noting that "[t]he law will not tolerate" an agent acting on behalf of two principals, to the advantage of one principal and to the disadvantage of the other, "without the knowledge and consent of both principals"Summary of this case from Sacramento E.D.M., Inc. v. Hynes Aviation Indus.
Docket No. L.A. 7413.
August 31, 1925.
APPEAL from a judgment of the Superior Court of Los Angeles County. Albert Lee Stephens, Judge. Reversed.
The facts are stated in the opinion of the court.
Hocker Austin for Appellant.
Davis Thorne for Respondent.
Young Young, Amici Curiae.
After judgment of reversal herein counsel appearing amici curiae were granted leave to file a petition for a rehearing on the representation that the decision in this case would probably have an important bearing on other and important pending litigation in which they and counsel associated with appellant's counsel were interested. As respondent had filed no brief, and as the importance of the questions involved seemed to warrant it, the rehearing was granted in order that respective counsel might have the opportunity to present more fully both sides of the controversy.
After due reconsideration of the questions involved we are satisfied with and adopt the reasoning and conclusions expressed in the former opinion, and will append such further comment as the additional points and authorities have elicited. As the contentions of amici curiae are all in behalf of the respondent's position, they will be referred to and deemed the respondent's contentions. The former opinion is as follows:
"This is an appeal by defendant S. Beck from a judgment foreclosing his interest in an executory contract for the purchase and sale of real property. The record is presented pursuant to section 953a of the Code of Civil Procedure.
"The action was commenced on January 21, 1921, by the filing of a complaint wherein it was alleged that on the 14th day of October, 1920, the plaintiff and defendant entered into a contract for the purchase and sale of an improved lot in the city of Los Angeles for the sum of $1,800, of which $400 was to be paid on the execution of the contract and the balance in monthly installments of $20 and that no part of the contract price had been paid except the initial payment of $400. The plaintiff prayed that an interlocutory judgment be entered adjudging the defendant to be indebted to the plaintiff for the unpaid balance of the contract price, and that if the same be not paid within such time as the court might fix, the plaintiff's title to the property be quieted and the interest of the defendant therein be terminated. To this complaint the defendant filed an answer admitting that he had signed the contract, but setting forth as an affirmative defense that the contract was invalid and not binding on him for the reason that without his knowledge or consent his agent in the transaction, one Claude Minor, had also acted for and as the agent of the plaintiff in the same transaction, and had received compensation therefor. The defendant also filed a cross-complaint alleging the dual agency of said Minor; that he had first discovered the duplicity of his agent about the first week in November, 1920, and immediately informed the plaintiff that he would not take possession of the property and would not carry out the terms of the contract; that he at no time had possession or control of said property and that by reason of the dual agency of the said Minor without the knowledge or consent of the defendant the contract was void and of no effect; that he had demanded the return of said $400 from the plaintiff, but that the same had not been paid. In the cross-complaint the defendant tendered the contract into court for cancellation. The plaintiff interposed a general and special demurrer to the answer and also to the cross-complaint. The demurrer to the answer was sustained with leave to amend and the demurrer to the cross-complaint was sustained without leave to amend. Before the defendant filed an amended answer the plaintiff filed an amended complaint wherein the facts from the plaintiff's standpoint were more elaborately alleged and certain defects appearing on the face of the original complaint were cured. To this amended complaint the defendant filed an answer wherein he again set forth in an affirmative defense, among other things, the alleged dual capacity of the agent, Minor, without the knowledge or consent of the defendant; that the plaintiff knew at the time he employed said Minor as his agent that Minor was acting as the agent of the defendant; that he had first discovered the duplicity of his agent about the first week in November and immediately notified the plaintiff that he would not take possession of the property and would not carry out the terms of the contract. On the issues thus joined the court found in favor of the plaintiff and entered an interlocutory judgment declaring the defendant to be indebted to the plaintiff in the sum of $1,400 and that if the same be not paid within ninety days from such entry the plaintiff be awarded judgment terminating the interest of the defendant in and to said contract and property. The defendant failed to make such payment and the final judgment was entered.
"The appellant contends that the trial court erred in sustaining the demurrer to the cross-complaint and that the findings are defective and insufficient to support the judgment and are not supported by the evidence.
"The demurrer to the cross-complaint was sustained apparently for the reason that it did not affirmatively appear therefrom that at the time the contract was signed the plaintiff had knowledge or notice that Minor was also the agent of the defendant in the transaction and on the theory that such knowledge or notice must be shown in order to subject the plaintiff to rescission. We do not so understand the rule. It is well settled in this state that a principal who has no notice or knowledge of the duplicity of his agent may at his option be relieved from the obligations of the contract as against his opposing principal, who had notice or knowledge of such dual agency, either by affirmative action in rescinding the contract or by interposing such dual agency as a defense in an action to enforce the contract ( Wilson v. Southern Pacific Land Co., 61 Cal.App. 545 [ 215 P. 396]; Newell-Murdoch Realty Co. v. Wickham, 183 Cal. 39 [ 190 P. 359]). In each of those cases the effect of want of knowledge of the dual agency on the part of the defendant principal was referred to but was not determined for the very obvious reason that in each case the defendant principal had knowledge of the dual capacity of the agent. There is nothing in those cases, nor in any case in this state to which our attention has been directed, which would prevent the approval of the rule in its broader application as announced and declared by text-writers and the courts of other jurisdictions. Professor Mechem, in his work on Agency, 2d ed., vol. 2, p. 1978, says that if neither principal has knowledge of the dual capacity of the agent, the action of the agent is a fraud on both and a contract made under such circumstances is voidable at the option of either principal. Again, it is said on page 1717 of the same volume: `. . . that not even an innocent third party, who is also the principal of the same agent, may be allowed voluntarily to retain benefits or advantages which come to him only through the act of his agent and as the result of that agent's perfidy to his other principal.' Also on page 1715 we find the following: `An agent who is relied upon to exercise, in behalf of his principal, his skill, judgment, knowledge or influence, will not be permitted without such principal's full knowledge and consent, to undertake to represent the other party also in the same transaction. Such conduct is a fraud upon his principal, and not only will the agent not be entitled to compensation for services so rendered, but the contract or dealings made or had by the agent, while so acting also for the other party without the knowledge or consent of the principal, are not binding upon the latter, and if they still remain executory, he may repudiate them on that ground, or, if they have been executed in whole or in part, he may by acting promptly and before the rights of innocent parties have intervened, restore the consideration received, rescind the contract and recover back the property or rights with which he has parted under it. It makes no difference that the principal was not in fact injured, or that the agent intended no wrong, or that the other party acted in good faith; the double agency is a fraud upon the principal and he is not bound.' (Italics added.) The rule is supported by cases cited by the author, and cases cited by appellant also approve the rule that such a contract is voidable at the option of either principal. ( Becker v. Spalinger, 174 Wis. 443 [183 N.W. 173]; Ferguson v. Gooch, 94 Va. 1 [40 L.R.A. 234, 26 S.E. 397]; Guthrie v. Huntington Chair Co., 71 W. Va. 383 [76 S.E. 795]; Evans v. Brown, 33 Okla. 323 [ 125 P. 469]; City of Findlay v. Pertz, 66 Fed. 427 [29 L.R.A. 188, 13 C.C.A. 559]; Black v. Miller, 71 Ill. App. 342; People's Ins. Co. v. Paddon, 8 Ill. App.? 447; Fish v. Leser, 69 Ill. 394; McElroy v. Maxwell, 101 Mo. 294 [14 S.W. 1]; Greenwood v. Spring, 54 Barb. (N.Y.) 375; Marsh v. Buchan, 46 N.J. Eq. 595 [22 A. 128]; Henninger v. Heald, 52 N.J. Eq. 431 [29 A. 190]; Arthur v. Georgia Cotton Co., 22 Ga. App. 431 [96 S.E. 232]; Vinson et al. v. Pugh, 173 N.C. 189 [ 91 S.E. 838]; Truslow v. Bridge Terminal Co., 61 W. Va. 628 [57 S.E. 51].)
"The defendant was entitled to receive, and had the right to expect, absolute fidelity and loyalty to his interest on the part of his agent, Minor, and under the authorities his engagement with the plaintiff for compensation in the transaction without defendant's knowledge rendered the contract voidable at the option of defendant, even though the plaintiff paid the commission in good faith. As Minor was acting for plaintiff upon a commission basis his interest was adverse to defendant and the latter could not be charged with this uncommunicated knowledge of the actual conditions. On the other hand, having accepted the advantage obtained under the contract, and seeking to retain such advantage, the plaintiff will not be permitted to disclaim responsibility for the representations and concealments of Minor, his agent ( Herdan v. Hanson, 182 Cal. 545 [ 189 P. 440]). The law will not tolerate such a dual agency without the knowledge and consent of both principals ( Glenn v. Rice, 174 Cal. 269 [ 162 P. 1020]). No question has been raised upon this appeal as to the sufficiency of the cross-complaint in respect to the allegations thereof showing compliance with the requirements of section 1691 of the Civil Code to entitle a party to rescind, and we are not therefore called upon to consider that question. It must be concluded that the cross-complaint states a cause of action and that the court erred in sustaining the demurrer thereto.
"The appellant attacks the following finding as defective and insufficient: `That the material allegations contained in paragraphs I, II, III and IV of defendant's affirmative defense to plaintiff's amended complaint are not true for the reason that plaintiff advertised and dealt with Minor as the undisclosed agent of defendant, Beck, said Minor representing himself as a real estate broker and charged plaintiff $50 as commission for his services in the sale of said property.'
"Paragraph I of the affirmative defense alleges that at the time the contract was signed the defendant was engaged in dealing in real estate on his own account and in the conduct of his said business employed Minor as his agent to examine real estate offered for sale and to represent him in the examination, purchase and sale of the same; that the plaintiff reposed confidence in the ability and integrity of his agent in connection with his business and relied upon the judgment and representations of said agent. Paragraph II alleges certain representations made by Minor to the defendant concerning the transactions. Some of the allegations of this paragraph are immaterial. Paragraph III alleges that the plaintiff well knew that Minor was acting as the agent of the defendant upon an agreed compensation; that the plaintiff paid Minor $50 commission in the transaction; that the defendant had no knowledge of the duplicity of the agent in relation to the purchase and sale of said property and did not discover the facts surrounding the transaction until about the first week in November, 1920, whereupon the defendant informed plaintiff that he would not receive or take possession of said house and lot and would not carry out the terms of such contract as set forth in the complaint. Paragraph IV alleges that the defendant at no time received or took possession of the house and lot and that the plaintiff has at all times been in possession and control thereof and that by reason of the fraud practiced upon the defendant the contract is void and of no effect. It will thus be seen that the allegations of the paragraphs referred to go to the very heart of the defense. `The option to avoid the contract remained complete until the action was begun and was then available as a defense to the action.' ( Newell-Murdoch Realty Co. v. Wickham, supra.)
"The finding that the material allegations contained in the paragraphs mentioned are not true is uncertain. No one may know what allegations were deemed material. Such an omnibus finding is insufficient for any purpose ( Holt Mfg. Co. v. Collins, 154 Cal. 276 [ 97 P. 516]; Turner v. Turner, 187 Cal. 632 [ 203 P. 109]). The reason assigned by the court for the finding as incorporated therein does not cure the uncertainty. Even if the facts recited in the reason for the finding were true, it would not follow that the allegations of said paragraphs of the affirmative defense might not also be true. If those allegations were found to be true the facts thus established would be a defense to said action. When the trial court has failed to make findings this court is not authorized to do so. Where, under the pleadings and evidence, findings not made are necessary to the proper determination of the rights of the parties a new trial will be ordered ( Blood v. La Serena L. W. Co., 113 Cal. 221 [41 P. 1017, 45 P. 252]). From what has been said concerning the finding complained of we do not wish to be understood as deciding that the evidence is sufficient to support a finding that the allegations of said paragraphs are not true. On the contrary, it may be said that said allegations were established without conflict in the evidence except the allegation of paragraph III to the effect that at the time of the signing of the contract the plaintiff knew that Minor was the agent of the defendant in the transaction. This allegation the court found to be not true. But under the law and the facts as here shown that finding was not sufficient to support a judgment against Beck."
It is conceded on behalf of the respondent that the principal question involved in this case is one of first impression in this state, and it is insisted that it is the first case in the United States involving the point of setting aside a transaction of purchase and sale on the ground of the dual employment of an agent where both principals were unaware of such dual employment. It is suggested that the consequences flowing from a holding that a transaction involving such duplicity of an agent may be rescinded at the instance of either principal would be disastrous in all dealings wherein agents and brokers are employed, as, for instance, in two illustrations suggested by the respondent: First, in the case of stock brokers, where the purchaser, desiring to acquire the ownership of a certain kind of stock, agrees to compensate the broker for procuring such stock, the seller also paying a commission; and, secondly, in the case of one desiring to purchase a home or property for industrial or other particular purposes, who employs a real estate agent to procure the same for him, the seller also paying a commission in the same transaction. But the results contemplated by respondent would seem to be more imaginary than real. In the case of a stock brokerage business, it is stated by appellant to be a matter of common knowledge, and such statement is not denied, that persons handling transactions in that line of endeavor, by long-established custom, may collect compensation or a commission from both buyer and seller, in which event they are in the class of known joint agents, for each principal is charged with knowledge of the custom. Likewise, it may be said that in the case of the purchase and sale of real estate, it is a matter of common knowledge that the seller usually pays a commission, and that the parties to the transaction in the case at bar were charged with notice of that custom. But we find no sound basis for the conclusion that the appellant under such circumstances was negligent in not notifying the respondent not to pay Minor a commission, for the appellant had the right to rely upon the presumed good faith of Minor, and to rest assured that he would not violate his trust and breach the duty which the law imposed upon him. The facts in the case at bar do not present a situation where either principal may be charged with negligence in his relations with the other. It is not intimated that either innocent principal would have a cause of action for damages against the other on account of the duplicity of the common agent. Rather, the facts herein present a situation in which sound public policy demands that a transaction attended by such duplicity and concealment on the part of an agent as against both innocent principals may not be permitted to stand when, at the instance of either principal, the status quo may be restored. In such cases the personal and selfish interest of the agent is opposed to the interest of both principals. His concern is to see that the transaction is consummated in order to obtain his double commission. By reason of the fiduciary relation to both principals, he is, as to both, in such a peculiar position of trust and confidence that his advice and activities would be influenced by his own self-interest. It is immaterial that these results may not necessarily follow. It is enough that they are likely to follow. It is the policy of the law not to permit an agent to assume a position that will result in such a strain on his honesty. The protection of the public against such duplicity is the foundation for the rule. To deny the right of rescission to either innocent principal would necessarily result in a denial to both, and thus place the parties at the mercy of an unscrupulous agent. It is of no consequence that no fraud was actually intended by the agent, or that the rescinding party suffered no injury ( Black v. Miller, supra).
In some of the cases above cited as approving the rule that a contract resulting from dual agency unknown to both principals is voidable at the option of either principal, it did not appear that the duplicity of the agent was unknown to the defending principal. In our consideration of those cases that fact was recognized. Others, however, as, for example, the case of Marsh v. Buchan, supra, are directly in point. Although in some of the cases cited the defending principal had or was chargeable with notice of the dual agency the discussion of the principles of law surrounding such inconsistent relationship recognized the right of either innocent principal to rescind, provided the defending principal could be placed in his former position.
The case of Blair v. Baird, 43 Tex. Civ. App. 134[ 43 Tex. Civ. App. 134] [ 94 S.W. 116], relied on by respondent, is not in point, for the reason that, under the express terms of the contract between the parties, the agent was a joint agent appointed as and known to be such by both parties. Other cases cited on behalf of respondent have been noted, but an examination thereof discloses that they are not out of harmony with the rule as herein approved.
Finally, the respondent contends that a principal can only be held liable for the acts of his agent when the same are within the scope of his authority. It is conceded in this case that neither principal knew of the employment of the agent, Minor, by the other, and it may be assumed that it was beyond the scope of the authority of such agent, as to each principal, to enter the employment of the other without the consent of both; but, when the agent had done so, and thus exceeded his authority, it was optional with either principal to refuse to be bound by his acts, and to rescind the transaction. When, as here, the respondent is standing on the contract, is insisting on his right to retain the benefits and advantages gained thereby, and is contending herein for his right to retain the same after full notice of his agent's duplicity, he will not be permitted to disclaim responsibility for the representations and concealments of said agent. ( Herdan v. Hanson, supra.)
The judgment is reversed and the cause remanded for a new trial, with instructions to the trial court to overrule the demurrer to the cross-complaint.
Richards, J., Lennon, J., Lawlor, J., Seawell, J., and Waste, J., concurred.