Meitner v. State Real Estate Commission , 1 Pa. Commw. 426 ( 1971 )

Opinion by

Judge Ckumlish, Jb.,

Appellant, a licensed real estate broker since 1944, was also Assistant Treasurer of Cayuga Land Co., a Pennsylvania corporation involved in the real estate development known as Cresheim Manor in Philadelphia. Meitner functioned under the name Meitner Company at 6212 Ridge Avenue in Philadelphia. Cayuga Land’s offices were located at Northeast Avenue and Red Lion Road in Philadelphia and its sample home was at Cresheim Manor.

The complainants, Williams, in November, 1965, gave One Hundred Dollars in deposit on a lot in Cresheim Manor to appellant’s son, Alfred V. Meitner, Jr., who was working at the sample home. The younger Meitner is a licensed real estate salesman with his father and is also Assistant Vice President of Cayuga Land Co. Having made deposit the Williams entered into an agreement of sale with Cayuga Land, the terms of which, called for a One Thousand Dollar deposit which was not to be held in escrow. The balance of Nine Hundred Dollars was tendered by check drawn by a third party which was endorsed at the request of the younger Meitner to Cayuga Land. First Federal Sayings and Loan Association subsequently foreclosed its mortgage on the lot in question and Cayuga Land became insolvent and the Williams lost their deposit.

The State Real Estate Commission, after proper hearing, concluded that Meitner had failed to comply with the Real Estate Brokers’ License Act of May 1, 1929, P. L. 1216, as amended, 63 P.S. 431 et seq., because he had failed to place the Williams’ deposit in escrow. In addition, the Commission held that Meit-ner’s present location and business name did not correspond with his license in violation of Section 9 of the Act and Rule 6.9 of the Commission Rules and Regulations. As a result, Meitner’s license was revoked. Meitner, in this appeal, erroneously contends that he was not a broker in the Williams’ transaction but that he was merely an officer of the seller corporation.

He also challenges the severity of the Commission’s decision. With this we agree.

He contends he was not a broker in this transaction and relies upon his agreement with Cayuga Land Co., the pertinent parts of which follow. He was Assistant Treasurer of the company and as such would receive a percentage of the final profits of the Cresheim Manor project. He was not to receive any commission or remuneration based on any individual sale. A similar arrangement was made with his son. He contends that this insulates him from the Brokers’ Act in that he was not a broker nor did he represent himself to be one.

Section 2(a) of the Act defines “real estate brokers” as “all persons,... who, for another and for a fee, commission or other valuable consideration, shall sell, . . . or shall negotiate the sale, ... or shall hold himself out as engaged in the business of selling, . . . any real estate, interest in real estate, the property of another, . . .”. ' Subsection (b) of 2 defines a “real estate salesman” as one employed by a “real estate broker” who performs the functions in 2(a). Finally, subsection 2(c) exempts from the brokership of 2(a) sales of property owned by a broker.

. Had Meitner agreed with Cayuga Land to represent the company in the sale of its lots for a percentage of the company’s profits, there is no doubt that the Act would apply. It is apparent when looking at the agreement that Cayuga Land hoped to obtain the benefit of the Meitners’ brokerage expertise while at the same time insulating their transactions from the Brokers’ Act. The Cresheim Manor project was not truly intended to be a joint venture between Meitner and the Cayuga Land’s investors. Meitner, despite the corporate title accorded him, was essentially no more than the corporation’s personal real estate broker.

The courts of this Commonwealth have long held that officers of corporations are not deemed to be the owners of corporate property even to the extent that they are shareholders of the corporation. Monongahela Bridge Company v. Pittsburgh & Birmingham Traction Co., 196 Pa. 25, 46 A. 99 (1960).¹ This principle has been applied to the Brokers’ Act in holding that corporate property is not deemed to be the property of the corporation officer-broker for the purpose of the Section 2(c) exemption. Ludington v. Shelley, 67 Dauph. 164, 175 (1954). Therefore, despite the fact that Meit-ner was a corporate officer, his sales of corporate real estate were sales of real estate “for another”.

We cannot agree with the contention that because appellant was to be compensated by a percentage of the final profits rather than a set fee or a commission based on each transaction, he did not perform his brokerage activities for “valuable consideration”. The right to receive a percentage of future profits is without doubt the valuable consideration Meitner bargained for when he agreed to lend the Cayuga Land - corporation his brokerage expertise.

Alfred Meitner’s sales activities with Cresheim Man- or were brokerage activities within the meaning of and therefore subject to the provisions of the Brokers’ Act. Likewise, Alfred Meitner, Jr. remained a salesman in the employ of his father notwithstanding his individual corporate capacity. We hold, therefore, that there is ample evidence to support the Commission’s conclusion that Meitner was indeed a broker when he dealt with the Williams.

Meitner knew that escrow accounts were not established for sales in Cresheim Manor. Hence, he did not require his son, the salesman, to pay over all deposits to him. Instead, he avoided the true broker concept by having all checks endorsed directly to the credit of Cayuga Land.

These facts show a clear violation of Section 10(a) subsections 5, 11 (i) and 11 (ii) of the Act which provide:

“The commission . . . shall have the power temporarily to suspend or permanently to revoke licenses . . . when ... it shall find the holder . . . guilty.

(5) of any failure to account for, or to pay over monies belonging to others, which have come into his . . . possession arising out of a real estate transaction; or (11) of failure to comply with. the following requirement: (i) all deposits . . . accepted by every person bolding a real estate broker’s license . . . must be retained by sucb real estate broker pending consummation or termination of tbe transaction involved, and shall be accounted for in full amount thereof at the time of the consummation or termination, (ii) Every, real estate salesman promptly on receipt by him of a deposit ... on any transaction in which he is engaged on behalf of his broker-employer, shall pay over the deposit to the real estate broker.”

The escrow duties of the broker and salesman cannot be waived by contract. Rule 16.1 of the Rules and Regulations of the Real Estate Commission. The Williams contract with Cayuga Land could not and did not prevent the violations.

The evidence before the Commission also substantiates the findings that Meitner has violated Sections 9(a) and 7(d) of the Act and Rule 6.9 of the Commission by establishing his office at an unauthorized place under an improper name. Appellant has not challenged the verity of these findings.

He does say, however, that, in spite of these violations, the Commission’s revocation of his license was a harsh penalty unwarranted by the circumstances. We agree. Section 10 of the Act, which Meitner has violated, is penal in nature, Trott v. Hild, 190 Pa. Super. 85, 151 A. 2d 832 (1959), and the Commission can impose suspension or revocation of the license. But the exercise of this discretionary power must be reasonable. If there is a manifest abuse of discretion in the imposition of the penalty, this Court is duty bound to order a reconsideration so that justice will prevail. State Beal Estate Commission v. Campbell, 85 Dauph. 233, 39 D. & C. 2d 749 (1966).

While Meitner is responsible for the violations by himself and his son,² we find that liability in this unique type of operation under the Brokers’ Act was perhaps uncertain. These violations could have been the result of an honest belief that escrow accounts were unnecessary. While this does not excuse the violation, it does mitigate it and we cannot agree that this conduct was so fraudulent that it warranted revocation of the license upon which appellant’s livelihood depends.

Alfred Meitner has been found guilty of the aforementioned violations of the Real Estate Brokers’ License Act and. the Rules of the Real Estate Commission, and properly so. Appropriate sanctions or penalties are therefore in order. However, this remedial finding is excessive.

For the foregoing reasons, we enter the following

ORDER

Now, March 19, 1971, the appeal of Alfred Y. Meit-ner from an adjudication of the State Real Estate Commission is hereby sustained to the extent that this matter is hereby remanded to the State Real Estate Commission for further proceedings, including the taking of further testimony, if necessary, and rendering a further adjudication consistent with this opinion.

1 To the same effect see: Goetz’s Estate (No. 1), 236 Pa. 630, 85 A. 65 (1912) ; Ambridge Borough v. Philadelphia Co., 283 Pa. 5, 129 A. 67 (1925) ; Commonwealth v. Sunbury Converting Works, 286 Pa. 545, 134 A. 438 (1926) ; Homestead Borough v. Defense Plant Corp., 356 Pa. 500, 52 A. 2d 581 (1947).

2 Section 14 of the Keal Estate Brokers’ Act, 63 P.S. 444 provides: “No violation of any of the provisions of this act on the part of any real estate salesman, or other employee of any licensed real estate broker, shall be ground for the revocation of the license of the employer of such salesman or employee, unless it shall appear upon the hearing had that such employer had guilty knowledge of such violation. A course of deaUng shown to have been followed by such employee shall constitute prima facie evidence of such knowledge upon the part of his employer.”