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Agencq Relation Behpeen

qBrok". and €lient

Henry W. O'Mel"e.,1)
Mernbe.to' A"c.l* Ba.
13C TlLeR&Lta BIue Book ol CaklonLia

r\gency Relation Between Broker


and \-llent
lil HENRY W. O'IIEL\ENr

Doltble Ase (ti Foltr C.)"tl1Lsi.ol1s Gt)ul F ..ith Re-


q 1t i1'. d - F i.(b l i.t.1t I I ) lt cn- P l & f o r P t a f er s i.olta.l.i s n t.

RIiAl, estate broker is ordiralilJ a special agent of lil[ited


autholity, aDd h€ is strictly confined to his irstructions. He
has, however, imDlied autholitv to do any act or to make any
declamtion in regard to the property which is necessary to efiect a
pulchasc or sale of the plopeltv or'$'hich is nsually incidental thereto,
Frovidad said statements ar.ethe tluth.
It is one folm of agencl and golemed by the Ia$'of agency. h
the proceedingsthe o\yner is the prilrcipal aDd tllc bl'okel is the ajrent.
This relationship gives Iise to rnany intelesting questions. It \'!ould
be pleasant to discuss all oI these questidls; such nratter.s^s r'€late to
the light to compens^tion or co]n jssiorls iu the fornr o{ the contr.act
of enldoylncnt, olal of rrritten; lyleD conrDensationis €ir1ed aDd
when due, and such matten. But I am going to touch onlr* on cefts.in
phases of this lelationshijr oi o$'ner.and agent, and thev:rll relate to
th€ conduct of the par'lies as between themselves.
First, as to the double agency: The Drincipal has a ]ight to as-
sume when he emDloys aD agent, unless he is adlised to the coutrary,
that the ageDt is in the situation lo give io his pr'incipal lhat undi\,ided
allegiance and loyalty rvhich the pr.oper.pelfor.m:LDceoI the agency
rcquires. and that he \i'ili lemain i| lhat situat;oD. If the aqent has
o r l r . q ur p . i r , r l . " s u L i " , nLt,, a||J iIr.r?.1of l s nur rv{rh rnar
conflict ivith that of his principal, or if bl. r'easor of being or becoming
the agent of an opposite partl he has an jnterest of tbe latter to pro-
tect which may conllict \'!ith the interest of the prirlcipal, it is his duty
to fulh advise his principal of lhe circumstances and not to undertake
to act $'ithout the pr'ircipal's consent. Othenvise it is an invatiablc
rule that the agent rnay not in the sarDetr-ansactiol be both agent and
principal patty, or vhile the agent of one become the asent of the
othcl palt) \vhoseirltclests ma\' (onljict. I{ Nithout such kroNledge
:1ndconseDthe does undeltalic to contlact. ihe )aw deens the DrillciDal
i . r l \ . r L r I . . , 1 . L i ^ r . ' oL ' - f J i , : , i 1 . \ r . I r l , r - . . ' r . d , : r ' , dr r ' r : L , r r g a ' r r
in his nane or act done on his accountis usulllv \'oidableat the n|iD-
cipal's optior. He need not sho\tr hirrsell iniured at]d his right to
repudiatc thc tlansnction is Dol affected by tle sood taith of the
prnlcrpar par-ry.
Th.e Reol,tv Bl,ue Boah of Calilornia 131

SANBORN RULINC QUOTED

Somegood language for a text is found in the caseoJ Warren vs,


Burt,58 Fed. Rep.,page 101,in which JudgeSanbornstatesthe rule
as follows :
"The lalv euardsthe fiduciary relation with jealouscare. It aims
to prohibii the possibility of a conflict between the duty of a tNstee
andhis personalinterest. It d€rDnds that he look soleiyto the inter-
eetof his cestui que tnrst; that the agent work with sn eye single to
the welfare of his principal. It prohibits the agent frcm all specula-
tion or profit in the subject matter of his agency,and visits such a
breachof duty not only r rith loss of the profits gained,but with loss
of the compensationwhich a faithful dischargeof duty would have
ea,rned.The interests of vendor and purchaser are diametrically
opposed.To the vendorthe highestprice, to the purchaserthe lowest
pdce,is the greatest good. For the agent of a seller to permit bim-
self to becomeinterestedin a purchase frcm his princ:pal is to
inaugurateso dangerousa conflictbetweenduty and self-interestthat
this has long been wisely and shictly forbidden. No man, whether
hebe principel or ag€nt,can be a seller and a purchaserat the same
time, and an agent of a vendor who intentionally becomesinterest€d
as a purchaserir the subject matter of his agencyviolates his con-
tlact of agency,betrays his tr-ust,fodeits his commissionas agent,
and is liable to his principal for all the profits he makes by his
purchase,"
Berlin vs. Farwell, a decftionby the SupremeCourt of Califomia,
in 1892,r€portedin the thidy-fiNt Pac, Rep.,page 527. This was a
cssein which the plaintitr sought to Iecover certain commissions
&lleged to have beeneamed by the plaintiff in finding a purchaserin
thepe$on of Mr. H. D. Baconfor' certain lands of the defendant,Mrs.
Fa.rwell. It appearedfrom the evidencethat the plaintiff was work-
iDgin the interestsof Mr-. Baconand was employedby him to do so,
olthough he had no written agreement for compensation frcm Mr.
Bacon. He was to get his commissionftom defendant,N{rs.Fanvell,
andthat he was acting in the interest of Mr. Bacon,the proposedpur-
chaser,in endeavoringto get Ml.s. Falnvell to sell the property at a
figure$r'hichwould meet Mr. Bacon'sviews, without knowledge of
Mrs. Fax\4'e11,from whom he obtaineda written agreementfor com-
pensationin casehe sold the property to Baconfor her. The court
SAyS:
"To this extent, at least, ihe plaintiff was the agent of both
and the sole question left for deterrnination is whether under
a state of afiairs as h€re exists plaintiff can hold the alefendant
for the comdrission claimed in this action. It is a well-
lblishedrule of the law of agencythat the agentmust not put him-
, during the continuance of his agency, in a position which is
e to that of his principal, for the principal bargains for the
e of all the skill, ability arralindustr}' of the agent, and he is
to alemandthe exerciseof all this in his own favor. For this
a.oag€nt of the seller ca.nnotbecomethe agent of the purchaser
the sametransaction, As a consequence of this Iule it is held that
pelsoll who attempts to act as the ageDt of both parties to a trans- '
132 The ReeltA BLue Book of Co,Lifornitl

a.etion,without disclosingsuch fact to his principals,is precluded


from recovedng compensationfor his services. It is of the essenceof
his contract that he will use his best skill and judgment to promote
the interest of his employer. This he cannotdo wherehe acts for tnro
per:sons whose interests are essentially adver.se. He is therefore
guilty of a breachof his contract."
T'he court below hsving determinedthe matter adverseto the
plaintitr's claim, judgment appealedfrom wa6 affirmed.
ANOTHER CASE CIAD
In the caseof RauersLaw and CrllectionAgencyvs. W. B. Brad-
bury, Appellate Court, First Appellate District of the State of Califor-
nia, reported in 3 Cal. Appeals, pag€ 256, the plaintitr sought to
recover of the defendant for services rendered by Guy T. WaFnan.
plaintif's assignor, as the ag€nt of the defendant for the sale of a
parcel of land in San Francisco. In 1902defendantBradbury, by an
instrument in wfting, employed WaFnan as his exclusive agent to
sell for him e certain parcelof Iand for the sum of $50,000and prcm-
ised to pay him a commission of 1ya petr cent of the purchase price
if the propedy should be sold. Wa]'rnan negotiated with one Barker
for the purchase of the lot, ard received $500 as a deposit, and on the
same ilay stated to the defendant that le had sold the prop€dy and
presented en instrument signed by hirnself stating that he had "r€-
ce:vedfrom Barker $500,beinga depositon accountof 950,000for the
lulchase of property this day sold to lim by Guy T, Wsymar, agent
of the ownerhereindescdbed,ard subjectto owne/s approval."Being
asked by the defendant how much he would get, Wa5.rnanreplied $50,-
000. The defendantthereuponsignedan approval of the sale at the
foot of the receipt, and Waymar gave him the $500,for which he gave
Wa)'man his receipt. The sale was thereafter carried into efiect and
at its consummationBarker paid the defendant$49,500. At the time
of Wayrnan'Bnegotiation with Barker he agreed {'ith him that if the
sele lvas efected he would receivefrom them $500 as a commissioll
for his ser-rices. When the sale rras completed they paid hfun said
$500 ts <aid com-ryrissiort. Waynan, however, did not inform the
defendant of this agreement and the defendant did not lealn of it until
several days after the execution of the receipt. Wa].rnan sued Brad-
bury for his commissionand lost his case.
There are cases,of course,where two lafties, whose interests are
conflicting, will want you to act for both of them, and each will be
willing to pay you for your services. If th€ facts are fully and fairly
stated to both of them, and if they have consideredand iliscounted the
possible conflicts in their interests which you may be called upon to
meet, ther-e is no legal or mora.l obligation upon you to refrain from
the emplolanent, and, of course, the question of secret profit does not
arise. My o!v! experiencein similar situationsin the practice of the
law leads me to believe,however, that as a matter of permanent busi-
nesspolicy, such employmentshouldonly be taken in rare casesand
where, for somespecialreason,ro other courseis practicablefor the
two principals.
I am not forg€tting that the capable and loyal agent is thoroughly
. worthy of his hire, and I have haalthe pleasureof assistinga number
The Realta BLueBook of Cdilornxa 133
I
of vou lo qet whal you were enlil led to. but the onlv safe and sure-way
to set vour compensationand keep it is lo have a clear and dPhnlle
und"ersiandingwith your principal as to what vour com-pensalionis to
you
be and how and when and by whom it is to be pard ll you thrnk
are nol getting enoughlellthe princ:pal sorighl ofl and do nol under-
take Ihe work unlessyou ale saljsfiedwith what lhc compensarron
iu to t" uut rvhen vou have arranged )our comppnsalionwith the
Drincioaland in the courseof vour dealingsin his behalf Jou find a
i:hanceto make something morc, bear in mind very carefully thal
itrJ ext.a pront, o. a"set,-or advantage, is absolutely tbe property of
your principal unless he expressly consents that you can have it'

CONCLUSION DEDUCED
From these pfinciples, the following conclusions can be deduced:
First-Unless the principal is fullv advised of the facts, a broker
to ouy p.op"ity a" a rule sell property in.whictl he
"*ptovJ t'^" i" "onnot
i;rdividual inLerest. Thal is Io sav: That if Mr'
iiiJt,"l"t.
Lo employ Mr. Minp5 as agPrrtto buv a certain sleci-fi'
d;;;;;;;t"
tracr ot land, a'ld it Mf. Mjnes had er, interesl in thp ploperlJ
iirli",i. tti
pur-
noi selt that propertvto IIr' Gravesunlesshe dis-
,
io Mr.".itta
Gravesbeforehand that he, Mr' Mines,had au interest
"ioi"a
. therein and $'as intelest€d as a seller. .i
Secontl-Nor can a broker emploved to sell propelty become the
Uvei lrrereor. Thus again, if Mr'. Glaves *'ere th€ owDel o{ a tract
;ii;;,i ;"4 were to piace the sale of it in the hands of Mr' Mines,
iir. i.iines mignt recii,te ua.io.rs offers for the plopertv-ald cases
frru" l""n Lnoiu" in fos Angeles courtv where srich offers have been
made and not reported to the principal, and subsequently the agent
Uui rl'. p'i,p"ny l"f himl"lf surfentitiorr'lv. lr srrc\ 'asFsthc
"oria ot'lhe lard can s.t alide lhe silp nrrd dcmrnd a leron\eyan(p
owner
of *re DroDertvIo hirrsclf, oI have an a(counl;ngol 'il I he profrtsand
oroceeds der.ir:edfrom {hp sale of LhPlarrd. The.ouris lsve hPlclas
ioio*i i
:tn"t t .r" the (lerk oi a brokPr pr'1ploved to nrakpa salp of
the land who had " a..pos lo the co[Iespondence belwperl lhe frrln'lpal
anilhe venctor,bought the land himself at a fair'pdce, h€ was com-
pJt"J opo" fv il1e vendor to reconvev the larrd to the odginal
"uii
-ie""iu"a a broker employed to sell prcpertv und€rctates the
Third-If
ly him anal lieeps th€ difference, he must,turn that
;;;";i;".. Ioihe pr'ncipal arrd account to thP plinc)pal lherefor"
A n d t h i si s t r u ' i f t " i u n r o u n l i h a r m i g h r t e t u r r r e do v e | b v t h e a g p n t
;;;;i;;-;';;;i itrar rn" plin"ipat had agr.ed ro 1rkp. rhat
io iai' tt t $pre Io alrhorrze Mr" Io\3:^r^o sFlla lot for me ror
o-oO ii"a ll'. Rowar.hould s.ll it lor $1500and rurrr ovpl Io me
io6.he still woutdbe liabla,o mAfof ihp orhp' $400.
Fourth-If a broker emploled to buy propFrty ovelstales.the
iat which ji may bP bought and retains the-diffprpncethe princi-
i.au t".o*t 'n" liom him. Again.toillulLralebyexample
ivl.i" io * * " s Marsh lo oulchaseIhc 'olrra-r'ofPico ahd
"Robpn
ui,an" tota-" it coutdbe boughtfor $250,000,
"-p,oy when
"i""Lii i
'1'hc
1:1,1 RenLtlt Bl.tt. Bool; of Ctllilai.nia

as a matter of iact he purchasedit for $225,000,


he would be li?1ble
to
me lor the sum of $25,000.
cooD nAI'iH LEQUInED
To what c\tcnt good faiUr is tequiled bet$ een the agent and his
principal will be undelstoodftom the I'ollo\yingcase:
A nran Dand Blacli olvned celtain rcal estxte in Philndelphia. lto
rvished to scll i t a d weni to Platt, r t enl eslate agent, rrncltold Pr'.rtt
he would sell it for $110,000,namirrg that as his lowest pr.ice. Pr':rtt,
the agert, then \rrent to a man naned llarding ar.l HnIdiDg srid he
'\i.:rsrvillirrg to buy it, but he told Platt to go b:rck :Lndofler,lilst
$1;15,-
000; if tilat lvas refused to offcr $137,500,aDd if both offeIS \.4re r.e-
fused therl to pulchase at 5i140,000. The trarrsActioD wrs to be ci1r.-
fied thlough ir the namc of a clelk of Xlr. Harding's as p,ilic:p|ll.
Pr':ltt wellt bacli and nrade the oller.s- The ownel refused to takc lcss
thar $140,000- Thesale$asnnde. Platt, the Ieal estatc;rgent,then
sued for his commission. 'fhe coull derliedhinl ary connr:ssionon
the ground that, being Lhe agenl 1br the o$-rel :lnd kroq'ing that the
pur'chaser'\l-ooid pay $1i10,000 for.thc plopelty, he had no light to
conccrl that fact and rrake thc offels ol $185,000 rnd $1i37,500a|d
finally the oller of $140,000.
The follo$irg quotrt:ons surr up the Inattet'so ndmiral)lv that I
^n1 t€mpi.ed lo quotc and lead then Io) you:
Centutics pl.ior'to lhc dcveloDmenlof the doctline of ngenc} i'r
our Con1monLalr, a geucr'rl rule oJ human conduct \{.ns laid do$,n as

"No m:rn call serve tlvo rnastels, fol either he will hate the one
and love the othcri or',he will hold 10 the one:lnd despiscthe other'."
A st:utling pcrcentage ol litigated nlattels betl'!een prircit):1] and
agent arise pl'imalil)- oul oi r disteg:u'dof Ulis rvholesome statenrent,
fol upon this statenent rcsts lhe well-esLr.blishedIules of comDron
la1vgo\,ehiDg the Drimaly duty ol the agent to the plirciDnl:
"Loyalty to his lr'usl is the iil'st duty which the age l o*'es to the
principal. Without it the Derfect rel:rtion c:unot exist. lteliancc Lrpo
the agcrt's inteslitr',, fidelity arld capacity is the moving considelntlor
ir the c]'eation of all asercies; in some it is so Duch the insDifi|g
spilit that lhe law looks $-ith jcalous eyes uDoDthe rnannel oi lheir-
execuiiotl, aDd condemDsnot only as inrlalid :1sto the plircipal, bnl
as reDugnant to thc public policy, evcrythjng r-hich tends to destt oy
th:11reliaDcc-"
IIDDLI|T_ IS URCED

"It follows as a rlecessaly conclusior fron the plinciDle l,Nt


shied, that the ageDt n]ust not put hinself into such rel:ltions that his
oi'!-n interests or the interests of othels whom he aiso r.cpr.esctrts
become antagonistic to those of his plircipal. Indeed, this r.ule is but
a restatenent of the Drevious one, and is based upon the sane funda
mental principles. The ageDt *-ill Dot bc pelmitted to serve two
mastels, without the intelligent consent of both. As is said by a
learDed judge: 'So careflrl is the law in guardiDg against the abuse of
fiducia.r'yrelations, that it w_ill Dot pelmit an agent to act lor himself
and his principal in the same tlansaction, :|s to buy of himself, as
The Redta Blue Boak ol Calilorniir 135

agent, the property of his prjncipal, or the lik€. All such transac-
tions are void, as respectsthe pdncipal, unlessratified by him with a
full tnowledge of all the circumstances.To repudiatethem, he need
not show himself damnified, Whether he has been or not, is imma-
telial. Actual injury is not the principle the law proceedson in hold-
ing suchtransactionsvoid. Fidelity in the agent is what is armedat,
end as a means of secu ng it the law will not permit the agent to
placehimself in a situation in which he may be temptedby his own
privateinterest to disregardthat of his principal."' "This doctdne,"
to speak again in the beautiful language of another, "has its founda-
tion not so much in the comnission of actual fraud, as in that pro-
Joundknowledgeof the humar heart which dictated that hallow€d
petition, 'Lead us not into temptation,but deliver us from evil,' and
that causedthe announcement of the infallible truth that 'a man can-
not servFtwo masters,'"
tr{echemon Agency,SecondEdition, Sections1188 and 1189.

SOME..DON,TS',
ARDGTVEN
I have given you actual examples for the purpose of making my
meaning plain in as few words as possible. They show to you how
absolutelynecessary it is that there should be a full disclosure of all
facts connected with a transaction to your principal, and that there
must be no secret proffts. Now for a few "don'ts."
Becauseyou are the agent for a party to eilect a sale of land,
don't try to make a contract for the sale that would be binding upon
the owner. During the boom I saw a great many contracts for sale
ol propedy that E€re signed merely by the agent, which contracts
verc not worth the paper they were waitten on. Don't represent to
your principal that you ar€ purclasing Dropertyfor one price, when
in fact you are purchasingit for a lower price, you all the time intend-
ing to retain the difi€rence. Dont s€ll to your p ncipal prop€rty in
vhich you are interestedyou$elf, without making a full disclosureof
the fact of your ownership, Don't representto your pdncipal that
youare purchasingproperty for $15,000when as a matter of fact you
are purchasingit for $10,000,and hope or-expectto retain the difier-
ence. Don't obtain an optjon o)r a pieceof prope y for, say $10,000,
then tur-n it over to some sl.ndicate on the reprcsentation you are pay-
ing $15,000,concealingthe truth and hoping to retain the difference.
Suppose you've an option, and a syndicateis forrned to take it over
and that syndicatetak€s the form of a coryorstion,and acquiresthe
plopelty; you sigl1a subscdptionlist which upon its face would indi-
cateyoll were p^ying.ash lor yout subsctiplion. u4renin trulh and
fact you are paying for Ihp subscr'iption wilh your pro61sin hand-
ing over the property to the corporation. Other stockholderswho
subscnbe upon the face of the subscriptionlist, believingyou are pay-
ing in cash,and not knowing you are paying for it with profits dedved
fmm the sal., havp lhe righl to lps.ind their subsc|iplions.
Don't sell lots situatedin the Mojave deseftunder the suggestive
of Harbor tract, Bay View tract, Ilarbor View tract and sim-
nampqsuggestiveot proximily to the deep blup sea. Neither flee
fides, barbecues,automobiles,free lunch€s or pictures of
136 TlLeReeltuBl e Book ol Oalifornin

stately ships ladeDto the gualds with the ll.ealth of Ormus and of Ind
will save someonefrom future disaster.

PLEA FOR PROIESSIONALISM

Thele \,!'asa lime when it was consideled there \r'ele but lhree
plofessions, law, rninistry aDd medicine, bnt *-ith the enlargement of
the activities of the $'orld nurlrer.l)usother plofessions have developed
which are equal in point of dignity with that of thc thlee old conven-
tional sta dard ones. I legal'd your Drofessionjust as lespectable and
just as important as 1do the profession of iaw. Developedto its high-
est poiDt it requires skill, intelligence, knolvledge of humatl nature,
and, as a basis of all success in any profession, strict integdty. Oi
coulse, the larv has numerous members in its profession, some of them
I am solry to say, are not mer of integ ty. So tbere will always be in
your ranks some who axe not men of integrity. That is a failing that
happens to all professions, and your pro{ession, by reason of a popu-
lar inU)ression,has Dot gained that position in the rank of Drofessions
it shouldhave atta-red-
We all know-that many of the allusions that are made to real
estate agents are ill founded. The same remarks can be made of doc-
tors, or of ministers, or of lawyers, or of bankeN. But it is your duty
to place your Dlofessioll upo the highest basis and as far frcm crit-
icism as possible. This can be done only by a strict adherenc€to the
lalv of honesty. This honesty is not only the best policy, but it is the
only policy, and this hoDesty can be shown by an observaDceof fair
dealing, full disclosur€, strict accounting of all moneys received, and
by telting of the absolute truth. The law provides for this, the law
demands this; it is satisfled vrith nothing else. Any departure not
only reflects upon youl pr:ofessioD,but is a stain upon the reputrtion
of your city and of your state, and is a disgrace to yoursell.