Rushing v. Stephanus, 36968

• Decision Date: 18 June 1964
• Docket Number: No. 36968,36968
• Citation: 393 P.2d 281,64 Wn.2d 607
• Court: Washington Supreme Court
• Parties: Eugene RUSHING and Alice Rushing, his wife, Respondents, v. Paul C. STEPHANUS, d/b/a Prudential Mortgage Company, and Barbara H. Stephanus, his wife, and Stevens-Norton Inc. a corporation, Appellants.

Page 607

64 Wn.2d 607

393 P.2d 281

Eugene RUSHING and Alice Rushing, his wife, Respondents, v. Paul C. STEPHANUS, d/b/a Prudential Mortgage Company, and Barbara H. Stephanus, his wife, and Stevens-Norton

Inc. a corporation, Appellants.

No. 36968.

Supreme Court of Washington.

June 18, 1964.

Warren Hardy, Seattle, for appellants.

Hay, Julin, Fosso & Sage, Eugene Sage, Seattle, for respondents.

FINLEY, Judge.

Eugene Rushing and his wife (plaintiffs-respondents) commenced this action, asserting fraud and breach of the fiduciary obligation of an agent, and sought the recovery of the commissions which they had paid to Paul Stephanus and wife (defendants-appellants). The defendants were engaged in the mortgage brokerage business under the name of the Prudential Mortgage Company. By amendment, a cause of action for negligence was added respecting certain allegedly excessive loan expenses.

The factual circumstances surrounding most of the transactions of the parties are in sharp dispute. While the plaintiff asserts fraud, dishonesty and concealment, the defendant takes the position that he at all times made scrupulous disclosure, and conformed with common business practices. The trial court, sitting without a jury, accepted the version of the facts narrated by the plaintiffs, and this version, supported as it is by substantial evidence, is binding on appeal to this court.

The plaintiff Rushing is a side-sewer contractor, and has only a fifth grade education. His wife's formal education ended in the tenth grade. Both were found to have a limited ability to read and understand technical language. Desiring to borrow $1,800 for use in his business, Rushing was referred to the services offered by the defendant Stephanus. At a meeting in Stephanus' office, the Rushings affixed their signatures to the following blank forms: A loan application, a note, a mortgage, and a hold-harmless agreement. The trial court found that these documents were signed under the following circumstances:

'* * * Paul Stephanus told plaintiffs to sign a stack of papers with the loan application on top, and fraudulently misrepresented to plaintiffs that all documents in the stack were duplicate loan applications. Paul Stephanus held his hands on the documents in such a manner that only the signature lines were visible to plaintiffs. Under the loan application * * * [was] the blank mortgage. * * *'

At the aforementioned office meeting, Stephanus told the Rushins that he could secure a first mortgage loan for them at an interest rate of 8 per cent, sufficient in an amount to refinance the pre-existing $3,200 mortgage on the Rushing home and still leave the $1,800 which they wanted to borrow. The Rushings were led to believe that Stephanus himself, as the Prudential Mortgage Company, was to be the lender. No mention was made to them concerning any brokerage commissions to be collected by Stephanus for placing the loan elsewhere.

Armed, not by Colt or Winchester, but with blank mortgages and loan applications signed by the Rushings, and having the appearance of legal propriety, Stephanus set about negotiating a loan which would net the required amounts to his pigeons and, more significantly perhaps, would yield and pay his commissions and 'expenses.' To obtain the $5,000 needed to refinance the home mortgage with a balance over of $1,800, Stephanus filled in the application for $6,600, thereby making allowance for the rather startling sum of $1,600, allegedly to cover costs, discounts and his commissions. Possibly it was beside the point that the Rushings only wanted to borrow $1,800 in the first place. This $6,600 figure was then placed on Prudential's 'loans available' list, which was mailed to various financial institutions.

In developed that the loan had not been placed by April, and the Rushings, in need of cash, expressed their concern to Stephanus. It was explained that the delay was due to 'some problem' with the title to the home. It was suggested that an advance of $1,000 be secured until the loan 'went through,' and the Rushings went down to Stephanus' office and signed another stack of papers in blank. This 'advance' was obtained by filling out another blank loan application as a request for a second mortgage loan of $1,650 (carefully leaving $650 to cover expenses) and forwarding it to Stevens-Norton, Inc., and outfit apparently doing a business not unlike that of Stephanus. Stevens-Norton apparently made the loan at the certainly not too timid rate of 10 per cent interest and a 20 per cent discount. Stevens-Norton deducted their discount, Stephanus' commission of $160 on this new 'loan,' and various minor 'expenses,' and the Rushings netted $1,091.72 on the $1,650 note and mortgage. Curiously enough, Stevens-Norton, while originally made a defendant in this action, was dismissed by the Rushings for reasons which do not appear in the record. They do not press here any claims against Stevens-Norton under the usury statutes of this state or the penalty provisions thereof; consequently, the apparent usury aspects of the matter will not be considered in relation to the issues on this appeal. On the basis of testimony that the $6,600 first mortgage, originally contemplated, could have been placed, in the exercise of due care and diligence by Stephanus, with a reputable institution by March, or at the latest April, the trial court found that...