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District Court of Appeal, Third District, California.


Civ. 5027.

Decided: January 26, 1934

Gibson, Dunn & Crutcher and H. F. Prince, all of Los Angeles (Robert F. Schwarz, of Los Angeles, of counsel), for appellants. Meserve, Mumper, Hughes & Robertson, of Los Angeles (Timon E. Owens, of Los Angeles, of counsel), for respondents.

In this action plaintiffs sought to recover from defendants a sum of money paid to defendants under a contract for the purchase and sale of certain real property, which contract was allegedly induced through fraudulent representations of the defendants and upon which misrepresentations plaintiffs predicated a rescission. From a judgment in favor of plaintiffs, defendants Wylie prosecute this appeal.

Defendants Oliver Wylie and Sarah E. Wylie, his wife, were the owners of the real property and placed it in the hands of the Frank Meline Company, as exclusive selling agent for the purpose of sale. C. E. Long, a salesman in the employ of the Frank Meline Company and an acquaintance of plaintiffs, showed the property to plaintiffs. Admittedly appellants personally made no representations to plaintiffs and all of the claimed misrepresentations were made by Long. During the negotiations leading up to a formal contract of purchase and sale, Long made statements as to the value of the real property and informed the plaintiffs that the property was certain to increase in value as the California Produce Terminal Company had purchased several blocks of nearby property in the same tract and that that company would erect a terminal thereon costing a large sum of money. The contract finally signed between the defendants as sellers and the plaintiffs as purchasers contained this provision:

“It is understood and agreed that this contract contains all the covenants, stipulations and provisions agreed upon by the parties hereto and no agent of either party to this contract has authority to alter or change the terms hereof and neither party is or shall be bound by any statement or representation not in conformity herewith. It is understood and agreed that said property above described has been inspected by said Purchaser, or the Purchaser's duly authorized agent; that the same is and has been purchased by the Purchaser as a result of said inspection and not upon representations made by the Sellers or any selling agent, and that the Purchaser hereby expressly waives any and all claims for damages or for cancellation of this contract because of any representation made by any selling agent or person whatsoever other than as contained in this agreement; and the sellers will not be responsible for or liable on account of any inducements, promises, representations, or agreements not set forth herein.”

Appellants contend that the trial court erred in admitting in evidence testimony as to the representations made by Long and assert that the clause above quoted is an express notice to respondents of limitation of the agent's authority and that appellants are not answerable for the statements made by the agent.

Appellants rely largely upon the case of Gridley v. Tilson, 202 Cal. 748, 262 P. 322, 323. In that case the purchaser claimed that false representations had been made to him by a selling agent. The contract contained a clause of similar import to the one above set out. The court, after stating that fraud in the inducement of a contract may be shown, said:

“A well–settled exception, however, is the case where the party seeking to rely on fraudulent representations of an agent had notice of the limitation on the agent's authority to make representations. Therefore a principal is bound only by the representations embodied in the written contract, where a provision in the contract notified the prospective purchaser that the agent's authority went no further.”

It is elementary that instructions which limit the power of an agent and which are known by a party dealing with the agent are binding upon such party as well as upon the agent. The liability of a principal for the torts of his agent is restricted to acts of the agent within the scope of his authority unless the acts are subsequently ratified or, due to particular circumstances, the principal is estopped from denying the agent's authority.

Gridley v. Tilson, supra, and the rule therein laid down and above quoted are cited with approval in the case of W. J. Latchford Co. v. Southern Cal. Gas Co., 125 Cal. App. 112, 13 P.(2d) 871, wherein are listed several other California cases in support of the same principle. There is a diversity of authority elsewhere, but the rule is established by judicial sanction in this state.

Respondents attempt to distinguish this case from the Gridley Case by pointing out that here we have an exclusive or general agency, while in the latter the representative was acting as a special agent. The Gridley Case in no way turned on the ground the agent was designated as a special agent. There is no basis in reason for the application of a different rule where there is a general agency.

“If specific instructions are brought home to the knowledge of a third person dealing with the agent it cannot matter whether he is a general or a special agent; in either case his power to bind his principal will be limited by these known instructions or limitations.” 2 C. J. 570.

The cases in this state which hold that fraudulent representations may be established by parol despite notice of limitation of the agent's authority contained in the contract between the vendor and purchaser and which may appear to be in conflict with the rule herein expressed are to be distinguished in that in those cases either there is the absence of a clause in the contract such as is found in the instant case or the misrepresentations declared upon were made by the principal personally.

The proof disclosed that the plaintiffs contracted to pay $9,000 for real property of the value of $1,500. The testimony is without conflict upon the point that the purchase price and any representation of value were based upon the prospective enhancement in value which would result from the contruction of the terminal by third parties. Plaintiffs contracted to purchase with a full understanding of this. One who accepts the fruits of fraud with knowledge of the misrepresentations by which they are obtained is liable therefor, even though he did not participate in the fraud. The disparity between the contract price and market value of the property is not evidence that appellants knew that a fraud had been perpetrated, particularly in view of the circumstances above noted.

Other points raised by appellants to the effect that the representations made are not actionable and that the evidence discloses that respondents did not rely thereon need not be passed upon in view of the conclusion which we have reached upon the others discussed.

The judgment is reversed.

Mr. Justice pro tem. LEMMON delivered the opinion of the court.

We concur: PLUMMER, J.; PULLEN, P. J.