Learn About the Law
Get help with your legal needs
FindLaw’s Learn About the Law features thousands of informational articles to help you understand your options. And if you’re ready to hire an attorney, find one in your area who can help.
BERNASCONI COMMERCIAL REAL ESTATE, Plaintiff and Appellant, v. OMNI HEALTH PLAN, INC., Defendant and Respondent.
In this case we are called upon to decide whether a real estate broker may bring an action for breach of contract, prior to his performance of the contract, when he was unlicensed when the contract was executed, but licensed at the time the alleged breach occurred. The trial court accepted the argument of defendant Omni Health Plan, Inc. that the contract was void and unenforceable and granted its motion for summary judgment. The broker, plaintiff Bernasconi Commercial Real Estate, appeals from the subsequent judgment in favor of defendant. We find the contract was not void and reverse the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff brought suit against CB Commercial and defendant for interference with contract and breach of contract. The complaint alleged plaintiff and defendant entered into a written agreement, the Exclusive Authorization to Locate Space. The agreement ran from March 1, 1991, through November 30, 1991, and gave plaintiff the exclusive right to locate commercial office space for defendant in Stockton. The first two causes of action were against CB Commercial and Doe defendants for interference with contract. The third cause of action alleged defendant breached this agreement by refusing to enable plaintiff to perform. The fourth cause of action alleged that by refusing to enable plaintiff to perform, defendant breached the implied covenant of good faith and fair dealing.
In an amended answer, defendant asserted as an affirmative defense that the contract was illegal, void, and unenforceable because plaintiff was not a licensed real estate broker at the time of contracting.
Defendant then moved for summary judgment or summary adjudication. In its separate statement of undisputed facts, defendant set forth that the agreement was entered into before March 11, 1991; a broker's license was not issued to plaintiff until April 24, 1991; defendant leased space at Paragon Plaza in September of 1992; this property was not presented to defendant until after January of 1992; and plaintiff did not propose the Paragon Plaza space and never submitted any offer to lease. Defendant argued that since plaintiff was not licensed as a real estate broker upon entering into the contract, the contract was void. There was no contract to breach nor any contract to which a covenant of good faith and fair dealing attached.
Plaintiff did not dispute any of defendant's undisputed facts. Plaintiff did offer additional facts, claiming defendant repudiated the agreement on June 3, 1991, and again on October 22, 1991, before the expiration of its term. In a declaration, Ronald Bernasconi explained he passed his examination for a broker's license on May 16, 1990. He completed an application and a fingerprint card and sent in the fee. On March 26, 1991, the Department of Real Estate wrote him, indicating a fictitious business name statement was required. After he prepared and filed this statement, a license was issued on April 24, 1991. Plaintiff argued the contract was not void if the cause of action for breach of contract arose after the license was obtained. Plaintiff asserted there was a factual issue on this point.
The trial court found plaintiff was not licensed when the contract was entered into so the contract was illegal, void, and unenforceable. It granted the motion for summary judgment and judgment was entered for defendant.
DISCUSSION
“The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ.Proc., § 437c, subd. (c).) Defendant's motion for summary judgment was based on undisputed facts; it raised the issue of the legal effect of these undisputed facts.
Business and Professions Code section 10130 provides, “It is unlawful for any person to engage in the business, act in the capacity of, advertise or assume to act as a real estate broker or a real estate salesman within this state without first obtaining a real estate license from the department.” The agreement between plaintiff and defendant gave plaintiff the exclusive right to locate commercial office space and to negotiate terms acceptable to defendant. This activity requires a real estate broker's license. (Bus. & Prof.Code, § 10131, subd. (b).) Anyone who acts as a real estate broker without a license may be punished by a fine of up to $1,000 and/or six months in jail, or a fine of up to $10,000 if the offender is a corporation. (Bus. & Prof.Code, § 10139.)
It is undisputed that at the time plaintiff entered into the agreement, plaintiff did not have a real estate broker's license. Thus, plaintiff acted unlawfully in entering into the contract for real estate broker services at that time. We must determine the effect on the contract of that initial illegal act.
As a general rule, contracts made in violation of regulatory statutes are void. (Asdourian v. Araj (1985) 38 Cal.3d 276, 291, 211 Cal.Rptr. 703, 696 P.2d 95; Davenport & Co. v. Spieker (1988) 197 Cal.App.3d 566, 569, 242 Cal.Rptr. 911.) Defendant seizes upon this general rule and cites several cases which state that a contract entered into by an unlicensed real estate broker is void and unenforceable. (Estate of Prieto (1966) 243 Cal.App.2d 79, 85, 52 Cal.Rptr. 80; Richardson v. Roberts (1962) 210 Cal.App.2d 603, 606, 26 Cal.Rptr. 829; Abrams v. Guston (1952) 110 Cal.App.2d 556, 557, 243 P.2d 109; Wise v. Radis (1925) 74 Cal.App. 765, 771, 242 P. 90; see also Hoar v. Tuley (1970) 12 Cal.App.3d 344, 348, 90 Cal.Rptr. 559; Weber v. Tonini (1957) 151 Cal.App.2d 168, 171, 311 P.2d 132.) In all of these cases the broker was never licensed.
There are, however, exceptions to the rule that a contract entered into in violation of a regulatory statute is void. The rule will not be enforced when the penalties imposed by the Legislature for violation of the statute exclude by implication the additional penalty of holding the contract void. (Asdourian v. Araj, supra, 38 Cal.3d at p. 291, 211 Cal.Rptr. 703, 696 P.2d 95; Davenport & Co. v. Spieker, supra, 197 Cal.App.3d at p. 569, 242 Cal.Rptr. 911.) Further, in certain circumstances the contract will be enforced to avoid unjust enrichment to the defendant at the plaintiff's expense. (Ibid.)
Here, plaintiff did not perform the contract. The complaint alleges defendant breached the contract by preventing plaintiff's performance. Since there has not been full performance, plaintiff cannot claim defendant was unjustly enriched at his expense. Therefore, we must determine whether the statutory scheme for licensing real estate brokers excludes, expressly or by implication, the additional penalty of finding plaintiff's contract void.
In the context of licensing statutes, when the statute provides penalties for noncompliance, courts will not impose additional penalties. (R.M. Sherman Co. v. W.R. Thomason, Inc. (1987) 191 Cal.App.3d 559, 565, 236 Cal.Rptr. 577.) “The courts will not impose penalties for noncompliance with statutory provisions in addition to those that are provided expressly or by necessary implication. [Citations.]” (City Lincoln–Mercury Co. v. Lindsey (1959) 52 Cal.2d 267, 276, 339 P.2d 851.) Before declaring a contract made in violation of a statute void, we must examine the statute as a whole to determine whether the Legislature intended that a contract in contravention of it should be void. (Vitek, Inc. v. Alvarado Ice Palace, Inc. (1973) 34 Cal.App.3d 586, 591–592, 110 Cal.Rptr. 86.)
In Vitek, supra, 34 Cal.App.3d 586, 110 Cal.Rptr. 86, a contractor executed a contract to serve as general contractor in the construction of an ice rink. The contractor signed the contract on Friday; its license was renewed the following Monday when the contractor began work. Since the contractor had a license “at all times during performance” of the contract, he could bring a suit to recover his compensation under Business and Professions Code section 7031. That section 7031 had been satisfied did not resolve whether the contractor could recover under the contract. The court considered the additional question of whether the contract was illegal and void, and therefore unenforceable, because it was executed by an unlicensed contractor. (Id. at p. 590, 110 Cal.Rptr. 86.) The court noted many cases, in dicta, and at least one text writer stated a contract executed by an unlicensed contractor in violation of the law was void. The court rejected that view: “We are convinced, however, that sort of broad statement is improper where the Legislature itself has defined the sanctions.” (Id. at p. 591, 110 Cal.Rptr. 86.) In finding the contract valid, the court noted the prohibited act was malum prohibitum, not malum in se. It reasoned the contract would be void only if the Legislature intended such result to deter the prohibited act. (Id. at p. 593, 110 Cal.Rptr. 86.) The court concluded finding the contract void was not necessary to further the policy of the licensing laws. Protection of the public would not be frustrated by allowing recovery under a contract by a qualified and experienced contractor whose only disability was signing the contract the day before it renewed its license. (Id. at p. 594, 110 Cal.Rptr. 86.)
The exception to declaring an illegal contract void when another penalty is provided is predicated on the maxim expressio unius exclusio alterius est (to express one thing is to exclude another). (R.M. Sherman Co. v. W.R. Thomason, Inc., supra, 191 Cal.App.3d at p. 565, 236 Cal.Rptr. 577; Vitek, Inc. v. Alvarado Ice Palace, Inc., supra, 34 Cal.App.3d at p. 593, 110 Cal.Rptr. 86.) There are both criminal and administrative penalties for violation of the real estate broker licensing requirements. (Bus. & Prof.Code, §§ 10139 & 10177.) While the presence of these penalties does not mandate the conclusion that the contract cannot ever be void, we find statutory evidence the Legislature did not intend a contract entered into by an unlicensed broker to be necessarily void. Instead, as with contractors, the Legislature has placed a condition upon recovery. Absent compliance with this condition, as the cases cited by defendant indicate, a contract of an unlicensed broker is void.
The condition is set forth in section 10136 of the Business and Professions Code, which provides: “No person engaged in the business or acting in the capacity of a real estate broker or a real estate salesman within this 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.” (Emphasis added.)
The predecessor to this statute has been described as “an act of grace” permitting recovery when the broker had no license when he entered into the contract but became licensed by the time his cause of action, i.e., his commission was earned, arose. (Wise v. Radis, supra, 74 Cal.App. at p. 772, 242 P. 90.) The predecessor statute was found to limit or modify the rule that would declare the contract void. (Houston v. Williams (1921) 53 Cal.App. 267, 271, 200 P. 55.) “Manifestly the legislature herein undertook to prescribe an essential condition of recovery but limited its operation to the time when the cause of action arose. By implication any earlier period was excluded. It is a reasonable construction of the act to hold that it is unlawful for anyone 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.” (Ibid.) The legislative “act of grace” revives an otherwise illegal contract from the time the license is obtained. Recognizing this revival, a court held a listing contract was not void although the broker had no license at execution, because he had a license when he procured a purchaser. (Radich v. Cernokus (1924) 65 Cal.App. 452, 454, 224 P. 124.)
Under the new version of the statute, a broker has been allowed to recover commissions when he had a license, although he failed to obtain a license for the office from which services were rendered and for the fictitious name used in rendering such services. (Schantz v. Ellsworth (1971) 19 Cal.App.3d 289, 292–293, 96 Cal.Rptr. 783.) A broker was also permitted to recover when he was licensed but the contract was entered into by his unlicensed alter ego. (Estate of Baldwin (1973) 34 Cal.App.3d 596, 605, 110 Cal.Rptr. 189.) In Cline v. Yamaga (1979) 97 Cal.App.3d 239, 158 Cal.Rptr. 598, the broker had a license from 1963 to 1965 when the services were rendered, but the license expired before the commission was payable in 1972 and 1973. The court recognized a literal application of Business and Professions Code section 10136 would bar the broker's action for his commission. (Id. at p. 245, 110 Cal.Rptr. 189.) However, the court declined to apply the statute literally as it “would transform the statute into an unwarranted shield for the avoidance of a just obligation.” (Ibid.) Most recently, a court held a broker entitled to recover his commission because his broker's license, although lapsed at the time he procured the buyer, had been renewed before the sale was consummated and the commission payable. (Estate of Lopez (1992) 8 Cal.App.4th 317, 321, 10 Cal.Rptr.2d 67.)
In rejecting a rigid, literal application of section 10136, the courts look to the purpose of the licensing statutes. “The purpose of the licensing requirement is to protect the public from the perils incident to dealing with incompetent or untrustworthy real estate practitioners.” (Schantz v. Ellsworth, supra, 19 Cal.App.3d at pp. 292–293, 96 Cal.Rptr. 783.) This purpose is deemed satisfied if the broker obtains a license before he renders services. (Id. at p. 293, 96 Cal.Rptr. 783; Estate of Baldwin, supra, 34 Cal.App.3d at p. 605, 110 Cal.Rptr. 189; Cline v. Yamaga, supra, 97 Cal.App.3d at p. 246, 158 Cal.Rptr. 598.)
The statutory scheme for licensing real estate brokers indicates that a contract entered into by an unlicensed broker is not necessarily void and unenforceable, but it is void if the broker never obtains a license. The remaining question is whether the contract is revived only if the broker both obtains a license and performs, or if revival occurs once the license is obtained. Performance presents a stronger case for revival since it implicates concerns of unjust enrichment. Nonetheless, enforcing a contract after the license has been obtained, even in the absence of performance, still serves to carry out the policy of the licensing laws.
Business and Professions Code section 10136 permits a real estate broker to bring an action “for the collection of compensation for the performance of any of the acts mentioned in this article” if he was licensed when the alleged cause of action arose. Defendant reads this statute to permit an action only if the contract has been performed and compensation is due, while plaintiff reads it to permit any action arising after the license was obtained.
Similar language is used in Business and Professions Code section 7031, subdivision (a), which provides in part: “[N]o person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action ․ for the collection of compensation for the performance of any act or contract for which a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, ․” Generally, the term “compensation” denotes sums agreed on for performance. (Grant v. Weatherholt (1954) 123 Cal.App.2d 34, 42–43, 266 P.2d 185.) This section, however, has been held to include actions for breach of contract, including those for nonperformance. (Proffitt & Durnell Plumbing, Inc. v. David H. Baer Co. (1966) 247 Cal.App.2d 518, 520, 55 Cal.Rptr. 764; Currie v. Stolowitz (1959) 169 Cal.App.2d 810, 813, 338 P.2d 208.) Indeed, more recently, a court has construed the term “compensation” in this context to include all damages suffered for breach of a contractual obligation. (General Ins. Co. of America v. St. Paul Fire & Marine Ins. Co. (1974) 38 Cal.App.3d 760, 762, fn. 1, 113 Cal.Rptr. 613.)
We see no reason not to employ this broader definition in construing section 10136. Such an interpretation will promote the purpose of the licensing laws. Only licensed brokers will be able to sue for breach of contract and only for those breaches that occurred after the license was obtained. This interpretation excuses noncompliance only where compliance is accomplished before the broker undertakes those acts for which a license is required. Recovery is denied for any acts performed without the requisite license. This limitation protects the public from the perils of dealing with an incompetent or untrustworthy real estate broker.1 (Schantz v. Ellsworth, supra, 19 Cal.App.3d at pp. 292–293, 96 Cal.Rptr. 783.)
Plaintiff's failure to hold a broker's license upon execution of the contract does not render it necessarily void. Since plaintiff asserts defendant breached the contract after the license was obtained, there is a factual issue whether the contract was then void. Defendant is not entitled to judgment as a matter of law; it was error to grant the motion for summary judgment.
The judgment is reversed. Plaintiff shall recover costs on appeal.
FOOTNOTES
1. In Holm v. Bramwell (1937) 20 Cal.App.2d 332, at page 336, 67 P.2d 114, which was decided when the language of Business and Professions Code section 7031 provided a contractor could not bring an action without alleging and proving he had a license at the time “ ‘the alleged cause of action arose,’ ” the court found a contract executed by an unlicensed contractor was void, without considering whether it was revived by subsequent licensing. Although this case addresses statutory language identical to that in Business and Professions Code section 10136, we question its continued validity in light of the more liberal approach to illegal contracts now used in licensing cases. (See 1 Witkin, Summary of California Law (9th ed. 1987) Contracts, § 452, p. 402.) The court in Vitek suggested that in cases under the old version of the contractor's licensing statute there might be reason to conclude the contract itself was void because the cause of action could arise upon execution, at least in the proper case of an anticipatory breach. (Vitek, supra, 34 Cal.App.3d at p. 591, fn. 5, 110 Cal.Rptr. 86.) In tracing the language of section 7031, the court stated the earlier version requiring a license “at the time the cause of action arose” might mean the time of execution in certain cases. (Id. at p. 594, 110 Cal.Rptr. 86.) We simply note this is not such a case since plaintiff alleges the breach occurred and thus the cause of action arose after the license was issued.
MORRISON, Associate Justice.
SIMS, Acting P.J., and SCOTLAND, J., concur.
A free source of state and federal court opinions, state laws, and the United States Code. For more information about the legal concepts addressed by these cases and statutes visit FindLaw's Learn About the Law.
Docket No: No. C018765.
Decided: May 24, 1995
Court: Court of Appeal, Third District, California.
Search our directory by legal issue
Enter information in one or both fields (Required)
Harness the power of our directory with your own profile. Select the button below to sign up.
Learn more about FindLaw’s newsletters, including our terms of use and privacy policy.
Get help with your legal needs
FindLaw’s Learn About the Law features thousands of informational articles to help you understand your options. And if you’re ready to hire an attorney, find one in your area who can help.
Search our directory by legal issue
Enter information in one or both fields (Required)