Urban Investments, Inc. v. Branham, 79-816.

• Decision Date: 05 July 1983
• Docket Number: No. 79-816.,79-816.
• Citation: 464 A.2d 93
• Parties: URBAN INVESTMENTS, INC., et al., Appellants, v. Lillian BRANHAM, Appellee.
• Court: D.C. Court of Appeals

464 A.2d 93

URBAN INVESTMENTS, INC., et al., Appellants, v. Lillian BRANHAM, Appellee.

No. 79-816.

District of Columbia Court of Appeals.

Argued April 8, 1980.

Decided July 5, 1983.

Jeffrey M. Axelson, Washington, D.C., for appellants.

Clement Theodore Cooper, Washington, D.C., for appellee.

Before NEWMAN, Chief Judge, and MACK and FERREN, Associate Judges.

PER CURIAM:

In this case the trial court rescinded the parties' real estate sales contract, cancelled the corresponding deeds of trust, and ordered the vendor and its agent (defendant-appellants) to return to the purchaser (plaintiff-appellee) her $7,000 down payment. The court also awarded appellee $3,500 in punitive damages. Briefly stated, appellee Branham entered into a sales contract with appellant, Urban Investments Inc., for property located at 3715 Ninth Street, N.W. Soon after execution of the contract, appellee discovered that repairs (for which appellants were to be responsible) had not been made. She sought rescission of the contract and damages. The trial court granted her relief on the grounds that appellants breached their fiduciary duty to appellee, and that the resulting contract was unconscionable because of appellants' fraudulent misrepresentations and superior bargaining position. After reviewing the record and the relevant law, we hold, first, that the trial court erred in concluding that appellants had a fiduciary duty to appellee. We disagree, moreover, with the trial court's unconscionability ruling. Consequently, we reverse the judgment in appellee's favor.

I

In January 1978, having recently inherited $20,000 from her husband, appellee Branham began looking for a home to buy. Branham, her son, and an acquaintance looked at a vacant house located at 3715 Ninth Street, N.W. The house was in a dilapidated condition, but Branham decided to purchase it anyway. Her acquaintance directed her to the office of A-1 Realty, a wholly-owned subsidiary of appellant Urban Investments, which owned the Ninth Street property. At the office, Branham met appellant Elaine Willis, secretary of Urban Investments and an employee of A-1 Realty. Branham told Willis that she wanted to buy the property if she would not have to put more than $7,000 down. Willis, after checking Branham's bank reference, said that financing could be arranged if Branham deposited the $7,000. Commenting on the condition of the house, Willis told Branham that the necessary work would be completed in two to three weeks.

Six days later, on January 18, Branham, accompanied by her two grown children, returned to appellants' office. Willis introduced Branham to Irvin Greenbaum, president of Urban Investments (and Willis' brother). At that meeting, Branham entered into a contract to buy the property for $52,500, putting $7,000 down and arranging with appellants for two deeds of trust for the remainder. The trial court found it was "understood that [Branham] would move into the house on January 29, and that all necessary repairs would be completed by then." The trial court also found that during negotiations, Greenbaum was in a superior position to exert his influence because of his status as an experienced real estate broker and his greater sophistication. Additionally, Branham was elderly and had a high school education, no business experience, and "little, if any, comprehension of the provisions of the various documents she signed."

At the time the sales contract and deeds of trust were executed, Urban Investments held a deed to the property stating it was subject to the interests of Louis Johnson and Aleushia Johnson. Urban Investments also held two unrecorded quitclaim deeds conveyed by the Johnsons. After settlement, appellants recorded both the quitclaim deeds (thereby removing the cloud on the title) and the deed conveying the property to Branham. On January 29, Branham went to the house and found that the repairs had not been started. She demanded rescission of the contract and return of her down payment. Appellants countered with evidence consisting of repair bills and eyewitness testimony showing that the repairs were at least substantially complete one week later.

The trial court concluded that appellants owed a fiduciary duty to Branham and breached it by failing to advise her to obtain independent counsel, by not disclosing that the two quitclaim deeds were unrecorded at the time of settlement, and by not reaching some "understanding" as to the necessary repairs. The trial court, relying on the manner of the negotiations, also concluded that the contract was unconscionable.

II

The trial court predicated its damage award to Branham on appellants' breach of a fiduciary duty of "fair dealing and full disclosure and the utmost protection of [Branham's] interests in the transaction," quoting Brown v. Coates, 102 U.S.App.D.C. 300, 302, 253 F.2d 36, 38 (1958). Specifically, the court said that no "competent and honest individual, seeking to protect the interests of the plaintiff," would "permit" her to sign the contract and settle without reaching an agreement about the necessary repairs, and without advising her to initiate a title search by a competent examiner or to obtain an independent appraisal. Certainly it is true that, if appellants had a fiduciary relationship with Branham, they must be held to a strict duty to act with utmost good faith and loyalty, in furtherance of her interests. The trial court, however, while not misconstruing the nature of a fiduciary duty in this context, nonetheless erred in deciding that appellants had a fiduciary duty to the purchaser here. We conclude the evidence is insufficient to support a finding that a special confidential relationship was established between appellants and Branham requiring appellants to treat the sale as anything other than an ordinary business transaction.

The trial court is correct that, under well settled principles of law, "a broker owes his principal the highest fidelity and is by the obligations of his trust bound to inform the principal fully of every development affecting his interest." Jay v. General Realties Co., 49 A.2d 752, 755 (D.C.Mun. App. 1946) (suit by principal for recovery of secret profit does not have to be based on extreme ground of fraud; it is sufficient if broker did not give principal scrupulous fidelity that law demands); 12 AM.JUR.2d Brokers § 84, at 837 (1964). Because a broker is charged with protecting and advancing the principal's interests, a broker thus may not serve both parties to a transaction unless, under certain circumstances, the parties fully and freely have consented to the dual representation. Goodman v. Woods, 259 A.2d 594, 596 (D.C. 1969); Keith v. Berry, 64 A.2d 300, 302 (D.C.Mun.App. 1949); 12 AM.JUR.2d, Brokers, § 87, at 840; see Yerkie v. Salisbury, 264 Md. 598, 601-05, 287 A.2d 498, 500-01 (1972) (where seller employs broker, broker's duty is to use skill diligence, and zeal for seller's "own exclusive benefit").¹ In sum, at least in the absence of informed consent by both vendor and purchaser, the "irreconcilable and conflicting" duties of the vendor's broker (to obtain the highest possible price for the property) and the purchaser's broker (to buy the property for the lowest possible price) preclude one individual from serving as agent for both principals. Harten v. Loffler, 31 App.D.C. 362, 368 (1908). If a broker attempts to act for both sides, "he is confronted with the impossible task of securing for each the most advantageous bargain possible." 12 AM.JUR.2d, Brokers, § 87, at 841 (footnote omitted).

In the present case, Elaine Willis, secretary of Urban Investments, and Irvin Greenbaum, president of Urban Investments, were agents for the vendor corporation.² As such, they owed their fiduciary duty of the "highest fidelity" to the vendor. Jay, supra, 49 A.2d at 755. Thus, unless other circumstances imposed a similar duty toward the purchaser (Branham), appellants were not permitted to serve both parties. See Goodman, supra, 259 A.2d at 596.

We have examined cases where courts have held that the vendor's broker also owed a fiduciary duty to the buyer. It is readily apparent that these cases present factors in addition to the ordinary business relationship between a prospective purchaser and the vendor's broker. For example in Brown v. Coates, 102 U.S.App.D.C. 300, 301-02, 253 F.2d 36, 37-38 (1958), relied on by the trial court, plaintiffs first hired the real estate broker to sell their home but were persuaded by the broker to exchange their home for one he showed them. When plaintiffs hesitated during negotiations, the broker affirmatively assured them that they did not need a lawyer because he was one and "would take care of them." The court there said that, "in this situation," the broker owed plaintiffs, both as vendors and purchasers, a high degree of fidelity throughout the transaction. Id. at 302, 253 F.2d at 38.

Similarly, in Hammett v. Ruby Lee Minar, Inc., 60 App.D.C. 286, 53 F.2d 144 (1931), cert. denied, 284 U.S. 682, 52 S.Ct. 200, 76 L.Ed. 576 (1932), special circumstances created a fiduciary duty between defendants (a realty company and its president), who were trying to sell the property, and plaintiff, the prospective purchaser. Plaintiff was a long-time friend and former employee of Mrs. Minar, the company's president; she told a company salesperson that she would not go through with the transaction until she had personally consulted Mrs. Minar. After talking to Mrs. Minar, plaintiff signed a contract for property which she had never seen. In exchange for her regular payments, plaintiff did not receive a deed to the land; instead, she received a personal services contract requiring defendants to deliver the deed at the end of ten years. Id. at 289, 53 F.2d at 147. The contract thus was not a recordable deed, and, consequently, no one would be on notice of plaintiff's interest in the land.³ The court there said, "These...