Wyatt v. Union Mortg. Co.
| Decision Date | 17 October 1977 |
| Citation | 141 Cal.Rptr. 361,74 Cal.App.3d 104 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Joseph R. WYATT and Clarice J. Wyatt, Plaintiffs and Respondents, v. UNION MORTGAGE COMPANY, a corporation, et al., Defendants and Appellants. Civ. 15881. |
Ball, Hunt, Hart, Brown & Baerwitz, Long Beach, for defendants and appellants.
Irvine P. Dungan, Sacramento, for plaintiffs and respondents.
Defendants appeal from a judgment imposing $1,000 general damages, plus $200,000 punitive damages spread in varying amounts among several defendants. The judgment followed a jury verdict in favor of plaintiffs which arose out of a second mortgage transaction in which defendants were found to have acted, directly or indirectly, as mortgage loan brokers in a manner which breached a legal duty owed to plaintiffs.
In 1966, plaintiffs, husband and wife, desired to borrow money for remodeling of their home. They became aware of Union Home Loans which had advertised frequently on television stations that it loaned money in a manner in which the monthly payment included principal and interest and would repay the loan in full at the end of the stated number of months, and that, for example, an $18 monthly payment would repay a $1,000 loan in its entirety. Nothing about a "balloon" payment was expressed or implied. In fact, the company made no such loans as those advertised to anyone at anytime. Plaintiffs relied upon these television commercials and were induced to seek a loan from Union Home Loans. They visited the Sacramento office of defendant Stockton Home Mortgage Company, doing business as Union Home Loans on November 30, 1966.
Plaintiffs asked an employee about the number of days they had in which to make their payments, and the interest rate. They were told 10 days, and that there would be a "small balloon payment" at the end of the loan. The interest was described orally as five or six-tenths of one percent of the monthly balance, and when asked the annual percentage rate, they were told approximately seven to eight percent. In response to a direct question by plaintiffs, they were told it would be 10 days before a monthly payment was considered late. They were not told how much the late charge would be or that it was to be added to the balance. The statements as to annual interest and late charges were false as will be shown later.
During this visit plaintiffs signed several documents. One was an appointment of Union Home Loans as their agent to negotiate with a lender to obtain for them a loan in the amount of $1,325 at five-sixths of one percent per month on the unpaid principal payable at $20 per month in installments for 36 months, with the remaining balance due and payable on the 37th month. This last payment is the "balloon payment." The agreement promised to pay a commission to defendant Union Home Loans of $198.75 to obtain a lender. The loan was to be secured by a second deed of trust on their home. An accompanying document, designated a Broker's Loan Statement, was signed which itemized expenses such as appraisal, title and escrow fees, and estimated the final balance of the $1,325 loan to be paid to plaintiffs as $900.25. A third document was a combined note and deed of trust promising to pay to the lenders (who are not defendants herein) the sum of $1,325, with plaintiffs' real property as security. The fourth document signed on that date was the usual escrow instructions accompanying a mortgage loan. Defendant Union Mortgage Company was the designated escrow holder.
The loan papers were presented to plaintiffs in a stack for them to sign. As to each paper, plaintiff Clarice Wyatt testified that the loan officer "flipped the papers" and explained to them that one was for brokerage fees, one for escrow "and the different ones, what they were for, but he just looked at that and showed us where to sign."
The printed promissory note which plaintiffs signed contained, inter alia, a sentence providing that there would be a late charge paid to the "servicing agent" for each installment more than five days in arrears in an amount equal to one percent of the original amount of the note. The servicing agent was defendant Secured Investment Corporation, succeeded by Western Computer Services. Late charges were imposed whenever a payment was not received on or before the fifth day after it was due. Several of plaintiffs' payments were late, resulting in late charges which were added to the balance, plus interest, the result being that the final amount due and payable on maturity on the 37th month was approximately $1,340.
Plaintiffs attempted unsuccessfully to find another lender to refinance and pay off the balance. To avoid foreclosure, they continued to employ Union Home Loans as their broker or agent to find a lender. Through Union Home Loans they secured a new loan, the principal amount being $2,000, most of which was to pay off the approximately $1,340 balance on the first loan and the new appraisal, escrow, broker's and other servicing fees, leaving a balance on the new loan to be paid to plaintiffs of approximately $2.11. The monthly payments on this new three-year loan, dated March 7, 1970, were $45, leaving an estimated balloon payment at the 37th month of $816.18 if all payments were made on time. Again, there were late payments and the final result was principal and interest in the amount of $1,193.16. In addition, the late charges due to defendant Western Computer Services, plus interest, title policy, escrow and other charges, brought the total due up to $1,557.98. This amount the plaintiffs were finally able to obtain by refinancing their first mortgage through another lending institution (not a party) and the debt was paid off in June 1975 after this suit was filed but before trial.
The gravamen of this lawsuit is that the complex of corporate and individual defendants, acting as loan brokers for plaintiffs, conspired either to defraud plaintiffs or to breach the fiduciary duty of disclosure, or both, by deceit or failure to explain verbally the ramifications of the loans. By its general verdict for plaintiffs, the jury impliedly found there was either fraud or breach of a fiduciary duty, or both, and either or both torts were the subject of a civil conspiracy.
On appeal, defendants contend the alleged failure to explain verbally what was provided in the loan documents does not constitute fraud or breach of a fiduciary duty, as a matter of law. They argue that the documents signed by plaintiffs were "not complicated" and that the matters relating to interest and late-payment charges were "so obvious that there is no duty to affirmatively explain them."
Defendants admit a mortgage loan broker "may have a fiduciary duty, but it does not include an obligation to explain the fundamental concepts of a loan which are obvious and ought to be known to anyone." Defendants also refer to the fact that the purpose of reducing business transactions to writing is to avoid misunderstanding. They assert "the papers involved in this type of transaction are not complicated."
There is no doubt a mortgage loan broker is a licensed real estate agent for a particular purpose. He does not bring buyers and sellers of real property together; instead, he brings borrowers and lenders together when the loan is to be secured by a mortgage (deed of trust) upon real property. (See Bus. & Prof. Code, § 10131.) The courts of this state have defined the relationship between a licensed real estate broker and his client and have defined the duty toward the client or principal in fiduciary terms. Thus, it has been held that "(t) he law imposes on a real estate agent 'the same obligation of undivided service and loyalty it imposes on a trustee in favor of his beneficiary.' " (Batson v. Strehlow (1968) 68 Cal.2d 662, 674, 68 Cal.Rptr. 589, 597, 441 P.2d 101, 109.) The agent is charged with the duty of the fullest disclosure of all material facts concerning the transaction that might affect the principal's decision. (Rattray v. Scudder (1946) 28 Cal.2d 214, 223, 169 P.2d 371.) This is especially true when the principal or client is not knowledgeable in escrow and other property transaction matters and imposes trust and confidence in the agent. (See Earle v. Lambert (1962) 205 Cal.App.2d 452, 456, 23 Cal.Rptr. 79.) It has been established that when the acts of an agent have been questioned by his principal and the fiduciary relationship has been shown to exist, the burden is cast upon the agent to prove that he acted with the utmost good faith toward his principal and made full disclosure prior to the transaction of all facts relating thereto. (Timmsen v. Forest E. Olson, Inc. (1970) 6 Cal.App.3d 860, 871, 86 Cal.Rptr. 359.) There appears to be no sound reason why real estate mortgage loan brokers should be treated differently than ordinary real estate brokers. As stated in Realty Projects, Inc. v. Smith (1973) 32 Cal.App.3d 204, 210, 108 Cal.Rptr. 71, 75, mortgage loan brokers and their loan officers hold themselves out to prospective borrowers as loan experts who "will endeavor to obtain for prospective borrowers from lenders a loan adequate for their needs and at the lowest practicable cost." The "bait and switch" advertising tactics employed by Union Home Loans, wherein loan applicants were lured, but were never able to obtain the type of loan advertised, violated the fiduciary relationship.
Mrs. Wyatt testified that although plaintiffs were late on some payments, they were never advised what the balance on their loan was until the expiration of the 36-month period, when they found they had made payments of $720 and reduced the original principal amount of $1,325 to $1,316.05, a reduction of only $8.95. Being unable to borrow money elsewhere since Mr. Wyatt was unemployed at the time, they had only Union Home Loans to turn to again...
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Taines v. Bear, Stearns & Co., Inc.
...courts that have applied a four-year limitations period to actions for breach of fiduciary duty. See, e.g., Wyatt v. Union Mortgage Co., 141 Cal.Rptr. 361, 368 (1977) ("The statute for breach of fiduciary duty falls within the four-year statute [of Cal.Civ.Proc.Code Sec. 343]."); Schneider ......