Gray v. Fox

• Court: California Court of Appeals
• Writing for the Court: KLEIN
• Citation: Gray v. Fox, 151 Cal.App.3d 482, 198 Cal.Rptr. 720 (Cal. App. 1984)
• Decision Date: 31 January 1984
• Parties: Dallas H. GRAY, III et al., Plaintiffs and Respondents, v. David H. FOX, as Real Estate Commissioner, etc., Defendant and Appellant. Civ. 68719.

Page 720

198 Cal.Rptr. 720

151 Cal.App.3d 482

Dallas H. GRAY, III et al., Plaintiffs and Respondents, v. David H. FOX, as Real Estate Commissioner, etc., Defendant and Appellant.

Civ. 68719.

Court of Appeal, Second District, Division 3, California.

Jan. 31, 1984.

John K. Van de Kamp, Atty. Gen., and Raymond B. Jue and Edmond B. Mamer, Deputy Attys. Gen., for defendant and appellant.

Fogel, Rothschild, Feldman & Ostrov and Richard L. Rosett, Los Angeles, for plaintiffs and respondents.

KLEIN, Presiding Justice.

Defendant and appellant Real Estate Commissioner of the State of California (Commissioner) appeals from an order directing payment to plaintiffs and respondents Dallas H. Gray, III and Susan L. Gray (the Grays) of money from the Real Estate Fund for purposes of education, research and recovery (Fund).

Since the Grays sustained their burden of proving they were defrauded by Stephen Hobbs (Hobbs), a licensed real estate broker, acting in the course of a licensed real estate transaction, the judgment is affirmed.

PROCEDURAL AND FACTUAL BACKGROUND

On February 6, 1980, the Grays filed a complaint in the Los Angeles Superior Court for fraud, deceit, negligent misrepresentation, and breach of contract against Hobbs. ¹ The complaint identified Hobbs as a licensed real estate broker acting as a broker in a fiduciary relationship with the Grays. The breach of contract count alleged that the Grays owned certain real property; that Hobbs executed an agreement to purchase the property; and that Hobbs failed to consummate the purchase.

The fraud and deceit and negligent misrepresentation counts averred that Hobbs fraudulently induced the Grays to sell the property to him, and that Hobbs was actually planning to sell the property to a third party (the Raffertys) at a higher price than he offered to pay the Grays. The complaint sought compensatory and exemplary damages.

The Grays' evidence at the default hearing on this complaint disclosed that the contract purchase price was $120,000, and that the price at which the house was actually sold by the Grays to another buyer because Hobbs did not go through with the deal was $115,000. The Grays claimed damages equal to the difference between $115,000 and $144,000, the price at which Hobbs allegedly planned to sell the property to the Raffertys. A default judgment was entered, awarding the Grays $5,000 in damages.

The Grays thereafter filed an application seeking payment from the Fund, ² and noticed a hearing in the trial court on the application. The Commissioner filed a response to the application and the matter was relitigated on July 28, 1982. ³ Hobbs could not be located and did not appear; the only witnesses were Susan L. Gray and Carol Moulton (Moulton), the Grays' listing broker.

At the hearing, the Grays produced relevant evidence as follows: In May 1979, the Grays listed their home for sale with Sterpa Realty (Sterpa) through its employee, Carol Moulton (Moulton). An interested buyer from Ireland offered $110,000. The Grays counter-offered $120,000 and the buyer accepted. Sometime in June 1979, Hobbs did an appraisal of the Grays' home and expressed an interest in buying it if anything were to go wrong with the proposed sale. The overseas deal did fall through, and Hobbs and Sterpa arranged for a sale of the property to Hobbs, with Hobbs to split the $7,200 commission on the sale with Sterpa. The two page "Real Estate Purchase Contract and Receipt for Deposit" had typed in "Seller is aware that Buyer is a licensed real estate broker." It also stated that "[s]eller has employed Sterpa Realty Register/Steve Hobbs as Broker(s) and agrees to pay for services the sum of 6% of sales price." Hobbs signed his name in the space provided following the words "Real Estate Broker." Where the form read, "Buyer does /__/ does not /__/ intend to occupy subject property as his residence," Hobbs checked "does."

The Grays made a counter-offer on or about July 2, which Hobbs did not accept. In Hobbs' counter-offer thereto, the escrow period was extended 45 days, and the escrow company was changed to Interstate Escrow at Hobbs' request.

Escrow instructions number I 25764 A were prepared at the Interstate Escrow Company (Interstate) dated July 9, 1979. These instructions provided that commissions of $3,600 each were to be paid to Sterpa and Hobbs.

One day later, July 10, escrow instructions number I 25765 A were drawn up for the same property with the Raffertys as purchasers, price to be $144,000.

Pursuant to the purchase contract, Hobbs was to obtain an 80 percent loan with Contempo Mortgage Corporation (Contempo). The escrow instructions provided that "buyer" was to obtain a new loan on the subject property for at least $96,000. There was no evidence that Hobbs applied for a loan, but the Raffertys applied for a loan with Contempo two days after their escrow opened on July 13, 1979. That application listed the "selling office" as "Steve Hoobs [sic]" and the "listing office" as "Carlole [sic] Moulton." Toward the end of the 45-day escrow, Hobbs had another appraisal of the Grays' property done by one Thompson. This appraisal was for $134,000.

Hobbs did not deposit money into the Grays-Hobbs escrow by the end of the 45-day period and the Grays threatened cancellation in early September.

On or about September 9, the Grays received a letter at their property addressed to the Raffertys. They became concerned that Hobbs might be trying to "cheat" them. Thereafter, Moulton was able to get Hobbs to sign cancellation papers. The Grays were under pressure to make payments related to the property they were purchasing and they accepted a cash offer of $115,000.

On October 1, 1982, the trial court ordered payment from the Fund.

CONTENTIONS

The Commissioner contends that Hobbs did not commit fraud, misrepresentation or deceit with respect to the Grays, and that Hobbs was not performing acts in his dealings with them for which a real estate license was required. ⁴

DISCUSSION

1. Standard of review.

It must be remembered that in this appeal, we are dealing with the Grays versus the Commissioner as custodian of the Fund and that Hobbs is not a party.

The Fund was created by the Legislature to compensate individual members of the public who are defrauded by real estate licensees in the course of a transaction for which a license is required, provided applicants comply with the statutory requirements. (§§ 10471, 10473.)

The record before us is adequate to support an affirmation of the trial court's ruling binding the Fund on relitigation of the issues, since all intendments and presumptions are indulged to support the matters as to which the record is silent. It is the province of the trial court to decide what reasonable inferences will be drawn from the evidence presented. (Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429, 45 P.2d 183; Fuller v. Lindenbaum (1938) 29 Cal.App.2d 227, 230, 84 P.2d 155; McIntyre v. Doe & Roe (1954) 125 Cal.App.2d 285, 287, 270 P.2d 21; 6 Witkin Cal. Procedure (2d ed. 1971) Appeal, §§ 235, 245, 254.) There exists sufficient evidence to uphold the trial court's implied finding that Hobbs' conduct constituted fraud, misrepresentation or deceit and that his conduct required a real estate license. ⁵

2. Hobbs' conduct as a broker.

Hobbs involvement in the proposed sale of the Grays' property could not have been accomplished without a real estate license. Although he could have avoided broker status by engaging in a straight purchase of the Grays' property as a principal, after having disclosed the fact that he was a broker, he had a much more elaborate scheme in mind.

Hobbs started out by appraising the Grays' property before offering to buy it. In the purchase contract, he held himself out as a broker with the language that "seller has employed Sterpa Realty Register/Steve Hobbs as Broker(s) and agrees to pay for services the sum of 6% of sales price." He was an independent broker and had no connection with Sterpa. Unquestionably, he arranged to receive part of the commission for the sale of the Grays' property.

Either before or during the escrow period, he procured the Raffertys as buyers of the Grays' property at a price of $144,000. He arranged for another appraisal by Thompson, which came in at $134,000.

Hobbs set up a "double escrow," with the Grays-Hobbs escrow no. I 25764 A to close July 9, and the Hobbs-Raffertys related escrow no. I 25765 A to be effectuated a day later on July 10. The first escrow indicated that a $3,600 commission was to be paid to Hobbs, "license number 1-519938-5."

The Raffertys' loan application at Contempo contained information that Moulton was the "listing office" on the property and Hobbs was the "selling office," which property was still owned by the Grays at the time. Presumably, the Raffertys received this information from Hobbs, because Moulton had never met the Raffertys and was never a part of Hobbs' scheme.

Hobbs had the escrow extended 45 days so that he could consummate this deal. He was to have obtained a loan also at Contempo so as to purchase the Grays' property. There was no evidence that Hobbs ever applied for the loan, but the Raffertys applied for one on July 13, 1979, two days after their escrow opened. Hobbs never deposited any money into the Grays-Hobbs escrow.

It is clearly within the realm of reasonable inferences that the sale of the Grays' property to Hobbs was conditioned on Hobbs' being able to utilize the funds in the Hobbs-Raffertys escrow as money to close the Grays-Hobbs escrow. Thus, the entire package was one transaction.

The facts substantiated that the substance of this transaction was to be a sale by the Grays as sellers of their property to the Raffertys as purchasers without their knowledge of the facts, and with real estate broker Hobbs acting as a conduit. Hobbs planned to facilitate the transfer of title for a fee from the Grays to the Raffertys, and...