CROGAN v. METZ

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District Court of Appeal, First District, Division 2, California.

Hazel L. CROGAN, Plaintiff and Respondent, v. Bert METZ, Vivian Metz, et al., Defendants and Appellants.*

Civ. 16324.

Decided: December 12, 1955

Byron Arnold, George I. Hoffman, San Francisco, for appellants Bert and Vivian Metz. Theodore M. Monell, San Francisco, for appellant Dewey Letsinger. Ralph Wertheimer, San Francisco, for respondent.

The plaintiff, Mrs. Crogan, instituted an action for damages for fraud in a real estate transaction against defendant Bert Metz, the broker who represented her in said transaction, against the defendants, Letsinger and Mogan, brokers who represented other parties in said transaction and against defendant Vivian Metz, the wife of Bert Metz. Defendant Mogan died before the trial and no judgment was taken against him or his estate. Against all three other named defendants plaintiff recovered judgment for $15,000 plus interest and against Bert Metz and Letsinger moreover for $2,500 as punitive damages. The Metzes have appealed together, Letsinger separately.

The amended complaint is in three counts. The first count is to the effect that plaintiff entered into an exchange of her property on Fulton Street in San Francisco of an agreed value of $50,000 plus $65,000 in cash for property on Bay Street in San Francisco owned by a certain Rinas, and that she moreover gave a promissory note and deed of trust in the amount of $3,000 payable to the Metzes, of which $2,500 for agreed commission and $500 due under a prorating agreement and advanced by Bert Metz; that she was induced so to do by a representation, wilfully made by Bert Metz, her broker for that purpose, that the owner was not willing to sell for less than $115,000, which representation was false and fraudulent because the Rinases were ready and willing to sell for $100,000 and received only $100,000 worth of property out of the transaction; that defendant Bert Metz was also acting as agent for the other defendants. The second count was one for money had and received in said transaction by defendant Bert Metz, also acting as agent for the other defendants for the use of plaintiff in the amount of $15,000 as secret profits, etc. The third count was to the effect that the three brokers entered into a conspiracy to defraud plaintiff of $15,000 in the manner stated in the first count, each broker acting as agent for the other. The prayer was for $15,000 plus interest, punitive damages and cancellation of the promissory note mentioned. The court found: ‘The defendants and each of them conspired to obtain from plaintiff, and did assist each other in obtaining, by means of the fraudulent conduct more fully set forth in the findings of fact herein and as violation of the fiduciary duty owed by defendant Bert Metz to plaintiff, the sum of $15,000.’ The only other finding was that the allegations of the amended complaint were true. The judgment granted the $15,000 and punitive damages as stated before, but did not grant the cancellation of the note.

Appellants contend that the evidence does not support the findings, mainly in that plaintiff could not have purchased the Rinas' property for $100,000 and that no fraud or secret profit or conspiracy, or damage in the amount of $15,000 was proved, that no punitive damages could be assessed, and that Mrs. Metz was not involved in the matter.

The evidence showed the following. Prior to the transaction here involved Mr. Desiano, a client of defendant Letsinger, owned a property on Scott Street in San Francisco, which he wished to sell for $165,000 net cash of which $5,000 for Letsinger, who moreover would receive whatever the property would be sold for in excess of $165,000. Rinas owned the property on Bay Street mentioned before and wished to exchange it for more valuable property (to ‘trade up’). He did not wish to sell outright because that would entail income tax payment on capital gain. To find out the value of the property he had some months before offered it for $110,000, but could not find a taker and in a trade he evaluated it at $100,000. One of the brokers who tried to arrange a trade for him was defendant Mogan. Defendants Mogan, Letsinger, and Bert Metz kept office together (and with still other brokers) but were otherwise independent brokers. Mogan heard that the Desiano property could be sold and showed it to Rinas, who told him that he liked it but did not wish it to cost him more than $160,000 net inclusive of $4,000 commission for Mogan, his own Bay Street property evaluated at $100,000. On May 28, 1951 he offered in writing to trade adding $56,000 cash and $4,000 commission for Mogan. As Desiano wanted cash only, and not less then $160,000 plus $5,000 commission for Letsinger, no transaction could be completed unless Rinas' Bay Street property could be ‘cashed out’ so as to provide the commissions, or a similar result could be reached in a more indirect way. ($9,000 would have been the normal commission on the Desiano-Rinas exchange transaction.) Bert Metz knew that plaintiff, Mrs. Crogan, a widow, with whom and with whose deceased husband he and his wife had for many years had friendly relations and whom he had advised as broker, wished to dispose of her Fulton Street property at a price of at least $50,000. He advised her, subject to inspection, that the Bay Street property would be a very desirable possession for her, at the price of $115,000 which he said that the owner wanted for it and from which the owner would not budge. He pointed out the advantage of the transaction in that she would not have to pay income tax on the capital gain on her Fulton Street property. She inspected the Bay Street property together with him and was shown around by Rinas. She liked it very much and on June 1, 1951 signed an offer to exchange with an additional payment of $60,000, without commission, which was not accepted. On June 2nd and June 3rd Letsinger and Mogan advertised the Bay Street property for $115,000. Both Desiano and Rinas knew of these advertisements and did not object. On June 7, 1951 plaintiff signed a new offer to exchange the properties with the addition of $65,000 cash and a note and second mortgage for $2,500 commission for defendant Metz. In the offered agreement the Bay Street property is mentioned as the property of Rinas and the agreement contains a printed clause to the effect that the agent may also represent the offeree. Defendant Metz and plaintiff read the whole agreement together and plaintiff made no objection. The three defendant brokers then tried to find a purchaser for plaintiff's property. On June 9th a buyer (Lukes) was signed up for $49,500, and thereafter the offers of Rinas and plaintiff were accepted. On June 28th, the transaction was closed by means of five grant deeds: The Scott Street property from Desiano to Rinas, the Bay Street property from Rinas to Desiano and from Desiano to plaintiff and the Fulton Street property from plaintiff to Desiano and from Desiano to Lukes. Desiano received $160,000 cash. Fifteen thousand dollars in excess of that amount was obtained in the transaction, not considering costs and prorating, and was available for the commission of the three defendants. (Rinas paid $60,000, plaintiff paid $65,000 and a note for $2,500 and her property netted $47,500, $2,000 commission being paid to outside brokers.) From this amount Metz received $1,562.50 over and above the $2,500 note promised by plaintiff. From this amount he loaned $500 to plaintiff for a balance due by her because of the prorating and the note was therefore increased to $3,000. The actual total payment by the title company to the defendant brokers for commissions was $11,984.50 cash plus the $3,000 note. To the difference of $15.50 the rule de minimis applies. When Rinas saw the result reached with his property he tried to share in the $15,000 but did not succeed. Thereafter he told plaintiff that he had traded in his property for only $100,000 and that he was sorry about the deal she got. The evidence does not show any participation of Mrs. Metz in the transaction except that the note and deed of trust for $3,000 of plaintiff for commission and loan were made out to Bert Metz and Vivian Metz.

From the above it is clear that the allegation found true, that the fraud consisted in representing to plaintiff that the owner would not sell for less than $115,000 whereas he was willing to sell for $100,000 and did not receive more than that value, is incorrect. Rinas testified repeatedly that for taxation reasons he was not willing to sell outright but was only interested in ‘trading up.’ (An incidental statement of Rinas that he was willing to ‘sell’ for $100,000 made in the middle of contrary testimony must in connection with the above mean that he was willing to trade in at a valuation of $100,000 and does not cause a substantial conflict.) Plaintiff could not trade with him because her property was much less valuable than that of Rinas. Hence she could obtain the Rinas' property only after it had been traded with a third person which trade would necessarily entail commissions which would increase the price to be paid. Plaintiff's attorney conceded at the trial that the transaction could not go through unless the Bay Street property was sold at $115,000. (If the brokers involved were together entitled to the regular commission on the five transfers through which the transaction was closed—a point as to which evidence was excluded—the commission so calculated would have been a little higher than the total of $17,000 actually paid.) Neither was it proved that Rinas received a value of $100,000 only. He received for the Bay Street property the value of the Scott Street property minus $60,000 and the actual value of the Scott Street property was not in issue and not determined at the trial. Rinas' personal evaluation of his property at $100,000 was not decisive as he was not willing to sell.

Nevertheless the statement of Metz that the price was $115,000 and that the owner would not budge, was untrue and could be considered a breach of fiduciary duty. Although Rinas and Desiano, who pending Rinas' offer to exchange both had an interest in the Bay Street property, knew of the asking price of $115,000 there is no basis for the statement that they would not budge if the brokers would be willing to accept a lower commission. The statement conceals the fact that the price depended on the commission of the brokers and that plaintiff alone would have to bear the total amount of commissions involved in the whole complicated transaction. In Rattray v. Scudder, 28 Cal.2d 214, 223, 169 P.2d 371, 376, 164 A.L.R. 1356 it is said that a real estate ‘agent is charged with the duty of fullest disclosure of all material facts concerning the transaction that might affect the principal's decision.’ It is also said that the law imposes on him ‘the same obligation of undivided service and loyalty that it imposes on a trustee in favor of his beneficiary. Violation of his trust is subject to the same punitory consequences that are provided for a disloyal or recreant trustee.’ 28 Cal.2d at page 222–223, 169 P.2d at page 376. Even ‘when an agent acts for adverse principals with the acquiescence of each, he has a bounden duty to act with fairness to each, and is bound to disclose to each all facts which he knows or should know would reasonably affect the judgment of each in permitting such dual agency.’ Anderson v. Thacher, 76 Cal.App.2d 50, 68, 172 P.2d 533, 543. Metz could know that the fact that plaintiff alone had to provide all commissions might affect her decision, and she testified that she would not have agreed to the deal if she had known that she paid the commissions of Mogan and Letsinger also. Metz testified that until June 1 he had been only given the price of $115,000 by Mogan and did not know the details of the transaction, but he conceded that before June 7, the date of plaintiff's final offer, he had known from discussions in the common office the prices involved. He testified that he fully informed plaintiff of the whole deal but plaintiff denied that and testified that she thought that she contracted with Rinas and did not know that Desiano and his property were also involved in the deal. Considering the close connection of the brokers the court could infer that Metz was fully informed of the character of the whole transaction and could consider his somewhat misleading statement a breach of fiduciary duty.

Such breach of fiduciary duty subjects the broker to the remedies provided for breach of trust. Rattray v. Scudder, supra. Accordingly he may be held liable in the alternative for the loss resulting from the breach, for the profit made by him through the breach, or for the advantage which would have accrued if there had been no breach (Restatement, Trusts § 205; Scott on Trusts § 205). Under the facts proved the judgment could not be upheld on the theory of damages for the breach of fiduciary duty, fraud in the exchange of property, because section 3343 of the Civil Code limits the amount to be recovered in such action to ‘the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction.’ Bagdasarian v. Gragnon, 31 Cal.2d 744, 192 P.2d 935. The actual value of the Bay Street property was neither alleged nor proved and an offer of defendants to prove that said actual value was $115,000 was rejected as not involved in the case. However, the above section expressly leaves intact all other legal and equitable remedies of the defrauded person. Of these an action for the advantages which would have accrued if there had been no breach cannot lie, as there is no evidence that a better bargain could and therefore should have been obtained for plaintiff. However, although it cannot be said that the entire amount of $15,000 recovered, is secret profits, because it includes the $2,500 paid by plaintiff in a note expressly as commission, the $15,000 could be recovered on the theory that the whole transaction was induced and vitiated by the breach of fiduciary duty, without which it probably would not have been concluded. The agent who is in a fiduciary relation and all persons who colluded with him in a breach of his duty as such are then accountable for all advantages they gained thereby, even if the principal did not suffer any damage. Jackson v. Smith, 254 U.S. 586, 588–589, 41 S.Ct. 200, 65 L.Ed. 418; Crites Inc., v. Proudential Ins. Co. of America, 322 U.S. 408, 414, 64 S.Ct. 1075, 88 L.Ed. 1356; Restatement of Restitution § 138 and see Smith v. Blodget, 187 Cal. 235, 242, 201 P. 584; Lomita Land & Water Co. v. Robinson, 154 Cal. 36, 45–46, 97 P. 10, 14, 18 L.R.A.,N.S., 1106. In the latter case is quoted “the well-established principle that, where several persons combine to carry out a fraudulent conspiracy to cheat another, each and all of such persons are liable to the defrauded party, without reference to the amount of the fruits of the fraudulent transaction he obtains or the degree of his activity in the scheme.” Although the above rules are most frequently applied to secret profits they are in general applicable to all advantages obtained from a breach of trust by the fiduciary and by all persons acting in concert with him.

Such action is a quasi contractual action for restitution which can be brought in the form of an action for money had and received. Prosser on Torts, 2d Edition, p. 486 et seq. It was held in Steiner v. Rowley, 35 Cal.2d 713, 720, 221 P.2d 9, that such an action is inconsistent with an action for tort in which exemplary damages are sought and that the plaintiff must make a timely election of remedies. Although plaintiff might have recovered exemplary damages in a tort action for the actual damage caused by the breach of fiduciary duty (fraud; § 3294 of the Civil Code) she cannot recover exemplary damages together with the profits obtained by defendants, unrelated to any damage she actually suffered.

It is clear that recovery of the whole amount of $15,000 and any recovery against defendant Letsinger requires proof of a conspiracy collusion or acting in concert in relation to the breach of trust of Metz. The court found the existence of a conspiracy to defraud in the manner alleged in the complaint, but between the fraud there alleged and the fraud which can be considered proved there is a variance, which is material as to the proof of the conspiracy. If it had been true that the Bay Street property could have been obtained for $100,000 the fact that defendant Metz obtained from plaintiff a contract containing a consideration of approximately $115,000 plus $2,500 commission, would in itself indicate fraud and would justify the inference that the two other brokers, who knew the facts as to the transaction intended by Rinas, were aware of said fraud and in collusion with Metz. However, under the facts proved, the contract made with plaintiff was in itself not necessarily suspicious, and the fraud would consist only in inducing by a misleading and incomplete representation the conclusion of a contract which may have been the only possible one. It is then less clear that the other brokers knew of said misrepresentation and that it was the result of a concerted action which was denied by both Metz and Lestsinger as witnesses. We do not mean to hold that the trial judge could not reasonably have drawn such an inference, but that the findings do not show that he made the inference. Considering the existing conflict in the evidence and the possibility of conflicting inferences, we cannot make a finding ourselves.

It must also be noted that the evidence does not support the finding that Mrs. Metz was a defendant who took part in the conspiracy. As said before the only evidence which showed any connection of hers with the transaction was the fact that the deed of trust for $3,000 was made out in the name of Bert Metz and Vivian Metz. Such can show at most that the amount to be received was considered community property of the parties and does not show any participation by Mrs. Metz in the combination to defraud, which could make her personally liable for the whole advantage received by all persons involved. As to her no more than cancellation of the trust deed could have been justified, in which case the money judgment as to the other defendants should have been $3,000 lower.

The further contention of appellant Metz that plaintiff's action for fraud was barred by her negligence in not seeking direct information from Rinas is wholly without merit, considering the confidential relation of broker and client. Compare further Anderson v. Thacher, 76 Cal.App.2d 50, 70, 172 P.2d 533.

On the grounds stated before the judgment must be reversed. If after remand plaintiff would be inclined to amend her complaint, the trial court would have discretionary power to permit it. Holt v. Morgan, 128 Cal.App.2d 113, 118, 274 P.2d 915.

Judgment reversed.

NOURSE, Presiding Justice.

DOOLING and KAUFMAN, JJ., concur.

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