Phillip M.C.E. Church v. Gen. Cas. Co. , 86 Ohio App. 261 ( 1949 )

This is an appeal on questions of law from a judgment of the Municipal Court of Cincinnati dismissing the defendant the General Casualty Company of America from the action, a demurrer filed by that defendant to the amended bill of particulars having been sustained by the court, and the plaintiff having stated it did not desire to plead further.

The essential averments of the amended bill of particulars are that the casualty company "is now and was at all times hereinbefore mentioned the surety on the real estate broker's bond" of its codefendant, "that said bond was conditioned upon the faithful observance by Wahn-Evans Company of all provisions of Sections 6373-25 to 6373-51, inclusive, General Code, that said surety has been informed of the continued course of misrepresentation, false promises and dishonest dealings of Wahn-Evans Company, that when the seller rescinded its contract of sale with the plaintiff said Wahn-Evans Company breached the conditions of its bond by failing to account for or to remit to the plaintiff its binder money in the amount of $1000, which plaintiff had deposited with it; that this suit is brought pursuant to Sections 6373-35 and 6373-42, General Code of Ohio."

These allegations are contained in the second cause of action of the amended bill of particulars, which, by reference, incorporates also the allegations of the first cause of action addressed to the defendant broker.

It appears from these latter allegations that the plaintiff gave the broker $1,000 as earnest money and part payment of the purchase price of real estate in the sale of which the defendant broker was agent for the seller. This sale was not consummated owing to the failure of the broker to secure satisfactory financing for the plaintiff, and the seller ordered the broker to return the $1,000 earnest money to the plaintiff which it has failed to do after repeated demands by plaintiff.

The plaintiff alleges "the seller rescinded its contract with the plaintiff in writing and at the same time notified the defendant company of its action and instructed the defendant company to return to the plaintiff its binder money in the amount of $1,000; that plaintiff made immediate demand upon the defendant company to return plaintiff's binder money; that defendant company promised upon several occasions to return the same; that notwithstanding defendant's promises as well as repeated demands on the part of the plaintiff said defendant has failed to account for or to remit to plaintiff its binder money and has followed a continued course of misrepresentation, dishonest dealing and false promises."

The contract of sale is attached to and made part of the amended bill of particulars and contains the following clause:

"I/we hereby accept the above proposition submitted to me/us by you, as my/our agent, and I/we hereby agree to pay you for your services rendered the rate of commission as established by the Cincinnati Real Estate Board, and I/we hereby authorize you, when this transaction is completed, to apply the above payment in your hands in connection therewith toward the payment of such commission.

"Witness: The First English Evangelical Lutheran Church By Ralph A. Pott, Atty.

"November 4, 1947

"I/we hereby acknowledge receipt of one thousand dollars ($1,000), payment as above provided.

"Wahn-Evans Co. (name of broker)

"By /s/ Wynne A. Evans"

Now this deposit was obviously a payment to the seller, The First English Evangelical Lutheran Church, through its agent, the defendant broker. It belonged to the seller subject to any contract existing with its agent, the broker. Any claim for its return by reason of failure to consummate the transaction should be made against the seller. It is alleged that the seller has ordered the broker to return the money to the plaintiff, but that is not an allegation of a contract requiring such performance, so that the plaintiff cannot rest its claim on a contract made for its benefit. It is apparent that the broker may have a claim upon this earnest money, which, although in the custody of the broker, belongs to the seller.

The simple facts alleged are that the plaintiff paid the seller a sum of money through the seller's agent, which the seller has ordered returned. This order to its broker does not relieve the seller of any obligation it may have to pay the plaintiff.

It is true that one of the derelictions of which a broker may be guilty, permitting revocation of his license, is "failure within a reasonable time to account for or to remit any moneys coming into his possession which belong to others." If the seller has a legal right to order its broker agent to make repayment to plaintiff and the broker refuses so to do, the seller might well have the right herein asserted by plaintiff against both the broker and its surety.

No facts have been alleged showing that the specific $1,000 is in the broker's possession, and that it belongs to this plaintiff.

The broker has not failed to account to the plaintiff for anything that belongs to it.

The action involved here by virtue of the demurrer is a cause of action against the surety for misconduct of the broker.

The general conclusions of law found in the allegations in the cause of action against the surety are not supported by any factual allegations bringing the surety within the purview of the statutes. It is alleged merely that the surety "has been informed of the continued course of misrepresentations, false promises, and dishonest dealings," but there is no allegation of the facts sustaining these conclusions connecting this plaintiff with them.

In S.D. Stanson, Inc., v. McDonald, 147 Ohio St. 191, 198,70 N.E.2d 359, 169 A.L.R., 760, it is stated:

"Before recovery may be had against such surety it must bealleged and proved that the party complaining has been damaged by some misrepresentation or fraud on the part of the real estate broker or by reason of the violation of the terms of the act. No such allegation is contained in the amended petition upon which this case was tried. Plainly a broker's surety may be held only for ex delicto acts of the broker. Here attempt is made to hold the surety as for an ex contractu act of the broker, i.e., for money had and received. Neither of the lower courts found there was any misrepresentation or fraud on the part of McDonald or any violation by him of any term of the act. Neither do we find that there has been any violation of the terms of the act by McDonald to justify holding the bonding company. We are not unmindful of the fact that the State Board of Real Estate Examiners suspended McDonald's license issued January 1, 1942, the year following the matters herein complained of.

"Section 6373-42, General Code, provides that the State Board of Real Estate Examiners may suspend, or revoke or refuse to renew any license at any time `where the licensee, in performing or attempting to perform any act as a real estate broker or real estate salesman or in any transaction involving the leasing or sale of an interest in real estate, is guilty of: * * *

"`(5) Failure within a reasonable time to account for or to remit any moneys coming into his possession which belong to others, or

"`(6) Any other conduct, whether of the same or a different character than hereinabove specified, which constitutes dishonest dealing.'"

It would be an unwarranted extension of liability under such a surety contract as is here involved to permit recovery against the surety in every case where a broker in an endeavor to preserve his just claims refused to obey some order by his principal not warranted by the terms of the contract to which the seller, purchaser and broker were parties.

The amended bill of particulars does contain allegations that the broker promised to return the money to the plaintiff, thus acknowledging the validity of its principal's order. The most that could be made of these allegations would be to justify an action for money had and received in favor of the plaintiff, exactly what in S.D. Stanson, Inc., v. McDonald, supra, was held not to bring the surety within the purview of the act.

It is true the plaintiff makes broad allegations of fraud and misrepresentation, but these are unsupported by factual allegations.

The Supreme Court, it will be noted, quoted from the section of the Code, permiting an action against a surety, but still the court did not recognize such provisions as being within the purview of the bond as applied to facts similar in effect to those herein involved.

Reference is made to the case of Clark v. Patterson, 213 Cal. 4, 300 P. 967, 75 A.L R., 1124, to the A.L.R. annotation and to 6 A.L.R., 645.

It may be that certain statutes might incorporate within the penalty of the bond a situation here presented. Evidently, our Supreme Court does not consider this accomplished by the present statutes in Ohio.

I am not unmindful of the cases of Glens Falls Indemnity Co. v.Kirkpatrick, 46 Ohio App. 23, 187 N.E. 643; Glen FallsIndemnity Co. v. Bradfute, 44 Ohio App. 189, 184 N.E. 770; andSigler v. Massachusetts Bonding Ins. Co., 71 Ohio App. 425,50 N.E.2d 390, all of which were decided without the advantage of the decision in the Stanson case, decided December 4, 1946, which I consider overruled the conclusions reached by the Courts of Appeals.

It is my conclusion that, giving the amended bill of particulars its fullest and most favorable construction to plaintiff, a cause of action was not stated against the surety and the demurrer was properly sustained and the judgment should be affirmed.