Opinion
No. 76-700
Decided June 23, 1977. Rehearing denied July 21, 1977. Certiorari denied September 19, 1977.
On basis that real estate broker was not licensed, purchaser who assumed obligation to pay broker's commission at closing, sought to avoid liability therefor. From judgment for broker, purchaser appealed.
Affirmed
1. BROKERS — Illegality of Contract — Between Broker and Seller — Cannot Be Invoked — Third Parties — Defeat Broker's Action. The defense of illegality of contract, although open to the parties and those claiming under them, cannot as a general rule be invoked by third parties; thus, the defense that a listing agreement entered by real estate broker and seller was illegal because broker was unlicensed cannot be invoked by defendants, who were not parties to the contract, to defeat broker's action to recover a commission resulting from performance of that contract.
Appeal from the District Court of El Paso County, Honorable Hunter D. Hardeman, Judge.
Edward Strand, for plaintiff-appellee.
John Randolph Torbet, for defendants-appellants.
Defendants, NBH Land Company and John Firestone, appeal from a judgment entered on a promissory note in favor of Oppenheimer Industries, Inc. Finding no error, we affirm the judgment.
The facts are not disputed. Oppenheimer Industries, Inc., a Missouri corporation, (Oppenheimer), secured an "Exclusive Right to Sell Agreement" listing certain real property in Colorado, owned by Landco, Inc. The agreement, signed on behalf of Oppenheimer by Garrett Cole, a licensed Colorado real estate broker, provided that Oppenheimer was to receive a commission equal to 6% of the gross sales price if it produced a buyer for the property. However, neither Oppenheimer nor its agent who procured the listing was licensed in Colorado as a real estate salesman or broker.
Oppenheimer, the Missouri corporation, is a wholly owned subsidiary of Oppenheimer Industries, Inc., a Delaware corporation. Oppenheimer Realty, Inc., is a Colorado corporation which is owned 80% by Oppenheimer Industries, Inc., the Delaware corporation, and 20% by Garrett Cole. Oppenheimer Realty, Inc., holds a real estate license in Colorado and the qualifying broker is Garrett Cole.
In attempting to find a purchaser for the property, Oppenheimer affiliated with Colorado Cascade Realty and Investment Company (Colorado Cascade). Through the efforts of Buford B. Biggs and Iris W. Bailey, the licensed Colorado brokers for Colorado Cascade, contact was made with NBH Land Company through its president, John Firestone.
Following lengthy negotiations, Landco, Inc., and NBH Land Company on April 18, 1975, entered into a sales agreement. The contract provided that the buyer agreed to pay seller $1,512,561.91, and the buyer also agreed "to assume and pay a brokerage commission . . . of $96,000." The "commission" payment was to be made to Oppenheimer and Colorado Cascade by the promissory notes of NBH Land Company and Firestone. This contract was drawn by the attorneys for the buyer and seller, and was not signed by Oppenheimer or Colorado Cascade.
The closing on the above agreement was held on the same date that it was signed, and a closing statement was prepared and signed by Landco, Inc., NBH Land Company, Oppenheimer, and Colorado Cascade. This statement showed a purchase price of $1,637,629.35, and gave NBH a credit against this price of $96,000 for the two commission notes. The notes were signed by Firestone and NBH at the time of the closing, one of which was made payable to Oppenheimer in the amount of $48,000, and the other, in a like amount, was made payable to Colorado Cascade.
Thereafter, NBH Land Company and Firestone made a partial payment on the promissory notes. This payment was accompanied by a protest letter refusing to admit that any amount was due. As a result of default as to the remainder owing on each promissory note, Oppenheimer and Colorado Cascade commenced the present action.
Trial was to the court, and the court entered judgments in favor of Oppenheimer and Colorado Cascade in the amount of the balance due on each note. On this appeal, defendants seek only to set aside that judgment which was entered in favor of Oppenheimer.
Defendants argue that the notes sued upon represented payment of a real estate broker's commission, and that, since Oppenheimer is not licensed in Colorado as a broker, its note is unenforceable. In short, defendants assert that the brokerage commission contract is illegal, and that accordingly the note is unenforceable. See Reed v. Bailey, 34 Colo. App. 20, 524 P.2d 80 (1974).
[1] However, even assuming that the brokerage commission agreement entered into between Oppenheimer and Landco was illegal, such a defense is not available to defendants since they were not parties to that agreement. "`The defense of illegality, although open to the parties and those claiming under them, cannot as a general rule be invoked by third parties.'" Mathias v. Dickerson, 179 Kan. 739, 298 P.2d 219 (1956). Accord, Southwestern Shipping Corp. v. National City Bank, 6 N.Y.2d 454, 160 N.E.2d 836 (1959); Stolz-Wicks, Inc. v. Commercial Television Service Co., 271 F.2d 586 (7th Cir. 1959). See George v. Senter, 194 S.W.2d 290 (Tex.Civ.App. 1946); cf. Baker v. Sockwell, 80 Colo. 309, 251 P. 543 (1926); see generally 2 S. Williston, Law of Contracts § 399 (W. Jaeger 3d ed. 1959); Restatement of Contracts § 144. Accordingly, the defense of illegality to the listing agreement cannot be invoked by defendants to defeat the instant action.
The trial court found that there was a good faith effort on the part of Oppenheimer to comply with the laws and statutes of Colorado concerning licensure. However, in light of our holding in this case, we need not determine whether a good faith effort to comply with the licensing statutes of this state would render such a broker's commission contract enforceable.
Furthermore, Oppenheimer's cause of action is not predicated upon the allegedly illegal contract it entered into with Landco, but rather is premised upon the contract which defendants signed with Landco. In that latter agreement, defendants agreed to assume and pay plaintiff, as a part of the consideration for the agreement, the amount Landco owed plaintiff under the listing agreement. Indeed, the court found, on conflicting evidence, that the notes signed by defendants "represented $96,000 of the actual purchase price . . . and the defendants . . . received credit against the purchase price for the full amount of the notes."
Judgment affirmed.
JUDGE PIERCE and JUDGE STERNBERG concur.