Opinion
16199.
MAY 13, 1948.
Cancellation, etc. Before Judge Hooper. Fulton Superior Court. January 23, 1948.
Clifford Hendrix, for plaintiffs in error.
Hudson LeCraw, contra.
1. "Without the express consent of the principal after a full knowledge of all the facts, an agent employed to sell may not himself be the purchaser." Code, § 4-204. Accordingly, a count in a petition to cancel and rescind a contract of sale for certain real estate, which alleges that the relation of principal and agent existed between the contracting parties, and that the purchaser under the contract is in fact the agent or sub-agent of the seller, states a cause of action for cancellation of the contract. Whether the contract of sale was made with the express consent of the principal after a full knowledge of all the facts is a matter of defense. It was therefore not error to overrule the general demurrer to this count of the petition.
(a) The grounds of special demurrer have been carefully examined and considered and found to be without merit.
2. A subagent's duties and obligations to his principal are of the same nature and extent as those of the agent; and a contract for the sale of the principal's real estate to the subagent himself, without the express consent of the principal after a full knowledge of all the facts, is voidable, and will be set aside at the option of the principal.
No. 16199. MAY 13, 1948.
The controlling question presented by the writ of error is whether the contract of sale of certain real estate located in the City of Atlanta, which obligated the owner to sell and convey the property to a subagent of the real estate agency, a corporation, with which it had been listed for sale, may be canceled and set aside at the instance of the principal.
The original petition filed by the owner, Mrs. Louise McDaniel Holley, in the Superior Court of Fulton County, against Dolvin Realty Company, the sales agent, and P. E. Mitchell Sr., an agent for the realty company, was in two counts. It was later amended by adding a third count. A ruling on count three being controlling of the present controversy, only those allegations will be considered here.
In count three, it was alleged, in substance: that Dolvin Realty Company is engaged in the business of selling real estate as agent for various owners, and P. E. Mitchell Sr. is an associate in that business; that on June 6, 1944, the plaintiff orally instructed Dolvin Realty Company to list her property for sale at $3500, but informed the company that she would sell as low as $3000 net cash to her, if that was the best that could be done for her; that while her husband, George Holley, was personally inspecting the property, he was approached by the defendant Mitchell, who attempted to sell it to him; that her husband then informed Mitchell that his wife owned the property, and that she would not take less than $3000 net cash for the property; that the sales contract which she signed showed the consideration to be $3000 all cash, to which she thought she was entitled in full, but that she failed to see the fine print concerning the real-estate commission; that she believed the terms of sale were in accordance with the minimum offer, and being in a confidential relationship, that of agency with both defendants, and never having been informed otherwise by either defendant, though both were under a duty so to inform her, and being urged by Mr. Dolvin, president of the realty company, she signed the contract; that immediately upon discovery of the mistake in the actual consideration that she was to receive, she wrote the defendants that she would proceed according to the offer made by her, but not otherwise; that on July 18, 1944, Dolvin Realty Company instituted attachment proceedings in the Civil Court of Fulton County against the plaintiff for $150, which amount represents it commission for the sale, and which case is still pending in that court; that Dolvin Realty Company is in reality the purchaser of the property, and the contract of sale was made in the name of the defendant, P. E. Mitchell Sr., only to disguise the real nature of the transaction.
Joint demurrers, both general and special, which were interposed to this count of the petition, were overruled, to which judgment exceptions pendente lite were duly filed.
By the defendants' separate but identical answers they admitted that Mrs. Holley listed the property for sale with Dolvin Realty Company for $3500, and that the realty company agreed to try to sell the property as her agent.
The defendant Mitchell, by an amendment, alleged that he was ready, willing, and able to comply with his part of the sales contract, and prayed for specific performance.
By an order of the court the attachment proceeding in the civil court was consolidated with the present equitable proceeding for all purposes, to which order no exception was taken.
The testimony of the plaintiff, Mrs. Holley, and her husband, George Holley, fully substantiated the allegations of her petition.
So far as is material here, Oliver Dolvin testified that he is President of Dolvin Realty Company, a corporation, and that the property belonging to Mrs. Holley was listed with his company for sale; that Mrs. Holley first wanted $3500 for the property; that he sent P. E. Mitchell Sr., his agent, to inspect the property, who when he returned said that Mr. Holley would be willing to take $3000; that he then told Mr. Mitchell that, if he wanted to buy the property, it would be all right; that he thought Mr. Mitchell would try to make a personal profit out of it, but that he was interested only in the commission; that he thought, if a person could buy the property for $3000, he could turn it into a profit after doing certain things to it.
P. E. Mitchell Sr. testified that he is a real-estate agent for Dolvin Realty Company; that he inspected the property and tried to sell it to Mr. Holley, not knowing him at the time; that Mr. Dolvin told him that the property might be bought for $3000, and that he then signed the written offer to purchase at that price; that "when I went out on Georgia Avenue that morning, I went out to appraise the property, saw a man there as a prospective purchaser, and tried to sell it to him. I am agent for Dolvin Realty Company, and he is the one who listed the property. I was doing that because the Dolvin Realty Company was the agent of Mrs. Louise Holley, and I was a subagent representing their client, and was representing her;" and that he was offered $3300 just after he signed the contract, but refused the offer.
The jury returned two verdicts, one in the attachment proceeding, and the other in the present equitable cause to cancel and set aside the contract. Both verdicts were in favor of Mrs. Holley and against Dolvin Realty Company and Mr. Mitchell, and a decree was rendered accordingly.
The joint motion for new trial, based on the usual general grounds and amended by two special grounds, was overruled. Error was assigned on that judgment and on the exceptions pendente lite.
1. Headnotes 1 and 1a require no elaboration.
2. The law is uniform and well settled that an agent, who has been engaged to sell real estate for the owner, may not, either directly or indirectly, purchase it himself, without the express consent of the principal after a full knowledge of all the facts. This is so declared by our Code, § 4-204. The reason for this elementary principle of law is well stated by the author of Pomeroy's Equity Jurisprudence (5th ed.), § 959, as follows: "The underlying thought is that an agent should not unite his personal and his representative characters in the same transaction; and equity will not permit him to be exposed to the temptation, or brought into a situation where his own personal interests conflict with the interests of his principal and with the duties which he owes to his principal." Referring to a sale made under such circumstances by an agent to himself, the author, in section 959a, says: "In dealings without the intervention of his principal, if an agent for the purpose of selling property of the principal purchases it himself, . . either directly or through the instrumentality of a third person, the sale . . is voidable; it will always be set aside at the option of the principal; the amount of consideration, the absence of undue advantage, and other similar features are wholly immaterial; nothing will defeat the principal's right of remedy except his own confirmation, after full knowledge of all the facts." This rule is not merely remedial for wrongs which have actually been consummated, but was intended to prevent the possibility of a wrong. Fraud on the part of the agent, or injury to the principal, is therefore unessential. Reed v. Aubrey, 91 Ga. 435 ( 17 S.E. 1022, 44 Am. St. R. 49); Hodgson v. Raphael, 105 Ga. 480 ( 30 S.E. 416); Whitley v. James, 121 Ga. 521 ( 49 S.E. 600); Mitchell v. Gifford Co., 133 Ga. 823 ( 67 S.E. 197); Reeves v. Callaway, 140 Ga. 101 ( 78 S.E. 717); Ausley v. Cummings, 145 Ga. 750 (6) ( 89 S.E. 1071); Arthur v. Georgia Cotton Co., 22 Ga. App. 431 ( 96 S.E. 232); Peterson v. Appleby, 31 Ga. App. 286 ( 120 S.E. 651).
Nor is the rule otherwise where the property is purchased by a subagent of the principal. A subagent's duties and obligations to the principal are of the same nature and extent as those of the agent, and a sale of the principal's real estate by the subagent to himself, without the express consent of the principal with full knowledge of all the facts, will likewise be set aside at the option of the principal. In Gardner v. Ogden, 22 N.Y. 327 (78 Am. D. 192), the court, in passing on the validity of a sale of the principal's real estate to an employee of the principal's agents, said: "The defendant Smith was the clerk or assistant of his principals. He was their agent, and employed in and about their business. Whatever disabilities they labored under equally attached to him. It would work an entire abrogation of the rule to hold the principal subject to the operation of this rule, and exempt his clerks and agents from its effect. It would be opening the door to its evasion, so that it would lose all its vitality and virtue. . . I think this is the spirit of all the authorities, and that the honesty and fairness of transactions between principals and their agents demand a firm adherence to these rules, and to bring within their operation, not only the agent himself, but those in his immediate employ, and who are engaged in the transaction of his business, which is, necessarily, the business of the agents' principal."
In the instant case, the relation of principal and agent was established when the owner, Mrs. Holley, listed her property for sale with Dolvin Realty Company. Such being a confidential or fiduciary relation (Code, § 37-707; Smith v. Harvey-Given Co., 182 Ga. 410, 185 S.E. 793), it imposed on the agent the duty of exercising the utmost good faith and loyalty toward the principal. It became the duty of the agent to act primarily and solely for the benefit of the principal in all matters connected with the agency. The rule forbidding an agent or subagent from purchasing his principal's property, without the express consent and knowledge of the principal, is not made inapplicable because the property was listed for sale with the agency at a fixed or minimum price. When Mrs. Holley, the owner, named the minimum price that she would accept for her property, it was manifestly intended as a guide to her agent in negotiating the sale, and implied a just expectation on her part and an engagement on her agent's part that he would make an honest endeavor to obtain a higher price.
The uncontradicted evidence in the case at bar shows that P. E. Mitchell Sr. is an agent for Dolvin Realty Company. By his own testimony, Mr. Mitchell admitted that he is an agent of that company and was representing the owner, Mrs. Holley, in the sale of her property. This illustrates precisely the antagonism or mischief that the rule was designed to prevent. There being nothing in the record to show that the contract of sale was executed by the principal, Mrs. Holley, only after she had been informed that P. E. Mitchell Sr., the proposed buyer named in the contract of sale, was in fact an agent of the realty company and her subagent, or that she executed the contract knowing such to be true and that she expressly consented to sell her property to her subagent; and she not being guilty of laches in bringing the action to set aside the contract, nor having ratified it, the evidence not only authorized the verdicts in her favor in both cases, but actually demanded them.
Such a ruling renders it unnecessary to pass upon the special assignments of error embraced in the amended motion for new trial.
Judgment affirmed. All the Justices concur.