Brown v. Coates

• Decision Date: 31 January 1958
• Docket Number: No. 13749.,13749.
• Citation: 253 F.2d 36
• Parties: Sidney J. BROWN, Appellant, v. James R. COATES, Marion E. Coates, and Margaret E. Brown, Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

253 F.2d 36 (1958)

Sidney J. BROWN, Appellant, v.James R. COATES, Marion E. Coates, and Margaret E. Brown, Appellees.

No. 13749.

United States Court of Appeals District of Columbia Circuit.

Argued October 17, 1957.

Decided January 31, 1958.

Petition for Rehearing Denied March 14, 1958.

Mr. Brainard H. Warner, III, Washington, D. C., with whom Mr. Herman Miller, Washington, D. C., was on the brief, for appellant.

Mr. Harry A. Finney, Washington, D. C., with whom Mr. Dennis Collins, Washington, D. C., was on the brief, for appellees.

Before WASHINGTON, BASTIAN and BURGER, Circuit Judges.

Petition for Rehearing In Banc Denied March 14, 1958.

BURGER, Circuit Judge.

This is an appeal from a judgment entered on a verdict awarding appellees $7,059.00 compensatory and $7,500.00 punitive damages for an agent's breach of trust in a real estate transaction.Resolving all conflicts of evidence to conform with the verdict, the facts are these:

Having seen newspaper ads soliciting business from the public appellee Mrs. Coates telephoned the First National Realty Company, a real estate brokerage firm entirely owned by appellant Brown, to arrange the sale of her home.¹A salesman from the company inspected appellees' property and at the same time suggested that appellees might purchase a new house with the proceeds from the sale of the old one.Appellees and the saleman then looked at various properties and appellees finally agreed to buy one of the houses shown to them.

Appellees and appellant thereupon entered a written "exchange contract," under which appellant was to convey the new house to appellees(subject to appellees' assumption of encumbrances equaling $14,450.00) and appellees were to convey their old house to appellant(subject to his assumption of encumbrances equaling $5,750.00).Conflicting testimony was offered at the trial as to whether this contract represented the entire transaction between the parties: appellant contended that it did, appellees alleged it was, and necessarily had to be, but a part.Appellees testified that title to the old house was conveyed to appellant in reliance on the latter's representation that such a conveyance was necessary if he was to be able to act expeditiously as their agent in arranging a sale of the old house.They asserted that appellant had agreed to sell the old house, to deduct the agreed commission, and to apply the net proceeds of the sale to a reduction of the debt to appellant created in taking the new house.The jury's verdict is an implicit acceptance of appellees' version of the facts,² and we accept that finding.

By virtue of this transaction, appellees conveyed to appellant title to a house valued at between $13,000.00 and $15,000.00,³ and in which they had had an equity of approximately $9,000.00.At the same time appellees acquired legal title to a house valued at between $14,000.00 and $17,000.00⁴ but in which they had no equity at all.The "exchange contract" obligated them to pay $14,450.00 for the new house.However, relying on appellant's statements, they expected that once appellant had sold their old house, he would credit the net proceeds of their equity in that house, less his commission, towards the purchase price of the new one.This would seem to be a most reasonable expectation, as it may hardly be assumed that appellees would have merely surrendered their $9,000.00 equity in the old house, so as, in effect, to pay $23,450.00 for the new house concededly worth not more than $17,000.00.

However, when appellant did sell the old house, he refused to credit any part of the proceeds received against the balance owed by appellees for the new one.He stated that by the terms of the exchange contract he had obtained absolute title to the first house including all equities in the property.⁵As appellees viewed the contract they had at this point lost the equivalent of their equity in the first house, or about $9,000.00 less commission and expenses.

At the trial, considerable evidence was introduced by both parties on the issue of the damages suffered by appellees as a result of this transaction.Complex computations were required involving the discounting of various encumbrances on both properties concerned.The jury was adequately instructed on this point, and it calculated actual damages to be $7,059.00.The jury then proceeded to award appellees $7,500.00 as punitive damages under instructions which are challenged on this appeal.

Appellant appeals from the judgment entered on this verdict, urging that appellees were not misled into entering the "exchange contract," and that the contract should be enforced according to its terms.Further, he urges that even if he was at fault in not explaining the terms of the contract to appellees in greater detail, his actions were not such as to allow the imposition of punitive damages.

Appellant was a licensed real estate broker.He held himself out to the public as a person in whom the public could place trust and confidence in real estate transactions.⁶The evidence adduced at trial was adequate to support the finding implicit in this verdict that appellees engaged appellant, in his expert and publicly proclaimed capacity, for the purpose of effectuating this not uncomplicated sale and purchase of properties.When appellees hesitated at one point, appellant expressly assured them that he would "take care of" them, and in response to their suggestion before settlement that a lawyer be obtained, he volunteered that he was both a lawyer and a broker.In this situation appellees had a right to rely on the competence, honesty and good faith of appellant, assured that he would guard their interests; conversely, appellant must be considered to have owed appellees a high degree of fidelity — foremost being the obligation of fair dealing and full disclosure and the utmost protection of their interests in the transaction.Anything less on appellant's part would have violated the well recognized fiduciary duty an agent owes to his principal.⁷

The record is clear that appellant did violate the fiduciary relationship which he invited appellees to enter.By calculated and deceitful practices he defrauded appellees of some $7,000.00.He exploited their trust flagrantly for his own gain; he could hardly have been less a fiduciary.The questions, therefore, that we must now consider are (1) does the record support the award of compensatory damages and (2) may punitive damages be allowed in these circumstances and on this record.Underlying this second point is the declared policy of the legislative branch that the real estate business in the District of Columbia be conducted by persons with "a good reputation for honesty, truthfulness, fair dealing, and competency."⁸

From what has been recited as to the facts it is plain that the evidence supports the jury finding of compensatory damages of approximately $7,000.00 and we so hold.As to the award of punitive damages we find no prior cases in this circuit expressly authorizing such damages for breach of a duty arising out of the relationship of principal and agent.

The relationship between principal and agent arises out of contract.Ordinarily, an agent who has violated a duty he owes his principal, is considered to have breached his contract, entitling the principal to contract remedies of rescission or damages.⁹For breaches of contract standing alone, punitive damages are generally not recoverable.¹⁰Moreover, it is axiomatic that punitive damages are "not favored."Some courts have refused to allow the imposition of punitive damages in any contract actions, regardless of the types of contracts involved or the circumstances surrounding their breach.¹¹

We join with those courts which decline to follow such mechanical classification.We believe the better view to be that in certain, narrowly defined circumstances, where a breach of contract merges with, and assumes the character of, a wilful tort, calculated rather than inadvertent, flagrant, and in disregard of obligations of trust punitive damages may be assessed.¹²In this view we are by no means alone.That punitive damages have a proper place in a civil case as a punishment of, and as a deterrent to, various forms of wrongful behavior has long been recognized by the federal courts including this court.¹³All but four states have in some form adopted a similar rule.¹⁴The types of behavior that courts have considered sufficiently "wrongful" so as to warrant the assessment of punitive damages, have varied greatly.Usually the defendants' actions have been labeled "wilful," or "malicious" or "reckless" or "wanton" or "outrageous."

We need not adopt any single, particular formula in upholding an award of punitive damages against a faithless agent.On the contrary, we believe each case must be considered on its peculiar facts; but once it has been shown that one trained and experienced holds himself out to the public as worthy to be trusted for hire to perform services for others, and those so invited do place their trust and confidence, and that trust is intentionally and consciously disregarded, and exploited for unwarranted gain, community protection, as well as that of the victim, warrants the imposition of punitive damages.This is particularly true in areas of conduct where the acts committed, while reprehensible, may fall short of rendering the wrongdoer subject to criminal prosecutions.¹⁵When one is commissioned by, or holds himself out to, the community to perform special services which may be engaged for hire by others in the conduct of their personal or business affairs, such as lawyers, trust companies, realtors, or the like, such persons inescapably assume certain fiduciary responsibilities.The community in turn has a broad public interest, as a matter of public policy, in how such persons conduct their relations with those who place trust in them.Sometimes that public policy is expressed...