Opinion
No. 37507
Decided March 20, 1963.
Real estate brokers — Person acting as broker or salesman, when — Statutes regulating real estate brokers and salesmen — Sections 4735.01 to 4735.23, Revised Code — Violated by broker, when — Failure to return money held in escrow — Liability of surety on broker's bond.
1. Where two agreements constitute but parts of a single transaction, both being negotiated by the same real estate broker between the same parties for the ultimate purpose of effecting a sale, and where, as to such single transaction, the entire transaction or an incidental part thereof is calculated to result in the sale, exchange, leasing or renting of any real estate, then the person negotiating such transaction for another, for a fee, and not being exempted, under the provisions of Section 4735.01, Revised Code, is acting as a real estate broker or real estate salesman.
2. The provisions of Sections 4735.01 to 4735.23, inclusive, Revised Code, are violated by a broker, acting as a broker, who fails, for an unreasonable time, to return money held by him in escrow after his duty to repay has arisen.
3. The surety on a real estate broker's bond is liable in damages to the person injured by a violation of Sections 4735.01 to 4735.23, inclusive, Revised Code, by such broker, acting as a broker.
APPEAL from the Court of Appeals for Franklin County.
The plaintiff, Dorothy Divito, instituted this action in the Common Pleas Court against the defendant, Buckeye Union Casualty Company, as surety upon the real estate broker's license bond required by Section 4735.12, Revised Code, of Everett M. Young.
On May 24, 1957, on a form bearing the heading of "Everett M. Young, Broker," and designated as a "purchase agreement," Dorothy Divito agreed to purchase from Vera Lous Holland a "business" described in such agreement, as follows:
"Known as the Trading Post Carry Out being fully equipped with a C-2 license located at 246 E. Gay St., Columbus, Ohio, at a consideration of (5,500) fifty-five hundred dollars on the following terms: (2,000) two thousand down balance to be paid at rate of one hundred dollars mo. with 6% interest until amortized.
"Possession: Upon transfer of the permit or by mutual agreement.
"* * *
"All meters, lighting fixtures, fly screens, shades and awnings, belonging to grantor now in said premises, to go to grantee without extra charge. Rentals and interest to be adjusted to date of delivery of deed. Insurance policies to be adjusted to date of delivery of deed and paid by grantee for unexpired term of said policies.
"* * *
"Remarks: Seller to furnish a complete bill of sales all equipment to be free and clear also give a bulk sales affidavit."
The agreement was signed by Dorothy Divito and by Vera Lous Holland. It also contained a clause whereby Vera Lous Holland agreed to pay to the firm of Everett M. Young "your regular commission, 10% for securing the herein purchaser for my property."
The amended petition alleges that in the process of attempting to sell such business to plaintiff, the broker, Everett M. Young, also prepared, or had prepared, what was designated as a management agreement, executed on June 4, 1957, under the terms of which Vera Lous Holland was designated as owner and Dorothy Divito as manager.
This agreement provided that the manager, Dorothy Divito, was to take over the operation of the business known as the Trading Post, located at 246 E. Gay Street, and belonging to the owner, Vera Lous Holland.
The management agreement provided further:
"Adjustment of rent and utilities shall be made as of the 4th day of June, 1957, when the said Dorothy Divito, becomes manager of the business, and when the business is returned to the owner, said rent and utilities are to be adjusted as of the date the owner retakes management of the business. The manager will pay all rent and utilities on a pro-rated basis for such period as she acted as manager of the business for the owner.
"It is agreed that the owner will furnish an inventory of the stock and equipment to the manager upon her assuming the business as such manager, and that upon return of the business to the owner as provided herein, the manager will furnish to the owner a like inventory, and any differences in the said inventories shall be adjusted to the party receiving the lesser inventory at the time of the return.
"It is agreed that any gross profits made by the business during the period when it is operated by the said manager shall belong to the manager as consideration for her labors, however, when this business is to be returned to the owner, the said manager shall be liable to the owner for any losses incurred during the period of her operation of the business."
In regard to the funds over which this lawsuit has arisen, the agreement provided as follows:
"If during the time the manager is operating the business as manager she causes or permits any violation which results in the loss of said C-2 permit or its suspension for a period in excess of thirty (30) days, then and in that event said manager shall forfeit the sum of two thousand dollars ($2,000) now being held by Everett Young, as escrow agent."
The management agreement then read:
"In witness whereof, the parties have hereunto set their hands to this contract of sale and purchase on this 4th day of June, 1957, at Columbus, Ohio."
Thereafter Dorothy Divito managed the business until June 28, 1957, at which time she decided to request the Department of Liquor Control to withdraw the pending application for transfer of the C-2 license from Mrs. Holland to herself. She decided that the business had been misrepresented to her, and that she would not continue to manage it and would rescind the contract of purchase and sale which was still pending. In the meantime there had been compliance with the condition upon the violation of which the $2,000, placed in escrow with Everett M. Young, was to be forfeited.
Plaintiff demanded the $2,000 from Young, but he failed and refused to pay her. Thereafter she brought suit and recovered a judgment against Young for the sum of $2,000 which she had placed in his hands as escrow agent. Plaintiff's judgment remains unsatisfied. She demanded payment from defendant, Buckeye Union Casualty Company, as surety on Young's real estate broker's bond. Such surety admitted execution of the bond but refused payment and denied liability.
Plaintiff then commenced this action and alleged that the conditions of the bond had been broken by Young. The Common Pleas Court reached the conclusion that Young was not acting as a real estate broker in connection with the transaction and awarded judgment in favor of the defendant, Buckeye Union Casualty Company, and against the plaintiff, Dorothy Divito. That judgment was affirmed by the Court of Appeals.
This cause is before this court pursuant to the allowance of a motion to certify the record.
Mr. Russell H. Volkema and Mr. Robert L. Summers, for appellant.
Mr. John C. Wheatley, for appellee.
It is not questioned that Everett M. Young was licensed as a real estate broker during the entire year, 1957, and that his bond, in the amount of $5,000, was properly executed and fully conforms to statutory requirements. Neither is there any question as to the obligation of Young to make payment to the plaintiff of $2,000 in trust funds wrongfully withheld, for which amount plaintiff, in a previous action, recovered judgment against Young.
The ultimate issue, upon which disagreement arises, is whether Young was acting as a real estate broker, so as to be subject to the provisions of Sections 4735.01 to 4735.23, inclusive, Revised Code, in connection with the transaction in which he received the $2,000 to be held by him in escrow.
The bond, upon which the defendant became surety for Young, was issued in accordance with the provisions of Section 4735.12, Revised Code, which provides in part:
"The bond * * * shall be conditioned upon the faithful observance of Sections 4735.01 to 4735.23, inclusive, of the Revised Code, and shall also indemnify any person who may be damaged by a failure on the part of the applicant for a real estate broker's license to conduct his business in accordance with the requirements of such sections. Any person claiming to have been damaged by any misrepresentation or fraud on the part of a real estate broker or by reason of the violation of the terms of Sections 4735.01 to 4735.23, inclusive, of the Revised Code, may maintain an action at law against the broker making such representations or perpetrating such fraud or violating such sections, and may join as parties defendant the sureties on the bonds provided for in this section. Such bonds shall be in the form prescribed by the board and approved by it."
Section 4735.01, Revised Code, defines the terms, "real estate broker," "real estate" and "real estate salesman." Pertinent parts thereof are as follows:
"(A) `Real estate broker' includes any person * * * who for another and for a fee, commission, or other valuable consideration, or who with the intention or in the expectation or upon the promise of receiving or collecting a fee, commission or other valuable consideration, sells, exchanges, purchases, rents, or leases, or negotiates the sale, exchange, purchase, rental, or leasing of, or offers or attempts or agrees to negotiate the sale, exchange, purchase, rental, or leasing of, or lists or offers or attempts or agrees to list * * * any real estate, or the improvements thereon; * * * or who advertises or holds himself, itself, or themselves out as engaged in the business of selling, exchanging, purchasing, renting, or leasing real estate, or assists or directs in the procuring of prospects or the negotiation or closing of any transaction, * * * which does or is calculated to result in the sale, exchange, leasing, or renting of any real estate. * * *
"(B) `Real estate' includes leaseholds as well as any and every interest or estate in land, whether corporeal or incorporeal, whether freehold or nonfreehold, and whether said land is situated in this state or elsewhere.
"(C) `Real estate salesman' * * *
"Any person * * * who for another, in consideration of compensation, by fee, commission, salary, or otherwise, or with the intention or in the expectation or upon the promise of receiving or collecting a fee, does, offers or attempts or agrees to engage in, any single act or transaction contained in the definition of a real estate broker in this section, whether said act be an incidental part of a transaction, or the entire transaction, shall be constituted a real estate broker or real estate salesman under Sections 4735.01 to 4735.23, inclusive, of the Revised Code." (Emphasis added.)
Several cases from other jurisdictions are cited in an opinion of the Court of Appeals for Cuyahoga County, in the case of DeMetre v. Savas, 93 Ohio App. 367, but, as stated therein, those cases in final analysis are of little assistance due to the comprehensiveness of Section 4735.01, Revised Code, which by its express terms is intended to include any single act or transaction, whether such act be an incidental part of or the entire transaction. In final analysis, our decision must rest upon a reasonable construction of the applicable provisions of the Ohio statute.
In the instant case, there were two agreements, both negotiated by Young, between Divito and Holland. Together, they constituted continuing negotiations between the same parties to effect the sale of the business known as the "Trading Post," located at 246 E. Gay Street, fully equipped with a C-2 license. As specified therein, the purchase agreement provided that all meters, lighting fixtures, etc., belonging to the grantor now in such premises, shall go to the grantee, that rentals and interest shall be adjusted to date of delivery of deed, and that insurance policies shall be adjusted to date of delivery of deed. The agreement of sale refers to delivery of a deed from which transfer of an interest in real estate is inferred, although the exact nature of the interest to be transferred was not specified. The agreement also calls for the business to be fully equipped with a C-2 permit, and such permits are issued only for the place described in the permit, which in this case means that the business could be carried on only at 246 E. Gay Street. See Section 4303.27, Revised Code.
From the evidence it is clear that this was the sale of a going business to be continued at the designated location for which the C-2 permit, with which it was specified as being equipped, had been issued. This sale was dependent upon the purchaser acquiring through the seller, who was to give possession, at least the right of occupancy of the real estate. We conclude, as a matter of law, that the purchase agreement in this instance was a transaction calculated to result in the sale, exchange, leasing or renting of the real estate within the meaning of Section 4735.01, Revised Code.
When the management agreement was entered into, the purchase agreement was still pending, the C-2 license not having been transferred and possession not having been given or payment made in full. The management agreement was but an interim agreement entered into, as a part of continuing negotiations, pending carrying out of the terms of the purchase agreement, and with the apparent purpose of enabling Divito to operate the Trading Post as manager while the C-2 license was still in the name of Holland, but providing the same compensation and advantages of profit or loss for Dorothy Divito as if she had in fact become the owner.
We find only a single transaction comprised of the purchase agreement and a supplemental interim management agreement, all negotiated by Young with the expectation of receiving a fee and calculated, as a part thereof, to result in the sale, exchange, lease or rental of real estate.
The clear legislative intent of Section 4735.01, Revised Code, was that if, in a single transaction, such entire transaction or an incidental part thereof results or is calculated to result in the sale, exchange, leasing or renting of any real estate, then the person negotiating such transaction for another, for a fee, and not being exempted under the provisions of that section, is constituted a real estate broker or real estate salesman under Sections 4735.01 to 4735.23, inclusive, Revised Code.
While acting as a real estate broker within the meaning of the statute, Young became subject to the provisions of Sections 4735.01 to 4735.23, inclusive, Revised Code. Section 4735.18, Revised Code, authorizes the suspension or revocation of a license or the refusal to renew any license at any time where the licensee, in performing or attempting to perform any act as a real estate broker, is guilty, inter alia, of "failure within a reasonable time to account for or to remit any money coming into his possession which belongs to others."
After Young accepted the $2,000 in escrow as a part of the negotiations in a transaction in which he was acting as real estate broker, the money placed in his hands became a trust fund, placing upon him the obligation of a fiduciary. The plaintiff herein, who placed said monies in Young's hands, has recovered a judgment against him, which remains unsatisfied because of his failure to remit money coming into his possession which belongs to plaintiff. He has failed to conduct his business in accordance with the requirements of Sections 4735.01 to 4735.23, inclusive, Revised Code, and the defendant, as surety on his real estate broker's bond conditioned upon his observance of such sections, becomes liable, within the limits of the bond, to indemnify plaintiff for her loss.
Accordingly, the judgments of the Court of Appeals and of the Court of the Common Pleas, being contrary to law, are reversed, and final judgment is rendered in favor of Dorothy Divito against the Buckeye Union Casualty Company, the surety on Everett M. Young's bond, in the sum of $2,000, together with interest at 6 per cent per annum from December 16, 1958, the date plaintiff obtained judgment against Everett M. Young, which judgment is unsatisfied.
Judgment reversed and final judgment for appellant.
TAFT, C.J., ZIMMERMAN, MATTHIAS, GRIFFITH, HERBERT and GIBSON, JJ., concur.
RUTHERFORD, J., of the Fifth Appellate District, sitting by designation in the place and stead of O'NEILL, J.