Alexander Myers & Co., Inc. v. Hopke

• Decision Date: 21 April 1977
• Docket Number: No. 44124,44124
• Court: Washington Supreme Court
• Parties: ALEXANDER MYERS & COMPANY, INC., a Washington Corporation, Respondent, v. Charles A. HOPKE and Romilda Y. Hopke, his wife, and the marital community composed of them, Appellants.

Page 449

88 Wn.2d 449

565 P.2d 80

ALEXANDER MYERS & COMPANY, INC., a Washington Corporation, Respondent, v. Charles A. HOPKE and Romilda Y. Hopke, his wife, and the marital community composed of them, Appellants.

No. 44124.

Supreme Court of Washington, En Banc.

April 21, 1977.

McBee & Lewis, Alfred McBee, Mount Vernon, W. V. Wells, Anacortes, for appellants.

Clinton, Fleck, Glein & Brown, Russell R. Pearson, Seattle, for respondents.

HOROWITZ, Associate Justice.

Plaintiff Alexander Myers & Company, Inc., brought suit against defendants Charles A. Hopke and Romilda Y. Hopke, husband and wife, for reformation of a contract for plaintiff's purchase of a tract of land near Anacortes, Washington. Plaintiff claimed defendants misrepresented the acreage, and asked the court to reform the contract to reduce the purchase price and contract payments accordingly. The trial court granted the relief requested. Defendants appealed.

The Court of Appeals, Division One, in Alexander Myers & Co., Inc. v. Hopke, 14 Wash.App. 354, 541 P.2d 713 (1975), reversed the trial court by a 2-1 decision, and ordered the case remanded to permit plaintiff to elect either rescission or damages. The court held that reformation is not a proper remedy when fraud induces formation of a contract. Defendants appeal the decision to this court pursuant to CAROA 50(e). We affirm the judgment of the trial court but upon different grounds as later stated.

The evidence, which requires a somewhat detailed review, shows the following facts. Defendants owned an unimproved and irregularly shaped tract of land near Anacortes, Washington. They did not know the acreage of the tract, nor was there anything on the ground to indicate the exact boundaries.

In early 1969, Norris M. Estvold, a real estate broker, on his own contacted defendant Charles Hopke to ask him if he would be interested in selling the tract in question. Hopke replied yes, if the price was right. As to the acreage of the tract, Hopke told Estvold that he didn't know for sure, but thought it was about 70 acres.

Later, Estvold met in his office with Beryl Barker, an associate broker and sales manager of a real estate agency which had as an account the plaintiff, a Washington corporation. Barker testified that during this meeting Estvold called Hopke on the telephone to discuss a possible sale of the property. As to the price, Barker testified, "It was $2,000 an acre at that point . . ." Barker than returned to Seattle and discussed the property with Richard Myers, then vice-president of the plaintiff corporation.

Estvold testified that after further negotiations with Barker, he went by himself to see Mr. Hopke. Hopke told him he wanted to net $2,000 an acre from the sale. Since the costs of the sale were estimated at $200 an acre, Estvold testified, this made the price $2200 an acre.

Estvold later told Barker that $2200 an acre would be a likely acceptable price to defendants. Barker, Estvold testified, replied that "he felt that his buyer would go the $2200 or the $154,000 (70 X $2200), or whatever."

A first earnest money agreement dated February 14, 1969, was then prepared either by Barker or plaintiff. It included, immediately following the legal description, the sentence: "Total parcel contains 70 acres more or less." The sentence was included, Barker testified, "because that property at that point was understood to be 70 acres by me." Barker testified he had no independent knowledge of the acreage and had been told it was 70 acres by Estvold and in conversation with Mr. Hopke. The price of the property was fixed in the agreement at $154,000. There was no per-acre price mentioned. However, the agreement did provide: "Purchase price to be adjusted at the rate of $2,200 per acre in event survey reveals more or less than 70 acres."

The first earnest money agreement was signed by Richard Myers. Defendants refused to sign it because they wanted a higher interest rate on the unpaid balance of the purchase price. After agreement was reached on the interest rate, a second earnest money agreement, dated March 3, 1969, was drawn up by Estvold. It was identical to the first except for the interest rate and new provisions giving the seller 30 days to remove certain timber from the property and reserving a right of way for a third party. Estvold first took the second earnest money agreement to defendants. Mr. Hopke testified that he objected to the price adjustment clause, and told Estvold he wanted a firm price on the real estate because the tract might be more or less than 70 acres. He testified that he told Estvold "I had no idea what was in there." Defendants then deleted with red ink the price adjustment clause. Defendants initialed the change and signed the agreement on March 7, 1969. The sentence stating the parcel contains 70 acres more or less was not deleted.

Mr. Hopke's statement to Estvold that there may have been less than 70 acres in the tract was apparently never communicated either to Barker or Richard Myers. Barker testified this question never came up in his conversations with Estvold, and that their understanding had always been that the tract was 70 acres. Richard Myers also testified he was aware of the deletion, but that he "understood there were 70 acres" and had "always assumed there was 70, give or take an acre."

On April 22, 1969, a formal real estate contract was signed by defendants and plaintiff. It makes no reference to acreage. It contains a legal description of the property and sets the price at $154,000. Plaintiff paid $38,000 down, followed by five installments of $7,000 each from November 6, 1969, to November 8, 1971. In early 1972, plaintiff was informed the parcel contained 55 and not 70 acres. Plaintiff then commenced this action. A survey made in October 1972 revealed the tract contained only 50.99 acres (27.16 percent less than 70).

The case was tried to the court, which found defendants unintentionally misrepresented to plaintiff that the parcel contained 70 acres more or less. The representation was made through defendants' execution of the second earnest money agreement and during negotiations by defendants' agent Estvold. The court also found plaintiff entered into the contract in justifiable reliance upon the representation, since the parcel had no visible boundaries and plaintiff had no actual knowledge of the acreage. The court held the contract should be reformed to reduce the purchase price in an amount equal to the deficiency in acreage, namely 19.01 acres, multiplied by the per- acre price of $2200 contemplated by the parties. The semiannual payments were reduced from $7000 to $5000.

Defendants first contend the trial court erred in finding them bound by acreage representations made by Estvold, because the record contains no evidence (1) there existed an agency relationship between Estvold and defendants, (2) defendants authorized Estvold to represent the tract as containing 70 acres, or (3) Estvold in fact made the representation in question to plaintiff or Barker.

We first note that defendants' own representation in the second earnest money agreement that there were 70 acres more or less in the tract, in ignorance of its truth, is deemed fraudulent even in absence of intent to deceive, and is itself sufficient evidence to uphold the finding of a misrepresentation inducing formation of the contract. See Webster v. L. Romano Eng'r Corp., 178 Wash. 118, 120-21, 34 P.2d 428 (1934); Arrowsmith v. Nelson, 73 Wash. 658, 666-67, 132 P. 743 (1913); Annot., 1 A.L.R.2d 9, 89-95 (1948). Evidence of misrepresentation by an agent of defendants' is therefore cumulative at best. We will nevertheless briefly consider defendants' arguments.

First, the evidence leaves no doubt an agency relationship existed between Estvold and defendants. When a realty agent obtains oral authority from the owner to find a purchaser for property, a principal and agent relationship is created. Ewing & Clark, Inc. v. Mumford, 157 Wash. 617, 620, 289 P. 1026 (1930). Here, the evidence permits no other conclusion than that defendants knew Estvold was a real estate broker, and permitted him to find and negotiate with plaintiff's real estate broker for the sale of the tract. Clearly the sale resulted from Estvold's efforts as a real estate broker. The finding of the trial court as to agency is supported by substantial evidence.

Secondly, an explicit authorization from defendants was unnecessary for Estvold to make a binding representation as to the acreage of the tract. The scope of the authority of a real estate broker who is engaged only to find a purchaser includes at least authority to state the area of the parcel when the area and boundary lines, as in the instant case, are not apparent from inspection. Yarnall v. Knickerbocker Co., 120 Wash. 205, 209-10, 206 P. 936 (1922); Weinstein v. Sprecher, 2 Wash.App. 325, 327-29, 467 P.2d 890 (1970); F. Mechem, Outlines of the Law of Agency 92 (4th ed. 1952). Since it is clear defendant entrusted Estvold not only with obtaining a purchaser but with all negotiations up to the sale itself, he certainly had authority to state the acreage of the tract.

Lastly, the trial court could reasonably find Estvold made representations to plaintiff's agent Barker that the tract contained 70 acres. Barker testified he had no independent knowledge of the size of the tract, and had inserted the sentence describing it as containing 70 acres more or less in the first earnest money agreement because Estvold had told him the tract was 70 acres. The credibility of Barker's testimony was for the trial court to determine. In re Sego, 82 Wash.2d 736, 739-40, 513 P.2d 831 (1973).

Defendants next contend plaintiff had no right to rely upon acreage representations made by them or Estvold. They argue the deletion of the price adjustment clause in the second earnest money agreement was a negation of all prior representations of acreage. Again,...