Valley Land Office, Inc. v. O'Grady

• Citation: 432 P.2d 850,72 Wn.2d 247
• Decision Date: 19 October 1967
• Docket Number: No. 38900,38900
• Court: United States State Supreme Court of Washington
• Parties: VALLEY LAND OFFICE, INC., a Washington corporation, Respondent and Cross-Appellant, v. William O'GRADY, a single man, Appellant, Julia O. Swain, Ione O'Grady, Walter O'Grady, Ruth O. Rainville, and the Heirsat Law of Eugene O'Grady, Deceased, Harry O'Connor, and Jane Doe ,'Connor, JohnMcDonald and Jane Doe McDonald, Albert Augustavo and Jane Doe Augustavo andFisherRealty, Respondents, Kenneth Lane et ux., and David Cedergren et ux., Respondents and Cross-Appellants.

Page 247

72 Wn.2d 247

432 P.2d 850

VALLEY LAND OFFICE, INC., a Washington corporation, Respondent and Cross-Appellant, v. William O'GRADY, a single man, Appellant, Julia O. Swain, Ione O'Grady, Walter O'Grady, Ruth O.

Rainville, and the Heirsat Law of Eugene O'Grady, Deceased,

Harry O'Connor, and Jane Doe ,'Connor, JohnMcDonald and Jane

Doe McDonald, Albert Augustavo and Jane Doe Augustavo

andFisherRealty, Respondents,

Kenneth Lane et ux., and David Cedergren et ux., Respondents

and Cross-Appellants.

No. 38900.

Supreme Court of Washington, Department 2.

Oct. 19, 1967.

Harrison H. deMers, Federal Way, Joseph D. Mladinov, Tacoma, of counsel (Albert, deMers & Westgard, Federal Way, with them on the brief), for appellant.

Curran, Kleweno & Curran, Charles P. Curran, Kent, for respondents.

NEILL, Judge.

Valley Land Office, Inc., brings action against William O'Grady to collect a realtor's commission pursuant to a sale of real estate, and against Fisher Realty, et al, for tortious interference with a contractual relationship. Mr. O'Grady counterclaims for damages based upon fraud, negligence and breach of fiduciary duty. At the close of plaintiff's case, the action against Fisher Realty, et al, was dismissed by the trial judge. At the close of O'Grady's case, the trial judge took the case from the jury, dismissed O'Grady's counterclaim and awarded the plaintiff $15,000 commission. From this judgment, O'Grady appeals and Valley Land Office, Inc., cross-appeals from the order dismissing Fisher Realty, et al.

DEFENDANT'S APPEAL

Since the trial judge took this case from the jury and entered judgment for the plaintiff, we are bound to accept as true all of the defendant's evidence including every reasonable inference therefrom. Smith v. Keating,52 Wash.2d 391, 326 P.2d 60 (1958).

William O'Grady, a 60-year-old farmer with less than a ninth grade education, is the co-owner of a 377-acre farm located about 6 miles east of Auburn. His brothers and sister have an interest with him in the farm by virtue of the terms of a devise from their mother. Mr. O'Grady has not actively farmed the land since 1956. He makes a small living off the land by renting some of the pasture land. The Green River flows through a portion of the property giving the acreage 3/4 of a mile of water front.

April 15, 1963, Mr. O'Grady's friend of 17 years, David Cedergren, began working as a real estate salesman for Valley Land Office, Inc. Prior to this, Mr. Cedergren had operated a dairy farm some 3 miles from Mr. O'Grady and had occasionally employed him on the farm. On May 1, 1964, Mr. Cedergren contacted Mr. O'Grady and requested an exclusive listing of his property for 90 days. Mr. O'Grady went along with his friend and on May 3d signed an 'Authority to Sell Real Estate' with plaintiff. Mr. O'Grady also advised Mr. Cedergren that the highest bid he had received on the property was $135,000. Mr. Cedergren said that they would use that as a starting point but that they could get much more than that for the property. Mr. Cedergren advised Mr. O'Grady not to advertise the property because this would only bring in the 'riffraff' with no money to pay down. He also informed Mr. O'Grady that their office had contacts in California and all over the nation. However, at trial it was shown that the broker had contacted only six personss, all local residents.

On May 15, 1963, the agent, Mr. Cedergren, took Mr. Lane, the owner of Valley Land Office, Inc., to see the O'Grady farm. Mr. Lane looked at the property and suggested to Mr. O'Grady that he sell the farm to a friend for the appraised value in the mother's estate and then buy it back. In this way, he could cut out the brothers and sister who had an interest in the property. Mr. O'Grady rejected the broker's scheme.

In June of 1963, Mr. Cedergren contacted Mr. Fiori, an attorney, and advised him that the property was for sale for $150,000, and took him to view the property. Mr. Fiori expressed an interest in the property and indicated he would contact them later.

July 12, 1963, Valley Land presented to Mr. O'Grady an option agreement to purchase the land for its own account for $125,000. They did not inform Mr. O'Grady that anyone was interested in the property. Mr. O'Grady was reluctant to sign the agreement. He determined he should see an attorney on the matter. The attorney advised him that the option was too long, the price too cheap, and a piecemeal deed-release provision therein permitted the buyer to 'high grade' the land. Mr. O'Grady returned to Valley Land and informed the broker and agent of what the attorney had said. They assured him that they would try to work out a better contract deleting the bad features disapproved by the attorney.

Shortly thereafter, Mr. Fiori contacted Valley Land to obtain an option on the property. The option provided that piecemeal release of acreage would be by mutual consent of the buyer and seller. Mr. Fiori would not agree to this so a provision was put in the option whereby he alone would decide which acres would be released. Mr. O'Grady was asked to come to the office of Valley Land. On August 1, 1963, Mr. O'Grady met Mr. Cedergren and Mr. Lane at Valley Land office where Mr. Fiori was also present. Mr. O'Grady was presented with the option to purchase his property for $150,000. At that time, Mr. O'Grady had a severe headache and his acid-burned arm was bothering him. He told the broker that he was not feeling well and thought he should take the agreement to his attorney. The broker assured him that that was not necessary since an attorney had already looked at it and all the objection raised by his attorney had been met. The agent, Mr. Cedergren, told him that he could rely on them that the contract was all in order. No one told Mr. O'Grady that a change had been made in the deed-release provision. No one told him that the option would permit the buyer to strip the acreage of its most valuable land and leave the seller with the balance. No one told him that the payment provision of the option permitted the purchaser to take over 20 years to pay for the land. When Mr. O'Grady asked if Mr. Fiori was the buyer, the broker and the agent incorrectly stated that the buyers were four men from Midway, and that Mr. Fiori was merely their attorney. They also told Mr. O'Grady that two of the buyers were ready to withdraw their offer if he didn't sign the contract immediately. Mr. O'Grady signed the option. The $500 that Mr. Fiori paid for the option was placed in the trust account of Valley Land, but Mr. O'Grady was never informed of this.

At the same time the Fiori option agreement was signed, a commission agreement was prepared by Valley Land and executed by Mr. O'Grady and Valley Land. A commission of 10 per cent was agreed upon in the original listing agreement. Mr. O'Grady had been told that this was the minimum commission allowable. However, this was incorrect, as the minimum commission on this type of sale in the south King County area is 10 per cent of the first $100,000 and 5 per cent above. Further, the commission agreement provided for a commission fee of $22,000, instead of a commission fee of $15,000. Out of this $22,000, Valley Land was to pay the 1 per cent tax, the prorated taxes, title insurance policy premium, surveying costs required by the purchaser, and any subdivision and plat report cost. Whatever remained of the $22,000 after payment of all of these costs was to be the commission of Valley Land. The buyer had never requested any survey of the property nor did he expect the seller to pay for any costs of platting or subdividing. So, instead of ending up with a commission of $15,000, the artful handling of the commission agreement would net the broker around.$19,000.

Shortly thereafter, Mr. O'Grady went to an attorney. He then, through his attorney, wrote Mr. Fiori that he was rescinding the option agreement. Mr. Fiori commenced an action against Mr. O'Grady demanding performance of the option agreement. The court at that trial ordered Mr. O'Grady to either perform the contract or pay Mr. Fiori $25,000. Mr. O'Grady paid the $25,000. The total cost of this sale contract termination as alleged by Mr. O'Grady, including attorneys' fees and financing costs, was $50,631.

Mr. O'Grady's position in the case at bar depends entirely on the nature of his relationship with the real estate brokers. The relationship is that of principal and agent. We are not here dealing with two contracting parties dealing with one another at arms' length. 2 Restatement (Second) of Agency (1958), p. 171, summarizes quite succinctly the duties owed by an agent to his principal:

However, although the agency relation normally involves a contract between the parties, it is a special kind of contract, since an agent is not merely a promisor or a promisee but is also a fiduciary. Because he is a fiduciary and is subject to the directions of the principal, the rules as to his duties to the principal are unique.

In Cantwell v. Nunn, 45 Wash. 536, 540, 88 P. 1023 (1907), cited with approval in Westerbeck v. Cannon, 5 Wash.2d 106, 121, 104 P.2d 918, 925 (1940), this court pointed out that

The law exacts of every agent the utmost fidelity to his principal. He must keep him fully informed as to all his transactions, and the state of the business or interests entrusted to him. Any departure from these rules ia a fraud in law.

Although Moon v. Phipps, 67 Wash.2d 948, 411 P.2d 157 (1966), would distinguish between an agency relationship and a 'fiduciary-agency' relationship, and both parties herein cite and rely on that case to support their respective positions, we have as recently as Farrell v. Score, 67 Wash.2d 957, 411 P.2d 146 (1966), recognized that a broker stands in a fiduciary capacity to his principal when acting for his principal within the scope of the agency. Further, even if we follow the language of Moon, supra, 67 Wash.2d p. 954, 411 P.2d p. 160,...