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DALTON v. MIRANDI

May 19, 1976

DALTON, DALTON, LITTLE, INC., Plaintiff,
v.
Anthony MIRANDI, Individually and t/a Mirandi Construction Co., et al., Defendants



The opinion of the court was delivered by: BIUNNO

 Plaintiff (hereafter, "Architect") is a Maryland corporation. It sues (on diversity grounds) in the District of New Jersey to recover fees for architect's services in preparing and certifying plans and specifications for a building to be constructed in New Jersey.

 The defendant owner (with whom the contract was made), as well as collateral defendants, say that the fees claimed are not payable because the professional work was not properly performed. This is raised by way of defense, and also by counterclaim for additional expenses incurred to correct defects, and the like.

 Another issue, a fundamental one, has been raised: may the Maryland corporate entity which made the contract with the owner, sue for professional fees in this court under diversity jurisdiction when it had no authority to render professional services in New Jersey for construction of a building in this State, i. e., is the contract illegal?

  If the contract is illegal, it is the policy of the law to leave the parties where it finds them, and to deny relief to both sides. The rule is long established. See Morris v. Muller, 113 N.J.L. 46, 172 A. 63 (E & A, 1934); Cameron v. Int'l, etc., 119 N.J.Eq. 577, 183 A. 157 (E & A, 1935), cert. den., 298 U.S. 659, 56 S. Ct. 681, 80 L. Ed. 1385 (1936); Gionti v. Crown, etc., Co., 128 N.J.L. 407, 26 A.2d 282 (E & A, 1942); Ryan v. Motor Credit Co., 130 N.J.Eq. 531, 23 A.2d 607 (Ch. 1941), aff'd., 132 N.J.Eq. 398, 28 A.2d 181 (E & A, 1942).

 To the same effect, see Williston on Contracts, Rev.Ed., §§ 1780, 1782. In some respects, the question has sometimes turned on whether the illegal provision, by the terms of the bargain, has a specific consideration apportioned to it; but even in such cases the contractual apportionment will not save the agreement if the illegal portion is an essential part of the contract as a whole. See, in this respect, Restatement of Contracts, § 607 and, especially Comment (a); the rule is well stated in Lehigh Valley R. Co. v. United Lead Co., 102 N.J.L. 545, 133 A. 290 (S. Ct., 1926). See, also, Stack v. P & G Garage, Inc., 7 N.J. 118, 80 A.2d 545 (1951, from bottom of p. 121 to top of p. 122); Wilentz v. Hendrickson, 133 N.J.Eq. 447, 33 A.2d 366 (Ch. 1943), aff'd., 135 N.J. Eq. 244, 38 A.2d 199 (E & A, 1944); Buckelew v. Martens, 108 N.J.L. 339, 156 A. 436 (E & A, 1931).

 The test of the rule is that if it appears that there would have been no contract made without the illegal portion, then the striking of it strikes out the entire contract. The test is not merely one of "divisibility" of consideration for specific promises, but is one of "severability" in its correct sense. See, Dixon v. Smyth Sales Co., 110 N.J.L. 459, 166 A. 103 (E & A, 1933).

 Here, of course, such issues are not reached because the contract itself, as a whole, was for the rendering of architectural services for a New Jersey building. If Architect, as a Maryland corporation, could not lawfully render those services under the contract as drawn and executed, then there are no subordinate questions about "divisibility" or "severability". This is the question raised on the motion papers submitted, and here to be resolved.

 With very few exceptions, statutory regulation of the practice of professions, until recent times, did not allow them to be practiced in the corporate form in most jurisdictions. The New Jersey pattern, mostly found in Title 45 of the Revised Statutes of 1937 fully reflects this policy, no doubt common among the other jurisdictions. Traditionally, professional practice in groups of licensees, has taken the form of a partnership or firm, with all of the members of the contracting group and their professional employees being licensed to practice the profession in the pertinent jurisdiction. See, for example, Canon 33, A.B.A. Canons of Professional Ethics, and the corresponding provisions in the new A.B.A. Code of Professional Responsibility, Canon 2, and EC 2-11, 2-12, 2-13, DR-2-102(B), (C) and (D); Canon 3, with EC 3-8 and DR 3-103; and Canon 5, with DR 5-107(C).

 In recent years, due to clear inequities in the federal income tax treatment of professional partnerships and firms vis-a-vis business corporations, and the initial posture of the Internal Revenue Service through the "Kintner Regulations" (designed to block efforts to achieve essential equality of tax treatment), many States enacted statutes authorizing the formation of professional corporations or associations. See, e.g., 87 N.J.L.J. 193 (1964).

 The history of these efforts is well known. After a series of unbroken failures in a significant number of the federal circuits, Solicitor-General Griswold announced the capitulation of IRS on the question, 92 N.J.L.J. 533 (1969). The professional corporation or association is now recognized for federal tax purposes on the same basis as the corner butcher, baker or candlestick maker.

 New Jersey is one of the States that enacted such a law, the Professional Service Corporation Act, P.L. 1962, c. 233, revised by P.L. 1969, c. 232 (N.J.S.A. 14A:17-1, et seq.).

 The profession of architecture is one of those for which the New Jersey statutes limit the practice to individuals who qualify, take an examination and are licensed (i. e., natural persons), modified only to the extent that the Professional Corporation Act allows such licensed individuals to practice in the corporate form, as New Jersey professional corporations. The act contains no authority for a foreign professional corporation to secure authority to do business in ...


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