Fewel & Dawes, Inc. v. Pratt , 17 Cal. 2d 85 ( 1941 )

TRAYNOR, J.

The appellant, Franklin L. Pratt, a licensed life insurance broker, had written several policies of life insurance for John G. Bullock of Los Angeles. In 1928 Bullock decided to take out additional life insurance amounting to $150,000 under an arrangement that would enable his son-in-law, Richard W. Fewel, to receive half of the commissions. Fewel was in debt to Bullock, and the latter wanted him to earn a share of the commissions so that he could meet his obligations. On July 10, 1928, Pratt and Fewel met in Bullock’s office to make arrangements for working together. Pratt refused to work with Fewel’s associates and insisted that the agreement be with Fewel alone. Fewel maintained that he could not work without his associates. When they finally agreed to work together and to divide the commissions so earned, they went to the office of Pratt who executed the following writing:

“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, “F. L. P.

, Fewel accepted this writing as embodying the terms of the agreement and there is no question as to its authenticity.

Neither at that time nor since was Fewel licensed as an insurance broker or agent. At the time of the agreement, however, he was planning to organize a corporation to carry on an insurance business. His plans materialized with the incorporation of Moore, Fewel & Company on July 30, 1928, which was duly licensed as an insurance broker on August 10, 1928. On September 1, 1928, Fewel, an officer and director of this company, assigned to it his interest in the agreement with Pratt. The company subsequently assigned its rights under the contract to its successor, Moore, Fewel & Devlin, Inc., which in turn assigned them to Moore, Fewel & Dawes. The latter subsequently changed its name to Fewel & Dawes, respondent herein. Richard W. Fewel has been at all times an officer of these corporations.

None of the life insurance policies contemplated by this agreement was secured until 1930. In 1930, 1931, and 1932, Pratt wrote various life insurance policies for Bullock with the cooperation of Fewel. On July 31, 1930, Pratt and Fewel made their first division of commissions. Pratt objected that the payment of commissions to Fewel would be illegal because the latter had no license. It was therefore agreed that' Fewel should issue a receipt signed “Moore, Fewel & Devlin by Richard W. Fewel” to enable Pratt to show a legal transaction on his books. Pratt made out his cheek for the commissions to Fewel personally. Fewel deposited the check in his private account which he alone used. Other commissions were subsequently divided in the same manner, the last division being made on February 19, 1931. On September 15, 1933, John G. Bullock died. On December 15, 1935, Fewel & Dawes, the last assignee of Fewel’s right to commissions under the agreement with Pratt, brought suit against Pratt for unpaid commissions. The trial court gave judgment for plaintiff, and defendant Pratt has appealed.

The trial court found that Fewel was acting on behalf of the corporation Moore, Fewel & Company in making the agreement with Pratt. There is, however, no substantial evidence that Pratt agreed to contract with an actual or contemplated corporation rather than with Fewel. Plaintiff has failed to sustain the burden of proving that Pratt gave the assent necessary to the completion of such a contract. On the contrary, it is undisputed that Pratt repeatedly insisted he would not work with Fewel’s associates and would enter into a contract only with Fewel individually. Fewel's statement that he could not work without his associates in no way establishes that Pratt contracted with Fewel and his associates as a corporation. The question is not how Fewel intended to carry on his business, but who were the parties to the contract. Fewel’s statement could not make the corporation a party to the contract without Pratt’s agreement. The terms of the contract set forth in the memorandum written by Pratt and accepted by Fewel make no mention of a corporation as party to the contract. They clearly indicate the contract to be between Pratt and Fewel as individuals.

A finding of the trial court upon conflicting evidence will not be disturbed on appeal if there is evidence of a substantial character which reasonably supports the judgment. (Herbert v. Lankershim, 9 Cal. (2d) 409 [71 Pac. (2d) 220]; Reese v. Smith, 9 Cal. (2d) 324 [70 Pac. (2d) 933]; Tobias v. Adams, 201 Cal. 689 [258 Pac. 588]; Lefrooth v. Prentice, 202 Cal. 215 [259 Pac. 947]; Thoreau v. Industrial Accident Commission, 120 Cal. App. 67 [7 Pac. (2d) 767]; Gamberg v. Industrial Accident Commission, 138 Cal. App. 424 [32 Pac. (2d) 413]; Gardiner v. Holcomb, 82 Cal. App. 342 [255 Pac. 523]; Houghton v. Loma Prieta Lumber Co., 152 Cal. 574 [93 Pac. 377]; Field v. Shorb, 99 Cal. 661 [34 Pac. 504]; Felsenthal v. Warring, 40 Cal. App. 119 [180 Pac. 67]; White v. Greenwood, 52 Cal. App. 737 [199 Pac. 1095]; Elliott v. Market Street Ry. Co., 4 Cal. App. (2d) 292 [40 Pac. (2d) 547].) If, however, the evidence is so slight and tenuous that it does not create a real and substantial conflict the finding may be set aside. (Ibid.) “There must be more than a conflict of words to constitute a conflict of evidence. The contrary evidence must be of a substantial character, such as reasonably supports the judgment. ...” (Herbert v. Lankershim, supra.)

In the present case the only evidence in the entire record which tends to indicate that Pratt agreed to contract with Fewel on behalf of the corporation is the following statement by Fewel: “He said ‘I don’t want to do business with the corporation, but I will do business through your corporation with you.’ ” This statement, in itself contradictory and ambiguous, appears in the course of testimony by Fewel that Pratt insisted he would not do business with the corporation but only with Fewel personally. Nowhere in Fewel’s testimony is there an unequivocal statement that Pratt agreed to contract with the corporation or with Fewel on behalf of the corporation. Against his ambiguous statement there stands not merely his other statements that Pratt would not do business with the corporation, and Pratt’s testimony that he contracted with Fewel personally and not with the corporation; there stands also the written memorandum embodying the terms of the agreement, which makes no reference to the corporation but clearly states the contract to be between Pratt and Fewel as individuals, as well as the written assignment to the corporation in which Fewel openly refers to the contract as being between Pratt and himself. In this context Fewel’s statement does not constitute evidence substantial enough to support the finding of the trial court.

It is well established in California that a contract which requires the performance of unlawful acts is unenforceable. (Civ. Code, secs. 1608, 1667; Levinson v. Boas, 150 Cal. 185 [88 Pac. 825, 11 Ann. Cas. 661, 12 L. R. A. (N. S.) 575]; La Rosa v. Glaze, 18 Cal. App. (2d) 354 [63 Pac. (2d) 1181].) Former section 633aa of the California Political Code (now Insurance Code, sec. 1714) provided: “Any person who shall act or offer to act or assume to act as a life insurance broker or agent, unless licensed by the insurance commissioner as provided in this section . . . shall be guilty of a misdemeanor.” On the facts presented, the contract under consideration was between Pratt and Fewel as an individual. Since Fewel was at no time licensed as an insurance broker or agent, he could not legally solicit insurance or receive commissions; therefore, neither he nor his assignees can enforce the contract. It is true that an unlicensed person is not precluded from recovering a commission if he secures such license by the time the contract is performed, although it was executed prior to the time he was licensed. (Houston v. Williams, 53 Cal. App. 267 [200 Pac. 55]; Radich v. Cernokus, 65 Cal. App. 452 [224 Pac. 124]; Brenneman v. Lane, 87 Cal. App. 414 [262 Pac. 400].) In the present situation, however, Fewel not only had no license at the time he entered into the contract, but never acquired one thereafter. All the acts which he performed under the contract were illegal and can therefore give rise to no enforceable obligation.

The subsequent assignment by Fewel to the corporation of his right to receive payments under the contract in no way purported to substitute the corporation in Fewel’s stead as a party to the original agreement, nor did the assignee-corporation undertake to perform any of the duties under the agreement. The assignment read:

“Know all men by these presents: That I, Richard W. Fewel, of Los Angeles, California, for a valuable consideration, the receipt whereof is hereby acknowledged, do hereby sell, assign, transfer and set over unto Moore, Fewel & Company its successors and assigns, all my right, title and interest in and to any and all commissions and renewal commissions for life insurance policies written on the life of John G. Bullock and accruing to me under and by virtue of an agreement between Franklin L. Pratt and myself, providing for the payment of one-half of said commissions to me. September 1, 1928.

“ (Signed) Richard W. Fewel.”

The wording of the assignment clearly indicates that Fewel was merely transferring to the corporation the right to receive payments of money in return for a valuable consideration. There is no assumption of obligations by the corporation. There is no novation effected whereby the corporation steps into Fewel’s shoes as obligor under the contract. The obligations of the agreement remained with Fewel; he performed them, and it was his performance of them without a license which rendered the contract illegal.

The assignment clearly states that the contract was between Fewel as an individual and Pratt. No assignment of rights would have been necessary had Fewel made the contract on behalf of the corporation, for the latter could then simply have adopted the contract as its own. (Ballantine, Private Corporations, sec. 47.)

Pratt is not estopped from denying the validity of his contract with Fewel because he accepted receipts from Fewel in the name of the corporation to conceal the illegality of the transaction. An illegal contract cannot be ratified, and no person can be estopped from denying its validity. (Colby v. Title Ins. & Tr. Co., 160 Cal. 632 [117 Pac. 913, Ann. Cas. 1913A, 515, 35 L. R. A. (N. S.) 813]; Reno v. American Ice Machine Co., 72 Cal. App. 409 [237 Pac. 784]; Wood v. Imperial Irr. Dist., 216 Cal. 748 [17 Pac. (2d) 128]; Regan v. Albin, 219 Cal. 357 [26 Pac. (2d) 475]; A. L. I. Restatement, Contracts, secs. 590, 598.)

Defendant in his answer denied any liability under the contract. He introduced evidence at the trial showing that Fewel was at no time a licensed agent or broker. He moved in the trial court to vacate the judgment and to have judgment entered in his favor on the ground that the contract was illegal and hence unenforceable. In his brief on appeal he urged the illegality of the contract as grounds for reversal. There is therefore no basis for precluding him from raising the question of illegality on appeal. If the contract is illegal as a matter of law, this court may refuse to enforce it regardless of the pleadings of the parties. (Morey v. Paladini, 187 Cal. 727 [203 Pac. 760]; Pacific Wharf etc. Co. v. Standard Am. Dredging Co., 184 Cal. 21 [192 Pac. 847]; Endicott v. Rosenthal, 216 Cal. 721 [16 Pac. (2d) 673]; Kreamer v. Earl, 91 Cal. 112 [27 Pac. 735]; Dean v. McNerney, 91 Cal. App. 206 [266 Pac. 975]; 6 Cal. Jur. 162; 4 Cal. Jur. Supp. 71, 72.)

The judgment of the trial court is reversed.

Edmonds, J., Gibson, C. J., and Houser, J., concurred.