McNeill v. Dobson-Bainbridge Realty Co., Inc.

• Court: Tennessee Supreme Court
• Citation: McNeill v. Dobson-Bainbridge Realty Co., Inc., 184 Tenn. 99, 195 S.W.2d 626 (Tenn. 1946)
• Decision Date: 29 June 1946
• Parties: McNEILL v. DOBSON-BAINBRIDGE REALTY CO., Inc., et al.

195 S.W.2d 626

184 Tenn. 99

McNEILL v. DOBSON-BAINBRIDGE REALTY CO., Inc., et al.

Supreme Court of Tennessee.

June 29, 1946

Appeal from Chancery Court, Davidson County; Thos. A. Shriver Chancellor.

Bill by Martha N. B. McNeill against Dobson-Bainbridge Realty Company, Inc., and others to have defendant E. S. Morgan Jr., declared a constructive trustee and to require an accounting for proceeds of a sale, to recover from corporate defendant as individual defendant's principal and to recover from surety on corporate defendant's bond. To review a judgment of the Court of Appeals in favor of plaintiff, defendants bring certiorari.

Affirmed.

W. P. Cooper, of Nashville, for appellants.

J. C Edwards, of Nashville, for appellee.

TOMLINSON, Special Justice.

Mrs Martha McNeill owned a residence in Davidson County and desired to make a quick sale thereof for cash. She was not compelled, however, to make a sale. She was offered Two Thousand, Five Hundred ($2,500) Dollars cash for this residence. Dobson-Bainbridge Realty Company was engaged in the business as an agent or broker for the sale or renting and collection of rents, etc., of real estate. Mrs. McNeill properly regarded this company as being entirely reliable, and was acquainted with one of its officials, and having had very little business experience and being totally unfamiliar with the reasonable market value of real estate she desired to consult this company with reference to whether the price of Two Thousand, Five Hundred ($2,500) Dollars offered her was the reasonable value of the property; so she consulted with that official of the company with whom she was acquainted. He referred her to Mr. E. S. Morgan, Jr., one of the company's agents in its sales department. He promptly inspected the residence and reported to Mrs. McNeill that Two Thousand, Five Hundred ($2,500) Dollars was a fair price for it. In this conversation he suggested that if she would list the sale of this property with his company it might be that a sale would be procured which would net her a little more than the offer she had received after deducting the five (5%) percent commission of the company for making the sale. The arrangement between the company and its sales agent was to equally divide the commissions. Mrs. McNeill accordingly listed the property with this company for sale. In this conversation Mrs. McNeill informed Morgan that she was carrying Three Thousand, Five Hundred ($3,500) Dollars insurance on the property and inquired as to whether it should not be reduced in view of his opinion of the value. He advised her to reduce it to Two Thousand, Five Hundred ($2,500) Dollars, and she accordingly did so at once.

Five days thereafter (June 1, 1945) Morgan prepared a written offer to purchase this property for $2,650 cash. It was addressed to the Realty Company as her agent and executed by E. S. Morgan, Jr., Trustee. When Morgan presented this offer to Mrs. McNeill two days later for her acceptance Mrs. McNeill noticed that the purchase was by 'Morgan Trustee' and she inquired 'Well, who am I selling this to'? He replied, according to her testimony that 'we' or according to his testimony 'I' 'have a trust fund for which we (or I as the case may be) invest money and it is with the trust funds that we (I) are buying it'. As it subsequently turns out, this answer was deceptive and misleading. Two days later Mrs. McNeill executed her deed conveying her property to E. S. Morgan, Jr., Trustee, and received the sum of $2,517.50, the Realty Company having deducted a five (5%) percent commission which was equally divided between it and Morgan. She was paid by the check of the Realty Company. Eight (8) days thereafter, Morgan, Trustee, executed a deed conveying this property to Mrs. Parsons for a consideration of $3,850, $850 of which was paid in cash and the balance by purchase money note of $1,800 due in five years and bearing interest at six (6%) percent per annum, and sixty (60) notes of $23.20 each, due one each month commencing the first month thereafter. The interest on these notes was calculated and incorporated as a part of the principal according to the amortization plan. These notes were secured by a first and second mortgage lien, respectively, on the real estate and Morgan had the insurance on the residence increased to $3,000. The small notes are being paid promptly as they fall due each month, as is the interest of $9 per month on the large note. When the deed to Mrs. Parsons was filed for registration there was noted on the record the words 'do not publish'. It is not clear whether this was done at the instance of Mr. Morgan or Mrs. Parsons.

Mrs. McNeill in some way subsequently learned that a week after she had conveyed this property to Morgan, Trustee, he as such trustee, had sold it for a profit of approximately 46%. She promptly filed her bill seeking to have Morgan as her constructive trustee to account to her for the proceeds of this sale to Mrs. Parsons. Her bill also seeks recovery from the Realty Company as Morgan's principal and the surety on its bond.

The answer to this bill avers, and Morgan testifies, that he, Morgan, was in fact acting for his mother as the purchaser of this property; that his mother is a widow and had entrusted him with the handling and investment of her funds; that it was with money which she had in Bank that the purchase price of $2,650 was paid when the conveyance by Mrs. McNeill to Morgan, Trustee, was had and that the profit made in the sale to Mrs. Parsons was in fact a profit which went and was paid over to his mother, and that, therefore, neither he nor the Realty Company made any profit out of the transaction other than an equal division of another five (5%) percent commission. In support of this averment and insistence, and upon it being called for by cross-examination, Mr. Morgan exhibits a check executed by his mother under date of June 6 for the sum of $1,650. This check has written thereon 'For McNeill loan'. Mr. Morgan does not satisfactorily explain how the remaining $1,000 of the purchase price came from his mother to him for the payment of the purchase price to Mrs. McNeill. There is no explanation as to why the check of Mrs. Morgan has written thereon the words 'for McNeill loan' when in fact, according to her son, it was a purchase of the property by the mother and not a loan either to Mrs. McNeill, or to some one else for the purchase of her property. Nor is there any explanation by Mr. Morgan as to why he did not tell Mrs. McNeill that his mother was buying this property when she asked the direct question as to who was buying it. Morgan, of course, knew that his mother was the purchaser, assuming the accuracy of his testimony. His failure to disclose this fact to Mrs. McNeill in response to her direct inquiry and his giving instead what has turned out to be an evasive and misleading answer makes it necessary to conclude that Mr. Morgan intentionally withheld from Mrs. McNeill the fact that he, Morgan, was representing his own mother in this transaction in which he was acting as agent for Mrs. McNeill. There is also no satisfactory explanation of the fact that the mother, Mrs. Morgan, was not introduced as a witness by the defendants.

The chancellor held that there was no actual fraud, but that in as much as Morgan had acted as complainant's agent at the same time that he was acting as his mother's agent in a matter in which the two parties had adverse interests and had done this without disclosing that fact to Mrs. McNeill, he, Morgan, and his Realty Company should not have charged her a commission. The Chancellor accordingly entered a judgment against all the defendants for the amount of this commission, to-wit, $132.50. The court of appeals held that the presence of actual fraud was immaterial and that in as much as Morgan did not reveal the fact that he was representing his mother as buyer, while acting as agent for Mrs. McNeill, the seller, at the time he took this conveyance from her to himself as trustee, he, therefore, took this conveyance as trustee for Mrs. McNeill and that when he again sold the property as such trustee he was bound to account to her for the proceeds of the sale without regard to the fact that his mother had made all the profit, except the commission.

This Court granted the petition of the original defendants for certiorari, and in a memorandum to counsel particularly invited that the oral argument be especially directed to the question of whether the original defendants are liable for this profit on the re-sale to Mrs. Parsons since that profit went to Mrs. Morgan rather than to the original defendants. This Court in this memorandum to counsel expressed itself as being doubtful as to whether the defendants should be held liable to account for the profits which went to the mother of Mr. Morgan. The case has been orally argued at this Bar.

An agent may with full knowledge of both principals represent the two principals having adverse interests. Siler v. Perkins, 126 Tenn. 380, 391, 149 S.W. 1060, 47 L.R.A.,N.S., 232. In this case Morgan did advise Mrs. McNeill that he was investing trust funds and to that extent may fairly be said to have put her upon inquiry. However, 'it is not enough for the agent to put the principal upon inquiry, but must disclose such material facts as are unknown to the principal and as will enable him to form a reasonably correct opinion and conclusion as to his best interest'. Raht v. Union Consol. Mining Co., 73 Tenn. 1, 21, 22.

It may well be that Mr. Morgan intended no actual fraud. However that does not alter the situation. The relation of principal and agent is a trust relation, Gibson, § 27; and...