Opinion
WHITE, P. J.
This is an appeal from a judgment of the San Mateo County Superior Court granting respondent Milner’s (hereafter respondent) petition for a writ of mandate ordering appellant Commissioner of Real Estate (hereafter Commissioner) to set aside his decision suspending respondent’s real estate broker’s license for six months. The Commissioner instituted appropriate administrative proceedings accusing respondent and others
of alleged violations of Business and Professions Code sections 10176, subdivisions (a) and (i), 10231 and 10177, subdivision (d).
Homeowners Loan Corporation (hereafter Homeowners) was a real estate licensee engaged in the business of brokering and servicing loans secured by real property. Respondent was the designated officer of Homeowners’ corporate real estate license pursuant to Business and Professions Code
section 10211 and was Homeowners’ president in charge of its sales force during at least part of the relevant period.
The Commissioner adopted the proposed decision of the hearing officer finding that respondent violated section 10231 in that Homeowners had on two occasions accepted loan funds from a George Boyd in return for unsecured demand notes. (Apparently Boyd had no direct dealings with respondent either in person or over the phone. Boyd’s account was handled exclusively by Ronald Samman, an independent broker who was neither employed nor supervised by Homeowners. Boyd lost no money as a result of the alleged violation.)
Exercising its independent judgment upon the weight of the evidence, the trial court mandated that the Commissioner’s decision be set aside as “contrary to law and [is] not supported by the Findings of Fact”; and therefore determined that the “penalty imposed” was an “abuse of discretion.”
It is our view that the “Boyd” transactions were section 10231 violations. Accordingly we reverse the trial court’s judgment and remand for further review of the propriety of the “penalty imposed.”
Appellant Commissioner assigns six issues on appeal. They are:
1. Did the Boyd notes violate section 10231?
2. Was respondent responsible for the issuance of the Boyd notes?
3. Did respondent act “willfully” within the meaning of section 10177, subdivision (d)?
4. Was the decision supported by the administrative findings?
5. Did the trial court in determining the sufficiency of the administrative findings apply an incorrect standard of review?
6. Was the discipline imposed upon respondent an abuse of discretion?
In this case wherein the trial court is authorized to conduct a limited trial de novo, our appellate function is analogous to that in an ordinary civil appeal: “only errors of law are subject to its cognizance, and a factual finding can be overturned only if the evidence received by the trial court, including the record of the administrative proceeding, is insufficient as a matter of law to sustain the finding.” (See
Merrill
v.
Department of Motor Vehicles, supra,
71 Cal.2d 907, 915.) For example, in this case, while the evidence is conflicting and arguable to say the very least, yet the evidence is substantial and supports the trial
court’s factual findings. Accordingly, we are not permitted to and will not disturb them in this appeal. While we footnote them in their entirety, it would appear that findings 1 through 6 only are relevant to our discussion and decision.
Obviously the determination as to whether the Boyd transactions, found by the trial court to be “payoffs” and not “new investments” (finding 3), constitute section 10231 violations presents a question of law for our review.
Respondent argues in this appeal, as apparently he successfully contended in the trial court, that section 10231 is
not applicable
to the Boyd transactions “as that section pertains only to
new
funds invested.” We understand respondent’s argument to be that the disposition of payoff funds is regulated by section 10231.1
to the exclusion of section
10231. Simply stated, respondent’s argument is that while the Real Estate Broker’s Act requires that a broker or salesman initially invest his client’s funds in investments secured by a lien on real property (§§ 10131, subds. (d) and (e), 10131.1),
the same act does not prohibit the broker or salesman from reinvesting the returned funds in unsecured investments, herein the unsecured promissory notes of Homeowner’s corporate affiliate.
That respondent’s argument proved persuasive in the trial court is understandable in light of the fact that Elkington, J., had not rendered the court’s opinion in
Norman
v.
Department of Real Estate, supra,
93 Cal.App.3d 768.
In
Norman,
the court sustained the commissioner’s
sanction imposed upon the license of one John A. Colistra (respondent’s successor to the office of Homeowners’ president and “designated real estate broker”). With respect to the “Boyd” transactions the court stated that “Homeowners had patently violated section 10231.” (At p. 774.) Accordingly, the court held Colistra reasonably charged with responsibility for a third Boyd-Samman unsecured $2,000 promissory note caused to be issued by Homeowners on June 24, 1973. (Additionally the referee found a section 10231 violation on July 2, 1973, in the amount of $4,000 evidenced by an unsecured note issued to one Eloise Henfling.)
Respondent first acknowledges that section 10231.1 “allows servicing companies receiving monthly payments or
payoffs
60 days to take care of their bookkeeping and to remit said funds to the lender.” Respondent then spuriously reasons that because section 10231 allows that the statutory “bookkeeping” time may be extended by an interest free agreement, the section does not prohibit a servicing company (Homeowners) during the statutory 60 days (herein about 30 days) from unilaterally agreeing to pay interest for the short term use of the retained “payoff” funds. (See fn. 9, p. 573.)
We remain unpersuaded. Manifestly, Commissioner’s position is the only sound rationale. Sections 10231 and 10231.1 when logically read
together are compatible, Section 10231 prohibits a mortgage broker from placing for investment any loan funds, whatever their source, unless secured by a lien on real property.
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Opinion
WHITE, P. J.
This is an appeal from a judgment of the San Mateo County Superior Court granting respondent Milner’s (hereafter respondent) petition for a writ of mandate ordering appellant Commissioner of Real Estate (hereafter Commissioner) to set aside his decision suspending respondent’s real estate broker’s license for six months. The Commissioner instituted appropriate administrative proceedings accusing respondent and others
of alleged violations of Business and Professions Code sections 10176, subdivisions (a) and (i), 10231 and 10177, subdivision (d).
Homeowners Loan Corporation (hereafter Homeowners) was a real estate licensee engaged in the business of brokering and servicing loans secured by real property. Respondent was the designated officer of Homeowners’ corporate real estate license pursuant to Business and Professions Code
section 10211 and was Homeowners’ president in charge of its sales force during at least part of the relevant period.
The Commissioner adopted the proposed decision of the hearing officer finding that respondent violated section 10231 in that Homeowners had on two occasions accepted loan funds from a George Boyd in return for unsecured demand notes. (Apparently Boyd had no direct dealings with respondent either in person or over the phone. Boyd’s account was handled exclusively by Ronald Samman, an independent broker who was neither employed nor supervised by Homeowners. Boyd lost no money as a result of the alleged violation.)
Exercising its independent judgment upon the weight of the evidence, the trial court mandated that the Commissioner’s decision be set aside as “contrary to law and [is] not supported by the Findings of Fact”; and therefore determined that the “penalty imposed” was an “abuse of discretion.”
It is our view that the “Boyd” transactions were section 10231 violations. Accordingly we reverse the trial court’s judgment and remand for further review of the propriety of the “penalty imposed.”
Appellant Commissioner assigns six issues on appeal. They are:
1. Did the Boyd notes violate section 10231?
2. Was respondent responsible for the issuance of the Boyd notes?
3. Did respondent act “willfully” within the meaning of section 10177, subdivision (d)?
4. Was the decision supported by the administrative findings?
5. Did the trial court in determining the sufficiency of the administrative findings apply an incorrect standard of review?
6. Was the discipline imposed upon respondent an abuse of discretion?
In this case wherein the trial court is authorized to conduct a limited trial de novo, our appellate function is analogous to that in an ordinary civil appeal: “only errors of law are subject to its cognizance, and a factual finding can be overturned only if the evidence received by the trial court, including the record of the administrative proceeding, is insufficient as a matter of law to sustain the finding.” (See
Merrill
v.
Department of Motor Vehicles, supra,
71 Cal.2d 907, 915.) For example, in this case, while the evidence is conflicting and arguable to say the very least, yet the evidence is substantial and supports the trial
court’s factual findings. Accordingly, we are not permitted to and will not disturb them in this appeal. While we footnote them in their entirety, it would appear that findings 1 through 6 only are relevant to our discussion and decision.
Obviously the determination as to whether the Boyd transactions, found by the trial court to be “payoffs” and not “new investments” (finding 3), constitute section 10231 violations presents a question of law for our review.
Respondent argues in this appeal, as apparently he successfully contended in the trial court, that section 10231 is
not applicable
to the Boyd transactions “as that section pertains only to
new
funds invested.” We understand respondent’s argument to be that the disposition of payoff funds is regulated by section 10231.1
to the exclusion of section
10231. Simply stated, respondent’s argument is that while the Real Estate Broker’s Act requires that a broker or salesman initially invest his client’s funds in investments secured by a lien on real property (§§ 10131, subds. (d) and (e), 10131.1),
the same act does not prohibit the broker or salesman from reinvesting the returned funds in unsecured investments, herein the unsecured promissory notes of Homeowner’s corporate affiliate.
That respondent’s argument proved persuasive in the trial court is understandable in light of the fact that Elkington, J., had not rendered the court’s opinion in
Norman
v.
Department of Real Estate, supra,
93 Cal.App.3d 768.
In
Norman,
the court sustained the commissioner’s
sanction imposed upon the license of one John A. Colistra (respondent’s successor to the office of Homeowners’ president and “designated real estate broker”). With respect to the “Boyd” transactions the court stated that “Homeowners had patently violated section 10231.” (At p. 774.) Accordingly, the court held Colistra reasonably charged with responsibility for a third Boyd-Samman unsecured $2,000 promissory note caused to be issued by Homeowners on June 24, 1973. (Additionally the referee found a section 10231 violation on July 2, 1973, in the amount of $4,000 evidenced by an unsecured note issued to one Eloise Henfling.)
Respondent first acknowledges that section 10231.1 “allows servicing companies receiving monthly payments or
payoffs
60 days to take care of their bookkeeping and to remit said funds to the lender.” Respondent then spuriously reasons that because section 10231 allows that the statutory “bookkeeping” time may be extended by an interest free agreement, the section does not prohibit a servicing company (Homeowners) during the statutory 60 days (herein about 30 days) from unilaterally agreeing to pay interest for the short term use of the retained “payoff” funds. (See fn. 9, p. 573.)
We remain unpersuaded. Manifestly, Commissioner’s position is the only sound rationale. Sections 10231 and 10231.1 when logically read
together are compatible, Section 10231 prohibits a mortgage broker from placing for investment any loan funds, whatever their source, unless secured by a lien on real property. To read and interpret section 10231 as making a distinction between “new” and “payoff” loan funds would, in our opinion, lull the secured investor into a sense of false security not to mention defeating the purpose of the act. It is inconceivable that the Legislature would require that the lending public investments be secured by realty and at the same time afford no protection or security for the returned investment. Clearly such is not the case. The purpose of section 10231.1 is to provide that investors receive the return on their investment reasonably promptly. We agree with appellant Commissioner that nothing in this section permits a mortgage broker to issue unsecured notes in exchange for loan payoffs. We reverse the judgment.
Norman
v.
Department of Real Estate, supra,
93 Cal.App.3d 768, is sound authority for resolution of the remaining legal question presented in this appeal. Accordingly, we hold that respondent herein is legally responsible for Homeowners’ section 10231 digressions, certainly during the period that he was president and “designated real estate broker.” Apparently, on this record he ceased to function as president on April 19, 1973, (finding No. 1) and immediately notified the Commissioner of his disassociation. (Finding No. 2.) However, the trial court made no finding as to the effective date respondent ceased to operate as the designated real estate broker or officer. The referee found the date to be May 11, 1973, the date Colistra assumed the role of designated officer or broker. Arguably then respondent is responsible for both the April 8 and May 6 Boyd transactions. A corporate real estate broker in contemplation of the law conducts its brokerage business if at all under the active aegis of its designated broker. (See
Norman, supra,
at pp. 776-777.) However,
Norman,
at pages 776-777, teaches that the designated real estate broker
must
reasonably be charged with responsibility for corporate compliance with the Real Estate Law. In the light of findings Nos. 1 and 2 of the trial court, we find it would be
unreasonable
to charge respondent with Homeowners’ May 6, 1973, “Boyd” transaction. Further, in this instance we find that such a result does not frustrate the “statutory scheme.” (See
Norman, supra,
at p. 777.)
Particularly is this true in the light of the fact that Homeowners’ section 10231 violation of April 8, 1973 (Boyd—$1,000 unsecured note) standing alone is clearly sufficient to warrant the imposition of sanc
tions on respondent Milner’s
individual
real estate broker’s license. Neither the fact that the “payoff” funds were held short term for unsecured reinvestment nor the fact respondent acted on the advice of attorneys, nor the fact that respondent had no knowledge of or direct dealing with Boyd when considered separately or collectively can serve to absolve his licensee from responsibility for Homeowners’ violation. Clearly any other view herein would frustrate the statutory scheme.
The views that we have expressed and the result we have reached render it unnecessary to discuss appellant’s contentions regarding the sufficiency of referee’s findings to support the Commissioner’s decision and whether the trial court in setting aside the Commissioner’s findings imposed upon the Commissioner an incorrect standard of proof, i.e., “convincing proof to a reasonable certainty.”
The judgment is reversed. Upon remand the trial court will review the propriety of the Commissioner’s sanction upon respondent’s real estate broker’s license. We, of course, express no opinion as to this issue. Indeed it would be presumptious on our part to even hold an opinion. The learned trial court herein fully understands that our respective roles are well delineated. (See
Norman
v.
Department of Real Estate, supra,
93 Cal.App.3d 768, 777.)
Scott, J., and Feinberg, J., concurred.
A petition for a rehearing was denied March 27, 1980, and respondent’s petition for a hearing by the Supreme Court was denied April 30, 1980.