Rattray v. Scudder

169 P.2d 371, 28 Cal. 2d 214, 164 A.L.R. 1356, 1946 Cal. LEXIS 206

• Court: California Supreme Court
• Decided: May 21, 1946
• Docket: L. A. 19512
• Status: Published

Opinions

TRAYNOR, J.

By an order issued April 10, 1944, defendant revoked plaintiff’s license as a real estate broker. The trial court issued a writ of mandamus commanding defendant to set aside this order. Defendant appeals.

Plaintiff is a real estate broker associated with Kelly & Son in Bakersfield. Upon a complaint filed with defendant by John L. Humston, then a lieutenant in the United States Army, defendant initiated proceedings against plaintiff and Edward A. Kelly for the revocation of their licenses as real estate brokers. After a hearing defendant made the following findings: “That on or about January 19, 1943, defendant Rattray addressed a letter to complainant requesting price and terms on property, consisting of a seven-unit court, which he owned in Bakersfield, California; that on February 4, 1943, the complainant replied, and placed a price of $13,000 on said property, and also stated that he would consider any fair offer; that on February 11, 1943, defendant Rattray wrote a second letter to complainant advising him that the property had been appraised by a competent appraiser; that $12,000 would be a fair price, and that selling commission would be added; that in said letter was enclosed an instrument, designated as an option, for a sixty day period, in favor of Kelly & Son, embodying the selling price of $12,000, for the signature of the complainant; that relying on those representations the complainant signed said option, and returned it to defendants; that on March 20, 1943, a third letter was addressed to complainant by defendant Rattray stating that in trying to sell the property he was meeting with certain obstacles, namely, the price and the fact that the property was in an unrestricted district, and suggested to complainant that the price be reduced to $10,000 cash, which he thought the complainant would be wise in accepting, and pressed said complainant for an immediate acceptance so that the transaction might be consummated ‘within the period of our exclusive listing’; that on April 15, 1943, a long distance telephone conversation was held between defendant Rattray and the complainant, at which time defendant Rattray repeated that $10,000 net was the very best price that he could obtain; that complainant countered by stating he would accept no less than $10,500 net cash, but finally compromised on a price of $10,250 net cash with no expense to him in the transaction ;

“That during the negotiations with complainant as set out in the preceding paragraph, defendant Rattray led complainant to believe that he was acting as his agent in this transaction, and when terms and price were agreed upon, that all necessary expenses incident to the sale, together with the regular 5% selling commission, would be added, and relying upon this belief the complainant accepted the $10,250 net cash for the said property, and would not have done so but for his reliance upon that belief and understanding;

“That prior to April 15, 1943, the said defendant Rattray negotiated with one David L. Espey for the purchase of said property for the total price of $13,500; that on April 16, 1943, the property was sold to David L. Espey, and placed in escrow, for the sum of $13,500; that by refinancing, and the complainant deeding the property to defendant Edward A. Kelly, who in turn in the same escrow, deeded the property to David L. Espey, the escrow was duly closed;

“That notwithstanding the negotiations with David L. Espey, the defendant Rattray did not disclose the same to complainant, and at no time told him that he was attempting to sell the property for $13,500; that after all expenses were paid incident to the transaction, defendant Edward A. Kelly received the sum of $2,326.25, together with a note signed by David L. Espey in the sum of $700; that out of the cash received by defendant Edward A. Kelly, the sum of approximately $900 was paid to defendant Rattray;

“That all of the correspondence, negotiations, and representations made in this matter were carried on and made by defendant Rattray; that each and every one of the letters to complainant were on the letterheads of Kelly & Son, and signed '¥. S. Rattray for Kelly & Son’; that defendant Edward A. Kelly, during the negotiations, did not in any way communicate with complainant, and therefore it is not clear that he had guilty knowledge of the statements and representations made to complainant by defendant Rattray; that inasmuch as there is some doubt in this regard, the Commissioner will waive the doubt in favor of defendant Edward A. Kelly.”

Defendant concluded that the revocation of plaintiff’s license was warranted under sections 10176(f) and 10177 (f) of the Business and Professions Code: ‘ ‘ The commissioner may, upon his own motion, and shall upon the verified complaint in writing of any person, investigate the actions of any person engaged in the business or acting in the capacity of a real estate licensee within this State, and he may temporarily suspend or permanently revoke a real estate license at any time where the licensee within the immediately preceding three years, while a real estate licensee, in performing or attempting to perform any of the acts within the scope of this chapter has been guilty of any of the following: . . . Any other conduct, whether of the same or a different character than specified in this section, which constitutes fraud or dishonest dealing. ” (§ 10176 (f)) “The commissioner may suspend or revoke the license of any real estate licensee, who within three years immediately preceding has done any of the following: . . . Acted or conducted himself in a manner which would havewarranted the denial of his application for a real estate license, or for a renewal thereof.” (§ 10177(f))

* A real estate license can be denied if the applicant fails to furnish proof of “honesty, truthfulness and good reputation.” (§§ 10150, 10152.)

The trial court did not hear any additional evidence. Basing its findings on the commissioner’s record of the two hearings before the commissioner, the trial court found: “it is true that at neither of said hearings was there any evidence that the plaintiff herein was acting as the agent for the complainant John L. Humston; it is true that said John L. Hums-ton never agreed to pay any commission to the plaintiff herein for any of the- services of the plaintiff; it is true that the complainant John L. Humston on February 15, 1943, executed to the plaintiff herein and his associates an option to purchase the real property of the complainant; it is true that at no time pertinent herein did the relationship of principal and agent ever exist between the plaintiff herein and the said complainant John L. Humston; it is true that at no time pertinent herein did any relationship of trust and confidence ever exist between the plaintiff herein and the said complainant John L. Humston; it is true that the plaintiff herein in handling the transaction referred to in the complaint of said John L. Humston filed with the defendant herein was not guilty of any conduct which constituted fraud or dishonest dealing and had not acted or conducted himself in any manner which would have warranted the denial of his application for a license or of the renewal of his then existing license.” With respect to the commissioner’s findings the trial court found: “it is true that the said findings do not support the order of the defendant revoking the license of the plaintiff and it is true that the evidence does not support the order of the defendant in revoking the license of the plaintiff; it is true that in revoking the license of the plaintiff the said defendant acted arbitrarily, capriciously and contrary to law and that his findings and order are unsupported by evidence. ’ ’

In this state all real estate licenses expire automatically on June 30th of each year. (Bus. & Prof. Code, § 10200.) The present litigation has not become moot because plaintiff’s license would have expired in any event on June 30, 1944. The rights of plaintiff depend on whether or not that license was validly revoked, for if it was, a new license may be withheld on the same ground. (Bus. & Prof. Code, §§ 10150, 10153.)

In determining this appeal it is not necessary to discuss the scope of review by the trial court of the commissioner’s proceedings (see Dare v. Medical Examiners, 21 Cal.2d 790 [136 P.2d 304] ; Sipper v. Urban, 22 Cal.2d 138, 140 [137 P.2d 425]), for even if the record of these proceedings is read as if the evidence before the commissioner had been taken by the trial court itself, the trial court’s decision finds no support in the evidence.

The evidence shows without conflict that plaintiff was employed by Humston as a broker. The correspondence initiating the relation between Humston and plaintiff leaves no doubt that plaintiff offered Humston his services as a broker and that Humston retained him in that capacity. On January 19, 1943, plaintiff wrote to Humston on stationery of “Kelly & Son, licensed real estate brokers” as follows: “We have a client who is interested in purchasing property in this district and thought you might wish to sell your property. Accordingly, we will be pleased to receive the price and terms acceptable to you, and enclose stamped envelope for your reply.” When Humston advised plaintiff that he was willing to sell the property for $13,000, to take a small second mortgage, and to consider any fair offer, plaintiff replied: “Our prospective buyer lives in Taft, so we will not contact him until we have heard from you again. We have had your property appraised by a competent appraiser. Considering the age of buildings and furniture, which has a heavy depreciation, a fair price would be $12,000.00. To this we would have to add the selling commission presuming that we can arrive at a mutually satisfactory basis. We are enclosing herewith an option for your signature. Upon receipt of the signed option and your reply, we will proceed with the work of closing the sale. Please state what terms you are willing to make in the space marked with the cross. It may be that our client will not require any terms, but in the event he should, we would like to know what to quote him.” These letters were introduced in evidence before the commissioner and there was no evidence contradicting them. They show indisputably that plaintiff offered his services and was employed to find a purchaser willing and able to acquire the property for $12,000 plus a selling commission for plaintiff. Plaintiff himself testified as to his first letter: “My purpose for writing the letter was to get a listing of the property so I could sell it, provided I would be able to have authority to sell the property—to any person whom I might contact who was willing to buy it. ’ ’

The evidence also shows without conflict that once plaintiff was employed by Humston he reported to him as a broker does to his principal. Uncontradicted documentary evidence was introduced, a letter by plaintiff to Humston, written more than a month after their initial correspondence stating: “We have been diligently working to find a purchaser for the Court on ‘P’ Street, but two of the obstacles in the way of effecting a sale have been: First, the district being unrestricted has been objectionable to two or three people who otherwise might have considered the property. The second objection is the price. As the property was purchased through this office, we are able to arrive at a more definite valuation than some other office who might not be as well posted as we are. Our purpose for writing you this morning is to inquire whether you would consider $10,000.00 cash, as we have a prospect now, who will likely purchase this property providing we can do some financing for him. Since buying the property through this office some years ago, there has been a depreciation of 3% a year, which would total at least $2,000.00. We, therefore, believe that under present conditions you would be wise in accepting this cash offer, providing we are able to arrange the financing as hereinabove referred to. Will you therefore, let us know immediately if this will be acceptable to you, so that we can proceed with our work. In the event you would consider this offer, we would most likely be able to give you definite information on the sale within the period of our exclusive listing.” The evidence of this letter that plaintiff acted as a broker and represented himself to Humston as such is corroborated by his own testimony: “I cannot give the verbatim—along the lines of selling the property— told him working diligently on it—had several inquiries— several had complained about the price being too high—told him had advertised it for fifteen thousand and then thirteen and showed him the ads—others had complained about the unrestricted district—the objections that I pointed out to him. However, I would do the very best I can and get in touch.” It is clear that this conversation could not have occurred had not plaintiff considered himself Humston’s broker and actively sought a purchaser.

The evidence also shows without conflict that after plaintiff secured a purchaser for the property he violated his fiduciary duties as a broker and by untruthful and misleading statements induced his principal to reduce the price placed upon the property and to sell it to plaintiff’s firm. The testimony of Mr. Espey, who acquired the property, was uncontradicted that he saw plaintiff in the latter part of March and told him that although he deemed the property worth not more than $12,500 he would be willing to buy it for $13,500. ‘‘I told him I knew that I was light as far as the down payment was concerned; that I had another property on Parkway and Pine that I could use as a possible—as part of the down payment. I told him at the time that because of the neighborhood that I did not consider the property worth any more than $12,500, but would be willing to give $13,500 because of the way I would be buying it—that the property itself, regular income and that sort of thing seemed to make it a profitable venture and I would be willing to take over the deal on that basis.” Espey also testified without contradiction that a week or more after this first conversation he had another conversation with plaintiff in which plaintiff told him that he had not been able to induce the owner of the property, Mr. Humston, to reconsider the price that he was asking for the property, that he had some doubt whether he would be able to let Espey have the property for $13,000 and that there might be some difficulty in financing the deal because of the small amount of cash that Espey had but that Espey should leave the matter in plaintiff’s hands. Plaintiff’s firm got in touch with one Ceccarelli and his wife, who had done business with Kelly & Son for twenty-five years, with regard to a loan to Espey. They first discussed the matter with Mrs. Ceccarelli and showed her the property and later showed the property to Ceccarelli. The first installment of the loan was received on April 16, 1943, and the balance on April 30, 1943. On April 15th plaintiff had a long distance telephone conversation with Humston as follows: “I told Lt. Humston that I was unable to sell his property for the price he had placed upon it, and the only way we could get him $10,000 cash would be to buy it ourselves. He said ‘I won’t accept it; I will accept $10,500.00, if that is all you will give.' I said ‘we will not pay $10,500.00; we will pay $10,000.00.’ He said, ‘Will you pay $10,250.00?’ I said ‘Will you accept $10,-250.00?’ ‘Yes,’ he said, ‘I think, I will.’ I said ‘Will you confirm that by wire?’ That was the entire conversation as I recall.” Plaintiff’s own testimony thus shows that he did not reveal to Humston that Espey was willing to buy the property for a price exceeding the $12,000 that Humston had originally asked for the property or the amount of $10,750 that he had asked later, but made the untruthful statements to Humston that “I was unable to sell his property for the price he had placed upon it” and that “the only way we could get him $10,000 cash would be to buy it ourselves.” After receiving Humston’s telegram reducing the price to $10,250 plaintiff sold the property to Espey the next day, April 16, 1943, for $13,500. Documentary evidence introduced before the commissioner showed without conflict that Espey signed the note for the loan of $12,500 and the deed of trust securing it on April 16th; that on the same day the escrow instructions were given by Espey; that both sales, the sale by Humston to Kelly & Son and the sale by Kelly & Son to Espey, were completed in the same escrow; that Kelly & Son or plaintiff never paid any part of the purchase price to Humston from their own funds, but received out of the escrow about $12,800 in cash and a note of about $700 secured by second deed of trust; and that the $10,250 paid by Kelly & Son to Humston were simply deducted from the cash amount of $12,800 received by Kelly & Son.

In the light of the uncontradicted documents and plaintiff’s own testimony, it cannot be questioned that plaintiff violated the fiduciary duties of a real estate agent, for “The law of California imposed on . . . the real estate agent the same obligation of undivided service and loyalty that it imposes on a trustee in favor of Ms beneficiary. Violation of Ms trust is subject to the same punitory consequences that are provided for a disloyal or recreant trustee. (King v. Wise, 43 Cal. 628.) ” (Langford v. Thomas, 200 Cal. 192, 196 [252 P. 602].) Such an agent is charged with the duty of fullest disclosure of all material facts concerning the transaction that might affect the principal’s decision. (Civ. Code, § 2230; Langford v. Thomas, supra, 197; Williams v. Lookwood, 175 Cal. 598, 601 [166 P. 587]; Feckenscher v. Gamble, 12 Cal.2d 482, 495 [85 P.2d 885]; Curry v. King, 6 Cal.App. 568, 575 [92 P. 662]; Silver v. Logue, 127 Cal.App. 565, 571 [16 P.2d 183] ; Jolton v. Minster, Graf & Co., 53 Cal.App.2d 516, 522 [128 P.2d 101]; Baird v. Madsen, 57 Cal.App.2d 465, 476 [134 P.2d 885].) In the present case, there can be no doubt that Humston would not have sold the property to Kelly & Son for $10,250 had he known that Espey stood ready to buy the property for $13,500. Nor could plaintiff have any doubt that had Humston known this fact he would not have sold the property to Kelly & Son. He not only failed to disclose the truth but made the misrepresentation that he was unable to sell the property at the price placed upon it by Humston. Even if plaintiff had not been Humston’s broker and under no fiduciary duties, once he discussed the question whether a higher price was obtainable, he had to “speak the whole truth, and not by partial suppression or concealment make the utterance untruthful and misleading.” (American Trust Co. v. California etc. Ins. Co., 15 Cal.2d 42, 65 [98 P.2d 497].)

The finding of the trial court that there was no evidence that plaintiff was acting as Humston’s agent is so clearly inconsistent with the documentary evidence as well as plaintiff’s own testimony that it can be explained only as being based upon the theory that, since plaintiff’s firm had an option to purchase and did purchase the property, plaintiff could deal with Humston at arm’s length and was not bound by any fiduciary duties. It does not follow, however, that plaintiff was not acting as a broker in this matter. It is well settled that a broker employed to find purchasers for the property of his principal can be given an option, “running concurrent with the agency” to purchase the property. (W. G. Reese Co. v. House, 162 Cal. 740, 744 [124 P. 442]; Burt v. Stringfellow, 48 Utah 330 [159 P. 527]; Neighbor v. Pacific Realty Association, 40 Utah 610 [124 P. 523, 34 Ann.Cas. 1914D 1200]; Walling v. Poulsen, 160 Mich. 392 [125 N.W. 373]; Rest., Agency, § 390; see 4 Cal.Jur. 554; 12 C.J.S. 33; 8 Am.Jur. 1040.) In such a case, the broker, when pursuing his own interests, cannot ignore those of his principal and will not “be permitted to enjoy the fruits of an advantage taken of a fiduciary relation, whose dominant characteristic is the confidence reposed by one in another.’’ (Curry v. King, supra, 6 Cal.App. 568, 575.) It has therefore been stated that, ‘ The law does not allow the agent who has also a right to purchase to wait until someone makes an offer of an amount in excess of the agreed purchase price and then elect to purchase the property at the lesser price without informing the owner of the higher offer, and after the agent has obtained the consent from the owner to buy the property, then immediately sell it for the higher price as his own property.” (Neighbor v. Pacific Realty Association, supra, 40 Utah 610 [124 P. 523, 34 Ann.Cas. 1914D 1200].) The law is well summarized in 8 American Jurisprudence 1040: “If a broker employed to sell property is also given ... an option to purchase the property himself, he occupies the dual status of agent and purchaser and he is not entitled to exercise his option except by divesting himself of his obligation as agent by making a full disclosure of any information in his possession as to the prospect of making a sale to another. . . . But if he exercises his option before any negotiations for its sale to another have been made and without knowledge of anyone wishing to purchase, he is not obliged to account to the owner on resale to another. ’ ’ One who acts as an agent and also deals with his principal as to the subject matter of the agency cannot take advantage of his principal by withholding from him information secured by means of the agency. In the language of the Restatement of Agency: “Before dealing with the principal on his own account ... an agent has a duty, not only to make no misstatements of fact, but also to disclose to the principal all material facts fully and completely. A fact is material ... if it is one which the agent should realize would be likely to affect the judgment of the principal in giving his consent to the agent to enter into the particular transaction on the specified terms. Hence, the disclosure must include not only the fact that the agent is acting on his own account . . ., but also all other facts which he should realize have or are likely to have a bearing upon the desirability of the transaction from the viewpoint of the principal.” (§ 390, Comment a.) When plaintiff dis-

closed no more to his principal than that Kelly & Son was buying the property he fell short of his duties as an agent. It was his duty to advise Humston fully of the pending negotiations with Espey. Plaintiff not only violated his fiduciary duty of disclosure, but went beyond the limits that the law draws even for one who has no fiduciary duties, for he misrepresented the facts when he assured Humston that he could not obtain the price placed upon the property and that Humston could do no better than to sell to Kelly & Son at a reduced price. The fact that Espey had only $400 cash and that therefore the greater part of the purchase price had to be covered by a loan affords no excuse for plaintiff’s conduct. From the standpoint of the seller Espey was as much a cash buyer as one who did not need a loan. It was immaterial to Humston whether the cash came from the purchaser’s own funds or whether he had to secure it from a lender. Since Kelly & Son’s sale to Espey resulted in the receipt of approximately $12,800 cash it is clear that Humston would have gained more from a sale to Espey than the one to Kelly & Son. Moreover it was understood that plaintiff would attempt to obtain a loan for a purchaser. In one of his letters plaintiff asked Humston whether he “would consider $10,000 cash, as we have a prospect now who will likely purchase this property providing we can do some financing for him.” It does not matter, however, whether plaintiff was under any obligation to Humston to attempt to secure a loan for Espey. The decisive consideration is that when he suggested to Humston that the latter sell the property to plaintiff’s firm, he was under á duty to disclose that Espey would pay $13,500 for the property if his purchase could be financed by a private loan and to disclose the negotiations made to secure that loan. It is immaterial that Humston, according to plaintiff’s testimony, later said to plaintiff: “I don’t know what you folks got out of it, but I am satisfied with it. I will have a little over nine thousand dollars when I pay some few bills.” At that time Humston did not know that plaintiff had misled him when he induced him to reduce the price. When Humston learned that he had been misled he filed his complaint with the commissioner.

The present case is clearly distinguishable from Schomig v. Keiser, 189 Cal. 596 [209 P. 550], on which plaintiff relies, for in that case it was held that the licensee’s fraudulent conduct was unconnected with his activities and duties as a broker.

The judgment is reversed.

Gibson, C. J., Edmonds, J., and Spence, J., concurred.

Under the statute in effect at the time of plaintiff’s activities (§ 12 of the Beal Estate Act as amended by Stats. 1937, p. 2124), the commissioner could revoke the license of any licensee who within the immediately preceding three years conducted himself in a manner that would have warranted the denial of his application for a license or a renewal thereof, or who was guilty of any conduct constituting fraud or dishonest dealing. Those provisions were incorporated without change into sections 10176(f) and 10177(f) of the Business and Professions Code (Stats. 1943, ch. 127 § 1, p. 841-842) under which plaintiff’s license was revoked.