Middelsteadt v. Karpe

• Decision Date: 20 October 1975
• Citation: 52 Cal.App.3d 297,124 Cal.Rptr. 840
• Parties: Bernice MIDDELSTEADT, Plaintiff, Respondent and Cross-Appellant, v. Robert W. KARPE, Real Estate Commissioner of the State of California, Defendant, Appellant and Cross-Respondent. Civ. 35164.
• Court: California Court of Appeals Court of Appeals

Page 840

124 Cal.Rptr. 840

52 Cal.App.3d 297

Bernice MIDDELSTEADT, Plaintiff, Respondent and Cross-Appellant, v. Robert W. KARPE, Real Estate Commissioner of the State of California, Defendant, Appellant and Cross-Respondent.

Civ. 35164.

Court of Appeal, First District, Division 2, California.

Oct. 20, 1975.

Evelle J. Younger, Atty. Gen., Mervin R. Samuel, Deputy Atty. Gen., San Francisco, for defendant, appellant and cross-respondent.

Paul G. Dobbins, San Francisco, for plaintiff, respondent and cross-appellant.

KANE, Associate Justice.

Defendant Robert W. Karpe, Real Estate Commissioner of the State of California ('appellant') appeals from the trial court's judgment ordering the payment of funds to respondent out of the Real Estate Education, Research and Recovery Fund ('Recovery Fund'); respondent Bernice Middelsteadt cross-appeals from that portion of the judgment disallowing interest on the sum awarded.

The undisputed facts reveal that in July 1967 respondent, a licensed real estate broker, engaged the services of Mary Ann Lowell ('Mary'), a licensed real estate saleswoman. The oral agreement entered between them provided for a 50--50 division of commissions earned by Mary. On or about November 16, 1967, while in the employ of respondent, Mary, together with Ernest R. Smith ('Smith'), a licensed real estate broker, negotiated and consummated an exchange of an apartment house owned by one Pasquet for two parcels of unimproved real property owned by Dalton and Ima Ford ('Fords'). For negotiating the aforesaid transaction Mary received $12,750 commission from Fords and $10,000 from Pasquet. It is uncontradicted that Mary obtained the commissions without the knowledge, consent or authorization of respondent; and that although not holding herself out as a broker, she failed to reveal to the parties that she was employed by respondent as a saleswoman. The commissions in dispute were paid through Western Title Insurance Company, the escrow holder for the parties.

Based upon the foregoing facts, on November 14, 1968, an accusation was filed against Mary for violation of Business and Professions Code, ¹ sections 10137, ² and 10177, subdivisions (f) and (j). ³ After a hearing and receiving evidence, the commissioner found Mary guilty as charged and, by a decision dated March 4, 1969, temporarily revoked her real estate license.

Thereafter, respondent filed suit against Mary, Smith, Pasquet, Fords and Western Title Insurance Company. The first amended complaint, filed on August 8, 1969, charged Inter alia that Mary concealed from the other parties her employment with respondent, entered into negotiations with defendants for the exchange of certain real property without respondent's consent or knowledge, and in violation of the oral agreement with respondent accepted commissions from defendants in her own name (first cause of action). In the second and third causes of action respondent leveled charges against defendant Western Title Insurance Company for breach of fiduciary duty and for professional negligence in handling the escrow of the parties.

The case came up for trial on September 28, 1972. Counsel for Mary moved the court to withdraw from the case on account of his client's disappearance. The court granted the motion and entered a default judgment obligating Mary to pay $17,800.94 principal, $6,168.20 interest, and costs.

Due to Mary's disappearance with the absconded funds, the judgment rendered against her remained unsatisfied. Thereupon, in reliance on sections 10471 and 10472 respondent filed an application in the lower court for an order directing appellant to pay the amount of the underlying judgment out of the Recovery Fund. After a trial, the lower court found that the final judgment against Mary was founded on fraud and deceit directly arising out of a real estate transaction for which a real estate license was required and that the aggrieved person contained in section 10471 included a real estate broker who had been defrauded by his real estate agent. The trial court likewise concluded that respondent fully complied with the provisions of section 10472 as well, and accordingly obligated appellant to satisfy respondent's actual loss totaling $8,875 out of the Recovery Fund. At the same time the trial court held that the 'actual and direct loss' provided by section 10471 does not include legal interest on the judgment and costs of the suit. The present appeal and cross-appeal followed.

Although appellant also assails the judgment on procedural grounds, his main contention on appeal is that a reversal of the judgment is imperative because several provisions of sections 10471 ⁴ and 10472 ⁵ were not met. Thus, it is contended that the statutory phrase 'any aggrieved person' should be interpreted in light of the purpose of the real estate law to protect the public from dishonest real estate licensees and that this interpretation would exclude a claim by one licensee against another. Moreover, it is argued that the judgment against Mary was not obtained upon grounds of fraud, misrepresentation, deceit or conversion of trust funds as required by section 10471, and that the emphasized provisions of section 10472 were not complied with by respondent. For the reasons which follow, we agree with appellant and therefore reverse the judgment.

Turning to appellant's first contention, it is to be noted that one of the main requisites of seeking redress from the Recovery Fund is that the judgment creditor whose judgment has remained unsatisfied be an aggrieved person within the meaning of section 10471. The issue of who is qualified as an aggrieved person under the statute is one of first impression which has not been explained either by the Legislature or by any case authority. As a consequence, in defining the statutory meaning of 'aggrieved person' we must look to the general purpose of the real estate law and case authorities which have dealt with analogous problems.

While the code section is couched in broad terms which seemingly embrace any person inside and outside the real estate profession, the language used therein is far from being explicit. Under these circumstances the meaning of the statutory phrase must be resolved with reference to the Real Estate Brokers' Act, of which section 10471 is but a part (cf. Schantz v. Ellsworth (1971) 19 Cal.App.3d 289, 292, 96 Cal.Rptr. 783). The cases, in turn, are legion both in California and elsewhere which hold that the primary purpose of the real estate act is to raise the standards of the real estate profession by requiring its members to deal fairly and ethically With their clients. (California Emp. Stab. Com. v. Morris (1946) 28 Cal.2d 812, 817, 172 P.2d 497; Circle Oaks Sales Co. v. Smith (1971) 16 Cal.App.3d 682, 685, 94 Cal.Rptr. 232; De St. Germain v. Watson (1950) 95 Cal.App.2d 862, 867, 214 P.2d 99; Koeberle v. Hotchkiss (1935) 8 Cal.App.2d 634, 640, 48 P.2d 104; Houston v. Williams (1921) 53 Cal.App. 267, 271, 200 P. 55; 10 Cal.Jur.3d, § 8, p. 484; see also: Cannon v. Florida Real Estate Commission (Fla.App.1969) 221 So.2d 240, 241; Phoenix Assurance Company of New York v. Young (1961), 104 Ga.App. 55, 121 S.E.2d 70, 71; Eberman v. Massachusetts Bonding & Ins. Co. (D.C.Mun.App.1945) 41 A.2d 844, 845). Or to put it another way, the protected class under the act is not the real estate licensees but the clients (Iusi v. Chase (1959) 169 Cal.App.2d 83, 87, 337 P.2d 79; Ferguson v. Schuenemann (1959) 167 Cal.App.2d 413, 334 P.2d 668; Cannon v. Florida Real Estate Commission, supra).

As pointed out earlier, the instant case grew out of an internal dispute between a broker and saleswoman over the division of commissions earned by the saleswoman and did not involve fraud or deceit worked upon the clients. It follows, therefore, that in light of the stated policy underlying the real estate act, the broad provision of section 10471 must be read to the effect that the aggrieved person who is entitled to compensation from the Recovery Fund must be a client or a member of the general public. Conversely, the Recovery Fund, which provides a limited amount for the protection of the public, may not be resorted to by the real estate licensees themselves who are in a better position to guard against the deceitful and fraudulent acts of their colleagues and who therefore fall outside the class protected by the statute.

We are confirmed in our view by cases addressing and deciding similar issues in analogous situations. Thus, in Gilewicz v. Home Indemnity Company (D.C.Mun.App.1959) 150 A.2d 627, plaintiff, a licensed real estate saleswoman, was employed by one Wright, a licensed real estate broker. Under the terms of the employment agreement Gilewicz was entitled to a commission on all sales consummated by her on the broker's behalf. As a result of her efforts, Gilewicz effected a sale of real estate and thereby earned a commission. However, in violation of the agreement of employment the broker paid only a portion of the commission due. By statute, a real estate broker in the District of Columbia was required to post a surety bond with his application for a license. ⁶ Gilewicz, therefore, brought an action against the surety to recover the balance of the commission. Similar to the case at bench, the issue before the court was whether the statutory phrase 'any aggrieved person' covered a real estate licensee. Holding that it did not, the court pointed out that: "The purpose and design of the (Real Estate License) Act primarily are, as stated in its title, 'to protect the public against fraud in real-estate transactions.' (Citations omitted.) The protection of the public interest is the basis for the exercise of the police power in the enactment of such a law. (Citations ommitted.) The bond required by the Act is, therefore, for the protection of the public, and the question here presented is whether a real estate salesman is within the general...