Wright v. Trotta

Melvin, J., delivered the opinion of the Court. On 8 January 1974, the appellants, Ernest W. Wright and his wife, Oreva C. Wright, filed a second amended bill of complaint in the Circuit Court of Baltimore City seeking, among other things, an accounting of sums allegedly due them under a “percentage rental” clause in a “Lease Agreement” with Frank J. Trotta and Florence Trotta, his wife, two of the appellees here. After lengthy pre-trial proceedings, 1 the case came on for trial before the chancellor on 2 February 1976. The evidence submitted to the chancellor consisted of various exhibits and stipulations of the parties.

No testimony was taken or depositions offered. By decree dated 26 February 1976, the chancellor dismissed the second amended bill with prejudice and this appeal followed. By the “Lease Agreement”, dated 19 June 1970, the Wrights leased to the Trottas premises in Baltimore City known as No. 2910 Edmondson Avenue, improved by a two-story brick building, for a term beginning 1 July 1970 and ending 30 June 1976, to be followed by another term beginning 1 July 1976 and ending 30 June 1980. The lease provided that “[t]hese consecutive terms shall end and begin, respectively, without notice and each is noncancellable”.

Prior to leasing 2910 Edmondson Avenue to the Trottas, ³¹² Mr. Wright had used the premises as headquarters for selling memberships in his “Car Care Club”, an automobile club that apparently offered various services to its motorist members, such as payment for legal services incurred by members and payment for towing and emergency road services. Also located at 2910 Edmondson Avenue, prior to the lease, was Broker’s Insurance Service, an insurance agency operated by Dianne D. McNaney, Mr. Wright’s daughter, who then held a valid license to sell insurance. Mr. Wright’s insurance license was cancelled in 1969. On the same date the lease was executed McNaney sold her insurance business to Mr. Trotta.

The sales agreement provided that within 15 days of the date of the lease Trotta “shall form a corporation to conduct a general insurance agency” and that he “assign this Agreement to said Corporation and . . . have the Corporation assume the obligations imposed upon the Buyer by this Agreement. . . .” The Lease Agreement between the Wrights and the Trottas likewise required the Trottas to form a corporation “which shall conduct the business of a general insurance agency” and a second corporation to “conduct the business of an automobile, travel or motorists’ service club”, and to assign the lease to both corporations “jointly and severally”. The rent clause of the lease provided for a “fixed rental” plus a “percentage rental” for each term of the lease. In pertinent part the rent clause for the first term reads as follows: “(a) Fixed Rental: the yearly sum of three thousand ($3,000.00) dollars in monthly installments, each in advance in the amount of Two hundred Fifty ($250.00) dollars, beginning for the first thereof on the first day of July, 1970, and continuing thereafter on the first day of each succeeding month during the continuation of this Lease; (b) Percentage Rental: the further sums of money equal to the percentages of ‘gross sales’ or ³¹³ ‘gross writings’ or by whatever name the businesses of the Lessees shall be known, as follows: (1) a sum equal to two and one-half (2V2%) percent of the gross premiums on all insurance policies written, by or through the insurance business conducted at the demised premises. (2) a sum equal to twenty-five (25%) percent of the fee — by what ever name it be known — charged for each automobile, travel or motorists’ service club membership written by, through and/or for the Lessees in the State of Maryland', and (3) a sum equal to five (5%) percent of the fee — by whatever name it be known — charged for each automobile, travel or motorists’ club membership written by, through and/or for the Lessees for residents of States other than Maryland.

The aforesaid percentage rentals are cumulative, not only each with the other, but also with the fixed rental specified in sub-paragraph (a) of this section. As of the close of business on Friday of each week during the continuation of this Lease, and beginning for the first thereof on June 26th, 1970, the Lessees shall prepare and deliver to the Lessors at the place then fixed for payment of Rent, a sworn statement of gross writings of insurance policies and auto club memberships — as immediately hereinbefore defined — for the week then just ended. With each such weekly statement, the Lessees shall pay the percentage rental for that week, calculated as hereinbefore specified.” (Emphasis added.) By an addendum to the lease, the Trottas “assume[d] the obligations of any memberships in the Car Care Club existing at the date of this lease”. In August 1970, pursuant to the “Lease Agreement” the lease was assigned to Broker’s Insurance Service, Inc. and International Travel Club, Inc., both of which were ³¹⁴ apparently wholly owned and controlled by Mr. Trotta and through which he operated both an insurance agency and a motor club business at the leased premises on Edmondson Avenue.

It appears from the stipulations submitted at trial that Mr. Trotta also owned and operated another insurance agency known as Howard Insurance Service, located at 635-37 North Howard Street in Baltimore City. The record does not reveal when this latter agency was formed. It was further stipulated that “there has been an accounting of the rents ... in accord with the percentage rental agreement through and up to August 7, 1971 on a weekly basis, but there has been no accounting since then”; that the “base rent” (i.e. the “fixed rental” of $250 per month) had been paid through November 1972; that “on December 6th, 1973 no business was being conducted on the premises known as 2910 Edmondson Avenue; and that “the tenancy was terminated on 2910 Edmondson Avenue by a letter dated May 20, 1974 .. . from [the Trottas’ trustee] to Mr. Frank J. Trotta”. It further appears from the exhibits that the Wrights’ trustee sold the property on May 31, 1974, to a party unrelated to these proceedings.

I The chancellor dismissed the second amended bill of complaint because he felt, as argued by appellees, that payments to the Wrights under the “percentage rental” clause of the lease was a violation of § 167 of Art. 48A of the Maryland Code (1972 Repl. vol.) and therefore the Wrights could not enforce the clause. Section 167 reads in pertinent part as follows: “(a) License required to act as agent or broker. — No person shall in this State act as or hold himself out to be an agent or broker, nor shall any person in any manner solicit, negotiate, make or procure insurance covering subjects of insurance resident, located or to be performed in this State, unless then licensed therefor pursuant to this subtitle or not subject to the provisions hereof, except as otherwise provided in this article. ³¹⁵ (b) Agent or broker not to solicit, etc., kinds of insurance for which he is not licensed. — No agent or broker shall solicit or take application for, negotiate, procure or place for others any kind of insurance for which he is not then qualified and licensed. (c) Commissions, fees, etc., not to be paid to unlicensed persons. — No commission, fee, reward, rebate or other consideration for procuring or influencing the procurement of any insurance shall be paid, directly or indirectly, to any person who is not then licensed pursuant to the provisions of this subtitle, except as to the kinds of insurance, types of insurers and transactions exempted from the provisions of this subtitle by §§ 165 and 171; provided, however, that in the case of life insurance and health insurance the provisions of this section shall not prevent the payment or receipt of commissions on renewal premiums on existing policies or other deferred commissions to or by any person solely because such person has ceased to hold a license to act as agent, or broker except as otherwise provided by this article. (d) Penalty. — Any person who violates any provision of this section shall be guilty of misdemeanor, and upon conviction thereof shall be subject to a fine of not more than $500.00 or to imprisonment for not more than 6 months, or both, for each such violation.” (Emphasis added).

It is clear that the requirement of the statute that an insurance agent or broker be licensed by the State is not merely for the purpose of raising revenue. The license is required primarily for the protection of the public and to prevent improper persons from acting as brokers or agents, Goldsmith v. Mfgrs.’ Liability Ins. Co., 132 Md. 283 , 103 A. 627 (1918); therefore, any contract entered into by an unlicensed person requiring compensation to be paid him “directly or indirectly”, for his services in “procuring or influencing the procurement of any insurance” can not be ³¹⁶ enforced by such person. See Goldsmith, supra, pp. 286-289 ; 17 Am.

Jur. 2d; Contracts, § 155 et seq. (1964). Appellees argue that the Wrights “were using the guise of a Lease to profit from the sale of insurance, something Appellants could not do directly because they did not have a license”. Under the terms of the “Lease Agreement”, there is no doubt that the more insurance and motor club memberships 2 the lessees sold the more the Wrights would profit.

It does not follow, however, that payment by the Trottas or receipt by the Wrights of the “percentage rental” pursuant to the “Lease Agreement” is violative of § 167. There is nothing in the lease requiring, directly or indirectly, that the Wrights be paid anything “for procuring or influencing the procurement of any insurance”; nor is there any evidence that the percentage rent paid the Wrights up to 7 August 1971 or for which they seek an accounting since then, was, or is, in return “for procuring or influencing the procurement of any insurance”. The consideration for the “percentage rent” is the use and occupancy of the leased premises, not any activity on the part of the Wrights requiring them to be licensed. A precept now firmly established in Maryland and enunciated by the Court of Appeals almost a century ago in Maryland Fertilizing and Manufacturing Company v. Newman, 60 Md. 584, 588 (1883), is that “Parties have the right to make their contracts in what form they please, provided they consist with the law of the land; and it is the duty of the courts so to construe them, if possible, as to maintain them in their integrity and entirety.” See Mortgage Investors of Washington v. Citizens Bank & Trust Co. of Maryland, 29 Md. App. 591 , 347 A. 2d 647 (1976), cert. granted and affirmed, 277 Md. 739 (1976), for the latest recognition of this principle. ³¹⁷ It is also firmly established that one who would avoid a contract on the ground of illegality has the burden of producing evidence to show the illegality.

The rule was succinctly stated in McNally v. Moser, 210 Md. 127 , 122 A. 2d 555 (1956): “It was . . . [defendants] who pleaded illegality, it is they who had the duty of producing evidence to show it, and finally, it is they who had the burden of persuading the court that they had established the illegality. One who relies upon illegality, failure of consideration or other affirmative defenses, has imposed upon him the burden of persuasion.” We find no evidence in the record before us from which the chancellor could properly find the “percentage rental” clause to be illegal. His fears that “this arrangement has all of the ingredients for a violation of the statute by way of procuring and influencing” are not enough. This is not to say that in a proper case a lease such as the one before us may not be found to be a mere sham to allow an unlicensed person to engage in activity for which regulatory statutes require him to be licensed.

In the case before us, however, there is no evidence