Farthing v. Coco Beach Resort Management, LLC
864 F.3d 39
1st Cir.2017Background
- Farthing, a South Carolina resident, signed a one‑year employment agreement (Marketing and Sales Director) with Coco Beach, a Puerto Rico company, on March 24, 2016; agreement had no early‑termination clause and did not require a Puerto Rico real‑estate broker license.
- Farthing lacked a Puerto Rico broker's license at all relevant times; parties dispute whether Coco Beach knew (or should have known) of that fact when hiring him.
- Farthing’s duties included identifying potential buyers, offering/promoting/negotiating sales or sale options for Las Casas units; he also alleges non‑broker tasks (hiring brokers, arranging financing meetings, building marketing infrastructure).
- Coco Beach terminated Farthing in late June 2016 and offered severance; parties dispute whether Farthing accepted and whether a commission arrangement for a particular unit was promised post‑termination.
- Farthing sued in federal court for breach of contract seeking unpaid salary and anticipated commissions; the magistrate granted summary judgment for Coco Beach, holding the contract void as against public policy because Farthing performed broker duties without a license.
- The First Circuit vacated and remanded, finding material factual disputes (knowledge, scope of duties, divisibility/severability) precluded summary judgment and that exceptions to the illegality doctrine (e.g., excusable ignorance) might apply.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of the employment contract given lack of broker license | Farthing: contract valid; he was an employee selling employer's property (not an intermediary) and some duties did not require a license | Coco Beach: contract illegal because duties constituted real‑estate brokering that requires a license; unenforceable as against public policy | Vacated summary judgment; factual disputes (knowledge, duty scope) preclude decision now |
| Effect of parties' knowledge on relief for illegal contract | Farthing: Coco Beach knew or should have known he lacked a license; he was excusably ignorant and may recover | Coco Beach: knowledge is irrelevant; illegal contract cannot be enforced | Court: knowledge is material; excusable ignorance is an exception and requires factfinding |
| Severability/divisibility of contract obligations | Farthing: contract has severability clause; base salary and non‑broker duties can be enforced even if broker duties void | Coco Beach: duties intertwined; base salary tied to brokering so contract not severable | Court: severability/divisibility unresolved; material dispute exists and must be decided on remand |
| Adequacy of summary judgment | Farthing: genuine disputes of material fact exist on knowledge, duties, and acceptance of termination agreement | Coco Beach: no genuine dispute – contract illegal; also asserts accord and satisfaction | Court: summary judgment improper because disputed facts and affirmative defenses need resolution by district court |
Key Cases Cited
- Dukes Bridge LLC v. Beinhocker, 856 F.3d 186 (1st Cir. 2017) (standard of review for contract interpretation and summary judgment)
- Burns v. Johnson, 829 F.3d 1 (1st Cir. 2016) (credit evidence favorable to nonmovant at summary judgment)
- García‑González v. Puig‑Morales, 761 F.3d 81 (1st Cir. 2014) (materiality standard for disputes at summary judgment)
- Newman v. Advanced Tech. Innovation Corp., 749 F.3d 33 (1st Cir. 2014) (defining material facts affecting suit outcome)
- Santiago‑Sepúlveda v. Esso Standard Oil Co. (P.R.), Inc., 643 F.3d 1 (1st Cir. 2011) (Puerto Rico law permits enforcement of severability clauses)
- Cecort Realty Dev., Inc. v. Llompart‑Zeno, 100 F. Supp. 3d 145 (D.P.R. 2015) (contract nullity when contrary to law, morals, or public order)
- Am. Buying Ins. Servs., Inc. v. S. Kornreich & Sons, Inc., 944 F. Supp. 240 (S.D.N.Y. 1996) (exceptions to illegality rule, including excusable ignorance)