William R. WARD and Bert W. Martin, Plaintiffs and Respondents, v. Marshall W. TAGGART and H. M. Jordan, Defendants and Appellants.*
This is an appeal by the defendants from a money judgment in favor of the plaintiffs growing out of a real estate transaction. Plaintiffs, William R. Ward and Bert W. Martin, are purchasers of certain real property; defendants are a real estate broker and his employee, both of whom were instrumental in effecting a sale of the property to plaintiffs.
The essential facts alleged in the complaint and proved at the trial are as follows:
Prior to the transaction in question plaintiff Ward had asked Leroy Thomsen, a real estate broker, to look for properties which Ward might be interested in purchasing. In February, 1955, Thomsen visited defendant Taggart concerning undelated matters and during the conversation Taggart informed Thomsen that as exclusive agent for the owner, Sunset Oil Company, he had for sale several acres of real property in Los Angeles County. A general discussion concerning the location and nature of the property ensued, Thomsen stating that he had a client who might be interested in acquiring the property. Thomsen mentioned to Taggart that a broker named Dawson had a ‘for sale’ sign on the property; Taggart replied that Sunset had taken the listing away from Dawson.
Thereafter, Thomsen submitted an offer on behalf of Ward to Taggart relating to seven acres in the tract. Taggart promised to submit the offer to Sunset. Taggart later reported that such offer was rejected by Sunset because of a large blanket mortgage. Ward then directed Thomsen to make an offer of $4,000 per acre for the entire property. Thomsen submitted this offer to Taggart, who promised to take it up with Sunset and report back. Taggart later told Thomsen that Sunset had refused the offer and that the least it would take for the property was $5,000 per acre, one-half in cash. Thomsen conveyed the information to Ward and Ward told Thomsen to make an offer on that basis. Thomsen submitted this offer in writing, accompanied by Ward's check for $2,000, to Taggart on March 18, 1955. At Taggart's direction, Thomsen inserted in the written offer provision for payment by Sunset of a ten per cent commission which Taggart and Thomsen agreed to divide equally. On the following day Thomsen advised Ward of the commission arrangement and he was agreeable.
Thomsen contacted Taggart respecting the $5,000 per acre offer three or four times during the following two weeks. On March 31 Taggart informed Thomsen that Sunset had accepted Ward's offer. Thomsen met with Taggart and the latter presented proposed escrow instructions in which defendant Jordan was named as seller acting for Taggart, who was designated as the real principal in the transaction. Taggart then informed Thomsen that he was to be the principal to enable him to ‘clear up the Dawson exclusive listing’ as well as certain blanket mortgages on the property. Thomsen told Ward of this when he submitted the escrow instructions to him. Ward asked why Jordan was to be the payee of the notes and beneficiary of the trust deeds. Thomsen related that Taggart had said that such was necessary because of certain tax and other problems of Sunset, and that the trust deeds would be turned back to Sunset after the escrow. The property conveyed to plaintiffs consisted of 72.0492 acres. The full purchase price which plaintiffs paid for the property was $360,246.
It was not until after they had purchased the property that plaintiffs learned the following facts: Taggart had never been given a listing by Sunset on the property in question. Taggart never presented to Sunset, and never intended to present, plaintiffs' offers of $4,000 per acre and $5,000 per acre. Instead Taggart presented to Sunset his own offer of $4,000 per acre, half in cash, and it was accepted. Taggart misrepresented to plaintiffs that the least Sunset would take for the property was $5,000 per acre; he intended to purchase the property from Sunset himself and resell it to plaintiffs at a profit of $1,000 per acre. All of Taggart's statements to Thomsen concerning Sunset's reason for handling the sale in so unusual a manner were fabrications. Taggart never disclosed to Sunset that he had an offer from Ward until after the escrow papers had been signed. All of the moneys used by Taggart to pay Sunset the purchase price were derived wholly from the Ward escrow.
Plaintiffs commenced this action on August 25, 1955. The case was tried without a jury, and the court rendered judgment against both defendants for $72,049.20 compensatory damages, and awarded exemplary damages of $36,000 against defendant Taggart individually. The judgment also enjoined defendants from transferring certain notes and trust deeds which plaintiffs had given them, and ordered defendants to discharge said notes and trust deeds, thereby reducing the amount of the judgment. Defendants have appealed.
Defendants' contentions are as follows: (1) the complaint fails to state a cause of action; (2) the evidence is insufficient to support the findings that there as a fiduciary relationship between either defendant and either plaintiff, and that a secret profit resulted to either defendant; (3) that the lack of any fiduciary relationship was established as a matter of law; (4) that the findings do not support the judgment in respect to the existence of a fiduciary relationship; and (5) that both the compensatory and exemplary damages are excessive.
Defendant Taggart's contention that the complaint fails to state a cause of action is without merit. Plaintiffs did not allege and the court did not find that Taggart was in fact their agent. But this is not the sole basis upon which he may be held liable. In circumstances such as here presented the public policy of this state is clear. Section 3517 of the Civil Code provides: ‘No one can take advantage of his own wrong.’ And section 2224 provides: ‘One who gains a thing by fraud * * * or other wrongful act, is, unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.’ It must be borne in mind at the outset that Taggart was a licensed real estate broker. In order to qualify as such, one must be ‘honest, truthful and of good reputation.’ Bus. & Prof.Code, § 10150. A real estate broker's license may be revoked if he is guilty of ‘making any substantial misrepresentation’ or ‘making any false promises of a character likely to influence, persuade or induce.’ Bus. & Prof.Code § 10176. Thus it is a broker's duty to deal honestly and to speak truthfully in his real estate dealings. As a licensee, a broker is in a privileged class and enjoys a monopoly to engage in a profitable business. By virtue of his license he is in an advantageous position in his real estate dealings with the public at large. His duty to deal honestly and speak truthfully in such matters therefore extends to the general public as well as to his own clients. ‘Those dealing with a licensed broker may naturally assume that he possesses the requisites of an honest, ethical man.’ Zichlin v. Dill, 157 Fla. 96, 25 So.2d 4, 5. This principle is recognized in the Code of Ethics adopted by the California Real Estate Association. Article 21, in the part entitled ‘Relations to Customers and the Public,’ provides: ‘It is the duty of every realtor to protect the public against fraud, misrepresentation, or unethical practices in connection with real estate transactions.’ When a broker violates this duty and thereby obtains a profit to which he is not entitled, he becomes an involuntary trustee and holds his ill-gotten gain for the benefit of those who would otherwise have had it. Civ.Code, § 2224; Harper v. Adametz, 142 Conn. 218, 113 A.2d 136, 55 A.L.R.2d 334.
Applying these principles, it is clear that the complaint alleges facts sufficient to show defendant Taggart's liability as an involuntary trustee. The alleged facts (which the court found to be true) clearly show that Taggart set out to perpetrate a fraud upon plaintiffs and that he succeeded. Even though Taggart was not the agent of either plaintiff, he nevertheless occupied a peculiarly advantageous position by reason of his being a licensed real estate broker and his asserted representation of the owner of the property in question. Plaintiffs reasonably relied upon Taggart's statements. Because of his licensed status he was under a duty to speak truthfully. By his fraudulent conduct and misrepresentations he violated this duty and acquired a profit of $1,000 per acre to which he was not entitled. Therefore, he is an involuntary trustee of the profit so acquired. Civ.Code, § 2224; see Estrada v. Garcia, 132 Cal.App.2d 545, 552, 282 P.2d 547; Rankin v. Satir, 75 Cal.App.2d 691, 695, 171 P.2d 78.
Our conclusion finds support in a Florida case, Zichlin v. Dill, supra. In that case the plaintiff answered an advertisement for the sale of certain real property. The defendant broker quoted her a selling price of $5,500. The plaintiff was thereafter shown the property by the owner, who mentioned a figure of $4,500, whereupon plaintiff stated her understanding that the price was $5,500. The owner then told her that all arrangements, including the price, were in the control of the broker. The plaintiff returned to the broker and stated that she desired to purchase the property but would like to obtain it for $4,500. The broker represented to her that he would ascertain whether the property could be purchased for $4,500. Later the broker notified the plaintiff that the property could not be purchased for less that $5,500, which she then agreed to pay. He induced her not to engage an attorney to represent her in closing the transaction, stating that he would attend to all details and record the deed. It was not until after the deed was recorded that the plaintiff learned that the broker had, with her money, purchased the property for himself from the owner for $4,500 and sold it to her for $5,500. She thereafter instituted an action to recover the $1,000 profit which the broker had wrongfully obtained. A dismissal of the action was reversed on appeal. The court's remarks (25 So.2d at pages 4–5) were strikingly applicable to the case at bar. ‘Ultimately we must determine just what duty the broker owed appellant. Did he owe a duty to anyone except the owner who had listed the property? Evidently the chancellor was or the view that he owed no duty to the buyer. In this he was in error. Generally speaking an agent is responsible only to his principal. This, however, is different. The broker in Florida occupies a status under the law with recognized privileges and responsibilities. The broker in this state belongs to a privileged class and enjoys a monopoly to engage in a lucrative business. (Citation.) The statute requires that * * * ‘applicants * * * be competent, honest, truthful, trustworthy, of good character, and bear a reputation for fair dealing * * *.’ The state, therefore, has prescribed a high standard of qualifications and by the same law granted a form of monopoly and in so doing the old rule of caveat emptor is cast aside.' See, also, Annotation, 55 A.L.R.2d 342, 353–354.
A similar result was reached in Harper v. Adametz, supra. A real estate agent advertised certain property in a newspaper. Plaintiff answered the advertisement and was shown the property (an 80 acre farm). Plaintiff then offered the agent $7,000 for the entire farm. The agent promised to convey the offer to his principal, but he did not do so. Instead he told the owner that he had received a $6,500 offer and informed the plaintiff that his $7,000 offer had been rejected. The real estate agent then induced plaintiff to make an offer on the buildings and part of the land (17 acres). Plaintiff offered $6,000. The agent accepted this offer and, through the use of a ‘dummy,’ puchased the entire property for $6,500. The net result was that the agent obtained 63 acres of the farm for himself at a price of $500 and at the same time collected a commission of $325 for the sale. Plaintiff brought an action against the real estate agent for damages and equitable relief based upon the fraud. The trial court ruled in favor of the defendant, and the plaintiff appealed. The Connecticut Supreme Court held that even though defendant was not the agent of plaintiff, he breached a duty owed to plaintiff by not submitting the $7,000 offer to the owner. The court concluded that plaintiff should have the benefit which defendant wrongfully acquired, and ordered defendant to convey the 63 acres to plaintiff upon the latter's payment into court of $1,000 (the difference between plaintiff's original offer for the entire property and the amount he paid for a portion thereof). The court reasoned (113 A.2d at page 139): ‘The plaintiff had a clear right to have his offer for the farm transmitted to Tesar. Having been invited by Jere's advertisement to bid for the property, he had a right to assume that Jere would deal honestly with him and be faithful to his principal. Instead, Jere withheld the offer, later lied to the plaintiff about it and, by using the plaintiff's willingness to accept seventeen acres, acquired the farm for himself for less than the plaintiff had offered for it. He induced the plaintiff to make an offer and then used that offer, and the plaintiff's money, to make a secret profit. By his fraudulent misrepresentations, he deprived the plaintiff of his bargain and obtained for himself some of the land which the plaintiff had offered to buy. ‘If one acquires property by means of a fraudulent misrepresentation of a material fact, equity will assist the defrauded person by fastening a constructive trust on the property.’ [Citations.]'
Taggart's position in the instant case is somewhat analogous to that of a gratuitous agent, in regard to whose conduct the law is clear. ‘While a gratuitous agent cannot be compelled to enter upon the performance of any agency nor be mulcted in damages for his failure to do so, when he does enter upon such performance, he is, in common with all other agents, bound to exercise the utmost good faith in dealing with his principal. A gratuitous agent has no greater license to indulge in misrepresentations, concealments, or other breaches of good faith than an agent for hire. Thus, a gratuitous agent cannot, while acting for his principal, make any secret profit for himself out of the transaction being conducted by him, without being accountable to the principal.’ Ramey v. Myers, 111 Cal.App.2d 679, 685, 245 P.2d 360, 364.
‘An agent for hire is bound to exercise a greater degree of care and diligence than an agent acting gratuitously, but the latter has no greater license to indulge in misrepresentations, concealment, or other breaches of good faith than the former. It is a maxim of jurisprudence that no person will be permitted to take advantage of his own wrong, and this general rule is subject to no exception favoring those who voluntarily and gratuitously undertake the performance of service for another. No man can be compelled to don the yoke of special, unremunerated duty to another, but when that yoke is voluntarily assumed, the wearer will not be permitted to lay down his burden when profit to himself furnishes an inducement, and that profit results from detriment suffered by the other party. The primary object of human law is to curb human selfishness manifested in the various forms of passion, and the numerous guises avarice and greed may assume. Its most wholesome rules frown upon deceit, chicanery, bad faith and other forms of fraud, actual and constructive, and are designed to compel the exercise of good faith, candor, honesty, and fairness in dealings between men. It would be a reproach to a system having these objects in view to say that the rules referred to do not apply to one who has officiously and voluntarily undertaken and entered upon the performance of gratuitous service for another.’ Kevane v. Miller, 4 Cal.App. 598, 603, 88 P. 643, 645.
Taggart relies on the connected cases of Hickson v. Gray, 91 Cal.App.2d 684, 205 P.2d 420, and Denmead v. Gray, 91 Cal.App.2d 687, 205 P.2d 426. Those cases arose out of the same factual situation: defendant Gray acted as broker for Hickson in selling the latter's property. Gray secretly sold to herself at one price and then resold the property to Denmead at a higher price. Hickson sued and recovered secret profits based on the breach of a fiduciary relationship. Denmead also sued for secret profits and was denied recovery because no fiduciary relationship existed between her and Gray. Taggart argues that plaintiffs in the case at bar are in the same position as plaintiff Denmead in the cases cited, and therefore cannot recover. He is mistaken. Here Taggart was not the agent of Sunset as was Gray the agent of Hickson. In those cases Hickson was defrauded. The only fraud in this case was perpetrated on plaintiffs; Taggart dealt at arm's length with Sunset in purchasing the property, even though he did not disclose the fact of his offer from plaintiffs. An agent of Sunset testified that he was well acquainted with Taggart's occupation and knew that Taggart intended to resell the property once he acquired it. Sunset would not be permitted to recover if it brought an action for secret profits against Taggart because, as between Sunset and Taggart, no agency existed and no fraud was perpetrated. It is therefore clear that the Hickson and Denmead cases do not sustain Taggart's position.
From the foregoing it is clear that the complaint states a cause of action as to defendant Taggart.
At this point we may dispose of the question of defendant Jordan's liability. Even though Jordan willingly allowed her name to be used in the dual escrows, she did not share in the illicit profit which Taggart obtained. In each escrow transaction it was indicated that Jordan was merely acting for Taggart, who was designated as the real principal. The evidence establishes that Jordan turned over all that she received to Taggart, her employer. Under these circumstances it is clear that defendant Jordan cannot be held liable as an involuntary trustee. One cannot be deemed an involuntary trustee of something which he has not acquired. Civil Code section 2224 applies only to those who have made the wrongful acquisition. Since it was Taggart alone who obtained the illicit profit, he alone can be required to hold that profit, he an involuntary trustee for the benefit of plaintiffs. Therefore, the judgment must be reversed as to defendant Jordan.
Taggart's next three contentions, having to do with the sufficiency of the evidence to establish the existence of a fiduciary relationship, may be considered concomitantly. It is true that the evidence does not establish an agency relationship between plaintiffs and Taggart. Nor does it in fact disclose a fiduciary relationship between the parties. But this does not mean that Taggart was not under a duty to plaintiffs to speak truthfully and act honestly by reason of his status as a licensed broker. Taggart's fraud and misrepresentation constituted a breach of such duty, through which breach he obtained an illicit profit. The evidence unmistakably supports this conclusion and the court found the allegations of the complaint to be true. While the finding of fact and the conclusion of law that Taggart assumed a confidential or fiduciary relationship toward plaintiffs are technically incorrect, the duty he did in fact owe plaintiffs and which he violated is so closely akin to that of a fiduciary that he could not be prejudiced by such error. The result would be the same since the facts found by the court clearly support the judgment on the theory of an involuntary trust. Therefore, there is no reversible error. Calif.Const. art. VI, § 4 1/2.
Taggart's final contention is that the damages are excessive. One ground for this contention is that Taggart was forced to spend in excess of $25,000 in order to obtain his unlawful profit. It was Taggart who actually paid Thomsen's commission; Taggart had misrepresented that Sunset would pay that commission. Moreover, Taggart had to carry the cost of ‘buying off’ Dawson, the broker who had held a listing on the property. And Taggart had to pay various escrow charges. He urges that all these items should be deducted from his profit so as to reduce the amount of the judgment. His contention is without merit. In Kinert v. Wright, 81 Cal.App.2d 919, at page 927, 185 P.2d 364, at page 369, this court held: ‘An involuntary trustee who becomes such through his own fault is not entitled to reimbursement.’ This is in accord with the principle embodied in Civil Code, section 2275. To the same effect, see McArthur v. Goodwin, 173 Cal. 499, 504–505, 160 P. 679; Title Insurance & Trust Co. v. California Dev. Co., 171 Cal. 173, 220, 152 P. 542. Such a wrongdoer ‘has none of the rights ordinarily existing in favor of a trustee.’ McArthur v. Goodwin, supra, 173 Cal. at page 505, 160 P. at page 682. The expenses which Taggart incurred were a direct result of his fraudulent acts; if he had acted properly, they would not have accrued to him. ‘No equity is acquired through fraud.’ Marsh v. Smith, 46 Cal.App. 692, 700, 189 P. 1037. It is therefore clear that the judgment should not be reduced by reason of the expenses which Taggart incurred in obtaining his illicit profit. Schwarting v. Artel, 40 Cal.App.2d 433, 105 P.2d 380, relied upon by Taggart, is not applicable to the instant situation. In that case an agent who had obtained secret profits was permitted to be reimbursed for the value of a bungalow which he had contributed as part of the purchase price of property he had acquired on behalf of his principal. He was entitled to such reimbursement because in effect he had advanced a portion of the purchase money. That is far different from reimbursement for expenses which are incurred in obtaining the illicit profit but which are not a part of the purchase price of the property nor necessary to its protection and conservation.
Although Taggart has not specifically raised the point, we are constrained to examine the propriety of awarding exemplary damages. Instead of bringing an action for damages for Taggart's fraud, plaintiffs have elected to sue for the recovery of the illicit profit which Taggart wrongfully acquired. The legal theory underlying this action is that of unjust enrichment. To prevent such enrichment the law imposes upon the wrongdoer an involuntary or constructive trust. Restatement, Restitution § 160. Where the property wrongfully acquired is money, the law implies a promise to repay. Philpott v. Superior Court, 1 Cal.2d 512, 518 et seq., 36 P.2d 635, 95 A.L.R. 990; McCall v. Superior Court, 1 Cal.2d 527, 530–533, 36 P.2d 642, 95 A.L.R. 1019. Plaintiffs' complaint in effect waives Taggart's tort and relies upon the quasi-contractual obligation which the law imposes upon him. Under these circumstances the plaintiffs are not entitled to recover any exemplary damages. Crogan v. Metz, 47 Cal.2d 398, 303 P.2d 1029; is decisive on this point. The court there stated (47 Cal.2d at page 404, 303 P.2d at page 1033): ‘Count II is in the nature of a common count for money had and received. By such a pleading the principal waives the tort of the agent and asserts a right to recover any secret profits made by him out of his agency.’ The court then struck the exemplary damages award, stating (47 Cal.2d at page 405, 303 P.2d at page 1033): ‘The cause of action stated in Count II is supported by the general finding and the judgment for compensatory damages, but does not entitle the plaintiff to punitive damages. Such an award may not be granted in an action based on a breach of contract even though the defendant's breach was wilful or fraudulent. [Citations.]’ See, also, Chelini v. Nieri, 32 Cal.2d 480, 196 P.2d 915.
The judgment against defendant Jordan is reversed. The judgment against defendant Taggart is modified by striking therefrom that portion in which plaintiffs are awarded $36,000 as exemplary damages, and as so modified the judgment as to him is affirmed. No party shall recover costs on appeal.
I concur in the judgment except as to the amount of same. However, my reasoning is somewhat different from that of the majority opinion.
The proof of defendant Taggart's fraud upon plaintiffs is clear. Indeed, appellant's opening brief concedes this: ‘Defendants admit that the record will support the determination that Taggart made various fraudulent misrepresentations to the plaintiffs relative to this transaction. Defendants admit that the record will support the determination that those misrepresentations were relied upon by the plaintiffs and induced the plaintiffs to conclude the transaction.’ The fact that defendant is a real estate broker adds nothing to the obligation to deal honestly in any business transaction. Every man engaged in such a deal is obligated to tell the truth when he speaks, to assert nothing as fact which he does not believe to be true, not to assert positively as a fact an untruth which he believes to be true where the statement is not warranted by the information possessed by him, not to conceal a material fact which, if disclosed, would influence the conduct of the other party to the deal. Civ.Code, § 1572; 23 Cal.Jur.2d § 4, p. 8; § 45, p. 106; § 46, p. 113. This duty of fair dealing rests upon a broker (with or without a license) as upon every man, no more and no less. In my opinion reliance upon Zichlin v. Dill, 157 Fla. 96, 25 S.2d 4, 5, injects a false element into an uncomplicated problem.
Taggart was not the agent of Sunset Oil Company, the owner of the land. So far as appears, he did not defraud that company. Any secret profit obtained by him did not belong to Sunset. It was plaintiffs who were defrauded and entitled to any appropriate remedy therefor. They elected not to sue for damages on the theory of recovery under § 3343, Civil Code, i. e., the difference between the price paid and the value of the land received for it. They have not advanced the claim at any stage of the case that the land was worth less than they paid for it. Their complaint and their briefs on appeal rest upon the theory that Taggart's working a fraud upon plaintiffs created a confidential relationship between them and entitled plaintiffs to damages for violation of the obligation of a fiduciary. Of course, the making of successful false representations to a buyer does not create a fiduciary relationship; but its result may be, at the election of the defrauded party, the imposition upon the wrongdoer of the obligations of a constructive trustee (Civ.Code § 2224). This is the result of the fraud; it does not antedate its accomplishment. The Restatement of the Law of Restitution, § 160, comment a, page 641, says: ‘The term ‘constructive trust’ is not altogether a felicitous one. It might be thought to suggest the idea that it is a fiduciary relation similar to an express trust, whereas it is in fact something quite different from an express trust. An express trust and a constructive trust are not divisions of the same fundamental concept. They are not species of the same genus. They are distinct concepts. A constructive trust does not, like an express trust, arise because of a manifestation of an intention to create it, but it is imposed as a remedy to prevent unjust enrichment. A constructive trust, unlike an express trust, is not a fiduciary relation, although the circumstances which give rise to a constructive trust may or may not involve a fiduciary relation.'
Through fraud defendant received money belonging to plaintiffs (not Sunset Oil Company) and plaintiffs have elected to recover in an action which we hold to be based upon a contract or trust implied in law, not in fact,—one which rests ultimately upon the doctrine of unjust enrichment. The tort is thereby waived; the action proceeds on contract. Crogan v. Metz, 47 Cal.2d 398, 404, 303 P.2d 1029.
McCall v. Superior Court, 1 Cal.2d 527, 532, 36 P.2d 642, 645, 95 A.L.R. 1019: ‘But in assumpsit, where the tort is waived, the sum sued for is the benefit unjustly retained by the defendant; not the damage to the plaintiff, usually more uncertain in amount.’
French v. Robbins, 172 Cal. 670, 679, 158 P. 188, 191: ‘The foundation of the action of assumpsit, where property of the plaintiff has been wrongfully taken and sold by the defendant, is the unjust enrichment of the wrongdoer. Keener on Quasi Contracts, p. 160. It is well settled that in order to recover in such an action the plaintiff must show that a definite sum, to which he is justly entitled, has been received by the defendant. ‘As the amount of the plaintiff's recovery is limited to the proceeds received by the defendant, it will be fatal to this form of action that the amount is not ascertainable.’'
As the majority have held, these principles rule out the recovery of exemplary damages. That is the holding of Crogan v. Metz, supra, 47 Cal.2d 398, 405, 303 P.2d 1029. See, also Steiner v. Rowley, 35 Cal.2d 713, 720, 221, P.2d 9; Squire's Department Store, Inc., v. Dudum, 115 Cal.App.2d 320, 325, 252 P.2d 418; Fordson Coal Co. v. Kentucky River Coal Corporation, 6 Cir., 68 F.2d 131; Hilderbrand v. Anderson, Mo. App., 270 S.W.2d 406, 410.
My dissent relates to that phase of the ruling which allows defendant only the sum of $4,000 an acre (a total of $288,196.72) as the basis for measuring his liability for restitution of unjust enrichment. Restatement of the Law of Restitution, § 160, comment d. page 643; ‘Unjust enrichment and unjust deprivation. In most cases where a constructive trust is imposed the result is to restore to the plaintiff property of which he has been unjustly deprived and to take from the defendant property the retention of which by him would result in a corresponding unjust enrichment of the defendant; in other words the effect is to prevent a loss to the plaintiff and a corresponding gain to the defendant, and to put each of them in the position in which he was before the defendant acquired the property.’
As indicated by the quotations from French v. Robbins, supra, and McCall v. Superior Court, supra, the plaintiff who sues in assumpsit growing out of fraud or other tort recovers only such sum or property as belongs to him in equity and good conscience; at this point the fraud has spent its force and the idea of punishment is out. The rule is thus stated in 58 C.J.S. Money Received § 33, p. 947: ‘In an action Kentucky River Coal Corporation, 6 Cir., entitled to recover such sum, and only such sum, as in equity belongs to him, in no event exceeding the sum actually received for his use by the defendant or the amount sued for, with interest.’
Basically this rule is recognized in the majority opinion which holds defendant liable for $1,000 an acre instead of $5,000. He is give credit for the $4,000 he paid for the land and charged with the difference between that and the amount he received from the plaintiffs. It seems to me that the cases cited in the majority opinion do not sustain the disallowance of all credits claimed by appellant. I think the line of demarcation should be this: That defendant is entitled to a deduction of the entire cost to him of the transaction except those items which were incurred as a means of accomplishing his fraud.
In the latter category is the commission of $5,900 paid to Harvey Nelson, former vice president and land manager of Sunset Oil Company. It appears to have been paid as an aid (so far as defendant was concerned) to the accomplishment of the fraud upon plaintiffs. I agree that it should be disallowed as part of the cost of the property.
There were two escrows, one which channeled title from Sunset to Jordan (Taggart's dummy) at a cost of $171.85. The other passed title from Jordan to plaintiffs at a cost of $444.15. The expense of the first escrow should be disallowed, in my opinion, as an expense directed primarily to the accomplishment of the fraud, one which would not have been necessary to a legitimate transaction. On the other hand, the second item of $444.15 was an expense which would have been incurred in the absence of a fraud, and in may judgment should be added to the $4,000 an acre in computing the amount of restitution to be made.
On Dawson had an exclusive agency on the property to sell same, or part of it, at $11,000 an acre. In order to effect a sale of the entire property to plaintiffs it was necessary to get rid of Dawson's contract; this was done at a cost of $4,034.88. This expense would have been necessary had there been no fraud and regardless of whether the land sold for $4,000 or $5,000 an acre. It should be added to the $4,000 acreage price in computing the cost of the land to defendant.
With plaintiff Ward's knowledge and consent his own broker, Thomsen, was paid a commission of $15,012.30. There is nothing to suggest that this was not a legitimate item or that it was an instrumentality of accomplishing the fraud. I think this item should be added to the cost.
Plaintiffs paid to Sunset $288,196.72; to this should be added the following items: Cost of second escrow, $444.15; payment to Dawson, $4,034.88; commission to Thomsen, $15,012.30. This makes a total of $307,688.05. Deducting this amount from the price paid by plaintiffs, $360,246.00 leaves $52,557.95, to which amount the judgment should be reduced.
That the foregoing reasoning is sound is supported by the authorities, in my opinion. Schwarting v. Artel, 40 Cal.App.2d 433, 105 P.2d 380, was decided by this court and hearing denied. It was an action to recover a secret profit made by plaintiff's agent. Artel, the agent, had included in an exchange of properties between his principal, Schwarting, and one Hartman, an Inglewood bungalow belonging to himself and thereby had reaped a secret profit. At page 441, of 40 Cal.App.2d at page 384 of 105 P.2d the court said: ‘In those cases where an agent has secretly profited, as a matter of course, to the end that equity be done to all parties he is entitled to be reimbursed for any portion of the purchase money advanced by him and for all expense necessarily incurred by him in protecting and conserving the property of his principal. 3 C.J.S. Agency p. 14, sec. 140. Under this hypothesis, Artel is entitled to be reimbursed in the amount of $2,000, the value of his said Inglewood bungalow, which he utilized in effectuating said exchanged for Schwarting.’
In Kinert v. Wright, 81 Cal.App.2d 919, 185 P.2d 364, also decided by this division, it was said concerning the measure of recovery in a secret profit case: ‘Respondent received $1,200 from appellants, asserting that the small tract selected by them could be purchased for that sum and falsely representing that it was free and clear of encumbrances. He paid $500 for the large parcel of land. The finding is that in his accounting he claimed to have paid $120 as commission. There is no finding that the commission was not paid, the evidence is not before us, and appellants do not dispute the claim. Allowing respondent his full due he is entitled to credit for $620 and appellants should recover the difference between the sum and the amount entrusted to him amounting to $580.’ (81 Cal.App.2d at pages 927–928, 185 P.2d at page 369.) In the same case the agent was disallowed an item of $160 which had been incurred for costs and attorney fees in an action concerning delinquent taxes upon property purchased by him for his principal because ‘the expenditures made by him were in pursuance of his ‘scheme to obtain a secret profit’ at appellants' expense.' (81 Cal.App.2d at page 923, 185 P.2d at page 367.) At page 926 of 81 Cal.App.2d at page 367 of 185 P.2d: ‘Though respondent was appellants' agent when their relationship began he became their trustee when the took title to the property in his own name, using their money with which to make the purchase.’ At 927 of 81 Cal.App.2d, at page 369 of 185 P.2d: ‘The fraud and deception of respondent deprive him of the right to repayment of his expenditures for attorney's fees in the tax suit and for other purposes in connection with the property. Section 2273 of the Civil Code provides that a trustee is entitled to reimbursement out of the trust property of all expenses actually and properly incurred by him in the performance of his trust. This rule is applicable only when the trustee has conducted the affairs of the trust honestly, has dealt fairly with his beneficiary, and has not attempted to make a secret profit for himself out of the trust property or otherwise to deceive and defraud those who entrusted him with their business. An involuntary trustee who becomes such through his own fault is not entitled to reimbursement. Civ.Code, sec. 2275; Title Insurance & Trust Co. v. California Dev. Co., 171 Cal. 173, 220, 152 P. 542; Marsh v. Smith, 46 Cal.App. 692, 699, 189 P. 1037. The beneficiary ‘is under absolutely no obligation to repay these outlays.’ McArthur v. Goodwin, 173 Cal. 499, 505, 160 P. 679, 682.' This case seems to recognize an important distinction here applicable, namely, that legitimate expenses incurred in acquiring the property for the principal are credited to the agent, but those concerned with its maintenance or protection which are incurred after the constructive trust has arisen are not allowed. The cases of McArthur v. Goodwin, 173 Cal. 499, 504, 160 P. 679, and Title Insurance & Trust Co. v. California Dev. Co., 171 Cal. 173, 220, 152 P. 542, fall within the purview of § 2275, Civil Code: ‘An involuntary trustee, who becomes such through his own fault, has none of the rights mentioned in this Article.’ In other words, they have to do with expenses of management or protection of property which has already become the subject of a constructive trust in the hands of defendant. Both cases apply Civil Code, § 2275, and to my mind they are not controlling here.
I concur in the reversal of the judgment against defendant Jordan. As to defendant Taggart the judgment should be reduced to $52,557.95, and affirmed as modified.
FOX, Presiding justice.
HERNDON, J., concurs.