McConnell v. Cowan

• Decision Date: 05 July 1955
• Citation: 44 Cal.2d 805,285 P.2d 261
• Court: California Supreme Court
• Parties: Kenneth A. McCONNELL and Louise A. McConnell, Plaintiffs and Appellants, v. Harry L. COWAN, Petitioner, Defendant and Respondent. L. A. 23183.

Page 261

285 P.2d 261

44 Cal.2d 805

Kenneth A. McCONNELL and Louise A. McConnell, Plaintiffs and Appellants, v. Harry L. COWAN, Petitioner, Defendant and Respondent.

L. A. 23183.

Supreme Court of California, in Bank.

July 5, 1955.

Lyle M. Stevens, Long Beach, for appellants.

Leo Friedman, Long Beach, and Orlan S. Friedman, Beverly Hills, for respondent.

CARTER, Justice.

By his complaint in this action plaintiff sought to have it declared that he was not under obligation to pay defendant an amount agreed upon as compensation for services rendered by defendant in procuring a lease of certain real property for plaintiff. Defendant by cross-complaint sought to recover said compensation from plaintiff. Judgment was rendered in favor of defendant, and plaintiff has appealed.

From the trial court's findings it appears that E. D. Mitchell owned certain real property in the city of Long Beach. Plaintiff was desirous of leasing the property from Mitchell and, on October 24, 1952, he authorized defendant to submit to Mitchell an offer to lease the property. It was thereupon orally agreed between plaintiff and defendant that if plaintiff were able to secure a lease of the property he would pay defendant 5% of the net profits from the business to be conducted on the property by plaintiff. The oral agreement was followed by a written agreement on October 27, 1952. The offer from plaintiff to Mitchell for such lease was transmitted by defendant to and refused by Mitchell. But on October 28, 1952, Mitchell authorized defendant to submit a written offer for a lease of the property to plaintiff, varying from plaintiff's offer, which provided that Mitchell would pay defendant a 3% commission. The latter offer was submitted by defendant to plaintiff and was accepted by him. Thereafter, on November 4, 1952, plaintiff and Mitchell, without defendant's participation, executed a lease of the property. Mitchell had no knowledge of the 5% agreement between plaintiff and defendant, but plaintiff knew defendant was to receive a 3% commission from Mitchell. The court then found that defendant was acting as a middleman to bring plaintiff and Mitchell together and was not an agent of either, hence the 5% agreement was valid and enforceable because in such a situation the rule was not applicable that an agent may not recover compensation from both principals unless full disclosure was made to each. The court also found that defendant had no authority to vary the terms of or exercise any discretion in connection with plaintiff's offer to Mitchell and the same was true of the offer from Mitchell to plaintiff. It was admitted that defendant was, at the time of the transaction here involved, a licensed real estate broker.

The evidence is as follows: Defendant testified that, before contacting plaintiff, he knew Mitchell wanted to lease the property, but had no listing from him. About October 24, 1952, he approached plaintiff, who was engaged in the hamburger sandwich business, and talked to him about leasing the Mitchell property. Thereafter three writings on plaintiff's stationery, addressed to defendant, setting forth the agreement as to defendant's commission between the parties, were signed by plaintiff. ¹ The first document was dated October 24, 1952, the second October 27, 1952, and the third November 5, 1952. The first two were signed on October 27, 1952. The first document stated that defendant was therewith authorized 'to offer for me' (plaintiff) a proposition to lease a portion of Mitchell's property in the city of Long Beach at a rental of $750 per month provided Mitchell expended $25,000 for improvements on the property; it closed by stating that plaintiff would lease, as offered, only if Mitchell 'pays you (defendant) your desired leasing fee.' Defendant submitted the offer to Mitchell on October 27, 1952, but does not know whether he showed him the first document. Mitchell rejected the offer as he did not want to make any improvements but said he wanted to lease the property on a ground lease basis. Defendant returned to plaintiff thereafter on the same day and told him he wanted 'it put in writing,' meaning the oral agreement made on October 24th that he was to get 5% of the net profits from plaintiff's business to be conducted on the property proposed to be leased as commission for 'getting the lease.' The second writing followed, which stated that 'for and in consideration of ten dollars * * * and other considerations given by you (defendant) to me' (plaintiff), plaintiff agreed to pay the 5% commission on the basis above mentioned. The third writing merely amplified the second. In explanation of the 'other considerations' in the second writing, defendant testified he intended to take Mitchell's property for himself and that the substance of his discussion with plaintiff was that the latter had been unable to get the property. Defendant said he was going to see Mitchell and get it for himself, and plaintiff asked defendant what kind of a deal he would make with him if he got it for plaintiff instead of himself, to which defendant queried, what deal would be fair. They then agreed upon 'the five per cent.' In further amplification of the nature of the arrangement between plaintiff and defendant, the latter testified: 'After I had talked with Mr. Mitchell * * * in my original conversation with him (plaintiff) on the 24th, he had already told me that he would take the place whether he got the building built or he didn't get the building built. He would take a ground lease or take it with the building on it. Agreed to my five per cent and I was to see Mr. Mitchell to find out if I could get one of the deals. When Mr. Mitchell agreed to the $500 a month ground lease I told * * * (plaintiff) I wanted to put our verbal agreement as to the five per cent in writing, it looked like we were going to make this deal.' (Emphasis added.) Defendant further testified that plaintiff could not have obtained the property on his own initiative and the 5% commission was for getting a lease from Mitchell for plaintiff. After Mitchell rejected plaintiff's offer and on October 28th, defendant obtained from Mitchell a writing (hereinafter called fourth writing) addressed to defendant in which Mitchell agreed to lease the property to plaintiff for a term of 10 years at $500 per month; no provision was made for improvements by Mitchell and it embodied substantially the same basic terms as later appeared in the lease executed by plaintiff and Mitchell; Mitchell also agreed therein to pay defendant 3% of the total rental as a 'leasing commission.' Defendant advised plaintiff of Mitchell's offer and plaintiff signed on the fourth writig his acceptance thereof. Defendant was paid the 3% by Mitchell at the time the fourth writing was signed and before plaintiff and Mitchell executed the lease. Defendant testified he did not remember whether he told Mitchell he was receiving a commission from plaintiff. The lease was signed on November 4, 1952. Mitchell testified that defendant took no part in any negotiations after getting the fourth writing signed by both parties.

Plaintiff's case is based on the rule that: '(W)here an agent has assumed to act in a double capacity, a principal who has no knowledge of such dual representation * * * may avoid the transaction. Actual injury is not the principle upon which the law holds such transaction voidable; rather, the law holds it voidable in order to prevent the agent from putting himself in a position where he will be tempted to betray his principal. * * * To this point Mechem in his work on Agency, Second Edition, Volume 2, section 2138, p. 1715, says: '* * * an agent who is relied upon to exercise, in behalf of his principal, his skill, judgment, knowledge or influence, will not be permitted without such principal's full knowledge and consent, to undertake to represent the other party also in the same transaction. Such conduct is a fraud upon principal, and not only will the agent not be entitled to compensation for services so rendered, but the contract or dealings made or had by the agent, while so acting also for the other party without the knowledge or consent of the principal, are not binding upon the latter, and if they still remain executory, he may repudiate them on that ground, or, if they have been executed in whole or in part, he may by acting promptly and before the rights of innocent parties have intervened, restore the consideration received, rescind the contract and recover back the property or rights with which he has parted under it. It makes no difference that the principal was not in fact injured, or that the agent intended no wrong, or that the other party acted in good faith; the double agency is a fraud upon the principal and he is not bound. " Vice v. Thacker, 30 Cal.2d 84, 90, 180 P.2d 4, 8; see, also, Glenn v. Rice, 174 Cal. 269, 162 P. 1020; Butler v. Solano Land Co., 203 Cal. 231, 263 P. 530; Gordon v. Beck, 196 Cal. 768, 239 P. 309; 2 Cal.Jur.2d Agency, § 107; 9 Cal.Jur.2d, Brokers, § 77; Rest., Agency, § 390 et seq.; Business & Professions Code, § 10176(d). It is also held that neither principal is liable for the commission unless both knew of the dual representation, even if one does know of it he is not liable if the other does not which is the situation we have here, because, as above noted, plaintiff knew defendant was to receive a commission from Mitchell. The rule is thus stated: 'His (the agent's) contract for compensation being thus tainted, the law will not permit him to enforce it against either party. * * * And the fact that the party whom he sues was aware of the double agency and of the payment, or agreement to pay, compensation by the other party, and consented thereto, does not entitle him to recover. He must show knowledge by both parties. One party might willingly consent, believing that the advantage would accrue to him, to the detriment of the other....