Eberman v. Massachusetts Bonding & Ins. , 41 A.2d 844 ( 1945 )

HOOD, Associate Judge.

The complaint, bill of particulars and suppemental bill of particulars alleged that the defendant Zirkle, during the time involved, was a licensed real estate broker in the District of Columbia; that plaintiff was employed as a real estate salesman by Zirkle and was a licensed salesman under Zirkle’s broker’s license; that while associated with Zirkle plaintiff negotiated numerous sales of real estate during the period from August, 1940, to December, 1942, and by reason thereof there came into the possession of Zirkle during this period a total of $5,388.41 as commissions due plaintiff on such sales; that plaintiff received from Zirkle portions of the commissions so due him as the deals were consummated, but never received the full commission; that in each instance Zirkle promised to pay plaintiff the balance; that on • account of such commissions Zirkle paid to the plaintiff $860 in 1940, $1,500 in 1941, $1,632.50 in 1942 and $100 in 1943; that Zirkle failed to account for and pay over to plaintiff the balance of $1,295.91; that Zirkle has been adjudicated a bankrupt -but has not been discharged from such bankruptcy.

The complaint sought judgment for the aforesaid balance against Zirkle and the corporate defendant which was surety on the bond required of Zirkle as a real estate broker. Service of process was not had upon Zirkle.

The surety in its answer alleged that the complaint failed to state a claim against it upon which relief could be granted, and thereafter filed a motion for judgment on the pleadings, raising the question whether the bond required of a real estate broker covers the claim of a salesman against the broker for commissions. The trial court, in a written memorandum, reached the conclusion that the plaintiff was not entitled to recover on the bond and granted the surety’s motion for judgment on the pleadings. Plaintiff has appealed.

The Real Estate and Business Brokers’ License Act of 1937, amended 1939, Code 1940, §§ 45—1401 to 1418, established a Real Estate Commission of the District of Columbia and required all real estate brokers and real estate salesmen to obtain licenses before doing business.¹ A condition to obtaining a license is the filing of a bond with surety in the sum of $2,500 in the case of a broker and $1,000 in the case of a salesman.² The Act provides:

“Said bond shall be in form approved by the Commission, and conditioned that the applicant shall conduct himself and his business in accordance with the requirements of this chapter; and for his failure so to do any person aggrieved thereby shall have, in addition to his right of action against the principal thereof, a right to bring suit against the surety on said bond either alone or jointly with the principal thereon, and to recover in an amount not exceeding the penalty of the bond any damages sustained by reason of any act, representation, transaction, or conduct of the principal which may be prohibited by this chapter or enumerated as one of the causes for suspension or revocation of a license granted hereunder.”³

The Commission is given power to suspend or revoke any license when the licensee, “in performing or attempting to perform any of the acts mentioned herein, has- — * * * (g) Failed, within a reasonable time, to account for or to remit any money, valuable documents, or other property coming into his possession which belong to others; * * * (j) Been guilty of any other conduct, whether of the same or a different character from that hereinbe-fore specified, which constitutes fraudulent or dishonest dealing.”⁴

Plaintiff contends that he is included within the clause “any person aggrieved thereby,” that Zirkle failed within a reasonable time to account for or' to remit money which came into his possession and which belonged to plaintiff, and that Zirkle was guilty of conduct which constituted fraudulent or dishonest dealing. For these reasons plaintiff says that he is entitled to recover on the bond.

The purpose and design of the Act primarily are, as stated in its title, “to protect the public against fraud in real-estate transactions.”⁵ The protection of the public interest 'is the basis for the exercise of the police power in the enactment of such a law.⁶ The bond required by the Act is, therefore, for the protection of the public, and the question here presented is whether a real estate salesman is within the general public intended to be protected by the Act and the bond given pursuant to it. The provisions of the Act must be construed in the light of the purpose of the Act and the evils it was designed to protect against. When the legislature enacts a statute regulating a business for the purpose of protecting the public against existing or potential evils in that business, those engaged in the business are not generally regarded as a part of that public. The public is protected against them and not they against their fellow businessmen.

The Act established standards of conduct for, and requires bonds of, both brokers and salesmen, and authorizes suit on the bond by “any person” aggrieved by failure of licensee to conduct himself or his business in accordance with the requirements of the Act. The general expression “any person” is restricted, however, by the provision that damages recovered on the bond are limited to those “sustained by reason of any act, representation, transaction, or conduct of the principal which may be prohibited by, this Act or enumerated as one of the causes for suspension or revo--cation of a license granted hereunder.” It is not contended that Zirkle was guilty of any act prohibited by the statute outside of those acts enumerated as causes for suspension or revocation of a license. Those causes are limited to obtaining a license by false or fraudulent representation, and “where the licensee, in performing or attempting to perform any of the acts mentioned herein” (italics supplied) has committed one of the sixteen prohibited acts, including (g) and (j), previously quoted in this opinion. If we assume that Zirkle in failing to account to plaintiff for his earned commissions, violated both subdivisions (g) and (j), the question remains whether he violated them while “performing or attempting to perform any of the acts mentioned herein.” To what acts does this clause refer?

It seems obvious that the acts so referred to are those activities set forth in section 2 ⁷ in defining the meaning of real estate broker and real estate salesman. Such activities deal with the sale, purchase or rental of real estate, and negotiation of loans on real estate, by one who acts for another and for a consideration. The acts of Zirkle, of which plaintiff complains, did not involve any of these activities. The sales were completed and the commissions collected and up to this point plaintiff had no complaint. The complaint of plaintiff is Zirkle’s default in not paying over to plaintiff his share of the earned and collected commissions. Reprehensible as this may be, it did not occur in the course of Zirkle’s activity as a broker. The relation of plaintiff to Zirkle is described in the Act as that of employee, but even if a real estate salesman be considered more in the nature of an independent contractor or business associate, it is plain that the relation is an entirely different one from that between the broker and those of the general public for whom the broker acts in his representative capacity.

It seems to us that the wording of the statute, as well as its express purpose, limits recovery on the bond to those for whom Zirkle acted as broker, those principals who entrusted their money or property to Zirkle in his capacity as broker and does not include a salesman of Zirkle who dealt with him as an employer or business associate.

Since the broker’s bond is comparatively small and may be wholly inadequate to protect the clients of a defaulting broker,⁸ we feel that our construction aids in effectuating the primary purpose of the Act. The public should not be compelled to share the relatively small protection of the bond with salesmen who are in a much better position to protect themselves. Here, for a period of three years Zirkle withheld portions of commissions due plaintiff. This continued with the knowledge, if not consent, of plaintiff until the amount withheld equaled more than one-half the penal sum of the bond. We do not think the bond was intended to protect one who permits such a situation to develop.⁹

We have found only one reported case closely analogous to the present one.¹⁰ Sigler v. Massachussetts Bonding & Insurance Co., 71 Ohio App. 425, 50 N.E.2d 390, involved facts quite similar to those of the instant case, and there the court, the presiding judge dissenting, held the salesman entitled to recover on the broker’s bond. With due deference to that decision, we are unable to agree with it, assuming that the Ohio statute is substantially identical with ours, and think the correct rule is stated in the dissent to that decision.

Affirmed.

1 The Act also applies to business-chance brokers and salesmen.

2 As of 1941, thirty-two states and the District of Columbia bad real estate brokers’ license laws. Only nine of these states (Arizona, Idaho, Kentucky, Louisiana, Montana, Nevada, Ohio, Utah, Washington) and the District of Columbia required broker’s bonds. California and Oregon formerly required bonds but by amendment eliminated this requirement. Apparently, few states require bonds of salesmen. Semenow, Survey of Real Estate Brokers License Laws (1941).

3 Code 1940, 45—1405.

4 Code 1940, 45—1408.

5 The House report accompanying the bill (H.R.Rept.No.878, 75th Cong., 1st Sess. (1937) stated: “The committee feels that there is a real need for a law to protect the people of the District from fraudulent and dishonest practices in the real-estate business, and that this bill if enacted into law will be effective for the public protection.”

6 State v. Hurlock, 185 Ark. 807, 49 S.W.2d 611; Riley v. Chambers, 181 Cal. 589, 185 P. 855, 8 A.L.R. 418; State ex rel. Davis v. Rose, 97 Fla. 710, 122 So. 225; Zerlin v. Louisiana Real Estate Board, 158 La. 111, 103 So. 528; Roman v. Lobe, 243 N.Y. 51, 152 N.E. 461, 50 A.L.R. 1329; Massie v. Dudley, 173 Va. 42, 3 S.E.2d 176; Payne v. Volkman, 183 Wis. 412, 198 N.W. 438. Cf. Hall v. Geiger-Jones Co., 242 U.S. 539, 37 S.Ct. 217, 61 L.Ed. 480, L.R.A.1917F, 514, Ann.Cas.1917C, 643.

7 Code 1940, 45—1402.

8 See Brown v. Christman, 75 U.S.App.D.C. 203, 126 F.2d 625.

9 Suit on the bond must be brought within one year from date of accrual of the cause of action. Code 1940, 45—1405.

10 Generally, see Annotation, 75 A.L.R. 1130, “Character and extent of liability on real estate broker’s statutory bond.”