Nationwide Investment Corp. v. California Funeral Service, Inc.

• Court: California Court of Appeals
• Writing for the Court: HASTINGS; KAUS, P.J., and ASHBY
• Citation: 40 Cal.App.3d 494,114 Cal.Rptr. 77
• Parties: NATIONWIDE INVESTMENT CORPORATION, Plaintiff, Cross-Defendant and Appellant, v. CALIFORNIA FUNERAL SERVICE, INC., Defendant, Cross-Complainant and Respondent. Civ. 41979.
• Decision Date: 21 May 1974

Page 77

114 Cal.Rptr. 77 40 Cal.App.3d 494 NATIONWIDE INVESTMENT CORPORATION, Plaintiff, Cross-Defendant and Appellant,
v.
CALIFORNIA FUNERAL SERVICE, INC., Defendant, Cross-Complainant and Respondent. Civ. 41979. Court of Appeal, Second District, Division 5, California. May 21, 1974.
As Modified June 18, 1974.

Page 78

[40 Cal.App.3d 496] Frazier, Dame & Doherty, Oxnard, for plaintiff, cross-defendant and appellant.

Heily, Blase, Ellison & Wellcome, Oxnard, and Howard L. Winton, Los Angeles, for defendant, cross-complainant and respondent.

HASTINGS, Associate Justice.

Plaintiff and cross-defendant, Nationwide Investment Corp. (Nationwide), appeals from summary judgments granted in favor of California Funeral Service, Inc. (CFS), defendant and cross-complainant, on the complaint brought by Nationwide and on CFS's cross-complaint.

40 Cal.App.3d 497

FACTS

Initially, Nationwide instituted an action against CFS for the balance due on two installment notes dated April 11, 1972. CFS's answer admitted the execution and delivery of the notes as well as the nonpayment of the September 15, 1972 installments due on each thereof; CFS denied that the unpaid balance of the notes was due and owing, and for a first Affirmative Defense CFS alleged that the notes were given pursuant to terms contained in a five-year written contract ¹ with Nationwide's assignor, a Robert W. [40 Cal.App.3d 498] Kuebler, (Kuebler), dba United Financial Services (United) in which United ² agreed Inter

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alia to negotiate the purchase, acquisition or merger by CFS of funeral homes, cemeteries, and other funeral service businesses.

CFS, as a result of United's negotiations, acquired all of the issued and outstanding shares of stock in Humphrey Chula Vista Mortuary, Inc. (Humphrey); thus, in accordance with the contract, Nationwide became entitled to a 9% Commission of the gross purchase price paid by CFS and CFS executed the two promissory notes, the subject of the present action. However, in its affirmative defense, CFS alleged that in California, in order for any person or entity to lawfully perform these services for which the notes were given as compensation, and, in order for any person or entity to have the right to collect compensation therefor, such person or entity must be licensed by the State of California either as a real estate broker or salesman, or as a securities broker-dealer or agent. CFS's affirmative defense further alleged that neither Kuebler, individually or dba United, nor Nationwide held, at any time, such licenses.

On the same day CFS filed its answer, it also filed a cross-complaint, in three counts, seeking cancellation of the notes, attorney's fees, and a judicial declaration that the underlying Nationwide-CFS contract was void for illegality in that it required Nationwide to perform services and CFS to compensate Nationwide therefor, in violation of the California licensing statutes.

Simultaneously with the filing of its answer and cross-complaint, CFS filed motions for summary judgment on Nationwide's complaint and its cross-complaint. Later, pursuant to Nationwide's request, these motions were continued, by stipulation of counsel, for two weeks. Nationwide did not file any declaration in opposition to the motions, nor did it object at any time that the hearing of the motions would be held before an answer to the cross-complaint had to be filed; it filed a memorandum of points and authorities.

[40 Cal.App.3d 499] After hearings were held, the trial court granted both motions, and summary judgments were entered in favor of CFS on the complaint brought by Nationwide and on the cross-complaint filed by CFS.

DISCUSSION

This case is atypical in that Nationwide seeks a commission for successfully negotiating the sale of a business to defendant although not licensed as a real estate broker or as a securities broker. ³

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Having placed itself in this position, Nationwide argues the real estate broker's license is inapplicable to this transaction because it involved the sale of all of the stock of Humphrey and therefore was a securities transaction for which it was not required to have a license. CFS, in its answer to the complaint, seems to agree it was a securities transaction by pleading in pertinent part: 'As had been contemplated by all parties at the inception of the aforesaid negotiations, said purchase was consummated by means of the sale and purchase of the issued and outstanding shares of stock of HUMPHREY. . . .' CFS, however, does not concede Nationwide was exempt from the licensing requirement.

We agree with the parties that this was a securities transaction, and we determine only whether Nationwide was a broker-dealer and required to have a securities broker's license.

Nationwide argues that it was not necessary for it to be licensed as a broker-dealer in securities since the applicable California Corporation Code section (Calif.Corp.Code, § 25004) ⁴ 'is meant to cover persons who represent issuers or owners of securities who wish to Sell the securities to others and not meant to cover representatives of Purchasers especially in non-issuer transactions.' (Emphasis added.)

The present Corporate Securities Law of 1968 superseded a similarly titled law adopted in 1949. Although changes were numerous in other portions of the 1968 law, the definition of a broker-dealer in section 25004 is substantially similar to the definition of a 'broker' under former sections [40 Cal.App.3d 500] 25006 and 25006.1 ⁵. Nationwide contends it was not a broker-dealer within the meaning of either section, for the reasons stated above and others stated Infra. There are no reported cases concerning a security transaction where an unlicensed individual negotiates for securities on behalf of a purchaser. We can, however, use post and pre-1968 law relevant to this issue to give us guidance in our determination of the problem inasmuch as there was little substantive change in the applicable code sections.

ARGUMENT

1. Under section 25004, ⁶ a 'broker-dealer' is defined as 'any person engaged in the Business of effecting transactions in securities in this state for the account of others or for his own account. . . .' (Emphasis added.) To be read and assimilated with the above section is new section 25210 providing that 'Unless exempted under the provisions of Chapter 1 (commencing with section 25200) of this part, no broker-dealer or agent shall effect any transaction in, or induce or attempt to induce The purchase or sale of, Any security in this state unless such broker-dealer or such agent has first applied for and secured from the commissioner a certificate, then in effect, authorizing such person to act in that capacity.' (Emphasis added.)

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Contrary to Nationwide's assertions, the Legislature did not restrict the licensing requirements of securities broker-dealers to only those persons who negotiate for the Sale of securities on behalf of sellers. The language in the two sections is unambiguous, and unmistakably refers to sales and purchases. The new section 25210 gives added thrust to the meaning of section 25004. Under the 1949 law, section 25700 requiring a 'broker' as defined in former section 25006 to be licensed simply provided: 'No person or company shall act as an agent or broker until it has first applied [40 Cal.App.3d 501] for and secured from the commissioner a certificate. . . .' Section 25210 performs the same function under the 1968 law by requiring a broker-dealer to have a certificate, but the important words '. . . or induce or attempt to induce the purchase or sale of, any security . . .' are new. The cardinal rule of statutory construction is that the intention of the Legislature must be ascertained and given effect. (Code Civ.Proc., § 1859; Van Nuis v. Los Angeles Soap Co., 36 Cal.App.3d 222, 228, 111 Cal.Rptr. 398.) While an intention to change the law is indicated by a material change in the language of a statute, a consideration of the surrounding circumstances may indicate the amendment was merely the result of a legislative intent to clarify the true meaning of the statute. (Martin v. California Mut. B. & L. Assn.,18 Cal.2d 478, 484, 116 P.2d 71.) Although the purchase of Humphrey occurred after the 1968 law, if there was any doubt concerning the scope of the 1949 law, the Legislature by adding the new words to section 25210 made its...