Pruitt v. Pavelin
| Decision Date | 19 June 1984 |
| Docket Number | No. 1,CA-CIV,1 |
| Citation | 141 Ariz. 195,685 P.2d 1347 |
| Court | Arizona Court of Appeals |
| Parties | Kenneth H. PRUITT and R. Eileen Pruitt, husband and wife, and The Old Mill, Inc., an Arizona corporation, Plaintiffs-Appellees, v. Carole PAVELIN; C & A Realty Co., Inc., an Arizona corporation; St. Paul Fire and Marine Insurance Company, a Minnesota corporation, Defendants-Appellants. 6017. |
This appeal arises out of the actions of a real estate salesperson who defrauded the seller of a restaurant by forging certain signatures on a sales contract and security documents. It presents a number of evidentiary and legal issues that we will discuss separately after we set forth the facts. The trial court found against the salesperson, Carole Pavelin, in the amount of $158,698.33 compensatory damages and $100,000 punitive damages. It found against Pavelin's employer, C & A Realty, on a theory of respondeat superior for Pavelin's fraudulent and willful misrepresentations and acts and awarded $158,698.33 compensatory damages and $100,000 punitive damages. It further awarded compensatory damages in the amount of $158,698.33 and punitive damages in the amount of $25,000 against C & A Realty on the plaintiff's claim that C & A had been negligent in hiring Pavelin.
In August of 1977, Carole Pavelin was employed by C & A Realty Company, Inc. as a real estate salesperson. Sometime in 1977, Pavelin and C & A discussed the possibility of employment. Pavelin's first contact with C & A Realty was with one of its agents named Hicks. Rudolph Hess, the sales manager for C & A Realty, talked to Hicks and with two people at Coldwell Banker, Pavelin's former employer. The people at Coldwell Banker spoke well of Pavelin as a salesperson. Hess also learned that Pavelin was the daughter of H.A. Hendrickson, who had an excellent reputation in the community. Hess also checked with the Arizona Real Estate Department to see if Pavelin could be licensed and was told that she could be with 12 hours of schooling. The real estate department did not relate anything to Hess about investigations of Pavelin that were then underway.
Rudolph Hess had discussed with Pavelin the fact that she had forged a document in connection with a real estate transaction in which she had been involved when she worked for Coldwell Banker. She admitted the forgery. He was also aware of the fact that Pavelin had previously been convicted of passing insufficient funds checks and that a lawsuit was pending against Pavelin in connection with still another real estate transaction.
When Pavelin was hired she did not have a real estate license. C & A Realty had given Pavelin a check to obtain her license and she told C & A that she had taken care of everything and was ready to work. In fact, Pavelin did not obtain the license. After C & A Realty discovered that Pavelin had not obtained her license, she filed a Salesman Renewal Application. This application reflected that she had been charged with and convicted of a criminal offense, insufficient funds checks, and that she had been sued in a matter involving a real estate transaction.
Richard Campbell, the designated broker for C & A Realty, wrote a letter to the Arizona Real Estate Department in support of the Salesman Renewal Application. This letter was delivered to the real estate department by Hess, who was aware of its contents. In the letter Campbell stated that he had complete confidence in Pavelin's honesty and certified that in his opinion Pavelin was truthful and of good character. C & A did not tell the real estate department that Pavelin had admitted forging signatures while employed at Coldwell Banker.
Paul Middlebrook, the Deputy Commissioner for the Licensing Division of the Department of Real Estate of the State of Arizona, reviewed Pavelin's renewal application and determined that a new license would be issued to her. Prior to issuing the license he noted the "yes" answers to questions on the renewal application concerning criminal conduct and lawsuits in progress. He issued the license in spite of the convictions for insufficient funds checks because he did not consider that to be the type of offense which would preclude a person from selling real estate in the absence of a repeated pattern of misconduct. Since the lawsuit was still pending, Middlebrook did not believe that it should bar the applicant. Middlebrook also reviewed a report showing that the department was investigating a complaint concerning possible unlicensed activity. He saw a severance report from Coldwell Banker indicating that Pavelin had been dismissed as a result of her having signed certain documents without authorization. Middlebrook also had a severance notice from another real estate company together with a letter which referred to unusual attempts at renewing a license and confusion as to whether Pavelin was licensed. The contents of the real estate department's files were confidential and not open to inspection by C & A Realty. Middlebrook testified, however, that he would not have routinely issued a license to a salesperson if the broker had told him that an applicant for the license had admitted forging documents in connection with a real estate transaction.
In the fall of 1977, the appellee, Kenneth Pruitt, entered into a listing agreement with Durwood Miller, a real estate salesman employed by Century 21. The agreement allowed Miller to sell The Old Mill, a restaurant that Pruitt owned. The listing was limited to only a few buyers, two of whom were R.C. Corbett and Ben Hawkins. Miller was to receive a ten percent commission on a sales price of $200,000.
A short time after he obtained the listing, Miller contacted Corbett and arranged for Corbett to visit the restaurant. Pavelin, who was living with Corbett at the time, accompanied him on the visit. According to Miller, Pavelin did not, on this occasion, mention that she was a realtor, give Pruitt her business card or seem to be acting as a realtor. Instead, she appeared to be a subprincipal or advisor with respect to running the restaurant business.
Pavelin subsequently contacted Pruitt and his attorney, Lee E. Esch, and advised them that she was employed by C & A Realty and represented people who were interested in buying The Old Mill. She identified these people as Corbett, Hawkins and H.A. Hendrickson. At various times during the negotiations, she represented to Pruitt: that Corbett and Hawkins were in the process of getting a loan; that Hawkins, a football player, was to receive a bonus from the Philadelphia Eagles; and that Hendrickson, who would not be active in the business, would be providing financial backing for the enterprise. She also provided Pruitt with a financial statement purportedly signed by Hendrickson. The statement listed a motel in Snowflake, Arizona, owned by Hendrickson which could be used as security. Hendrickson, in fact, had never signed the financial statement and knew nothing about the transaction. On December 6, 1977, Pruitt obtained a title report on the Hendrickson motel and personally went to look at the motel.
On December 20, 1977, before completion of all the paperwork, Pruitt turned over possession of the restaurant to the buyers and Pavelin turned over the sales documents to Esch. The documents bore the signatures of Corbett and Hawkins and the forged signature of Hendrickson.
The agreement, which Esch drafted, required the buyers to fulfill a number of obligations. They were to: make a $10,000 down payment; assume the leases on the equipment located at The Old Mill; assume the lease on the real property; and Hawkins and the Philadelphia Eagles were to assign Hawkins' $70,000 bonus to Pruitt. This assignment was a prerequisite to the release of $80,000 worth of certificates of deposit which the sellers had pledged to secure General Leasing on the equipment leases. The assignment of the bonus was also a condition precedent to the sellers' obligation to perform.
The agreement further provided that Miller and Century 21 were to release their right to a commission arising from the sale of The Old Mill. This also was an express condition precedent to Pruitt's obligation to perform. The agreement did not refer in any way to Pavelin or C & A Realty.
As additional security, Pavelin had provided Esch and Pruitt with two signed deeds of trust, one to be on the motel owned by Hendrickson and the other to be on a condominium owned by Corbett. The legal description of the property on each deed of trust was left blank and Pavelin instructed Esch not to insert the legal description on or record either deed of trust until she authorized him to do so. Esch never asked Pavelin for such permission and he conceded that these deeds of trust were never perfected. Esch would not categorically say that he would not have turned over documentation to Pavelin to procure signatures if he had known she was not a licensed salesperson. He said he might have done so if he knew that she had some relationship to the parties and if he knew her to be trustworthy. He said that because such chores are a customary function of real estate salespeople that he did not question the propriety of turning over the documents to Pavelin. Finally, he said that he would probably not have dealt with Pavelin in the manner he did had he not believed her to be a real estate salesperson working for a broker.
Pruitt wanted the transaction to close because he wanted to return to California to be with his family...
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