial were those which arose from Hasso's refusal to pay the promised portion of the net profits resulting from the sale of the Noonan Winery and Trancas Avenue properties. Damages resulting from the anticipated refusal of Hasso to pay Duggan the promised portion of the expected net profits resulting from the sale of the other properties will not accrue until those properties are, in fact, sold for a profit, if ever. (See Block v. Tobin (1975) 45 Cal.App.3d 214, 220, 119 Cal.Rptr. 288 [“Anticipated profits cannot be recovered if it is uncertain whether any profit would have been derived at all.”].)
Finally, we determine that it is not necessary for us to directly address defendants' assertion that the punitive damages awarded by the jury were excessive. Punitive damages should bear a reasonable relationship to the amount of compensatory damages. (Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc. (1984) 155 Cal.App.3d 381, 390, 202 Cal.Rptr. 204.) Because we hold that the amount of compensatory damages was erroneously determined, we conclude that the award of punitive damages should also be reversed. The jury awarded substantial compensatory damages based, at least partially, on a premature, anticipated, damages theory. The award of punitive damages might have been significantly less if the jury had based its assessment solely on the amount of compensatory damages resulting from the sales of the Noonan Winery and Trancas Avenue Properties. We conclude that the interests of justice will be best served if a redetermination of all the damages is made on remand.7
The judgment is reversed with directions to retry all of the damages issues consistent with the matters set forth herein.
I respectfully dissent.
The message in my colleagues' opinion is that to circumvent section 10136 of the Business and Professions Code, one need not be a partner or a principal, one need only act like one.
The purpose of Business and Professions Code section 10136 is to protect the public from the perils incident to dealing with incompetent or untrustworthy real estate practitioners. (Cline v. Yamaga (1979) 97 Cal.App.3d 239, 246, 158 Cal.Rptr. 598; Schantz v. Ellsworth (1971) 19 Cal.App.3d 289, 292–293, 96 Cal.Rptr. 783.) Thus, pursuant to this section and with the limited exceptions noted by the majority opinion, any agreement employing an unlicensed person to act as a real estate broker is illegal, void and unenforceable; (Fellom v. Adams (1969) 274 Cal.App.2d 855, 862, 79 Cal.Rptr. 633; Estate of Prieto (1966) 243 Cal.App.2d 79, 85, 52 Cal.Rptr. 80) until today.
In contrast to the majority, I find the facts in Weber v. Tonini (1957) 151 Cal.App.2d 168, 311 P.2d 132, rather than those in Claudine v. West (1952) 109 Cal.App.2d 726, 241 P.2d 580, closer to the circumstances in the present case. Of more significance, however, is Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 216 Cal.Rptr. 130, 702 P.2d 212, wherein our Supreme Court held that despite the statute of frauds (Civ.Code, § 1624, subd. 5), a finder may maintain a cause of action for fraud against one who makes an oral promise to pay a finder's fee without intending to do so. It is significant that Tenzer failed to extend this cause of action to cover those circumstances where the plaintiff is acting as a real estate broker without a license.
This may be because of the strong public policy to protect the public from unscrupulous real estate dealers. For instance, Charles Duggan testified that John Hasso did not want to pay a brokerage fee “up front.” Yet Duggan later admitted that he knew the customary practice was for the seller of real estate to pay the brokerage commissions. Thus, Duggan was aware that Hasso would not have to pay a broker's commission when purchasing the properties. In addition, Duggan apparently entered into similar business relationships with other parties and, when these parties failed to pay the percentage of capital and profits to which Duggan claimed he was entitled, he filed similar lawsuits to the present case. I think it is precisely this type of activity that the California Legislature was seeking to avoid when it mandated licensing for individuals rendering real estate services.
The majority opinion expresses its concern about “the need to preclude those familiar with the real estate licensing law from seeking out unlicensed individuals and inducing them to expend time and effort in locating properties under a promise of a future percentage of partnership profits from the acquired properties, all the while intending to be able to lawfully refuse to compensate the individuals who performed such service based on promise of partnership.” (Majority opn., ante, p. 321.) However, there is scant evidence that Hasso was familiar with licensing law, sought out Duggan or had any such intention. Although Duggan in some transactions negotiated as a principal, he was not a principal and no final deeds reflect his having obtained such capacity. Reliance on the fact that Elissa, N.V. granted Duggan broad powers of attorney is equally meaningless, since such an instrument merely gives authority to act as an agent. (1 Witkin, Summary of Cal. Law (8th ed. 1973) Agency and Employment, § 120, p. 730.)
While it is true that a partnership may be based on one partner furnishing capital and the other partner furnishing services (see Epstein v. Stahl (1959) 176 Cal.App.2d 53, 57, 1 Cal.Rptr. 143), where, as here, the trier of fact found that no partnership or joint venture existed because of the failure of the parties to agree on essential terms, the unlicensed person performing brokerage services should not be able to recover damages by claiming the defendant promised to make him a partner.
For these reasons I would reverse the judgment.
1. Duggan later enrolled in Boalt Hall School of Law at the University of California, Berkeley, and received a Master of Laws degree in December, 1981.
2. The memorandum of understanding stated:“THIS MEMORANDUM OF UNDERSTANDING is entered into on September 30, 1977, at [illegible], California.“1. The parties to this agreement are JOHN HASSO and CHARLES A. DUGGAN.“2. The parties have been conducting business as an oral partnership and contemplate in the future entering into a more formal written partnership agreement.“3. The purpose of the partnership is to engage in the business of investment in real property and other assets as agreed upon from time to time.“4. CHARLES A. DUGGAN has been and will continue to act as the agent of JOHN HASSO and advise JOHN HASSO on international legal matters. JOHN HASSO acknowledges that CHARLES A. DUGGAN is not licensed to practice law in the State of California nor to render real estate nor investment advice. CHARLES A. DUGGAN shall not be required to render full-time services, but shall render such services as may be necessary or advisable to accomplish the purposes of the partnership.“5. JOHN HASSO shall provide all capital, whether by way of capital investment or by loans, required by the partnership from time to time, subject to the continuing agreement of JOHN HASSO. JOHN HASSO shall have the right to withdraw such capital at any time without notice.“Profits of the partnership shall, after reimbursement of expenses, be divided in the ratio of Eighty-Five Percent (85%) (JOHN HASSO) and Fifteen Percent (15%) (CHARLES A. DUGGAN).“6. The participation of the partners shall be on a non-exclusive basis and either partner shall have the right to deal with others and to deal among themselves on a different basis as specified from time to time by them. In the absence of express written agreement to the contrary, the provisions of this memorandum shall control.“7. The partnership shall retain a qualified accountant who shall maintain partnership books and written statements of account shall be submitted to both partners from time to time for the approval of each.“8. Except as provided herein, neither partner shall be liable for further assessments.“9. Neither party shall assign his interest herein of any portion thereof.”
3. Business and Professions Code section 10136 provides:“No person engaged in the business or acting in the capacity of a real estate broker or a real estate salesman within the State shall bring or maintain any action in the courts of this State for the collection of compensation for the performance of any of the acts mentioned in this article without alleging and proving that he was a duly licensed real estate broker or real estate salesman at the time the alleged cause of action arose.”
4. We note that when Business & Professions Code, section 10133 was rewritten in 1985 (Stats.1985, ch. 476) the amendment eliminated certain language which had explicitly stated the acting-as-a-principal exception to the licensing requirement. Former section 10133 subdivision (a) provided: “The definitions of a real estate broker and a real estate salesman as set forth in sections 10131 and 10132, do not include the following: (a) Anyone who directly performs any of the acts within the scope of this chapter with reference to his own property or, in the case of a corporation which through its regular officers receiving no special compensation therefor, performs any of the acts with reference to the corporation's own property.” (Emphasis added.)By contrast, as revised, section 10133, subdivision (a)(1) now provides:“(a) The acts described in section 10131 are not acts for which a real estate license is required if performed by: (1) A regular officer of a corporation or a general partner of a partnership with respect to real property owned or leased by the corporation or partnership, respectively, or in connection with the proposed purchase or leasing of real property by the corporation or partnership, respectively, if the acts are not performed by the officer or partner in expectation of special compensation.”It is the general rule that the omission of language from a statute by amendment will be viewed as evidence of legislative intent to repeal the rule or procedure encompassed within the omitted language. (Froid v. Fox (1982) 132 Cal.App.3d 832, 837, 183 Cal.Rptr. 461.) However, we do not interpret the omission of the reference to dealing with one's own property in the 1985 amendment as evidence of legislative intent to repeal the acting-as-a-principal exception to the real estate licensing law for two reasons. First, after section 10133 was rewritten, section 10131 of the Business and Professions Code still defined a real estate broker (within the meaning of the real estate licensing law) as one who performs the specified acts “for another or others.” By implication, a person dealing with his own affairs still falls outside section 10131. Second, the Legislative Counsel's digest which accompanied Senate Bill No. 1105 (which amended section 10133) provided: “Under existing law, it is unlawful for any person to act as a real estate broker or salesperson without obtaining a real estate license. Existing law also provides specific exceptions from those provisions regarding [acts] relating to a person's own property. [¶] This bill would add an exemption for a general partner of a partnership dealing with partnership property, as specified.”Thus, in our view, the 1985 amendment was simply an effort to make it clear that a general partner of a partnership dealing with partnership property falls within the acting-as-a-principal exception. The omission of the “own property” language appears to have been nothing more than a drafting oversight and was not an effort to change existing law.
5. Defendants argue that before the Claudine theory of recovery may apply, it is necessary for a plaintiff to prove that a partnership or joint venture actually was formed. Although we have found no previous case identical to this one, we do not believe the existence of a fully formed partnership or joint venture is necessary in a fraud case as contrasted with a breach of contract claim. Here, through its finding of intentional fraud, the jury implicitly found that Hasso never intended to form a joint venture or partnership despite his representation to Duggan. In such circumstances, requiring a plaintiff to show the existence of a partnership or joint venture would permit the unscrupulous investor to totally shield himself from liability for his intentional fraud.
6. Contrary to defendants' suggestion, the fraud damages in this case were not limited by the “out-of-pocket” measure of Civil Code section 3343 dealing with the purchase, sale, or exchange of property. Although property sales were involved in this case, defendants' fraud was not due to misrepresentations which induced plaintiff to buy property; the fraud encompassed a much broader set of circumstances. Thus, the “benefit of the bargain” measure of damages (Civ.Code, §§ 1709, 3333), recognized by defendants as being “closely akin to that which the wronged party would have received had they simply sued for breach of contract,” was the appropriate measure of damages.
7. Of course, in setting the amount of an appropriate punitive damages award on retrial, a jury will be free to consider the value of all the properties still owned by Hasso for purposes of assessing his net worth.
SABRAW, Associate Justice.
ANDERSON, P.J., concurs.