McKibbin v. Michigan Corp. and Securities Commission, 66

• Decision Date: 06 February 1963
• Docket Number: No. 66,66
• Citation: 119 N.W.2d 557,369 Mich. 69
• Parties: Clifford W. McKIBBIN, Phillips Realty Co., a Michigan Corporation, Russell F. Phillips, the Walter Neller Co., a Michigan Corporation, and Harold M. Davis, Plaintiffs and Appellees, and Victor A. Almas, Intervening Plaintiff and Appellee, v. MICHIGAN CORPORATION AND SECURITIES COMMISSION, Defendant and Appellant.
• Court: Michigan Supreme Court

Page 557

119 N.W.2d 557

369 Mich. 69

Clifford W. McKIBBIN, Phillips Realty Co., a Michigan Corporation, Russell F. Phillips, the Walter Neller Co., a Michigan Corporation, and Harold M. Davis, Plaintiffs and Appellees and Victor A. Almas, Intervening Plaintiff and Appellee, v. MICHIGAN CORPORATION AND SECURITIES COMMISSION, Defendant and Appellant.

No. 66.

Supreme Court of Michigan.

Feb. 6, 1963.

Frank J. Kelley, Atty. Gen., Eugene Krasicky, Sol. Gen., James R. Ramsey, Robert Weinbaum, and Donald T. Kane, Assts. Atty. Gen., Lansing, for appellant.

Fraser, Trebilcock, Davis & Foster, Lansing, for appellees.

Howard D. House, Detroit, for intervening plaintiff and appellee.

Martin L. Butzel, Victor W. Klein, Robert Alpern, Lee B. Brody, Detroit, for American Jewish Committee, Michigan Area Office.

Archie Katcher, Sidney J. Karbel, Harold Norris, Detroit, Seymour Berger, Detroit, Paul Hartman and Theodore Leskes, New York City, of counsel, for Anti-Defamation League of B'nai B'rith, Michigan Regional Office.

Erwin B. Ellmann, Detroit, amicus curiae.

Before the Entire Bench, except ADAMS, J.

SOURIS, Justice.

By legislative grant, the defendant corporation and securities commission may suspend or revoke the license of a real estate broker or salesman for certain specified acts of misconduct and for other legislatively unspecified conduct 'which constitutes dishonest or unfair dealing.' Sec. 13, P.A.1919, No. 306, as amended (C.L.1948, § 451.213 [Stat.Ann.1961 Cum.Supp. § 19.803]). Pursuant thereto, the commission in 1960 promulgated its Rule 9, 1954 Administrative Code, 1960 AACS, § R451.309, by which it was declared to be 'unfair dealing' for a broker or salesman to discriminant, individually or jointly with others, in any real estate or business opportunity transaction, against any person because of 'race, color, religion, national origin or ancestry.' Prior to the effective date of the rule, plaintiff brokers sought a declaration of rights and injunctive relief against defendant, claiming that Rule 9 exceeded defendant's rule making power. A temporary injunction restrained enforcement of the rule pendente lite and was made permanent upon the chancellor's decree, entered after hearing, that defendant commission had exceeded its rule making power.

Not involved in this case is the right of defendant commission to revoke or suspend such licenses for a licensee's failure, without authority of his customer, to submit to his customer all offers received by the licensee. Plaintiff conceded the commission's right of revocation or suspension of licenses for such conduct apparently on the basis that such conduct would be contrary to the law of agency controlling the relationship between the licensee and his customer. The chancellor's decree was so drawn that the commission is unfettered in its right to revoke or suspend licenses for such conduct whether resulting from a licensee's unilateral assumption of the right 'to determine the suitability or eligibility of any offer or prospect', or to 'screen' or otherwise. Rule 9 was construed by the chancellor and the parties to reach racial, color, religious, ethnic or ancestral discrimination by licensees whether or not directed so to do by their customers, and by broker licensees who as owners of property or otherwise engage in the sale thereof as a principal vocation.

That the commission has the power to adopt rules is not questioned. We so held in Ranke v. Michigan Corporation & Securities Commission, 317 Mich. 304, 26 N.W.2d 898, and in fact in that case we specifically upheld the commission's right to enumerate by rule what conduct constitutes 'dishonest or unfair dealing' as that term is used in the act of 1919, as amended. The first question for decision is whether adoption of Rule 9 was within the power of the commission to determine what constitutes 'unfair dealing' within the meaning of the statutory clause 'dishonest or unfair dealing.'

Section 13 of the act reads as follows:

'Sec. 13. The commission may upon its own motion, and shall upon the verified complaint in writing of any person, investigate the actions of any real estate broker or real estate salesman or any person who shall assume to act in either such capacity within this state and shall have the power to suspend or revoke any license issued under the provisions of this act at any time where the licensee in performing or attempting to perform any of the acts mentioned herein, is deemed to be guilty of:

'(a) Making any substantial misrepresentation.

'(b) Making any false promises of a character likely to influence, persuade or induce.

'(c) Pursuing a continued and flagrant course of misrepresentation or the making of false promises through agents or salesmen or advertising or otherwise.

'(d) Acting for more than 1 party in a transaction without the knowledge of all parties thereto.

'(e) Representing or attempting to represent a real estate broker other than the employer, without the express knowledge and consent of the employer.

'(f) Failure to account for or to remit for any moneys coming into his possession which belong to others.

'(g) Changing his busienss location without notification to the commission.

'(h) Failure of a broker to return a salesman's license within 5 days as provided in section 10.

'(i) Paying a commission or valuable consideration to any person not licensed under the provisions of this act.

'(j) Failing to deposit in a custodial trust or escrow account all moneys belonging to others coming into the hands of the licensee in compliance with the following requirements:

'(1) All deposits or other moneys accepted by every person, copartnership, corporation or association holding a real estate broker's license under the provisions of this act must be retained by such real estate broker pending consummation or termination of the transaction involved, and shall be accounted for in the full amount thereof at the time of the consummation or termination.

'(2) Every real estate salesman promptly on receipt by him of a deposit or other moneys on any transaction in which he is engaged on behalf of his broker-employer shall pay over the deposit or other moneys to the real estate broker.

'(3) Under no circumstances shall a broker permit any advance payment of funds belonging to others to be deposited in the broker's business or personal account or be commingled with any funds he may have on deposit belonging to him.

'(4) Every real estate broker shall immediately deposit such moneys, of whatever kind or nature, belonging to others in a separate custodial or trust fund account maintained by the real estate broker with some bank or recognized depository until the transaction involved is consummated or terminated, at which time the real estate broker shall account for the full amount received.

'(5) Every real estate broker shall keep records of all funds deposited therein, which records shall indicate clearly the date and from whom he received money, the dates deposited, the dates of withdrawals, and other pertinent information concerning the transaction, and shall show clearly for whose account the money is deposited and to whom the money belongs. All such records shall be subject to inspection by the commissioner or his deputies and by employees of the commission. Such separate custodial or trust fund account shall designate the real estate broker as trustee, and such account must provide for withdrawal of funds without previous notice.

'(k) Any other conduct whether of the same or a different character than hereinbefore specified, which constitutes dishonest or unfair dealing.

'This act shall not be construed to relieve any person from civil liability or criminal prosecution under the general laws of this state.' ¹

The rules adopted by the commission prior to 1960, when it adopted Rule 9, requied prompt delivery of copies of listing agreements, offers to purchase, acceptances, and closing statements to the parties by the broker or salesman; provided that listing agreements and offers to purchase contain specified information; required the broker to recommend to the buyer that an abstract of title or title policy be obtained and a lawyer retained; required brokers in their advertising to disclose their professional capacity; required the deposit of monies received by brokers belonging to others in separate bank accounts; prohibited brokers from acquiring interests in property listed with them without full disclosure to the owner; and imposed upon brokers, salesmen, and applicants for license other requirements of a similar nature.

Rule 9, with which we are here concerned, provides as follows:

'Any broker or salesman who fails or neglects to abide by the following rules and regulations adopted by the Michigan corporation and securities commission shall be presumed to be guilty of unfair dealing:

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'9. A broker or salesman, acting individually or jointly with others, shall not refuse to sell or offer for sale, or to buy or offer to buy, or to receive an offer to sell or to buy, or to appraise, or to list, or to negotiate the purchase, sale, exchange or mortgage of real estate, or to negotiate for the construction of buildings thereon, or to lease or offer for lease, or to rent or offer for rent, any real estate or the improvements thereon, or any other service performed as broker or salesman, because of the rece, color, religion, national origin or ancestry of any person or persons.

'A broker or salesman, acting individually or jointly with others, shall not refuse to sell or offer to sell, or to buy or offer to buy, or to receive an offer to sell or to buy, or to lease or offer for lease, or to negotiate the purchase, sale or exchange of a business, business opportunity or the good will of an existing business, or any other service performed as broker or salesman, because of the rece, color, religion, national origin or ancestry of any person...