Opinion
Rehearing Granted April 21, 1930.
Appeal from Superior Court, San Diego County; Charles C. Haines, Judge.
Action by Roscoe S. Porter and others against Frank Hilton, C.E. Hamilton, copartners doing business under the firm name of Hilton & Hamilton, and others. From the judgment, plaintiffs appeal.
Affirmed. COUNSEL
Wright & McKee and C.M. Monroe, all of San Diego, for appellants.
H.V. Richardson, of San Diego, for respondents Hilton & Hamilton.
Stickney & Stickney, of San Diego, for respondent Fowlks.
OPINION
SLOANE, P.J.
This action was brought for the rescission of a contract of purchase of real estate on the ground of fraudulent representations inducing the purchase. On and prior to the 23d day of June, 1926, the defendant R.M. Fowlks was the owner of lots 15 and 16 in block 223 of Pacific Beach, in the city of San Diego, county of San Diego, state of California, and also of two similar adjacent lots, facing upon Garnet avenue in Pacific Beach. Prior to the date last mentioned, said Fowlks had given to one Earl Taylor, a licensed real estate broker of San Diego, California, a written exclusive right to sell all four lots as his agent, at a net price to the owner of $3,000 for each pair of lots, or $6,000 for the whole thereof.
On May 27, 1926, said Taylor executed a written agreement, by the terms of which he agreed to sell the four lots in question to the defendant C.E. Hamilton, of the real estate copartnership of Hilton & Hamilton, for $7,000. This agreement was in the form of an option, and recited that $100 had been paid for such option. Mr. Taylor did not notify the owner Fowlks at the time he executed the option to Hamilton, but did notify him of its execution some time prior to June 21, 1926. The option was executed by Taylor in form as though he were the owner of the property, but before the sale, which was afterwards made by Hamilton to the plaintiffs, was consummated, Hamilton was informed of the fact that R.M. Fowlks was the owner of the property in question. Prior to being so notified, he believed that Earl Taylor owned the property. While this condition existed, Hamilton approached Roscoe Porter and Johnston O. Miller, plaintiffs herein, soliciting the sale to them of the first described two lots, and as a result of the solicitations of Mr. Hamilton the purchase was consummated. Mr. Hamilton represented to the plaintiffs that the lots had been listed with him as a real estate broker by their owner, and that he was receiving the usual commission for consummating the sale thereof. He represented that the two lots in question were of a value in excess of $7,000, and that at such price they were the best buy on Garnet avenue, and that the owner could be induced to accept $7,000 for the two lots, but would not accept a less sum. Also Mr. Hamilton approached the two plaintiffs separately, representing to each plaintiff that the other plaintiff was familiar with the property, was satisfied with its value, and was ready to join in the purchase of the lots. In this manner, the two plaintiffs, each believing that the other had investigated the transaction, entered into the joint purchase of the property. Mr. Hamilton did not advise the plaintiffs of the fact that he had an interest in the transaction other than that of a broker interested in obtaining his commission, nor did he advise them of the manner in which the transaction was actually consummated with Mr. Fowlks.
The fact was that when Mr. Hamilton approached the plaintiffs he knew that the four lots could be purchased from the owner through Taylor, for $7,000, and he offered to sell to the plaintiffs the two lots first mentioned for $7,000, representing that he was acting as the agent of Fowlks. When the plaintiffs agreed to purchase the two lots they paid $500 down, giving Mr. Hamilton their check for that amount. Mr. Hamilton then gave them an unsigned form of receipt, being the ordinary form of receipt which real estate brokers give to purchasers upon consummating a sale. The receipt set forth the terms of the sale, and provided that the seller agreed to pay a regular commission. The receipt contained a blank for the approval of the purchaser, and Miller and Porter signed their approval upon it. Thereafter, Hamilton exhibited to Earl Taylor, the agent of Fowlks, a copy of this receipt, signed by Miller and Porter and setting forth the terms and conditions of the sale. It was upon this occasion that Mr. Taylor notified Hamilton of the identity of the owner of the property. Thereupon Mr. Hamilton stated to Miller and Porter that he was taking a trip to Redlands, the home of Mr. Fowlks, for the purpose of securing the consent of the latter to the transaction, and for the purpose of closing up the deal. As a matter of fact, Mr. Hamilton did not go to Redlands at all.
Up to this time the plaintiffs knew nothing of the connection of Mr. Taylor with the transaction, and knew nothing of the other two lots involved in the transaction, but supposed that at all times they were buying the two lots in question from Mr. Fowlks, through Hilton & Hamilton, as agents. The court finds that the representations of Mr. Hamilton concerning his trip to Redlands were also made with intent to deceive the plaintiffs. Thereafter Mr. Taylor went to Redlands to take up the matter of the sale with Mr. Fowlks, informing Mr. Fowlks that he had made an agreement to sell the four lots to Hamilton for $7,000, upon certain terms, and that Mr. Hamilton was selling two lots to Mr. Porter and Mr. Miller for the same total consideration of $7,000, and upon somewhat different terms of payment. The proposition which Taylor put up to Fowlks was that Fowlks accept the $500 which had been paid by the plaintiffs, and which had been delivered over to him by Hamilton; that he execute his deed for the two lots to Porter and Miller and accept their three trust deed notes for the aggregate of $6,500, and that as a part of the same transaction Mr. Fowlks, without further or other consideration, deed the other two lots direct to Hilton & Hamilton as their part of the transaction. Mr. Fowlks was unwilling to consummate the deal in this manner, as he wished his security for the $6,500 to be spread over the four lots, instead of having it against two lots only. He therefore proposed the alternative proposition that he execute his deed direct to Porter and Miller for two lots, accepting their payment of $500, and their three trust deed notes aggregating $6,500, secured by trust deed upon the two lots, and that he deed the other two lots direct to Hilton & Hamilton, they to execute to him a trust deed note for $2,750, secured by deed of trust upon the two lots deeded to them, and that he thereupon assign and deliver to them one of the notes for $2,750 executed by the plaintiffs. In this manner the same result would be obtained, viz.: Hilton & Hamilton would get two lots out of the deal without paying any consideration therefor, the entire consideration for the four lots being paid by Miller and Porter. If Miller and Porter paid up all of their notes, the note given by Hilton & Hamilton would be automatically extinguished. In the meantime, however, Mr. Fowlks would have security upon four lots instead of merely upon two.
In accordance with this suggestion, the transaction was carried out. The $500 paid by the plaintiffs was paid to Fowlks. He executed his deed to Miller and Porter for lots 15 and 16, and Mr. and Mrs. Miller and Mr. and Mrs. Porter executed their three notes aggregating $6,500, and their trust deed, to secure the same. They, of course, during all of this time, knew nothing of the other end of the transaction, whereby Hilton & Hamilton were getting the equivalent of two of the lots for nothing.
Mr. Taylor turned over to Mr. Hamilton the deed of Mr. Fowlks, which was by him in turn delivered to the plaintiffs upon the execution by them of the trust deed and the trust deed notes. The transaction having been completed and the three notes having been delivered to Fowlks, one of them was indorsed by him to Hilton & Hamilton and delivered to them, together with deed to Hilton & Hamilton for the second pair of lots. Whereupon they executed and delivered to Fowlks their trust deed note and trust deed for $2,750, and the court specifically found that the plaintiffs did not know of the conveyance of the other two lots to Hilton & Hamilton, nor of the receipt by them of one of said notes for $2,750, but believed that they were at all times purchasing direct from the original owner for a consideration of $7,000 for the two lots, and believed that Hilton & Hamilton were acting only as agents and receiving only the customary real estate agent’s commission upon said deal.
The Union Trust Company acted as trustee in the transaction, the property in question being conveyed to it by trust deed. This company had no other nor further interest in the transaction, and of course had no part in the fraud which was found to have been perpetrated.
The plaintiffs brought action to rescind the transaction upon the ground that the sale to them was induced by the fraudulent representations of Hamilton. It was alleged by plaintiffs that Hamilton acted as agent for Fowlks in the transaction, and that Fowlks approved, ratified, and accepted the transaction made upon his behalf by the defendants Hilton & Hamilton. The defendants filed a joint answer, and the various defendants by way of answer denied the perpetration of any of the acts of fraud stated in the complaint, and denied that Hilton & Hamilton were acting as agents for Fowlks, claiming that the transaction was, in fact, a sale by Fowlks to Hamilton and a resale by him to the plaintiffs. The defendants also raised the defense of laches. The court found that on November 20, 1926, the plaintiffs paid the interest upon all three of the promissory notes.
Prior to that time plaintiffs had discovered that the property purchased by them was not worth $7,000, but had not discovered the conveyance of said other lots or the fact that Hilton & Hamilton held one of the trust deed notes. Shortly after making such payment of interest, the plaintiffs discovered that Hilton & Hamilton held such trust deed note for $2,750. Thereafter they discovered the facts of the transaction, but did not fully discover all of the facts until the 7th day of March, 1927. Three days later this action was filed.
It was claimed by plaintiffs that the lots purchased by them were not worth more than $3,500. Upon conflicting evidence, the court found the value of the lots to have been $5,000. It was admitted by the pleadings and found by the court that, prior to the commencement of the action, the plaintiffs took the necessary steps prerequisite to the commencement of an action for rescission.
It appears from the findings that a good deal of evidence was taken in the trial of the case to show the experience of the plaintiffs Porter and Miller in real estate conditions in Pacific Beach and that vicinity. That the plaintiff Porter was a licensed real estate agent of many years’ experience, and that the plaintiff Miller was a banker of many years’ experience, doing business in and about Pacific Beach and that portion of the city of San Diego. It was found by the court that Roscoe S. Porter had been engaged for a number of years in the real estate business in San Diego, and that Johnston O. Miller had been engaged for a number of years in the banking business in the same place, and both of them were generally familiar with the locality of Pacific Beach, but that neither of the plaintiffs had made specific investigation as to the precise values of property in that section, and neither was informed as to such values, but throughout the whole transaction they both relied upon the statements and representations of the defendant Hamilton. As to the question of laches and estoppel, the court specifically found that the plaintiffs were not guilty of laches, and were not estopped to bring the action.
Upon this state of facts, the court found that the sale to the plaintiffs had been induced by fraud, and that the plaintiffs were entitled to relief. It was found, however, that the defendant Fowlks did not know of the false and fraudulent representations made by Hamilton, and that Hamilton was not and never had been acting for him as his agent in the transaction. The court therefore denied to plaintiffs the complete relief of rescission, but in lieu thereof gave plaintiffs a judgment for $2,000 against Hilton & Hamilton, the amount being the difference between the agreed consideration paid by plaintiffs for the property and the actual value thereof as found by the court, and granted such relief in lieu of the rescission.
Upon settlement of findings and rendition of judgment, plaintiffs filed their motion for another and different judgment on the findings, in accordance with the provisions of section 663 and 663a of the Code of Civil Procedure. This motion was predicated upon the express ground that the facts as found by the court affirmatively established that the defendant R.M. Fowlks ratified and adopted the transaction negotiated by C.E. Hamilton, and thereby adopted the fraudulent acts perpetrated by Hamilton in such negotiations and was bound thereby, and that therefore plaintiffs were entitled to a rescission of the contract. This motion, together with the motion for new trial, which was predicated among other things upon the proposition that the decision was against law, was overruled. The plaintiffs thereupon filed this appeal.
This appeal was taken upon the judgment roll alone, none of the testimony appearing in the record. It must be assumed, therefore, that all of the findings are sufficiently supported by the evidence, the only question in controversy being as to whether or not, in the absence of any participation or knowledge on the part of the defendant Fowlks of fraudulent representations by Hamilton, or any knowledge of the fact that Hamilton was holding himself out as Fowlks’ agent, he, as a matter of law, is responsible for any fraud committed in the transaction by virtue of the fact that he received the benefits of the deal.
Counsel for plaintiffs argue at some length and with much research of authorities that the acceptance of the benefits of a transaction is a sufficient ratification thereof to make Fowlks, the owner of the property, responsible for the fraudulent action of his purported but unauthorized agent, relying upon the statement of the rule, among others, as laid down in Union Trust Co. v. Phillips, 7 S.D. 225, 63 N.W. 903:
"A corporation or an individual cannot adopt and claim the benefit of a contract made in its or his behalf by one assuming to act as agent, and at the same time repudiate the means or representations by which such contract was so procured.
"This rule controls, even though such agent, to the knowledge of him with whom he deals, has an interest in the making of the contract distinct and separate from that of his principal, unless there is collusion or fraudulent connivance between the agent and such other contracting party."
Appellants also rely upon the decision of the Supreme Court in the case of Wilder v. Beede, 119 Cal. 646, 51 P. 1083, 1184, where the mother of the defendant, one Lucia S. Beede, owned a piano, and a party by the name of Hutchings negotiated a sale of the piano to the plaintiff, receiving from the plaintiff a promissory note made payable to the defendant, and causing the defendant to execute to the plaintiff a bill of sale for the piano. It was established that Hutchings, the self-constituted agent, obtained the note by false and fraudulent representations. The defendant was held liable for the fraud. In that case, as in the case at bar, counsel claim the defendant claimed that the property in question was sold to the self-constituted agent, and the transaction was a resale. In disposing of this contention, counsel quote from the decision as follows:
"But the particulars in proof did not sustain that view. The note showed on its face that it was a contract between plaintiff, as payor, and defendant, as payee. It was discounted, and the proceeds were divided between Hutchings and defendant, before the piano was taken from the latter’s house. The bill of sale made on defendant’s procurement ran to plaintiff, not Hutchings. Clearly, defendant acted on the assumption that through Hutchings the piano had been sold to plaintiff, and that she had agreed to pay him (defendant) the sum of $400 for the same. In that form the transaction had his approval."
Counsel further argue that "again, in the same case, it was claimed by the defendant, just as it was claimed in the case at bar, that the acceptance and retention of the benefits of the transaction involved no adoption of the fraud of the self-constituted agent because the vendee had no knowledge of the fraud." The Supreme Court similarly disposed of this contention in the following language:
"It is urged, however, that such a ratification of the supposed sale involved no adoption of the fraud of Hutchings, because defendant had not been informed thereof. But the defendant accepted the note from a self-constituted agent, knowing that it had been executed in advance of the delivery of the piano to plaintiff, and for a sum largely in excess of the value of the instrument. The circumstances made it his duty to inquire into the acts and representations by which such agent had procured the paper; he made no inquiry, and the jury might well find that he meant to take upon himself, without further information, the risk of any misconduct of Hutchings, and to adopt all his acts."
It may be said in this connection that it does not appear from the findings that Fowlks had any knowledge, not only of any fraud in this transaction or of any circumstance to put him upon inquiry as to its regularity and fairness. That he only received in the transaction the consideration he had always demanded for his four lots in Pacific Beach, and we do not feel authorized in finding that the trial court was not in error in entirely absolving the defendant Fowlks from any liability to the plaintiffs, and in rejecting the conclusion of the court that plaintiffs have been amply compensated by a return to them of the difference between the sales price of $7,000 for the property and its actual value of $5,000. It is difficult in any event to understand how seasoned experienced business men as the plaintiffs were found to be, familiar with the property in this immediate neighborhood, could have been seriously misled as to the value by a salestalk of even the most plausible real estate brokers.
The judgment is affirmed.
We concur: BARNARD, J.; MARKS, J.