agency relation between broker and client by henry w o'melveny

8/14/2019 Agency Relation Between Broker and Client by Henry W O'Melveny

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IAgencq Relation BehpeenqBrok". and lient

Henry W. O'Mel"e.,1)Mernbe.o' A"c.l* Ba.


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13C TlLeR&Lta BIue Book ol CaklonLia

r\gency Relation BetweenBrokerand \ - l lentlil HENRY W. O'IIEL\ENr

Doltble Ase (t i Foltr C.)"tl1Lsi.ol1s Gt)ul F ..ith Re-q1 1'. d- F i.(b l i.t.1t I I ) lt cn- P l & f o r P t af ers .olta.l. s nt.

RIiAl, estate broker is ordiralilJ a special agent of lil[itedautholity, aDd h is strictly confined to his irstructions. Hehas, however, imDlied autholitv to do any act or to make anydeclamtion in regard to the property which is necessary o efiect apulchasc or sale of the plopeltv or'$'hich is nsually incidental thereto,Frovidad said statements ar.e he tluth.It is one folm of agencl and golemed by the Ia$'of agency. hthe proceedings he o\yner is the prilrcipal aDd tllc bl'okel is the ajrent.This relationship gives Iise to rnany intelesting questions. It \'!ouldbe pleasant to discuss all oI these questidls; such nratter.s^s r'late othe light to compens^tionor co]n jssiorls iu the fornr o{ the contr.actof enldoylncnt, olal of rrritten; lyleD conrDensation s ir1ed aDdwhen due, and such matten. But I am going to touch onlr* on cefts.inphasesof this lelationshijr oi o$'ner.and agent, and thev:rll relate toth conduct of the par'lies as between themselves.First, as to the doubleagency: The Drincipalhas a ] ight to as-sume when he emDloysaD agent, unlesshe is adlised to the coutrary,that the ageDt s in the situation lo give io his pr'incipal lhat undi\,idedallegiance and loyalty rvhich the pr.oper.pelfor.m:LDce I the agencyrcquires. and that he \i'ili lemain i| lhat situat;oD. If the aqent haso r l r . q u p . i r , r l . " s u L i " , n L t , , a | | J I r . r ? . 1o f l s n u r r v { r h r n a rconflict ivith that of his principal, or if bl. r'easorof being or becomingthe 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 dutyto fulh advise his principal of lhe circumstancesand not to undertaketo act $'ithout the pr'ircipal's consent. Othenvise it is an invatiablcrule that the agent rnay not in the sarDe r-ansactiol be both agent andprincipal patty, or vhile the agent of one become the asent of theothcl palt) \vhose rltclestsma\' (onl j ict . I{ Nithout suchkroNledge:1ndconseDthe doesundeltalic to contlact. ihe )aw deens the DrillciDali . r l \ . r L r I . . , 1 . L i ^ r . ' o ' - J i , : , i 1 . \ r . I r l , r - . . ' r . d , : r ' , d r ' r : L , r r g a ' r rin his nane or act doneon his account s usull lv \ 'o idable t the n| iD-cipal's optior. He need not sho\tr hirrsell iniured at]d his right torepudiatc thc tlansnction is Dol affected by tle sood taith of theprnlcrpar par-ry.


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Th.e Reol,tv Bl,ue Boah of Calilornia 131SANBORN RULINC QUOTED

Somegood anguage for a text is found in the case oJ Warren vs,Burt,58 Fed. Rep.,page101, n which JudgeSanbornstates he ruleasfollows :"The lalv euards he fiduciaryrelationwith jealouscare. It aimsto prohibii the possibility of a conflict between the duty of a tNsteeandhis personalnterest. It drDnds hat he ooksoleiy o the inter-eetof his cestuique tnrst; that the agent work with sn eyesingle othewelfare of his principal. It prohibits the agent rcm all specula-tion or profit in the subject matter of his agency,and visits such abreachof duty not only r rith loss of the profits gained,but with lossof the compensation hich a faithful dischargeof duty would haveea,rned.The interests of vendor and purchaser are diametricallyopposed.To the vendor he highestprice, o the purchaserhe lowestpdce, s the greatest good. For the agent of a seller to permit bim-self to becomenterested n a purchase frcm his princ:pal is toinaugurate o dangerous conflictbetweenduty and self-interest hatthis has long beenwisely and shictly forbidden. No man, whetherhebe principel or agnt,can be a seller and a purchaserat the sametime, and an agent of a vendor who intentionally becomes nterestdas a purchaser r the subject matter of his agencyviolates his con-tlact of agency,betrayshis tr-ust, odeits his commission s agent,and s liable to his principal for all the profits he makes by hispurchase,"Berlinvs. Farwell,a decftionby the SupremeCourt of Califomia,in 1892, ported n the thidy-fiNt Pac, Rep.,page527. This was acssen which the plaintitr sought to Iecover certain commissions&llegedo have beeneamedby the plaintiff in finding a purchasernthepe$onof Mr. H. D. Bacon or' certain andsof the defendant,Mrs.Fa.rwell. t appearedrom the evidencehat the plaintiff was work-iDg n the interestsof Mr-. Baconand was employed y him to do so,olthoughhe had no written agreement for compensation frcm Mr.Bacon. He was to get his commissiontom defendant,N{rs.Fanvell,and hat he was acting n the interest of Mr. Bacon,he proposed ur-chaser,n endeavoring o get Ml.s. Falnvell o sell the property at afigure$r'hichwould meet Mr. Bacon'sviews, without knowledgeofMrs.Fax\4'e11,rom whom he obtaineda written agreementor com-pensationn casehe sold he property to Bacon or her. The courtSAyS:"To this extent, at least, ihe plaintiff was the agent of bothand the sole question left for deterrnination is whether undera state of afiairs as hre exists plaintiff can hold the alefendantfor the comdrission claimed in this action. It is a well-lblishedule of the law of agency hat the agentmust not put him-, during the continuance of his agency, in a position which ise to that of his principal, for the principal bargains for thee of all the skill, ability arral ndustr}' of the agent, and he isto alemandhe exercise f all this in his own favor. For thisa.oagnt of the seller ca.nnotbecome he agent of the purchaserthe same ransaction, As a consequencef this Iule it is held thatpelsoll who attempts to act as the ageDtof both parties to a trans- '


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132 The ReeltA BLue Book of Co,Lifornitla.etion,without disclosingsuch fact to his principals, s precludedfrom recovedng compensation or his services. It is of the essence fhis contract that he will use his best skill and judgment to promotethe interestof his employer. This he cannotdo wherehe acts or tnroper:sonswhose interests are essentially adver.se. He is thereforeguilty of a breachof his contract."T'hecourt below hsving determined he matter adverse o theplaintitr's claim, judgment appealed rom wa6 affirmed.

ANOTHER CASE CIADIn the caseof RauersLaw and CrllectionAgencyvs. W. B. Brad-bury, Appellate Court, First Appellate District of the State of Califor-nia, reported n 3 Cal. Appeals, pag 256, the plaintitr sought torecover of the defendant for services rendered by Guy T. WaFnan.plaintif's assignor, as the agnt of the defendant for the sale of aparcelof land in San Francisco. In 1902defendantBradbury, by aninstrument in wfting, employed WaFnan as his exclusive agent tosell for him e certainparcelof Iand for the sum of $50,000 nd prcm-ised to pay him a commission of 1ya petrcent of the purchase priceif the propedy should be sold. Wa]'rnan negotiated with one Barkerfor the purchaseof the lot, ard received $500as a deposit, and on thesame ilay stated to the defendant that le had sold the propdy andpresented en instrument signed by hirnself stating that he had "r-ce:vedrom Barker $500,beinga depositon accountof 950,000or thelulchase of property this day sold to lim by Guy T, Wsymar, agentof the ownerhereindescdbed, rd subject o owne/s approval."Beingasked by the defendant how much he would get, Wa5.rnan eplied $50,-000. The defendant hereuponsignedan approvalof the sale at thefoot of the receipt, and Waymar gavehim the $500, or which he gaveWa)'man his receipt. The sale was thereafter carried into efiect andat its consummation arker paid the defendant$49,500.At the timeof Wayrnan'B negotiation with Barker he agreed {'ith him that if thesele vas efected he would receive rom them $500 as a commissiollfor his ser-rices. When the sale rras completed they paid hfun said$500 s


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TheRealta BLueBook of Cdilornxa 133of vou o qet whal you were enli l ed o. but the onlv safeand sure-wayto set vour compensation nd keep t is lo have a clear and dPhnlleund"ersiandingwith your principal as to what vour com-pensalions tobeand how and when and by whom it is to be pard l l you thrnk

youarenol gett ing enough ell the princ:palsorighl of l and do nol under-take he work unlessyou ale saljsf iedwith what lhc compensarroniu to t" uut rvhenvou have arranged )our comppnsalionwith theDrincioal nd in the courseof vour dealings n his behalf Jou find ai:hance o make something morc, bear in mind very careful ly thalitrJ ext.a pront, o. a"set,-or advantage, s absolutely tbe property ofyour principal unless he expressly consents that you can have it '

CONCLUSIONEDUCEDFrom these pfinciples, the following conclusionscan be deduced:First-Unless the principal is fullv advisedof the facts, a broker

"*ptovJ to ouy p.op"ity "onnot a" a rule sell property in.whict lhe

i i iJt ," l" t . t '^" i" i ; rdividual nLerest. Thal is Io sav: That if Mr'd;; ; ; ; ; ; t" Loemploy Mr. Minp5 as agPrrt o buv a certain sleci- f i 't racrot land, a' ld it Mf. Mjnes had er, interesl in thp ploperlJ pur-iirli",i. tt i ".itta noi selt hat propertv o IIr' Graves nless e dis-"ioi"a o Mr. Graves eforehandhat he,Mr' Mines, ad au interest. therein and $'as intelestd as a seller.Secontl-Nor can a broker emploved to sell propelty become heUvei 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 casesfrru" l""n Lnoiu" in fos Angeles courtv where srich offers have beenmadeand not reported to the principal, and subsequently the agent"oria Uui r l ' . p ' i ,p"ny l" f himl" l f surfent i t iorr ' lv. lr srrc\

asFs hcownerot ' lhe lard can s.t a l ide lhe si lp nrrddcmrnd a leron\eyan(pof *re DroDertvo hirrsclf , oI havean a(counl;ngol ' i l Ihe profrtsandoroceedser. ir :edrom {hp saleof LhP arrd. The.ouris lsve hPlcl sioio* i i : tn"t " t .r" the (lerk oi a brokPrpr'1plovedo nrakpa salpofthe andwho had a..pos o the co[Iespondenceelwperl he frr ln ' lpalanilhe venctor,bought the land himself at a fair'pdce, h was com-pJt"J opo" "uii fv il1e vendor to reconvev the larrd to the odginal

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Third-If a broker employed to sell prcpertv undrctates the-ie""iu"a ly him anal lieeps th difference, he must,turn that; ; ;" ; i ;" . . Ioihe pr'ncipal arrd account o thP plinc)pal lherefor"A n d t h i s 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 d v e | b v t h e a g p n t; ; ; ; i ; ;-; ' ; ; ; i i t rar rn" plin"ipathad agr.ed o 1rkp. rhatio iai ' t t t $pre Io alrhorrzeMr"Io\3:^r^o sFlla lot for me roro-oOi"a l l ' . Rowar.houlds.l l i t lor $1500 nd rurrrovpl Io meio6.hest i l l woutdbe iabla o mA of ihp orhp'$400.Fourth-I f a broker emploled to buy propFrty ovelstales.theiat which i may bP bought and retains he-dif fprpncehe princi-i . a u t " . o * t ' n " " * * " s l i o m h i m . A g a i n . t o i l l u l L r a l e b y e x a m p l eiv l . i " io "-p,oy Robpn Marsh o oulchase hc 'olrra-r 'ofPico ahd"i""Lii ui,an" tota " it coutd ebought or $250,000,hen


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1:1,1 '1'hcRenLtlt Bl.tt. Bool; of Ctllilai.niaas a matter of iact he purchasedt for $225,000,e wouldbe li?1bleome or the sumof $25,000.

cooDnAI' iHLEQUInEDTo what c\tcnt good faiUr is tequiled bet$ een the agent and hisprincipalwil l be undelstood tom the I 'ol lo\ying ase:A nran Dand Blacli olvned celtain rcal estxte in Philndelphia. ltorvished to scl i t a d weni to Platt, r t enl eslate agent, rrncl old Pr'.rtthe 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 f both offeIS \.4re r.e-fused therl to pulchase at 5i140,000. The trarrsActioDwrs 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 lcssthar $140,000-Thesale$asnnde. Platt , the Ieal estatc;rgent,hensued or his commission. ' fhe coull derl iedhinl ary connr:ssiononthe ground that, being Lhe agenl 1br the o$-rel :lnd kroq'ing that thepur'chaser' \ l-ooiday $1i10,000or.thc plopelty, he had no l ight toconccrl that fact and rrake thc offels ol $185,000rnd $1i37,500a|dfinally the oller of $140,000.The fol lo$irg quotrt :onssurr up the Inattet 'so ndmiral) lv hat I^n1 tmpi.ed o quotc and lead then Io) you:Centut icspl. ior ' o lhc dcveloDmenl f the doct l ine of ngenc} ' rour Con1monLalr, a geucr'rl rule oJ human conduct \{.ns aid do$,n as"No m:rn call serve tlvo rnastels, fol either he will hate the oneand love he othcri or ' ,he wil l hold 10 he one:lnd despisc he other' ."A st:utling pcrcentage ol litigated nlattels betl'!eenprircit):1] andagent arisepl ' imali l)-oul oi r disteg:u'd f Ulis rvholesometatenrent,fol upon this statenent rcsts lhe well-esLr.blishedules of comDronla1vgo\,ehiDg he Drimaly duty ol the agent o the plirciDnl:"Loyalty to his lr'usl is the iil'st duty which the age l o*'es to theprincipal. Without it the Derfect rel:rtion c:unot exist. lteliancc Lrpothe agcrt's inteslitr',, fidelity arld capacity is the moving considelntlorir the c]'eation of all asercies; in some it is so Duch the insDifi|g

spilit that lhe law looks $-ith jcalous eyes uDoD he rnannel oi lheir-execuiiotl, aDd condemDsnot only as inrlalid :1s o the plircipal, bnlas reDugnant to thc public policy, evcrythjng r-hich tends to desttoyth:11 eliaDcc-" IIDDLI|T_ IS URCED"I t follows as a rlecessaly conclusior fron the plinciDle l,Ntshied, that the ageDtn]ust not put hinself into suchrel:ltions that hisoi'!-n nterests or the interests of othels whom he aiso r.cpr.esctrtsbecomeantagonistic to those of his plircipal. Indeed, this r.ule s buta restatenent of the Drevious one, and is based upon the sane fundamental principles. The ageDt *-ill Dot bc pelmitted to serve twomastels, without the intelligent consent of both. As is said by alearDed udge: 'So careflrl is the law in guardiDg against the abuse offiducia.r'y elations, that it w_ill Dot pelmit an agent to act lor himselfand his principal in the same tlansaction, :|s to buy of himself, as


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The Redta Blue Boakol Calilorniir

fmm the sal. , havp he righl to lps. ind their subsc| ipl ions.Don't sell ots situated n the Mojave deseftunder the suggestive

135agent, the property of his prjncipal, or the lik. All such transac-tions arevoid, as respects he pdncipal,unless atified by him with afull tnowledgeof all the circumstances.To repudiate hem, he neednot show himself damnified, Whetherhe has beenor not, is imma-telial. Actual injury is not the principle he law proceeds n in hold-ing such ransactions oid. Fidelity in the agent s what is armedat,end as a means of secu ng it the law will not permit the agent toplacehimself in a situation in which he may be temptedby his ownprivate nterest o disregard hat 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 hallowdpetition, Lead us not into temptation,but deliver us from evil,' andthat caused he announcement f the infallible truth that 'a man can-not servF wo masters,'tr{echem n Agency,SecondEdition, Sections1188and 1189.

SOME.DON,TS',ARDGTVENI have given you actual examples for the purpose of making mymeaning plain in as few words as possible. They show to you howabsolutelynecessary t is that there should be a full disclosure of al lfacts connected with a transaction to your principal, and that theremust be no secret proffts. Now for a few "don'ts."Because ou are the agent for a party to eilect a sale of land,

don't ry to makea contract for the sale hat would be binding uponthe owner. During the boom I saw a great many contracts for saleol propedy that Ere signed merely by the agent, which contractsverc not worth the paper they were waitten on. Don't represent toyour principal that you ar purclasing Droperty or oneprice,whenin fact youarepurchasingt for a lower price,youall the time intend-ing to retain the difirence. Dont sll to your p ncipalproprty invhich youare interested ou$elf, without making a full disclosure fthe fact of your ownership, Don't represent o your pdncipal thatyouarepurchasingpropertyfor $15,000when as a matter of fact youarepurchasingt for $10,000, ndhopeor-expect o retain the difier-ence.Don't obtain an optjon o)ra 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,oncealinghe truth and hoping to retain the difference.Supposeou'vean option, and a syndicates forrned to take it overand hat syndicate aks the form of a coryorstion,and acquires heplopelty; you sigl1a subscdption ist which upon ts face would ndi-cate ol lwerep^ying.ash lor yout subsctiplion. 4ren n trulh andfactyou are paying or Ihp subscr' ipt ioni lh your pro61sn hand-ing over the property to the corporation. Other stockholderswhosubscnbe pon he faceof the subscriptionist, believingyouare pay-ing n cash, ndnot knowingyouarepaying or it with profitsdedved

nampq uggestive t proximily to the deepblupsea. Neither f leeof Harbor tract, Bay View tract, Ilarbor View tract and sim-fides, barbecues,automobiles, ree lunchs or pictures of


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136 TlLeReeltuBl e Bookol Oaliforninstately ships ladeD o the gualds with the ll.ealth of Ormus and of Indwill save someone rom future disaster.

PLEA FOR PROIESSIONALISMThele \,!'asa lime when i t was consideled there \r'ele but lhreeplofessions, law, rninistry aDd medicine, bnt *-ith the enlargement ofthe activities of the $'orld nurlrer.l)us ther plofessions have developedwhich are equal in point of dignity with that of thc thlee old conven-tional sta dard ones. I legal'd your Drofession ust as lespectable andjust as important as 1do the profession of iaw. Developed o its high-est poiDt it requires skill, intelligence, knolvledge of humatl nature,and, as a basis of all success n any profession, strict integdty. Oicoulse, 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 inyour ranks some who axe not men of integrity. That is a failing thathappens to all professions,and your pro{ession,by reason of a popu-lar inU)ression,has Dot gained that position in the rank of Drofessionsit shouldhave atta-red-We all know-that many of the allusions that are made to realestate agents are il l founded. The same remarks can be made of doc-tors, or of ministers, or of lawyers, or of bankeN. But it is your dutyto place your Dlofessioll upo the highest basis and as far frcm crit-icism as possible. This can be done only by a strict adherenc o thelalv of honesty. This honesty is not only the best policy, but it is theonly policy, and this hoDesty can be shown by an observaDceof fairdealing, full disclosur, strict accounting of all moneys received, andby telting of the absolute truth. The law provides for this, the lawdemands this; it is satisfled vrith nothing else. Any departure notonly reflects upon youl pr:ofessioD, ut is a stain upon the reputrtionof your city and of your state, and is a disgrace to yoursell.


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agency relation between broker and client by henry w o'melveny

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