Opinion
5-22-1950
OWEN v. OFF et al. Civ. 17477.
Morrow & Trippet, F. B. Yoakum, Jr., Los Angeles, for appellant. Gibson, Dunn & Crutcher, Sherman Welpton, Jr., Los Angeles, for respondents.
OWEN
v.
OFF et al.
May 22, 1950.
Rehearing Denied June 7, 1950.
Hearing Granted July 20, 1950.
Morrow & Trippet, F. B. Yoakum, Jr., Los Angeles, for appellant.
Gibson, Dunn & Crutcher, Sherman Welpton, Jr., Los Angeles, for respondents.
WILSON, Justice.
The question at issue on this appeal is whether under the Corporate Securities Act, Gen.Laws, Act 3814, a person is required to have a license to act as broker in order to maintain an action to recover a commission for the sale of securities when the sale is made on behalf of a vendor who is not the issuer or underwriter thereof but who is a bona fide owner and disposes of them for his own account.
It is conceded by plaintiff that if, under the circumstances stated above, a license is required he is not entitled to recover in this action.
Plaintiff has appealed from a summary judgment, Code Civ.Proc., sec. 437c, granted on motion of defendants upon affidavits filed on behalf of the respective parties.
Plaintiff alleged in his complaint that defendants authorized him in writing to sell shares of stock owned by them in Figueroa Building Corporation and agreed to pay him for his services in the event he found a purchaser and was the procuring cause of the sale of the stock for the price named; that the sale of the shares was to be made by and on behalf of defendants who were the contemplated vendors of such stock; that they were the bona fide owners thereof, that neither of them was an issuer or underwriter of the shares, and it was contemplated that defendants would dispose of such shares as their own property and for their own account and not directly or indirectly for the benefit of the issuer or underwriter of the stock or for the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any provision of law; that plaintiff commenced negotiations with Greene-Haldeman Company looking toward the sale of the stock and from time to time during 1945 and to and including July, 1946, with the knowledge, consent, acquiescence and approval of defendants, continued his efforts with that company and eventually obtained it as a purchaser ready, able and willing to purchase the stock for the sum named in the contract, and defendants were immediately advised thereof; that thereafter, without informing plaintiff of their intentions and with the object and purpose of depriving plaintiff of payment for his efforts in procuring a purchaser, defendants consummated a sale to Greene-Haldeman Company for a sum in excess of the amount stated in plaintiff's agreement with defendants, and that the sale was made possible as a direct result of plaintiff's efforts; that defendants have refused to pay for plaintiff's services although demand was made therefor.
Defendants answered and admitted (1) having entered into a written contract with plaintiff relative to the sale of their shares referred to in the complaint; (2) they were not the issuers or underwriters of the stock and any contemplated sale thereof was not to be made for the direct or indirect promotion of any scheme or enterprise with intent of violating or evading the law; (3) during the term of the agreement defendants did have an offer submitted by plaintiff purportedly on behalf of Greene-Haldeman Company pertaining to the sale of the stock but the offer was not acceptable and did not result in the sale of the stock to that company.
Defendants' motion for a summary judgment was made upon the pleadings and an affidavit of defendants' attorney that plaintiff's deposition had been taken in the action and he had therein admitted he had never been licensed under the Corporate Securities Act as an agent or broker to sell securities. Plaintiff's affidavit filed in opposition to the motion stated: he was at all times mentioned in the pleadings a licensed real estate broker; during the year 1944 he was employed by defendants as a broker and endeavored to sell the land and building known as Figueroa Street Building; before he was able to procure a purchaser for the building it was determined for tax purposes it would be advisable to sell the stock in the corporation which owned the building; in excess of 91 per cent of the stock was owned by defendants, and on or about March 5, 1945, the contract was entered into between plaintiff and defendants authorizing the former to find a purchaser for the stock; the sale of the stock by plaintiff was a single and isolated transaction so far as he was concerned, and he was at all times engaged in acting as a real estate broker and not in the sale of stock or other types of securities; the sale of the stock was to be made by him on behalf of defendants, who were the contemplated vendors thereof and who were neither issuers nor underwriters of the stock but were bona fide owners, and it was contemplated that they would dispose of the stock as their own property for their own account and the sale was not to be made directly or indirectly for the benefit of the issuer or underwriter of the stock or for the promotion of any scheme or enterprise with intent of violating or evading the law.
Defendants' motion was granted and judgment entered in their favor reciting, among other things, that the court found from the admitted facts as set forth in the affidavits and in plaintiff's deposition that no triable issue of fact was presented and that plaintiff's action had no merit. From this judgment plaintiff had appealed.
At the time of the transaction which is the subject of this action the provisions of the Corporate Securities Act bearing on the question involved were the following, as amended in 1947:
Section 2. '(a) * * * When used in this act, the following terms shall, unless the context otherwise indicates, have the following respective meanings: * * *
'9. Agent. The word 'agent' means and includes every person or company employed or appointed by a company or broker or any other person who shall, within this State, either as an employee or otherwise, for a compensation, sell, offer for sale, negotiate for the sale of or take subscriptions for any security.
'10. Broker. The word 'broker' includes every person or company, other than an agent, who shall, in this State, engage either wholly or in part in the business of selling, offering for sale, negotiating for the sale of, or otherwise dealing in any security issued by others, including all securities of the classes listed in paragraphs 1, 2, 3, 4, 5, 6, 7 and 9 of subdivision (b) of this section or of underwriting any issue of such securities, or of purchasing such securities with the purpose of reselling them, or of offering them for sale to the public. Provided, however, the word broker shall not include the following, or any agent or agency of any of the following: The United States of America or any territory or insular possession thereof, or the District of Columbia, or any state, territory, county, or municipality, or taxing district therein * * *
'[Sec. 2.] (c) Sales of securities exempted. Except as herein expressly provided, the provisions of this act shall not apply to the sale of any security in any of the following transactions: * * *
'3. The sale of securities when made by or on behalf of a vendor not the issuer or underwriter thereof who, being a bona fide owner of such securities, disposes of his own property for his own account, and such sale is not made, directly or indirectly, for the benefit of the issuer or an underwriter of such security, or for the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any provision of this act.' Stats.1947, ch. 198, p. 759 ff; Deering's Gen. Laws, Act 3814, 1947 Supp.
Section 6. 'No person or company shall act as an agent or broker until such person or company shall have first applied for and secured from the commissioner a certificate, then in effect, authorizing such person or company so to do * * *.' As am. Stats.1943, ch. 419, p. 1957.
Defendants contend that by reason of the fact that plaintiff did not possess a certificate from the Commissioner of Corporations authorizing him to act as agent (sec. 2(a) 9) or broker (sec. 2(a) 10) he was forbidden (sec. 6) to act for defendants in either capacity and therefore is not entitled to a commission for effecting a sale of their securities. Such contention is in disregard of the effect of section 2(c) 3 which provides that 'Except as herein [in this section] expressly provided, the provisions of this act [the entire statute] shall not apply to the sale' of securities when made by or 'on behalf of' a vendor who is not the issuer or underwriter thereof, but who as 'a bona fide owner * * * disposes of his own property for his own account * * *'
The allegations of the complaint are in the language of section 2(c) 3 and the answer admits such allegations. Defendants' affidavit on the motion for summary judgment does not controvert the statements in the complaint and plaintiff's affidavit reaffirms them.
In the expression 'Except as herein expressly provided' the term 'herein' means 'in this section,' and the words that follow, 'the provisions of this act shall not apply * * *', refer to the entire statute. The placing of the words 'herein' and 'of this act' in the same sentence and their proximity in the sentence make it manifest that the Legislature did not intend and did not achieve vagueness or obscurity. Hence the section means that the provisions of the entire act, except as provided in that section, are not applicable to the sale of the vendor's own securities, whether made by himself or by another person for him, when he is a bona fide owner and disposes of them on his own account and not for the benefit of the issuer or an underwriter thereof. Since the 'provisions of this act' relating to agents and brokers and the requirement of a license as a condition precedent to a person's acting as such do not apply to the sale of a vendor's personally owned securities, the facts alleged by plaintiff and admitted by defendants remove the former from the purview and limitations of section 6.
The conclusion expressed above is confirmed, if confirmation be necessary, by the legislative history of subdivision 3 of section 2(c). In 1929 that subdivision read: 'The sale in a bona fide way of any security by an owner who is not the issuer or an underwriter thereof, who sells the same for his own account; and not for the purpose of evading the provisions of this act.' Stats.1929, ch. 707, pp. 1251, 1254. While section 2(c) 3 was in effect in this form only a sale made by the owner of securities, selling directly and on his own account, was exampted from the provisions of the statute.
In 1931 the section was amended to cover the sale of securities 'by or on behalf of a vendor.' Stats.1931, ch. 423, pp. 937, 941. It must be presumed that the Legislature had a purpose in inserting the term 'on behalf of' and that it did not intend and did not do an idle and fruitless act. The Corporate Securities Act was adopted in 1917. Stats.1917, ch. 532, p. 673. It had been amended at every session of the Legislature between 1917 and 1931, and in fact amendments have been adopted at each regular session to this date. The act was not perfect at the beginning and may not now cover all conditions that shall arise in the future. Experience and experiment have shown that changes are necessary from time to time. The Legislature considered the amendment of 1931 to have been a needful modification of the former strict rule circumscribing the sale of one's personally owned property. In 1929 the case of Van Wyke v. Burrows, 98 Cal.App. 415, 277 P. 190, held that a broker, not holding a license from the Corporation Commissioner, was not entitled to a commission for the sale of shares in a bank which were personally owned by the defendants in the action. At that time the exception allowed by section 2(c) 3 was applicable only to a sale of securities 'by an owner.' (See section quoted above.) In 1931 came the amendment reading 'by or on behalf of a vendor' which may be assumed to have been inspired by the decision in the Van Wyke case, since the Legislature is presumed to have known of and given consideration to prior decisions of the courts with reference to a statute when adopting amendments thereto. Whitley v. Superior Court, 18 Cal.2d 75, 78, 113 P.2d 449; McColgan v. Jones, Hubbard & Donnell, Inc., 11 Cal.2d 243, 247, 78 P.2d 1010; In re Halcomb, 21 Cal.2d 126, 129, 130 P.2d 384; Johnson v. Sanches, 56 Cal.App.2d 115, 117, 132 P.2d 853.
When a statute relating to one subject contains a provision that is omitted from a similar statute concerning the same or a cognate subject, or when an express provision of a statute is deleted or new words or phrases are inserted, it is evidence that the intention of the Legislature in the later statute was different from that in the former. Johnson v. Sanches, supra; Whitley v. Superior Court, supra, 18 Cal.App.2d at page 79, 113 P.2d at page 449; People v. Valenting, 28 Cal.2d 121, 142, 169 P.2d 1; Estate of Garthwaite, 131 Cal.App. 321, 326, 21 P.2d 465.
A statute should be so construed, if reasonably possible, as to give effect to each sentence, word and phrase used therein, and words used in a statute should be given their ordinary meaning and receive sensible construction. County of Los Angeles v. Frisbie, 19 Cal.2d 634, 641-642, 122 P.2d 526; County of Los Angeles v. Emme, 42 Cal.App.2d 239, 242, 108 P.2d 695. A construction should be avoided that implies the Legislature was ignorant of the meaning of the language employed or that the words of the statute were inserted in vain. Prager v. Isreal, 15 Cal.2d 89, 93, 98 P.2d 729. Under the foregoing rules of statutory construction it must be held that the words 'on behalf of' were not inserted in vain and giving those words their ordinary meaning we conclude that by the amendment of 1931 the Legislature intended to change the former exception by enlarging it to exclude sales made by any person other than the owner and therefore the provisions regarding a license do not apply to sales by a person who sells another's personally owned shares on behalf of such owner on the latter's account and not for the benefit of the issuer or an underwriter.
Furthermore, subdivision 10 of section 2(a) includes in the term 'broker' every person (other than an agent) engaged in selling a security issued by others including those of the classes listed in certain numbered paragraphs of subdivision (b) of section 2 but excluding some by failing to include them, the excluded securities being thereby exempted from the provisions of the statute. Following subdivision 14 of section 2(b) it is provided that brokers are subject to the provisions of the act with respect to all transactions involving 'the foregoing classes of securities enumerated in this subdivision (b), excepting those securities hereinabove specified in paragraphs 8, 10 and 11 of this subdivision (b).' The provision in subdivision 10 of section 2(a) defining broker as one selling certain specified securities, some, but not all, being exempt and the proviso following subdivision 14 were added in 1933. Stats.1933, ch. 898, pp. 2308, 2310. Had it been the intent of the Legislature to require a person to be licensed as a broker in order to sell securities exempted from 'the provisions of this act' by section 2(c) 3 it must be assumed it would have so declared in 1933 when it amended sections 2(a) 10 and 2(b) 14.
Section 18 of the Corporate Securities Act declares that the wilful violation of the statute is a crime punishable by imprisonment in the county jail or state prison or by fine, or both. Stats.1931, ch. 423, pp. 937, 950. Since the act is a penal statute it must be strictly construed and its import cannot be expanded to include acts not explicitly defined. Strict construction of legislative language is demanded when an act not forbidden by the common law is made criminal by statute. Oakley v. Rosen, 76 Cal.App.2d 310, 314, 173 P.2d 55. A licensing statute enacted for the protection of the public, imposing a penalty for its violation, will preclude an unlicensed person from recovering under his contract but such a statute cannot be construed beyond its plain intent and cannot be made applicable to persons other than those whom the Legislature clearly intended to include within its terms. Henigson v. Bank of America Nat. Trust & Savings Ass'n, 32 Cal.2d 240, 245, 195 P.2d 777; Los Angeles Scenic Studios, Inc. v. Television, Inc., 17 Cal.App.2d 356, 359, 61 P.2d 1192; Weingast v. Rialto Pastry Shop, Inc., 243 N.Y. 113, 152 N.E. 693, 694; Salisbury v. Alskog, 144 Wash. 88, 256 P. 1030-1031.
The case of Van Wyke v. Burrows, 98 Cal.App. 415, 277 P. 190, supra, relied on by defendant manifestly is not relevant to the instant case: (1) There was no contention that the sale that gave rise to the action was an exempt transaction. (2) The plaintiff relied on the fact that this was a single transaction and therefore a license was not a prerequisite to his recovering his commission. (3) When the case was decided in 1929, section 2(c) 3, as we have pointed out, exempted sales only when made by the owner, and the section was amended at the next session of the Legislature by the insertion of the words 'on behalf of a vendor.' The other cases cited by defendants state the familiar rule with reference to the inability of an unlicensed person to recover for his services if the statute covering the subject of his activities requires him to possess a license in order to engage in his business.
Defendants cite Rhode v. Bartholomew, 94 Cal.App.2d 272, 210 P.2d 768. The court there held that the plaintiff was a broker in the transaction and since he did not have a license from the Commissioner of Corporations he was not entitled to a commission. The case is not an authority in the instant case since (1) exemption of the sale from the provisions of the statute was not claimed, (2) section 2(c) 3 of the Corporate Securities Act is not mentioned in the opinion and was not cited in the briefs.
Since (1) it was not necessary that plaintiff secure a license or permit from the Commissioner of Corporations in order to be entitled to sell defendants' personally owned securities, and (2) the pleadings present triable issues of fact raised by the denials and the special defenses set up in defendants' answer, among them whether plaintiff procured a buyer ready, able and willing to purchase the shares covered by his contract with defendants and whether the term of the contract had expired prior to his having obtained a purchaser (there are no doubt others), the rendering of a summary judgment was error.
Judgment reversed.
MOORE, P. J., and McCOMB, J., concur. --------------- * Subsequent opinion 227 P.2d 457. 1 The subject matter of sections 2(a) 9, 2(a) 10, 2(c) 3 are now in sections 25005, 25006, 25152, respectively, of the Corporations Code. Stats.1949, ch. 384, p. 698. 2 The subject matter of section 6 is now in section 25700, Corporations Code, supra. 3 The contents of section 18 are now in section 26104 of the Corporations Code.