Young v. Hughes

— 381 — The opinion of the court was delivered by MAeiE, J. The bill in this cause was filed by Anthony A. Hughes against William and Sarah Young, to obtain a decree for the specific performance of a contract in writing, whereby William and Sarah Young agreed to sell and convey to Hughes certain real estate in Jersey City, for the price of $13,000. The.Youngs filed an answer to that bill, and thereby set up, as a defence, fraud on the part of Hughes, and collusion by him with Joseph Warren, a real estate agent in the employ of the Youngs, whereby they were fraudulently induced to enter into the contract sought to be enforced. The Youngs also filed a bill, in the nature of a cross-bill, against Hughes, Joseph Warren, William E. Elemming and Joseph E. Moore, in which they asked a decree to annul and set aside the contract on the same grounds disclosed in the answer to the original bill. Elemming and Moore were made parties to this bill, because it was alleged that Hughes, in making the contract in question, was acting, not for himself, but as the agent of one of them. Answers were filed to this bill, denying the fraud and collusion, and both causes were heard together on the pleadings and proofs. The chancellor, upon the hearing, decreed the performance of the contract, as demanded by the original bill, and dismissed the cross-bill. These appeals bring here, for consideration, the propriety of the decrees so made. The evidence shows that the contract in question was entered into by the parties in the presence of Joseph Warren. He drew and was the subscribing witness to the written agreement which they all executed. He is therein described as “ the agent for selling the property,” and it provided that he was to receive from the Youngs $200 “ commission for selling the same.” He also testifies that he had the property in question in his hands for sale, when he could procure a customer at a price that would be satis — 382 — factory, and that the property had been given into his charge for that purpose by the Youngs, from whom he expected to receive a commission in case he succeeded in' obtaining a purchaser. At the time the contract was entered into, Joseph E. Moore was a tenant, in possession of the most valuable part of the premises, under a lease which would expire in a few months. Moore had, within the two years previous, entered into some agreement with the Youngs, by which he had either agreed to buy, or had taken the refusal of the-property in question, at the price of $20,000. This agreement had, however, either expired or been surrendered-At the time the contract was executed, Young had leased the premises, or the most valuable part of them, to one-Piaget, for a long term; but the contract was taken expressly subject to the lease. The evidence further shows that Moore was desirous of buying the property, but that he believed the Youngs might be unwilling to treat with him, at least on as favorable-terms as they might with a stranger. He therefore procured Hughes, who agreed to act for him, and to buy the property in his (Hughes’s) name, but with money to be furnished by Moore. In pursuance of this design, Moore introduced Hughes to Warren as an intending purchaser of the property, and requested Warren to bring Hughes into communication with the Youngs. Warren knew of the motives that influenced the employment of Hughes, and was, besides, distinctly informed that Hughes was acting only for Moore,- who was the real party to the transaction. He was also told by Moore that he was willing to give $13,000 for the property. Warren, under these circumstances, introduced Hughes as au intending purchaser, to the Youngs, and was present and took, an active part in the negotiation between them, which resulted in the contract. He did not disclose to the Youngs the fact that Hughes was not acting for himself but for another, and he suffered them to suppose that Hughes383 was the real party in interest. He did not intimate that the real purchaser, endeavoring to treat with them, was Moore, their tenant, with whom they had previously negotiated for a sale of the property. Nor did Warren, at any time, inform them of the amount which he knew the intending purchaser was prepared to give. On the contrary, he offered or permitted Hughes to offer, in his presence, first, $12,000, and then $12,500, without telling the parties by whom he was employed that Hughes -was instructed by Moore to pay as much as $13,000 for the property, and, as Hughes declares, to use his own judgment about giving more. The relation which a real estate agent or broker bears to his principal is somewhat peculiar, and his power, as agent, to bind his principal, is limited. Shepherd v. Hedden, 5 Dutch. 334; Morris v. Ruddy, 5 C. D. Gr. 236. But there can be no question that he assumes some duties to his employer—such as to find a purchaser for the property, to bring the purchaser into communication with his employer, and to use his efforts to forward the negotiation between them in the interest of his employer. To this extent at least he becomes an agent. As in all cases of agency, a fiduciary relation is established, which requires, on the part of the agent, within the sphere of his employment, fidelity and good faith to his employer. Among other things, he is bound to disclose to his principal all facts within his knowledge which are or may be material to the matter in which he is employed. The principal has bargained for the agent’s skill and experience, and is entitled to expect his active aid in the conduct of the negotiations. These are familiar doctrines, which are as applicable to the relation between real estate agents and their principals as they are to the relation between other agents and principals. Testing the conduct of Warren by such rules, it seems impossible to escape the conclusion that he is chargeable with serious dereliction of duty. Employed to bring to his principal a purchaser of his property, he presented Hughes as the person to be negotiated with, while he knew that — 384 — Hughes was bargaining for the benefit of Moore, the tenant, who had previously undertaken to buy, and whose interest it was to buy the property. He entirely concealed Moore’s connection with the purchase from his principal. He also concealed from his employer the amount the purchaser was prepared to give, and made offers in behalf of Hughes, and permitted offers to be made, for less amounts. It is impossible to read the testimony without concluding that the skill and experience of Warren were not exerted for, but rather against, his principal in the negotiation. The effect of concealment and neglect of duty, such as this, upon the transaction, so far as Warren is concerned, does not at all depend on the question whether or not the result was injurious to the principal. The contract is affected by the misconduct of the agent from considerations of public policy rather than of injury to the principal. The rule which applies to trustees has been equally applied to the relation between the real estate broker and his principal. It matters not that there was no fraud meditated, and no injury done. The rule is not intended to be remedial of actual wrong, but preventive of the possibility of it. Everhardt v. Searle, 71 Pa. St. 256. So that it seems unnecessary to consider the evidence relating to the alleged' inadequacy of price. These principles have been elsewhere applied to this relation between real estate agent and principal. Thus, in Farnsworth v. Hemmer, 1 Allen 494, Chief Justice Bigelow declares that a real estate broker commits a fraud on his principal, the seller, by undertaking secretly to act as the broker or agent of the purchaser. See, also, Walker v. Osgood, 98 Mass. 348; Rice v. Wood, 113 Mass. 133; Dunlop v. Richards, 2 E. D. Smith 181; Raisin v. Clark, 41 Md. 158. The case of Hesse v. Briant, 6 DeG. M. & G. 623, is in all respects similar to the matter now considered. The bill was there filed for the specific performance of a contract for the sale of real estate, which was entered into through the agency of a solicitor, who was found to be acting for both — 385 — parties and to have concealed from the seller the name of the purchaser'. It also appeared that the real purchaser had previously had direct negotiations with the seller for the sale of a part of the property, which had proved abortive. The chancellor, reversing the decision of the vice-chancellor, refused to compel the performance of the contract, declaring that such a transaction required the “ most perfect good faith, and openness of dealing,” and that the concealment of the purchaser’s name showed that there was not that “ fair and open dealing between the parties which the relation in which they stood to each other demanded.” If Moore and Hughes had procured the contract in question without previous concert and collusion with Warren, they would be entitled to its benefit. When the purchaser deals at arms’ length with the seller, he is under no obligation to disclose how or in what capacity he is dealing. It may be that even his misrepresentation of his status might not be destructive of his contract, as seems to have been held in Fellows v. Groydye, 1 Russ. & M. 83. If so, it is manifestly upon the ground that the purchaser owed no duty to the seller which such misrepresentation would violate. And so it may well be that Hughes, as was held by the chancellor in this case, was under no obligation to disclose to Young the fact that he was acting for Moore. But this view of the case is too narrow to justify the decision. Moore and Hughes incited and were partakers in the misconduct of Warren, the trusted agent of Young. They -obtained the contract by means of this misconduct which they had suggested and aided. Hnder such circumstances they cannot ask a court of equity to exercise its discretionary power to enforce a contract so obtained. Nor do I think that Young ought to be compelled to defend himself against such a contract in a court of law. In regard to this aspect of the case, I adopt the language of Lord Justice James, in Panama S. F. T. Co. v. India Rubber &c. Co., L. R. (10 Ch. App.) 515, 526. “According to my view of the law of this court, I take it to be clear that any — 386 — surreptitious dealing between one principal and the agent of the other principal, is a fraud on such other principal cognizable in this court. That I take to be a clear proposition, and I take it, according to my view, to be equally clear that the defrauded principal, if he comes in time, is entitled at his option to have the contract rescinded.” The decrees appealed from should, therefore, both be reversed, the bill for specific performance should be dismissed, with costs, and, upon the cross-bill of William Young, there should be a decree in his favor granting the-relief prayed for by that bill, with costs. Decrees unanimously reversed.