Timmsen v. Forest E. Olson, Inc.

• Court: California Court of Appeals
• Citation: 6 Cal.App.3d 860,86 Cal.Rptr. 359
• Decision Date: 23 April 1970
• Parties: Ernest C. TIMMSEN and Clarissa Timmsen, Plaintiffs and Appellants, v. FOREST E. OLSON, INC., a corporation, Galen E. Ramser and C. O. Masters, Defendants and Respondents. Civ. 34633.

Page 359

86 Cal.Rptr. 359 6 Cal.App.3d 860 Ernest C. TIMMSEN and Clarissa Timmsen, Plaintiffs and Appellants,
v.
FOREST E. OLSON, INC., a corporation, Galen E. Ramser and C. O. Masters, Defendants and Respondents. Civ. 34633. Court of Appeal, Second District, Division 3, California. April 23, 1970.

Page 360

[6 Cal.App.3d 863] Edward L. Lascher, Ventura, for plaintiffs and appellants.

Gabler, High & Clark and Jess F. High, Van Nuys, for defendants and respondents.

SCHWEITZER, Associate Justice.

Action for damages for breach of real estate brokers' fiduciary obligation to their principals. Appeal by plaintiffs from of nonsuit after completion of opening statement by plaintiffs' attorney. (Code Civ.Proc., § 581c.) For the purpose of the motion for nonsuit counsel stipulated that the statement of facts set forth in plaintiffs' trial brief would be deemed to be the opening statement of counsel for plaintiffs.

The Opening Statement Summarized

Plaintiffs, husband and wife, owned a residence in Van Nuys. They were in their sixties, and were inexperienced and unsophisticated in business dealing, especially

Page 361

in real estate. On March 18, 1961, Mr. Timmsen went to the office of defendant Forest E. Olson, Inc., a licensed real estate brokerage firm, met defendant Ramser, a licensed real estate broker who was working as a salesman for Olson, and discussed the sale of plaintiffs' home. Ramser prepared a listing agreement, including therein a commitment by the plaintiffs 'to subordination' on the sale of their property. Neither the plaintiffs nor Ramser knew the meaning of the term. Ramser understood that the agreement imposed upon him the duty to sell the property, and that he had some fiduciary obligations, namely to be fair to the purchaser and the sellers, and to submit to plaintiffs any offer received.

'It was standard practice for brokers * * * to have a string of builders 'who we work with' and whose favor they curry, since such builders are likely purchasers of such listed property.'

Defendant Masters, a salesman for defendant Olson, upon learning of [6 Cal.App.3d 864] the listing, immediately contacted Joe Burrow, a builder, and advised him of the listing 'since the terms would be so favorable to someone in Burrow's position.' Burrow inspected the property, decided to buy it, and made an offer on a deposit receipt form supplied by Masters that he would buy the property for $47,500, $12,500 cash and the balance payable, interest only for the first year, thereafter principal and interest payable at $260 per month until paid; that his purchase money encumbrance would be subordinated to any construction loan or permanent loan placed on the property by Burrow, provided such loan did not exceed $300,000, did not have interest of more than 9 per cent and was not payable over a longer period than 30 years; and that the offer was subject to Burrow's getting the property rezoned and his approval of a title report. The deposit receipt form was signed by Burrow and Masters, the latter signing individually and in behalf of Olson. Defendants 'exercised no judgment whatsoever concerning the terms inserted by Burrow. Thus, they failed to do anything on behalf of their principals. * * *'

'Instead of thinking about the Burrow proposition from the standpoint of their client, RAMSER and MASTERS merely proceeded to attempt to get the Timmsens to accept the Burrow proposal, going almost at once to the Timmsen house for that purpose. Among other things, the Timmsens raised questions concerning the subordination provisions--the true nature of which MASTERS did not grasp much more than RAMSER did (he thought it had something to do with 'reliance and estoppel'). The Timmsens' doubts concerning subordination were brushed aside by the defendants, who told their clients that since they had signed a listing agreement saying something about subordination they had no choice but to accept the subordination provision of the Burrow offer.

'That Burrow offer was unjust and unfair from the standpoint of the Timmsens for a variety of reasons. Some of them:

'1) While the price of $49,500 (which was eventually reached) would have been fair under other terms without the subordination, it was grossly inadequate with subordination terms of this nature. For a sale involving subordination of this type, a reasonable price would have been at least $70,000.

'2) Even if the price had been reasonable with subordination, this particular subordination agreement would have been unfair because it did not contain minimum guarantees concerning the use of the construction loans for construction purposes and the like (which the Supreme Court of this state has said are essential).

'3) There was no requirement that the loan which Burrow might obtain [6 Cal.App.3d 865] would come from a bank or other lending institution, which provide some security to the seller because of the bank's rules and policies.

'4) In view of the Timmsen's age and the fact that this was their sole asset, the

Page 362

time for repayment and amount of the loan to which they would subordinate would mean that they were simply gambling their home with no security.

'5) Apart from the subordination provisions, RAMSER felt that there were a number of defects in it which ran in favor of the builder and which, in a sense, made it merely an option in Burrow's favor and not a binding sale at all. He did nothing about these defects, however, because he did not write the offer.

'MASTERS took the position that the fairness or propriety of the subordination agreement was immaterial, since the listing agreement bound the Timmsens to take any subordination deal. (Although MASTERS believes that the selling price was proper on these terms, and that the terms affect the selling price of a parcel of property, he has no idea what price would be reasonable without subordination or under any other terms than those Burrow dictated.)

'When the Timmsens balked at the whole deal, RAMSER and MASTERS talked them into taking all of the same terms except for an increase in the over-all selling price and the payments to the Timmsens, but with no change in the down payment and definitely no change in the subordination provisions. (The monthly payment was hiked to $300 and the total balance to the Timmsens--behind the loans Burrow put on the property--went up to $37,000, cutting down the time it would take the Timmsens to be paid off to a 'mere' nineteen and one-half years.)'

Defendant Masters informed Burrow immediately by telephone of plaintiffs' counter offer. Burrow stated that it was acceptable and at his request, Masters signed the counter proposal on Burrow's behalf.

'In writing this on the sale document and signing it, MASTERS was committing an illegal act which is prohibited by a California statute and by a regulation in the California Administrative Code which absolutely forbids anyone with a real estate license to do this. He was also, incidentally, violating the training and supervision of OLSON which was designed to keep him from doing this. (OLSON, however, has at all times ratified and approved of his activities, despite the violation of OLSON'S rules and of the California law, and OLSON is therefore responsible for MASTERS.)'

An escrow was opened. Plaintiffs refused to sign the escrow instructions because of their concern that a move from the property might be dangerous [6 Cal.App.3d 866] to the health of Mrs. Timmsen's aged mother. They consulted an attorney. Notwithstanding Master's statement that it would cost them at least $5,000 if they refused to go through with the sale, plaintiffs refused to sign the escrow documents upon advice of their attorney.

The parties hereto, Burrow and their respective lawyers commenced to negotiate. 'The initial thrust of this was designed at reaching a basis on which the sale could be avoided or at least delayed until such time as the grandmother's (sic) health would not be a factor. Throughout these negotiations, * * * (defendants') representatives strenuously espoused the cause of Burrow as against their clients' desires.' Defendants knew that plaintiffs wanted to rescind the sale agreement, that the agreement...