Aiello v. Ed Saxe Real Estate, Inc.

• Decision Date: 24 September 1985
• Citation: 499 A.2d 282,508 Pa. 553
• Parties: Michael J. AIELLO and Kathy Ann Aiello, Appellants, v. ED SAXE REAL ESTATE, INC., and Sidney F. Jones, Jr., Appellees. 59 M.D. 1984
• Court: Pennsylvania Supreme Court

Page 282

499 A.2d 282

508 Pa. 553

Michael J. AIELLO and Kathy Ann Aiello, Appellants, v. ED SAXE REAL ESTATE, INC., and Sidney F. Jones, Jr., Appellees.

59 M.D. 1984

Supreme Court of Pennsylvania.

Argued May 16, 1985.

Decided Sept. 24, 1985.

[508 Pa. 555] Henry O. Heiser, III, Gettysburg, for appellants.

Daniel W. Shoemaker, York, for appellees.

Before NIX, C.J., and LARSEN, McDERMOTT, HUTCHINSON, ZAPPALA and PAPADAKOS, JJ.

OPINION OF THE COURT

PAPADAKOS, Justice.

This is the appeal of Michael J. Aiello and Kathy Ann Aiello, Appellants, from that portion of the Opinion and Order of the Superior Court which vacated a judgment entered against Ed Saxe Real Estate, Inc. (Saxe), Appellee, and entered judgment N.O.V. in favor of Saxe, in Appellants' trespass action against Saxe and Sidney F. Jones, Jr. (Jones) for fraudulent misrepresentation.

Appellants, a young married couple, were interested in purchasing real estate on which they intended to build their home and to subdivide the remainder of the land. After talking with Michael Aiello's brother, Appellants decided they would contact Ed Saxe Real Estate, Inc., a local real estate agency, owned by Ed Saxe. Jim Aiello had purchased property through Saxe which he subdivided and sold off successfully and Jim convinced Appellants that Saxe would be helpful in locating land which they could subdivide.

As sole owner of Ed Saxe Real Estate, Inc., Ed Saxe was the licensed broker pursuant to the "Real Estate Licensing and Registration Act," Act of February 19, 1980, P.L. 15, No. 9, § 101, et seq., 63 P.S. § 455.101, et seq., and, as such, was responsible for all sales and purchases of real estate negotiated by him or through his salespersons. ¹ Jones, a licensed salesperson was employed by Saxe (63 P.S. § 455.603) ², displayed his salesperson license in Saxe's office (63 P.S. § 455.601) ³, and was actively supervised and trained by Ed Saxe (63 P.S. § 455.522) ⁴ pursuant to the requirements imposed upon Ed Saxe by the terms of the Act. When Appellants contacted Saxe, Jones was assigned by Saxe to help them.

Appellants explained to Jones their interest in acquiring acreage and he began showing them several tracts, including an 87-acre parcel owned by a Mr. Lystad, not a party to this case. This particular tract was the subject of a brokerage agreement between Lystad and Saxe which authorized Saxe to find a buyer for the land.

While viewing this tract, Appellants inquired of Jones whether the property was suitable for a sewage disposal system. Jones assured them that he was familiar with soil types and disposal requirements, that he had reviewed a survey of soils in Huntingdon Township, Adams County (the location of the property), that the soils were good, and that of five percolation tests performed on the subject property, three showed the soil to be suitable for conventional sewage systems and two for sand mounds. Further, Jones stated that had the percolation tests been performed in dry weather, all five would have indicated that the land was suitable for a conventional sewage system.

Based on these representations, Appellants entered into an agreement for the purchase of the 87-acre tract for $80,000.00. A closing was held in due course and Lystad executed and delivered his deed for the property to Appellants. Subsequently, Appellants conducted their own percolation tests and discovered that the soil was unsuitable for any type of sewage system or sand mound. Upon further investigation, they discovered that a prior sales agreement for the same property negotiated by Saxe had fallen through owing to the failure of the land to pass the five percolation tests. Of a series of twenty-one soil probes, twenty had shown that the soil was unsuited for a sewage system and one probe had indicated that the soil was marginally suitable for a sand mound system, but not a conventional system.

Appellants, thereupon, filed a trespass action against their agent, Ed Saxe Real Estate, Inc., a broker, and its salesperson, Sidney F. Jones, Jr., for the fraudulent misrepresentations which induced them to purchase the property. The cause proceeded to trial before a jury presided over by the Honorable Oscar F. Spicer, President Judge of the Court of Common Pleas of Adams County and the jury awarded Appellants a verdict for $13,400.00 against Jones and $12,000.00 against Saxe. Appellees' post-trial motions for Judgment N.O.V. were denied and the verdict was reduced to judgment. Appellees appealed to the Superior Court arguing various trial court errors, but, in particular, complaining that the trial court erred in charging the jury that it could find liability against Saxe even if it had no prior knowledge of misrepresentations Jones may have made to Appellants.

Superior Court agreed, ruling that, in Pennsylvania, proof of scienter on the part of the principal at the time of an agent's misrepresentations is required to hold a principal liable in damages. Citing its own line of cases, Littler v. Dunbar, 166 Pa.Superior Ct. 271, 70 A.2d 365 (1950), reversed on other grounds, 365 Pa. 277, 74 A.2d 650 (1950); Shane v. Hoffmann, 227 Pa.Superior Ct. 176, 324 A.2d 532 (1974); Eckrich v. DiNardo, 283 Pa.Superior Ct. 84, 423 A.2d 727 (1980), Superior Court concluded that while the general rule is to the contrary, its cases require that where a broker, as principal, is sued for the fraudulent misrepresentation of its salesperson/agent, scienter of the broker must be established in order for recovery to lie against him. Aiello v. Ed Saxe Real Estate, Inc., 327 Pa.Superior Ct. 429, 476 A.2d 27 (1984).

We granted allocatur in order to review Superior Court's conclusion that our law requires that a principal know of the fraudulent misrepresentations of his agent in order to hold the principal liable. Because we find that Saxe's scienter of his agent's misrepresentation is not necessary in order to hold Saxe liable to Appellants, we reverse Superior Court's Order and Opinion and reinstate the judgment entered against Ed Saxe Real Estate, Inc.

Few legal propositions have been more thoroughly discussed by our Court than those concerning principals and their agents. Out of that considerable body of case law emerges a well-defined rule concerning the vicarious liability of a principal for the misrepresentations of his agent, and the public policy underlying it.

These cases instruct us that a principal is liable to third parties for the frauds, deceits, concealments, misrepresentations, torts, negligences and other malfeasances and misfeasances of his agent committed within the scope of his employment even though the principal did not authorize, justify, participate in or know of such conduct or even if he forbade the acts or disapproved of them, as long as they occurred within the agent's scope of employment. Bachman v. Monte, 326 Pa. 289, 192 A. 485 (1937); Freedman v. Providence Washington Ins. Co., 182 Pa. 64, 37 A. 909 (1897); DeTurck v. Matz, 180 Pa. 347, 36 A. 861 (1897); McNeile v. Cridland, 168 Pa. 16, 31 A. 939 (1895); Independent Bldg. & Loan Assn. v. Real Estate Title Ins. & Trust Co., 156 Pa. 181, 27 A. 62 (1893); Griswold v. Gebbie, 126 Pa. 353, 17 A. 673 (1889); Brooke v. New York, L.E. & W.R.R., 108 Pa. 529, 1 A. 206 (1885); Erie City Iron Works v. Barber and Co., 106 Pa. 125 (1884); Custar v. Titusville Gas & Water Co., 63 Pa. 381 (1869); Shelhamer v. Thomas, 7 Serg. & R 106 (1821); Phoenix Insurance Co. v. Pratt, 2 Binn. 308 (1810); see also, Restatement of Agency, §§ 257,258.

This rule of liability is not based upon any presumed authority in the agent to do the acts, but on the ground of public policy, that it is more reasonable that when one of two innocent persons must suffer from the wrongful act of a third person, that the principal who has placed the agent in the position of trust and confidence should suffer, rather than an innocent stranger. Erie City; Brooke; Griswold; Cairns v. Pepper, 133 Pa. 114, 19 A. 336 (1890); Haworth v. Truby, 138 Pa. 222, 20 A. 942 (1890); Independent B & L Association; McNeile; DeTurck; Brooke; Bachman.

This result can be reached similarly on the familiar ground that when an agent exceeds his authority, his principal cannot benefit of his act and at the same time repudiate his authority. He must take the benefit to be derived from the transaction subject to his agent's fraud. Erie; Griswold; Freedman; McNeile; Williams v. Kerr, 152 Pa. 560, 25 A. 618 (1893); Wheeler v. Wilson Mfg. Co. v. Aughey, 144 Pa. 398, 22 A. 667 (1891); Penn Natural Gas Co. v. Cook, 123 Pa. 170, 16 A. 762 (1889). Hughes v. First National Bank, 110 Pa. 428, 1 A. 417 (1885); Jones v. National Bldg. Assn., 94 Pa. 215 (1880); Mundorff v. Wickersham, 63 Pa. 87 (1869); Musser v. Hyde, 2 Watts & S, 314 (1841).

Superior Court's reliance on its line of cases (Shane v. Hoffmann, 227 Pa.Superior Ct. 176, 324 A.2d 532 (1974); Littler v. Dunbar, 166 Pa.Superior Ct. 271, 70 A.2d 365, reversed on other grounds, 365 Pa. 277, 74 A.2d 650 (1950)), which were cited as authority for the proposition that scienter is required on the part of the principal at the time the agent makes the misrepresentation were wrongly decided and are based on misreadings of our earlier cases. In Littler, a case involving an action in fraud and deceit brought by purchasers of real estate against the real estate and his broker, it is true that we approved Superior Court's conclusion that proof of scienter on the part of the principal was essential to finding liability against the principal, but that conclusion was based on a misreading of our earlier cases, Keefe v. Sholl, 181 Pa. 90, 37 A. 116 (1897) and Freyer v. McCord, 165 Pa. 539, 30 A. 1024 (1895). Both those cases in turn refer back to Griswold v. Gebbie, 126 Pa. 353, 17 A. 73 (1889), as authority for the proposition that scienter of the misrepresentation is required and here lies the source of the problem.

Griswold involved a suit brought...