Crowley v. Rorvig

203 P. 496, 61 Mont. 245, 1921 Mont. LEXIS 31

Opinion

MR. COMMISSIONER SPENCER

prepared the opinion for the court.

The facts essential to a determination of the appeals herein are that plaintiffs • and defendant entered into a written agreement by the terms of which the plaintiffs engaged to sell certain lands of the defendant in Broadwater county for the fixed sum of $40,000, for a commission of five per cent. The instrument under which plaintiffs operated was designated “authority to sell.” Subsequently the plaintiffs, assuming to act as agents of the defendant, entered into an agreement with Stella G. Crowley, Mary D. Crowley, Walter H. Hill, and Gilbert Burteh (hereinafter referred to as purchasers) whereby the purchasers agreed to buy the lands of defendant according to the terms of the authority to sell. Stella G. and Mary D. Crowley are the wives of M. IT. and W. E. Crowley, respectively, and Stella G. Crowley is treasurer and M. H. and W. E. Crowley president and secretary of the Logan Land Company, the corporate agent. The other purchasers are strangers. Thereafter plaintiffs tendered to defendant contracts to be executed for the sale of the land to the purchasers in pursuance of the terms of their agency. The defendant did not examine the contracts, declined to sign them, and in fact refused to comply with the “authority to sell.” The purchasers were ready, able and willing to buy upon the terms specified in their agreement. This action is for recovery of $2,000 claimed to be due as commission. Trial was had to the court with a jury, resulting in a directed verdict for defendant and judgment thereon. Motion for a new trial was denied, and appeal is from the judgment and order denying the motion.

The evidence is in conflict as to whether or not the authority to sell was revoked before plaintiffs made the agreement with the purchasers, but that fact is of little moment here, for these appeals involve primarily the question of the validity of that contract. Hence, assuming the fact of revocation to be most favorable to plaintiffs, was the contract between the agents (plaintiffs individually and the corporation) and the purchasers (two of whom were wives of the individual agents and one an officer of the corporate agent) a valid contract under the authority to sell?

If the question here involved the integrity of a contract [1] wherein the agents themselves became the purchasers, little difficulty would be encountered in its solution. While this court has not heretofore been called upon to decide a like question, those in other jurisdictions have determined it and are substantially in accord in opposition to its validity, at the option of the principal. As illustrative of the conclusion that such a contract is voidable at the principal’s option, and the reasons for the rule, we quote with approval the following from the supreme court of Nebraska: “In Stettnische v. Lamb, 18 Neb. 627, 26 N. W. 374, is this language: ‘The rule is well settled that a party will not be permitted to purchase an interest in property, and hold it for his own benefit, where he has a duty to perform in relation thereto which is inconsistent with his character as a purchaser on his own account.’ This statement was sustained by several authorities cited, and of its correctness there can be no doubt. In the light of adjudged cases and of the text-books, therefore, let us see what duty the plaintiffs in error had to perform towards the defendant in error in respect of the real property which was the subject matter of the agency between them. Upon this subject the following language is found in Pom. Eq. Jur., section 959: ‘In dealings without the intervention of his principal, if an agent for the purpose of selling property for the principal purchases it himself, or an agent for the purpose of buying property for the principal buys it from himself, either directly or through the instrumentality of a third person, the sale or purchase is voidable. It will always be set aside at the option of the principal. The amount of consideration, the absence of undue advantage, or other similar features, are wholly immaterial. Nothing will defeat the principal’s right of remedy except his own confirmation after full knowledge of all the facts.1

“In Porter v. Woodruff, 36 N. J. Eq., on page 179 et seq., the following language is found: ‘The general interests of justice, and the safety of those who are compelled to repose confidence in others, alike demand that the courts shall always inflexibly maintain the great and salutary rule which declares that an agent employed to sell cannot make himself the purchaser, nor, if employed to purchase, can he be himself the seller. The moment he ceases to be the representative of his employer, and places himself in a position towards his principal where his interests may come in conflict with those of his principal, no matter how fair his conduct may be in the particular transaction, that moment he ceases to be that which his service requires, and his ‘duty to his principal demands. He is no longer the agent, but an umpire. He ceases to be the champion of one of the ■ contestants in the game of bargain, and sets himself up as a judge to decide between his principal and himself what is just and fair. The reason of the rule is apparent. Owing to the selfishness and greed of our nature, there must, in the great mass of the transactions of mankind, be a strong and almost ineradicable antagonism between the interests of the seller and the buyer; and universal experience has shown that the average man will not, where his interests are brought in conflict with those of his employer, look upon his employer’s interest as more important, and entitled to more protection, than his own. In such cases the courts do not stop to inquire whether the agent has obtained an advantage or not, or whether his conduct has been fraudulent or not. When the fact is established that he has attempted to assume two distinct and opposite characters in the same transaction, in one of which he acted for himself, and in the other pretended to act for another person, and to have secured for each the same measure of advantage that would have been obtained if each had been represented by a disinterested and loyal representative, they do not pause to speculate concerning the merits of the transaction— whether the agent has been able so far to curb his natural greed as to take no advantage — but they at once pronounce the transaction void because it is against public policy. The salutary object of the principle is not to compel restitution in case fraud has been committed, or an unjust advantage gained, but to elevate the agent to a position where he cannot be tempted to betray his principal. Under a less stringent rule, fraud might be committed, or unfair advantage taken, and yet, owing to the imperfections of the best of human institutions, the injured party be unable either to discover it, or prove it in such a manner as to entitle him to redress. To guard against this uncertainty, all possible temptation is removed, and the prohibition against the agent acting in a dual character is made broad enough to cover all his. transactions. The rights of the principal will not be changed, nor the capacities of the agent enlarged, by the fact that the agent is not invested with a discretion, but simply acts under an authority to purchase a particular article at a specified price, or to sell a particular article at the market price. No such distinction is recognized by the adjudications, nor can it be established without removing an important safeguard against fraud. (Benson v. Heathorn, 1 Younge & C. 326; Conkey v. Bond, 34 Barb. 276, 36 N. Y. 427.) ’

“In Ruckman v. Bergholz, 37 N. J. L. 440, is found the following language: ‘The judge, distinguishing this ease from one where the price was left open to the negotiations of the agent, instructed the jury that, though the plaintiff was interested in the purchase when it was made, he might, nevertheless, recover his commissions as agent, notwithstanding the defendant was not aware of the existence of such interest. In this there was error, for it is a fundamental rule that an agent employed to sell cannot himself be a purchaser, unless he is known to his principal to be .such. (Dunl. Paley, Ag. 33; Story, Ag., see. 210; and other cases cited.) And this rule is not inapplicable, nor is it relaxed, when the employment is to sell at a fixed price, for it springs from the prohibitory policy of the law, adopted to prevent the abuse of confidence, and to remove temptation to duplicity. It requires a man to put off the character of agent when he assumes that of principal.’ Mechem, Ag., in section 455, states the rule as follows: ‘The agent will not be permitted to serve two masters without the intelligent consent of both. As is said by a learned judge, so careful is the law guarding against the abuse of fiduciary relations that it will not permit an agent to act for himself and his principal in the same transaction, as to buy of himself, as agent, the property of his principal, or the like. All such transactions are void, as it respects the principal, unless ratified by him with a full knowledge of all the circumstances. To repudiate them, he need not show himself damnified. Whether he has been or not, is immaterial. Actual' inquiry is not the principle the law proceeds upon in holding such transactions void. Fidelity in the agent is what is aimed at, and, as a means of securing it, the law will not permit the agent to place himself in a situation in which he might be tempted by his own private interest to disregard that of his principal.’ (Citing People v. Township, 11 Mich. 222.) ‘This doctrine, to speak again the beautiful language of another, has its foundation, not so much in the commission of actual fraud as in that profound knowledge of the human heart which dictated that hallowed petition, “Lead us not into temptation, but deliver us from evil,” and that caused the announcement of the infallible truth, “A man cannot serve two masters.” ’

“These quotations we shall properly close with the language of Story, Ag., section 210, quoted, with the approval of this court, in Englehart v. Plow Co., 21 Neb. 48, 31 N. W. 391; ‘In this connection, also, it seems proper to state another rule in regard to the duties of agents, which is of general application, and that is that, in matters touching the agency, agents cannot act so as to bind their principals where they have an adverse interest in themselves. This rule is founded upon the plain and obvious considerations that the principal bargains in the employment for the exercise of the disinterested skill, diligence, and zeal of the agent for his own exclusive benefit. It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interests of his principal, as far as he lawfully may; and even if impartiality could possibly be presumed on the part of the agent, where his own interests are concerned, that is not what the principal bargains for, and in many cases it is the very last thing which would advance his interest. If, then, a seller were permitted, as an agent of another, to become the purchaser, his duty to his principal and his own interest would stand in direct opposition to each other, and thus a temptation, perhaps in many cases too strong for resistance by men of flexible morals, or hackneyed in the common device of worldly business, would be held out, which would betray them into gross misconduct, and even into crime. It is to interpose a preventive check against such temptations and • seductions that a positive prohibition has been found to be the soundest policy, encouraged by the purest precepts of Christianity. ’ ” (Jansen v. Williams, 36 Neb. 869, 20 L. R. A. 207, 55 N. W. 279; 4 R. C. L., sec. 25, pp. 276, 277; Burke v. Bours, 92 Cal. 108, 28 Pac. 57; Reed v. Aubrey, 91 Ga. 435, 44 Am. St. Rep. 49, 17 S. E. 1022; Tyler v. Sanborn, 128 Ill. 136, 15 Am. St. Rep. 97, 101, 4 L. R. A. 218, 21 N. E. 193; also, Rodman v. Manning, 53 Or. 336, 20 L. R. A. 1158, 99 Pac. 657, 1135; Kingsley v. Wheeler, 95 Minn. 360, 104 N. W. 543, 544.)

But as opposed to the rule that an agent intrusted with the privilege of selling his principal’s property cannot become the purchaser, counsel for appellants rely upon Martineau v. Hanson, 47 Utah, 549, 155 Pac. 432, Cuneo v. Giannini, 40 Cal. App. 348, 180 Pac. 633, Herbert Kraft Co. v. Bryan, 140 Cal. 73, 73 Pac. 745, and Copsey v. Sacramento Bank, 133 Cal. 659, 85 Am. St. Rep. 238, 66 Pac. 7, 8, 204 (two eases). Modification of the general rule, however, does not find support in these cases, but rather are they authority for a well-defined exception within which the instant case is not included. In Martineau v. Hanson, supra, the contract of agency provided that the broker might retain as his commission all he received over a specified sum net to his principal. The court said: “It should be remembered that in this case the defendant fixed his own price for the lands in question, and the plaintiff’s commission was made dependent entirely upon whether he could find a purchaser who was willing and able to pay more than the price fixed by the defendant. If the plaintiff found such a purchaser, then he was entitled to whatever sum he realized for the lands in excess of defendant’s price. In what way could it have affected the defendant, therefore, if it were found that the plaintiff advanced any part of the purchase price, and for doing so was given some interest in the lands, or that he obtained some interest therein as purchaser? True it is, as we have already pointed out, that if the plaintiff misrepresented the purchaser’s financial ability to pay for the lands, and that he thereby misled the defendant and induced him to enter into the contract of sale, so that plaintiff might obtain the commission, and for that reason was given the note in' question, he could not recover in this action. But that is entirely a different proposition from the one insisted' upon by the defendant, namely, that under no circumstances may a broker be interested, either directly or indirectly with the purchaser. Under the contract of employment in this case, if the defendant received the price fixed by him for his lands, it was entirely immaterial to him how, or through what sources the purchaser obtained the money or means to pay therefor. Nor was he interested in - the question of who purchased, except to the extent that such purchaser was financially able to pay for the lands. The question here is somewhat akin to the question passed on in Neighbor v. Pacific Realty Assn., 40 Utah, 610, Ann. Cas. 1914D, 1200, 124 Pac. 523, where the exception to the general rule that a broker may not be interested in the lands purchased or sold is pointed out. So as not to be misunderstood upon the question just discussed, we repeat that the foregoing statements are based upon the express condition that the plaintiff acted in good faith, and did not, by false representations, induce the defendant to enter into a contract of sale with Mr. Earl for the purpose merely of obtaining the commission, regardless of the financial ability of said Earl to pay the purchase price.” (Martineau v. Hanson, 47 Utah, 549, 155 Pac. 432, 434.)

The same exception is recognized in 4 R. C. L., section 25, pages 277, 278. Herbert Kraft Co. v. Bryan, supra, presents a condition wherein trustees named in a trust deed sold property of the principal to a corporation of which they were stockholders and directors. The trust deed specifically authorized the corporation to become a purchaser at the sale. The court disposed of the contention that the sale was void as follows: “The claim that the sale was void rests solely upon the naked fact that the two trustees who made the sale were stockholders and directors of the corporation, and that this fact, ipso facto, and without any further showing, rendered the sale void. This position is not tenable. The plaintiff occupied no fiduciary relation to the trustees, and as holder of the debt secured had, under the express terms of the deed, the right to purchase at the sale. The two trustees, being stockholders and directors of the corporation, had some relation to and interest in its affairs; but that relation does not bring the case at bar within the principle that a sale by a trustee to himself is absolutely void. The purchase was not made by or for the trustees, but by the corporation for itself, and the seller and purchaser were not the same person. A sale of property by a director to his corporation is not void. Moreover, the rule invoked is much relaxed as to mortgages and deeds of trust with power to sell, given as security for loans. The mortgagee himself may be the trustee to sell under the mortgage. It seems clear that a sale like the one involved in the case at bar is not void; and, if it could be considered as voidable, it could be avoided only upon the showing of some injury not here averred. As plaintiff was the highest bidder, it is difficult to see how the trustees could have refused to accept the bid without violating their duty to the trustors. However, further discussion of the point is unnecessary, because it is determined against the contention of appellant in the recent case of Copsey v. Sacramento Bank, 133 Cal. 665, 85 Am. St. Rep. 242, 66 Pac. 8, 205, where authorities sustaining the foregoing views are cited. We do not see how the fact that in the Copsey Case the debt was due originally to the corporation of which the trustees were directors can make any difference in the application of the principle.” (Herbert Kraft Co. v. Bryan, 140 Cal. 73, 73 Pac. 745.)

In Cuneo v. Giannini, supra, the court apparently distinguishes between a “family corporation” and corporations generally, and in that case, the action of a majority of the board of directors of that family corporation, in which defendant’s wife was a director, was not disturbed. The apparent confusion in the decided cases involving the question under discussion disappears under analysis, and the authorities are harmonious in holding the agent to that high degree of skill and fidelity in his principal’s behalf which requires that his best efforts shall result to the advantage of his principal, thereby excluding the theory that he may occupy the inconsistent position of both seller and buyer, except in the instances herein mentioned, and vindicates the law’s intolerance of any suggestions that the agent may serve two masters. (Northwestern Nat. Bank of Great Falls v. Great Falls Opera House Co. et al., 23 Mont. 1, 10, 11, 57 Pac. 440.)

But under the general rule, since the agent himself cannot [2] become the purchaser at the sale of his principal’s property, may he avoid the penalty of the law by a sale to his wife? We think not. The salutary design which forms a basis for the rule in the former applies alike in the latter instance. The supreme court of Georgia elucidates the rule as follows: “The law is well settled that an agent to sell land cannot himself become the purchaser, unless the owner, with a full knowlédge of all the facts, consents thereto. The principle which renders an agent incompetent to purchase from himself renders him alike incompetent to sell to his wife. As he is forbidden to purchase that which another has intrusted him to sell, for the reason that the temptation to take care of himself will override the duty he owes to his principal, it requires no great amount of reflection to perceive that he will ordinarily be influenced by the same motive in selling to his wife. It is hardly possible for a wife to make an advantageous contract of any kind without more or less benefit therefrom resulting to the husband. In this sense, as in many others, ‘the twain are one flesh,’ and the selfishness and desire for gain common to most mortals makes it expedient to prevent a husband and wife dealing between themselves with the property of another of which the husband has charge in a fiduciary capacity. A very strong and well-reasoned case in support of the above doctrine is that of Tyler v. Sanborn, 128 Ill. 136, 15 Am. St. Rep. 97, [4 L. R. A. 218, 21 N. E. 193], in which it was held that a purchase by a wife of land for the sale of which her husband was agent, with notice of his agency, will be set aside as fraudulent at the instance of his principal, who had no notice as to who was the purchaser, although there was no fraud in fact, and the wife purchased against the remonstrance of her husband, and paid for the property out of her separaté estate. # * * Ttis sale was afterward set aside at the instance of the owners, as fraudulent in law against them, although the conduct of both the agent and his wife was absolutely free from all fraud in fact. This decision carries the doctrine announced in the case at bar to a very considerable length, and two of the seven justices dissented; but it serves to show that the law in eases of this kind has been, and should be, very strictly enforced. The fact that in Illinois the husband is entitled to dower in the real estate of the wife undoubtedly contributed to some extent to the conclusion reached. We have no such law in Georgia, but no one can doubt that a husband has practically a beneficial, though not a legal, interest in the property of his wife. Beference is here made to the authorities cited in the case just mentioned, and also to Davoue v. Fanning, 2 Johns. Ch. (N. Y.) 251, an examination of which will throw some light upon the question under consideration.” (Reed v. Aubrey, 91 Ga. 435, 44 Am. St. Rep. 49, 17 S. E. 1022.)

The above quotations are an adoption of the principle enunciated by Chancellor Kent in Davoue v. Fanning, decided in 1816, and reported in 2 Johns. Ch. (N. Y.) 251. Kansas, with statutes commonly called emancipation statutes, similar to those of Montana, disposes of the question involving the invalidity of a sale by the agent to his wife thus: “It is true that the common-law fiction of the legal identity of the husband and wife, and the very nearly complete merger of the latter in the former, does not now have recognition. In this state, as allowed by statute, the wife may contract with her husband. They may own separate estates, free from any present claim of interest by one in the property of the other —that is, as against the other — but it is not true that as to their respective possessions they are strangers in such a sense as to take a trustee’s sale by one to the other from out the operation of the rule in question. Upon the death of either of them one-half of his or her property descends under the statute to the survivor, and under the statute neither one, without the other’s consent, cap, by will, devise more than one-half his or her property. IT is true the interest of the one in the property of the other tvis contingent and uncertain, and dependent on survivorship. It is true that the interest of the one in the land of the other is not of the character of any of the estates known to the common law, but it nevertheless possesses the elements of property. This was distinctly so ruled in Busenbark v. Busenbark, 33 Kan. 572, 7 Pac. 245, and on the strength of the quality of property attaching to the inchoate interest of a wife in her husband’s land she was allowed in that case to maintain an action to prevent its fraudulent alienation. However, over and beyond that property interest which husband and wife have in each other’s estate, and which possesses the element of pecuniary value, there is a larger consideration. It was well expressed by counsel for defendant in error, who said: ‘The affection existing between husband and wife; the marital relation, which in a sense makes them one; the implicit confidence which each must have in the other; their natural desire for each other’s material prosperity; the relation which enables one to derive and enjoy personal comfort and pleasure from the property of the other, independent of the question of direct or indirect ownership in such property — are all so well recognized in law and understood by all civilized people that it would be arguing against the experience of centuries to contend that one would not be interested in the welfare of the other, and do all that could be done to enhance the pecuniary interests of the other. Therefore, by reason of the relation, no guardian could be impartial in the sale to husband or wife of the property of the ward.’ ” (Frazier v. Jeakins, 64 Kan. 615, 57 L. R. A. 575, 68 Pac. 24.)

And hence it is to be observed that the same stamp of universal disapproval is impressed upon a sale to the wife as to the husband, as agent.

That two of the purchasers were strangers in the transaction to the selling agents, and bore no business, kindred or other relation toward them, does not alter the rule. This finds support in Robbins v. Butler, 24 Ill. 387, and Tilleny v. Wolverton, 46 Minn. 256, 48 N. W. 908.

The plaintiffs in this action are M. H. Crowley and W. B. Crowley, individually, and the Logan Land Company, a corporation. The complaint alleges that the defendant employed the plaintiffs (not severally but jointly) to make sale of certain lands described in the “authority to sell,”, and by reason thereof we are not called upon to decide the question as to whether'or not the rule would be other than as herein expressed, were the Logan Land Company alone the selling agent and the only plaintiff in this action, and the contract of sale made with an officer or stockholder of that company.

Supplementing all of the foregoing discussion is section 5437, Revised Codes 'of our own state, which attaches certain limitations upon the powers of trustees to those of an agent, and in substance and spirit are all in accord with the views expressed • herein. (Rev. Codes, sees. 5437, 5374-5385.) Jáenee, as our conclusion, we hold that the contracts of sale tendered by plaintiffs to defendant were voidable at his option, and that he exercised that option by refusing to execute the same.

For the reasons herein expressed, we recommend that the judgment and order appealed from be affirmed.

Per Curiam: For the reasons given in the foregoing opinion, the judgment and order appealed from are affirmed.

Affirmed.