Ward v. Taggart

• Decision Date: 12 March 1959
• Citation: 336 P.2d 534,51 Cal.2d 736
• Court: California Supreme Court
• Parties: William R. WARD et al., Respondents, v. Marshall W. TAGGART et al., Appellants. L. A. 24825.

Page 534

336 P.2d 534

51 Cal.2d 736

William R. WARD et al., Respondents, v. Marshall W. TAGGART et al., Appellants.

L. A. 24825.

Supreme Court of California, In Bank.

March 12, 1959.

Rehearing Denied April 8, 1959.

James C. Blackstock and Felix H. McGinnis, Los Angeles, for appellant.

Chandler P. Ward, Los Angeles, for respondents.

TRAYNOR, Justice.

At plaintiff William R. Ward's request in February, 1955, LeRoy Thomsen, a real estate broker, undertook to look for properties that might be of interest to Ward for purchase. During a conversation about unrelated matters, defendant Marshall W. Taggart, a real estate broker, told Thomsen that as exclusive agent for Sunset Oil Company he had several acres of land in Los Angeles County for sale. Thomsen said that he had a client who might be interested in acquiring this property. When Thomsen mentioned to Taggart that another broker named Dawson had a 'For Sale' sign on the property, Taggart replied that Sunset had taken the listing away from Dawson. With Ward's authorization Thomsen submitted an offer on his behalf to Taggart of $4,000 an acre. Taggart promised to take the offer to Sunset. Taggart later told Thomsen that Sunset had refused the offer and would not take less for the property than $5,000 an acre, one-half in cash. Thomsen conveyed this information to Ward, who directed Thomsen to make an offer on those terms. Thomsen did so in writing. At Taggart's direction, Thomsen inserted in the offer a provision for payment by Sunset of a ten per cent commission, which Taggart and Thomsen agreed to divide equally. On the following day Thomsen informed Ward of the provision for the commission and Ward agreed to it. Subsequently, Taggart told Thomsen that Sunset had accepted Ward's offer and presented to him proposed escrow instructions naming Taggart's business associate, defendant H. M. Jordan, as seller acting for Taggart. Taggart stated that his designation as principal would enable him to 'clear up the Dawson exclusive listing' as well as certain blanket mortgages on the property. Thomsen told Ward of this arrangement when he submitted the escrow instructions to him. When Ward asked why Jordan was to be the payee of the notes and the beneficiary of the trust deeds, Thomsen replied that Taggart had said the arrangement was prompted by certain tax and other problems of the Sunset Oil Company and that the trust deeds would be turned over to Sunset after the escrow. Plaintiffs paid $360,246 of the 72.0492 acres conveyed to them.

Plaintiffs did not learn until after they had purchased the property that Taggart had never been given a listing by Sunset and that he had never presented to Sunset and never intended to present plaintiffs' offers of $4,000 and $5,000 per acre. Instead, he presented his own offer of $4,000 per acre, which Sunset accepted. He falsely represented to plaintiffs that the least Sunset would take for the property was $5,000 per acre, because he intended to purchase the property from Sunset himself and resell it to plaintiffs at a profit of $1,000 per acre. All the reasons he gave for the unusual handling of the sale were fabrications. He never disclosed Ward's offer to Sunset until after the escrow papers were signed. All of the money he used to pay Sunset the purchase price came from the Ward escrow.

Plaintiffs brought an action in tort charging fraud on the part of Taggart and Jordan. The case was tried without a jury, and the court entered judgment against both defendants for $72,049.20 compensatory damages, and against Taggart for $36,000 exemplary damages. The judgment also enjoined defendants from transferring notes and trust deeds received from plaintiffs and ordered them to discharge these and thereby reduce the amount of the judgment. Defendants appeal.

Defendants contend that the judgment must be reversed on the ground that, there can be no recovery in a tort action for fraud without proof of the actual or 'out-of-pocket' losses sustained by the plaintiff and that in the present case there was no evidence that the property was worth less than plaintiffs paid for it. Defendants invoke section 3343 of the Civil Code, which provides that one 'defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received * * *.' Although, as defendants admit, the evidence is clearly sufficient to support the finding of fraud, the only evidence submitted on the issue of damages was that the property was worth at least $5,000 per acre, the price plaintiffs paid for it. Since there was no proof that plaintiffs suffered 'out-of-pocket' loss, there can be no recovery in tort for fraud. Bagdasarian v. Gragnon, 31 Cal.2d 744, 762-763, 192 P.2d 935.

Plaintiffs contend, however, that their recovery is not limited to actual damages, on the ground that section 3343 does not apply to a tort action to recover secret profits. They rely principally on Crogan v. Metz, 47 Cal.2d 398, 303 P.2d 1029; Savage v. Mayer, 33 Cal.2d 548, 203 P.2d 9; Terry v. Bender, 143 Cal.App.2d 198, 300 P.2d 119; Simone v. McKee, 142 Cal.App.2d 307, 298 P.2d 667; Ramey v. Myers, 111 Cal.App.2d 679, 245 P.2d 360; and Adams v. Harrison, 34 Cal.App.2d 288, 93 P.2d 237. These cases all involved situations in which the defendant was the agent of the defrauded person or in which a confidential or fiduciary relationship existed between the parties. They rest on the theory that 'the principal's right to recover does not depend upon any deceit of the agent, but is based upon the duties incident to the agency relationship and upon the fact that all profits resulting from that relationship belong to the principal.' Savage v. Mayer, surpa, 33 Cal.2d at page 551, 203 P.2d at page 11. In the present case, however, there is no evidence of an agency or other fiduciary relationship between plaintiffs and defendant Taggart or defendant Jordan. Plaintiffs dealt at arms length with Taggart through their agent Thomsen. At no time did Taggart purport to act for plaintiffs. There is no evidence of any prior dealings between the parties or any acquaintanceship or special relationship that would create a fiduciary duty of defendants to plaintiffs. In the absence of a fiduciary relationship, recovery in a tort action for fraud is limited to the actual damages suffered by the plaintiff. Crogan v. Metz, 47 Cal.2d 398, 405, 303 P.2d 1029; Bagdasarian v. Gragnon, supra, 31 Cal.2d 744, 762-763, 192 P.2d 935.

Even though Taggert was not plaintiff's agent, the public policy of this state does not permit one to 'take advantage of his own wrong.' (Civ.Code, § 3517), and the law provides a quasi-contractual remedy to prevent one from being unjustly enriched at the expense of another. ¹ Section 2224 of the Civil Code provides that one 'who gains a thing by fraud * * * or other wrongful act, is unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.' As a real estate broker, Taggart had the duty to be honest and truthful in his dealings. See Bus. & Prof.Code, §§ 10150, 10176; Rattray v. Scudder, 28 Cal.2d 214, 222-223, 169 P.2d 371, 164 A.L.R. 1356. The evidence is clearly sufficient to support a finding that Taggart violated this duty. Through fraudulent misrepresentations he received money that plaintiffs would otherwise have had. Thus, Taggart is an involuntary trustee for the benefit of plaintiffs on the secret profit of $1,000 per acre that he made from his dealings with them.

Although this theory of recovery was not advanced by plaintiffs in the trial court, it is settled that a change in theory is permitted on appeal when 'a question of law only is presented on the facts appearing in the record * * *.' Panopulos v. Maderis, 47 Cal.2d 337, 341, 303 P.2d 738, 741; American Automobile Ins. Co. v. Seaboard Surety Co., 155 Cal.App.2d 192, 200, 318 P.2d 84. The general rule confining the parties upon appeal to the theory advanced below is based on the rationale that the opposing party should not be required to defend for the first time on appeal against a new theory that 'contemplates a factual situation the consequences of which are open to controversy and were not put in issue or presented at the trial.' Panopulos v. Maders, supra, 47 Cal.2d at page 341, 303 P.2d at page 741. Such is not the case here. Although the facts pleaded and proved by plaintiffs do not sustain the judgment on the theory of tort, they are sufficient to uphold recovery under the quasi-contractual theory of unjust enrichment since that theory does not contemplate any factual situation different from that established by the evidence in the trial court. Defendant were given ample opportunity to rpesent their version of the transaction involved, and the issue of whether or not their actions constituted fraud was decided adversely to them by the trial court.

Accordingly, the judgment for $72,092.20, represetning the $1,000 per acre secret profit, against defendant Taggart must be affirmed. The judgment against defendant Jordan, however, must be reversed. Although she permitted her name to be used in the dual escrows, she did not share in the illicit profit that Taggart obtained. One cannot be held to be a constructive trustee of something he has not acquired.

Taggart contends that if recovery is based on the theory of unjust enrichment, the judgment for exemplary damages must be reversed. The argument runs that under this theory the law implies a promise to return the money wrongfully obtained, that the plaintiff waives the tort and sues in assumpsit on an implied contract, and that since such an action is 'contractual' in nature, it does not admit of the exemplary damages allowed under section 3294 of the Civil Code. That section authorizes exemplary damages 'in an action for the...