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Court of Appeal, First District, Division 3, California.

Bessie Mae PEIRCE, an Incompetent Person, by her Guardian Ad Litem, Alice Miller, Plaintiff and Appellant, v. Henry HOM, Defendant and Respondent.

Civ. 48394.

Decided: November 30, 1981

Alberta M. Blumin, Oakland, for plaintiff and appellant. Raymond D. Louie, Oakland, for defendant and respondent.

This action for breach of fiduciary duty, etc., was filed in 1974 by appellant Bessie Mae Peirce against respondent Henry Hom and other defendants.   The other defendants were dismissed prior to the 1979 trial by court.   Upon completion of appellant's presentation of her evidence (including the examination of respondent), the court granted respondent's motion for judgment (Code Civ. Proc., § 631.8.)   Findings of fact and conclusions of law were made.   Peirce appeals from the judgment.

Appellant Peirce, a widow, was 77 years old 1 at the time of the material events herein.   She then owned her residence on 47th Avenue in Oakland (hereafter “Residence”), a house on 51st Avenue (“House”), two flats and a cottage on Bond Street (“Cottage”), and two flats on Ellen Street (“Flats”).

Appellant's rental income of $400 per month was her only income.   When her monthly mortgage payments were subtracted from her monthly income, the remainder was scarcely sufficient to pay for the necessities of life.

Respondent Hom is a licensed real estate broker who had his office around the corner from Residence and who had known Peirce since 1957 on a nonbusiness basis.   In July 1970, she telephoned him and asked him to arrange a loan on one of her properties.   He located Lynn and Marcella Thompson and brokered a loan from them of $3,000, secured by a second deed of trust on House.   He charged a commission of $400 or 13.3%, which exceeded the 10% limitation of Business and Professions Code section 10242, subdivision (b)(2).2  The rate of interest was 10%.   The loan was payable in 23 monthly installments of $50 and a final installment of $1,900, which was contrary to section 10244 of the code's provision that “no installment including the final installment shall be greater than twice the amount of the smallest payment.”

In September 1970, Peirce again asked Hom to arrange a loan and he brokered another loan from the Thompsons on identical terms, except that it was secured by Residence, and on this occasion his commission was $419, or 13.9%.

Hom testified that he believed the limitation on his commission was 15% and that he did not know that the “balloon” payments were illegal.   The trial court found that the terms of the loans were not usurious or oppressive or in willful violation of the provisions of the California Business and Professions Code.

“Broker's Loan Statements,” containing all the information required by section 10241 of the code, were prepared in Hom's hand and signed by Peirce.   The statements represented that the loans were in compliance with the California Real Estate Law.   Hom testified that he explained the statements to Peirce, in particular the balloon payments, and she had no objections or questions.   She testified that the terms of the loans were never fully explained to her but that she trusted Hom and believed the terms were legal (a neighbor testified that Peirce “loved Mr. Hom because he had helped her.”)   The court found that Hom used reasonable care in advising Peirce and did not fraudulently or negligently misrepresent the terms of the loans to her.

Hom believed that Peirce intended to use the loan proceeds to pay bills.   He did not know about appellant's other indebtedness, and he did not inquire as to her ability to repay the loans.   The court found that Hom did not know that Peirce would be unable to repay the loans and that he did not breach the duty of a fiduciary or trustee.

Peirce made some payments on the loans.   She apparently also became indebted for repairs.   In August 1971, Peirce borrowed some money from Rosalie Rogers (the record does not indicate which property was used as security);  in September 1971, she borrowed some money from Alex and Anna Rose, secured by Residence, and in October 1971, she borrowed some money from Manuel and Ann Yslas, secured by Cottage.   The record also indicates that at some point appellant borrowed some money from one Bloom, secured by Flats.

Ultimately (the record does not show exactly when), Peirce was unable to keep up with her loan payments and all of the lenders foreclosed.   The Thompsons took over House and sold Residence to a neighbor.   Peirce was evicted.   The court found that Hom had not conspired with the Thompsons or the neighbor and did not cause the foreclosures and that his acts were not intended to and did not injure Peirce.

Peirce testified that Hom never advised her to sell one of the properties.   He testified that on occasion (the record does not show when) he suggested “more or less in jest” that she let him sell some of her property.


1. Legality of the Loans

Appellant contends that the evidence does not support the finding that the loans were not usurious or oppressive or willfully in violation of the Business and Professions Code.

Sections 10240–10248.9 regulate the negotiation by “real estate licensees” of loans secured by liens on real property.3  Section 10242, subdivision (b)(2), provides that a licensee's commission may not exceed 10% of the loan when the term is two years.   Respondent's commissions exceeded this percentage.

Section 10244 provides that a loan which provides for installment payments and a term of less than three years shall provide for substantially equal payments and “no installment including the final installment shall be greater than twice the amount of the smallest installment.”   The loans negotiated by respondent provided for 23 payments of $50 and a 24th payment of $1,900 and thus violated this provision.

With respect to the commissions, section 10246 provides for an action to recover the excess amount, three times the excess, costs, and attorney's fees, unless the excess “is the result of a bona fide error,” in which case the borrower is entitled to recover only the excess.

At the time of the relevant events herein, there was no comparable procedure or remedy for loans which were in violation of the installment restrictions of section 10244.4  (See Harris v. Gallant (1960) 183 Cal.App.2d 94, 6 Cal.Rptr. 630, holding that, under former Civil Code section 3081.5, from which section 10244 was derived, the remedy for a balloon payment violation was not to declare the loan void as to principal but to give certain credits and to decree that the remaining balance be payable at the rate of the smallest monthly payment.)

It would seem that the remedy provided by section 10246 was not intended to be exclusive.   Section 10248.2, subdivision (e) (see fn. 4), declares that “the remedies provided for herein shall be in addition to any other procedures or remedies provided under law.”  (This section was not in effect at the time of the relevant events but may be regarded as declarative of the legislative intent with regard to the provisions which were then in effect.  (See 58 Cal.Jur.3d (1980) Statutes, § 171, pp. 579–580, and cases cited.))

Hom's position in the trial court and on appeal is that he did not know about the 10% limitation on commissions or the balloon payment prohibition and that the violations were therefore “the result of a bona fide error.”   The trial court ruled accordingly that the terms and conditions of the loans were not usurious or oppressive or in willful violation of the law.

With the question of whether they were usurious or oppressive, we need not concern ourselves, and there is no question of willfulness.   Instead the question is whether the violations were bona fide error.   The evidence permits no conclusion but that they were not.   Respondent did not make an error in computation (see Civ.Code, § 2983;  Fin.Code, § 22651)—in good faith or otherwise.   He was simply ignorant or mistaken as to the law, which does not excuse.  (See First Nat'l Bank v. Thompson (1971) 249 Ark. 972, 463 S.W.2d 87, 89;  Grady v. Price (1963) 94 Ariz. 252, 383 P.2d 173, 176.)

 Appellant thus made out, at least, a case for relief under section 10246.5  Of course, that relief would be limited to the excess commission, triple that amount, costs, and fees, unless appellant is entitled to relief on some other theory.

Appellant has advanced a theory of negligent misrepresentation based on the paragraph of the “Broker's Loan Statements” that “the above described loan is being made in compliance with the California Real Estate Law.”   The loans were not in compliance with that law, as we have pointed out, and the paragraph was thus a misrepresentation, a negligent if not an intentional one.

It is doubtful, however, that appellant made out a case on this theory because evidence is lacking of the element of reliance.  (See 4 Witkin, Summary of Cal.Law (8th ed. 1974) § 472, p. 2732.)   It does not appear that appellant relied on respondent's representations that the loans and commissions were within the law in borrowing the money.   She knew the amount of the commission and of the final balloon payment and agreed to them.   Further, the usual measure of tort damages, based on foreseeability, does not apply;  instead, liability extends “only to damage from the particular action which the defendant intended to induce, or something substantially similar.”  (Id., at § 480, p. 2740.)

2. Breach of Fiduciary Duty

 Appellant also proceeded on a theory of breach of the duty of a fiduciary or trustee.   The court found that there was no such breach of duty.   Appellant contends that this finding is not supported by the evidence.

There appears to be no dispute but that the relationship between appellant and respondent in the loan transaction was of a fiduciary nature and that they stood in the relation of beneficiary and trustee.  (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 782–783, 157 Cal.Rptr. 392, 598 P.2d 45.)   Therefore, respondent owed appellant the duty of acting with the highest good faith and care.  (Civ.Code, § 2228.)   The evidence of appellant's age and physical infirmities and of the confidence she reposed in respondent would also support the finding of a confidential relation.  (Kent v. First Trust & Savings Bank (1950) 101 Cal.App.2d 361, 370, 225 P.2d 625.)

The question is whether he breached such duty.

Appellant argues that respondent breached his duty (A) when he negotiated loans which provided for illegal balloon payments and charged excessive commissions and when he completed a broker's loan statement which misrepresented that the loan complied with the real estate law and (B) when he failed to inquire as to appellant's ability to repay the loans and to advise her as to more prudent means of raising money on her property.   Respondent's reply is that he “was not [appellant's] financial advisor.   She made many loans on her own behalf [respondent] merely helped to arrange a loan, or loans, for her.   No evidence has been produced, tending to show in what manner [respondent] was negligent or careless, or that he was incompetent, or acted in bad faith.”

In support of argument (A), appellant cites Ogier v. Pacific Oil & Gas etc. Corp. (1955) 132 Cal.App.2d 496, 282 P.2d 574, an appeal from a judgment upon the sustaining of a demurrer to a complaint.   The complaint alleged that an elderly woman had a confidential relation with a seller of unqualified securities who represented that the sales were legal and stated the opinion that lands were potential oil lands.   The court held that under the circumstances the statement of opinion was actionable fraud.   However, the court did not pass specifically on the question of whether there had been a breach of the confidential relation.   Thus, the case is not helpful.

Assuming, however, that argument (A) is sound, there is again a question of causation—i. e., whether the alleged balloon payments, excessive commissions, and statements that the loans complied with law caused appellant's injury.   It is doubtful that the commissions or the statements were significant causal factors and, though it may be probable that the balloon payments caused appellant to lose her properties, the record does not show that to have been the case.

In support of argument (B), appellant relies on Rattray v. Scudder (1946) 28 Cal.2d 214, 169 P.2d 371, and Wyatt v. Union Home Mortgage Co., supra, 24 Cal.3d 773, 157 Cal.Rptr. 392, 598 P.2d 45.   In Rattray, a real estate agent failed to disclose to his principal, a seller, that he was the buyer.   The court quoted the Restatement of Agency, section 390, Comment a, which has to do with the duty of an agent to disclose to his principal that he is dealing on his own account and states that “the disclosure must include ․ 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.”   (28 Cal.2d at pp. 224–225, 169 P.2d 371.)   The court also said that an agent who stands in relation to his principal as a trustee to his beneficiary is “charged with the duty of fullest disclosure of all material facts concerning the transaction that might affect the principal's decision.”   (Id., at p. 223, 169 P.2d 371.)   Facts are material “ ‘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.’ ”  (Id., at p. 224, 169 P.2d 371;  see also Batson v. Strehlow (1968) 68 Cal.2d 662, 675, 68 Cal.Rptr. 589, 441 P.2d 101, and authorities cited.)

In Wyatt, the court applied to mortgage loan brokers a duty to call to the attention of borrowers unfavorable provisions of a loan.   The borrowers, the court said, “retained a mortgage loan broker to negotiate for them highly complex loan terms and they may be assumed to have justifiably relied on the latter's expertise.”  (24 Cal.3d at p. 784, 157 Cal.Rptr. 392, 598 P.2d 45.)

The notion that real estate licensees, by virtue of their semi-professional status and generous compensation, hold themselves out as experts on real estate financing and are justifiably relied upon by lenders and borrowers as such and that they therefore have an affirmative duty to give expert advice to their clients as to the economic sense of a transaction, has been the subject of comment.   Thus, 1 Miller & Starr, Current Law of California Real Estate (1975) Part 2, section 4.19, pages 59–60:  “[The real estate licensee] is a professional agent who holds himself out to the public as having particular skills and knowledge in the real estate field.   When he undertakes to perform the services of his agency he assumes an obligation to exercise greater care and skill than is within the capacity of the ordinary citizen.   [¶] ․ [T]his increasingly expanding burden of professionalism ․ is being imposed upon the licensee by the courts ․  [¶]  In addition, the legislative changes to the Real Estate Law which increased the degree of knowledge of real estate law and legal principles required of the real estate licensee add measurably to the scope of the licensee's professional obligations toward all of the principals to the transaction.”  [Citations omitted.]6  And Wallin, “Hard Money Secured Lending:  Regulation and Practices from the Viewpoint of Borrower Representation,” 48 L.A. Bar Bull.  (1973) 284, 289:  “A mortgage [loan] broker is an agent procured by the borrower to obtain a loan.   As a real estate licensee he holds himself out as an expert on matters pertaining to real estate loans, and his duty as agent is to use this expertise to his principal's advantage.   After all, the borrower is paying a substantial fee for his service.” 7

Appellant paid respondent over $800 in commissions.   For her money she was entitled to more than his finding a lender.  (The lenders on the second loan were, after all, the lenders on the first.)   She was also entitled to expert advice.

Respondent was not capable of rendering sound advice because he had no knowledge of appellant's financial condition.   He did not know, but he should have at least inquired into appellant's circumstances as to whether she could reasonably be expected to be able to repay the loan.   The lenders were secure, but respondent's duty—the duty of highest good faith and care—was to protect appellant.8  If respondent had inquired as to appellant's financial condition, he could have pointed out to her the likelihood of default.   If her situation were such that she had to raise money, then, respondent could, at least, have suggested the alternative of selling one of her properties rather than further borrowing and encumbering the properties.   His failure to make inquiry and to give sound advice was a breach of the duty of a fiduciary or trustee.   In short, appellant did not get what she paid for.

Appellant makes a further contention which mixes notions of breach of fiduciary duty, negligence per se, and professional malpractice.   It is unnecessary to consider this contention.   Respondent did not breach any duty except that of a fiduciary;  his duty as a fiduciary arose from his professional status;  and his breach was negligent, not fraudulent.

3. Causation and Measure of Damages

 The trial court not only found that respondent did not breach a duty to appellant but also that he did not cause her injury—i. e., the loss of her properties.   Appellant contends that the breach was a proximate cause of the injury as a matter of law.   Respondent replies that the proximate cause was appellant's “excessive and indiscriminate borrowings, after the loans made for her by [respondent].”

But what reason, we ask, is there for saying that the later loans were “excessive and indiscriminate” and the loans negotiated by respondent were not?   Of course, the more appellant borrowed, the more excessive were her loans, but under the circumstances of this case, all the loans were beyond appellant's means of repaying (without selling some of her property).   If the later loans were a cause of appellant's injury, then so, too, were the earlier.   All respondent is saying, it appears to us, is that the loans he negotiated were a proximate cause of appellant's injuries and there were other contributing causes.   And that is the end of our inquiry.   We are concerned only with whether respondent's acts were a “cause in fact” of appellant's injury (Whinery v. Southern Pac. Co. (1970) 6 Cal.App.3d 126, 129, 85 Cal.Rptr. 649) or a “substantial factor” in bringing it about (see 4 Witkin, op. cit. supra, § 622, pp. 2903–2905), as they indisputably were, and whether those acts were a breach of respondent's duty, as we have determined they were (see Part 2 above), and “the conclusion that [respondent] was the proximate cause of [appellant's] injury is inescapable.”  (Valdez v. Diffenbaugh Co. (1975) 51 Cal.App.3d 494, 509, 124 Cal.Rptr. 467.)   Whether there were a contributing (not a superceding) cause or causes is immaterial.   (See 4 Witkin, op. cit. supra, §§ 624, 628, pp. 2906, 2910.)

It cannot be said, however, that respondent's acts (negotiating the loans) were the cause of appellant's losing properties which secured other loans in which respondent was not involved.

The measure of damages, for a negligent or a fraudulent breach of fiduciary duty, is that of Civil Code section 3333 (actual losses suffered).  (Gagne v. Bertran (1954) 43 Cal.2d 481, 490, 275 P.2d 15;  Overgaard v. Johnson (1977) 68 Cal.App.3d 821, 827, 137 Cal.Rptr. 412;  Cecka v. Beckman & Co. (1972) 28 Cal.App.3d 5, 11, 104 Cal.Rptr. 374.)   It extends to subsequent circumstances, such as foreclosure.  (See Garrett v. Perry (1959) 53 Cal.2d 178, 184, 346 P.2d 758;  Ford v. Cournale, supra, 36 Cal.App.3d 172, 183–184, 111 Cal.Rptr. 334.)

Appellant contends that she was also entitled to punitive damages.   But she did not prove “oppression, fraud, or malice” as defined by the code.   (Civ.Code, § 3294.)

The judgment is reversed, and the matter is remanded for such further proceedings as may be appropriate and not inconsistent with the views expressed herein.


1.   Appellant, whom the complaint styles as “an incompetent person,” proceeded through her guardian ad litem.   She, however, testified at trial, and the trial court found that at the time of the material events she “was not an incompetent person and was fully able to manage her own affairs.”   The court also found that she “was and is ․ almost totally deaf.”

2.   Hereafter, all section references are to the Business and Professions Code unless otherwise noted.

3.   All persons engaged in the business of mortgage loan brokers are required to obtain real estate licenses.  (§§ 10130 and 10131, subd. (d).)  The duties of a real estate agent are thus the duties of a mortgage loan broker.  (Wyatt v. Union Home Mortgage Co. (1979) 24 Cal.3d 773, 782, 157 Cal.Rptr. 392, 598 P.2d 45.)

4.   Section 10248.2, enacted in 1973, provides that in the case of loan violations, the borrower may recover the entire commission and either actual damages or twice the commission, whichever is greater, plus costs and attorney's fees, unless the licensee proves that “the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid any such error.”

5.   Section 10246 provides that “any action for recovery must be brought within two (2) years from the date such excess or prohibited charge was received.”   The question of the timeliness of appellant's action, and whether the limitation was tolled, is not briefed.

6.   Among the cases cited by Miller & Starr is Ford v. Cournale (1973) 36 Cal.App.3d 172, 180, 111 Cal.Rptr. 334, where it was held that a real estate broker had a duty to investigate whether a property would produce sufficient income to meet expenses.   In a case cited elsewhere by the same authors, Banville v. Schmidt (1974) 37 Cal.App.3d 92, 96–97, 112 Cal.Rptr. 126, it was held that a real estate broker was liable to his principal for representing that property had a certain value and a debtor was financially responsible and that a transaction was a good transaction without having investigated and ascertained the true facts.

7.   The author adds:  “The less ethical or less conscientious practitioners in the industry might clean up their business if bad counseling and bad loan terms reaped malpractice and misrepresentation actions rather than commissions from rollover loans and profits from the sale of homes obtained through foreclosure.”  (Id., at p. 305.)

8.   The degree of protection she required was, of course, a function of her experience and ability to understand and evaluate real estate financing transactions.

FEINBERG, Associate Justice.

WHITE, P. J., and BARRY–DEAL, J., concur.