Laddon v. Rhett Realty, Inc.

• Decision Date: 01 September 1984
• Docket Number: No. 1376,1376
• Citation: 493 A.2d 379,63 Md.App. 562
• Parties: Samuel E. LADDON, et ux. v. RHETT REALTY, INC., et al. ,
• Court: Court of Special Appeals of Maryland

Page 562

63 Md.App. 562

493 A.2d 379

Samuel E. LADDON, et ux. v. RHETT REALTY, INC., et al.

No. 1376, Sept. Term, 1984.

Court of Special Appeals of Maryland.

June 7, 1985.

Samuel E. Laddon, Wheaton, for appellants.

Kay B. Partridge, Ellicott City, (Charles A. Reese and Reese & Carney, Ellicott City, on the brief), for appellees.

Argued before BISHOP, ALPERT and BLOOM, JJ.

BISHOP, Judge.

Samuel E. Laddon and his wife Jane D. Laddon filed this action, pro se, against appellees Rhett Realty, Inc. and John F. Rattaliata, a real estate broker and its designated representative, see Md.Ann.Code art. 56, § 218(a), to recover their deposit held by appellees under a real estate contract of sale. The Laddons appeal the order of the Circuit Court for Howard County which sustained appellees' demurrer, without leave to amend. ¹ See former Rule 345e.

Standard of Review

Rule 345a, ² regarding the scope of demurrer, provided:

1. Question of Law.

Any question of law as to a pleading which may be decisive of the litigation, including the constitutionality, application or construction of a statute, and

2. Sufficiency of Pleading.

Any question as to the sufficiency of substance of any pleading may be raised by demurrer.

"To withstand a demurrer a party need only allege facts which, if proven, would entitle him to relief." Hooke v. Equitable Credit Corp., 42 Md.App. 610, 616, 402 A.2d 110 (1979). In considering the motion, the court

should assume as true, for the purposes of demurrer, all of the well pleaded facts in the bill of complaint and attached exhibits, as well as the inferences which may be drawn from those well pleaded facts. In its determination, the court may not assume facts not pleaded ... nor may additional facts relied on by a party be supplied. The ruling is limited to a consideration of the pleading demurred to, and instruments or documents which do not form a part of the pleading may not be considered.

Gallant v. Bd. of School Comm'rs., 28 Md.App. 324, 329, 345 A.2d 448 (1975) (Citations omitted).

FACTS

The contract of sale between appellants and sellers Edward G. Taylor, Eileen M. Taylor, and Eileen F. Zieglar (now Eileen Johnson) required appellants to pay, as part of the purchase price, a $1,000.00 deposit to be held by appellees "in escrow on behalf of seller until settlement."

In the event of default by the purchasers, the contract provided that the deposit would be forfeited to the sellers and appellees would be entitled to a fee of fifty percent of the amount forfeited. Notice of default by the purchaser was required to "be given in writing by the Seller to the Buyer within 10 days after the default has occurred."

The contract, however, was expressly contingent upon appellants obtaining a purchase money mortgage loan at certain stated terms not at issue here. In addition, the contract provided that if the buyer attempts to utilize the Veteran's Administration guaranteed loan procedure and does not complete the purchase, he will not "incur any penalty by forfeiture of earnest money..." if the purchase price exceeds the reasonable value of the property established by the Veteran's Administration.

Appellants paid the $1,000.00, which was deposited in appellee Rhett Realty, Inc.'s bank account. The sale was not consummated and Rhett Realty refused, upon demand, to return the deposit to appellants.

Appellants' declaration states that the "Laddons contend that no default on their part has occurred," that they have not received a notice of default as required under the contract, and that one of the sellers advised appellants that the contract between them was void. In addition, the declaration provides that appellants "were unable to secure financing in accordance with the terms of the contract," and that they are entitled to a refund of their deposit based upon the "Financing Contingency" and "Veterans Administration" clauses of the contract.

The demurrer sustained by the circuit court alleged (1) failure to state a cause of action, (2) lack of privity of contract, and (3) that the declaration was duplicitous. The basis of the court's ruling is not clear from the record.

I. Failure to State a Cause of Action

The threshold question in this case is whether, in the absence of default, a purchaser may recover from the broker the deposit made under the contract of sale when the sale is not consummated because of the failure of a contingency of the contract. We have not found any Maryland law directly on point.

The Court in Kremen v. Rubin, 139 Md. 682, 116 A. 640 (1922) stated that there was no authority for the proposition that

if a real estate broker sells property and the vendee pays a part of the purchase money, and the broker afterwards buys the property himself and fails to return the payments made by the original vendee, that then the vendee can recover the money so paid ... without regard to whether the first contract was rescinded by mutual consent or was broken by the original vendee, or whether there was any relation of principal and agent between the broker and the vendee.

139 Md. at 695, 116 A. 640 (Emphasis added). In Century Indemnity Company v. State of Maryland, 144 F.Supp. 671, 674-75 (1956) the Court stated that "[i]f the title of the seller is defective, the purchaser is entitled to receive his money back; he has a contingent beneficial interest in the deposit. But if the title is good and the sale is consummated, the deposit belongs to the seller, who has acknowledged receipt of it in the contract of sale. It is his money, held by his agent as trustee." See also Casey v. Jones, 275 Md. 203, 339 A.2d 33 (1975) where the Court indicated that under a sales contract provision regarding default by the purchaser, the broker's right to a commission from the deposit was dependent upon whether the seller exercised his right to elect forfeiture of the deposit. 275 Md. at 205-06, 339 A.2d 33.

Under various circumstances, however, courts from other jurisdictions have held that "a deposit may be recoverable [from the broker] where the contract between the parties is terminated in accordance with its terms on the happening of a certain contingency, such as the unavailability of financing to the purchaser...." 12 C.J.S. Brokers § 105b (1980) at 304-05; see McGinley v. Chappas, 91 Ga.App. 418, 85 S.E.2d 791, 792 (1955) (contract of sale provided that "in the event the sale is not consummated for reasons other than default of purchaser, the deposit is to be refunded to the purchaser."); Lane v. Wilson, 149 So.2d 654, 656 (La.Ct.App.1963) (contract of sale provided that if financing contingency is not satisfied the "agreement shall then become null and void and agent is authorized to return purchaser's deposit in full."); Kimbrough v. Gross, 268 S.W.2d 56, 59 (Mo.Ct.App.1954) (broker obtained deposit on implied condition that deposit would be refunded if broker failed to arrange financing); Quinn v. State Board of Real Estate Examiners, 104 Ohio App. 316, 137 N.E.2d 777, 780 (1956) (broker's license revoked for inter alia, failing to return deposit to purchaser; broker told purchasers that deposit accompanying offer of purchase would be returned if G.I. Loan was not secured; when sale was not consummated because of failure to obtain financing, purchaser and vendor requested that deposit be refunded); Couch v. Stewart, 200 S.W.2d 642, 643 (Tex.Civ.App.1947) ("earnest--money agreement" provided that if loan on specified terms was not obtained the earnest money would be refunded.); see also Pelletier v. Dwyer, 334 A.2d 867, 872-73 (Me.1975) (broker held liable for return of deposit where vendor failed to tender performance and wrongfully claimed default on part of purchaser); Crowley v. Belknap, 103 A.D.2d 962, 479 N.Y.S.2d 578, 579 (1984) (broker held liable for deposit where contract of sale provided that down payment, held in escrow by real estate broker, would be refundable if transaction not completed within 60 days of execution of agreement; sale was not consummated within time specified).

In McGinley v. Chappas, 91 Ga.App. 418, 85 S.E.2d 791 (1955), the Court held that the plaintiff purchaser properly brought an action "against the defendant sales broker to recover earnest money when the contingency of obtaining a loan, upon which the contract was predicated, failed to materialize." 85 S.E.2d at 792. According to the Court,

An exception to the general rule that proper payment to the authorized agent of a disclosed principal ... is payment to the principal ... is recognized in cases where a binder or earnest money for the sale of property is turned over to a sales broker during the pendency of a conditional contract of purchase. In such cases, if the money is not turned over by the agent to the principal during a time when the principal is authorized to receive it, the payor, if entitled to its return, may recover it back directly from the agent.

Id. at 792. (Citations omitted).

In addition,

Where the contract provides that, "in the event the sale is not consummated for reasons other than default of purchaser, the earnest money is to be refunded to the purchaser," the escrow agent is not authorized to turn the money over to the seller where the contract of sale is expressly contingent upon the purchaser's ability to obtain a specified mortgage loan, and where he is unable to obtain such loan. In such a case the purchaser has a right to demand the money back from the sales broker, and an action against the seller, who never received the money, will not lie.

Id. at 792 (Citation omitted). The Court also stated that it was not necessary to allege specifically that the broker had not turned the money over to the seller since under the terms of the contract the broker was without authority to do so since "the sale was not consummated due to no default on the part of the purchaser, and therefore the escrow agent could not in good faith have paid the money to either party...