Opinion
No. 76-748
Decided December 1, 1977. Rehearing denied both parties December 15, 1977. Certiorari granted February 21, 1978.
In action alleging real estate agent breached fiduciary duties in his sale of restaurant and bar, judgment was entered in favor of the plaintiffs, and defendants appealed.
Judgment Modified
1. PRINCIPAL AND AGENT — Fiduciary Relationship — Exists — Agent — Cannot Act — Independent Buyer — Unless — Complete Disclosure Made. When the usual fiduciary relationship of principal and agent already exists, the agent cannot properly deal with his principal as an independent buyer, unless and until he has made a complete disclosure of all facts concerning his principal's property which he has had or has acquired during the fiduciary relationship.
2. BROKERS — Breach of Fiduciary Relationship — Source — All Damages — Relationship Terminated — Before — Broker Became Principal — Trial Court Findings — Cannot Stand. In action arising from series of transactions relative to sale of restaurant and bar in which real estate broker became financially involved in support of purchaser who ultimately defaulted, all of the alleged damages sustained by the sellers depended upon the broker's breach of a fiduciary relationship, but that relationship had ceased before the broker became involved as a principal; and thus, the trial court's findings in favor of the sellers on their breach of fiduciary claim cannot stand.
3. ACCORD AND SATISFACTION — Buy-Back Agreement — Subsequent Indemnity Agreement — Entered With Knowledge — Outstanding Debts — Affirmed — Substitution of Agreement — Earlier Promissory Note. Where sellers of certain business property subsequently entered agreement with real estate broker who had become financially involved in the purchase providing that broker would sell back his interest to the property in return for cancellation of his note, and where they thereafter, with knowledge that certain business debts were outstanding, entered an indemnity agreement with the broker, plaintiffs thereby affirmed the substitution of the agreement as an accord and satisfaction for the broker's note.
4. Absent Full Understanding — May Be Set Aside — Knowledge — Material Facts — Affirms the Transaction — Becomes Binding. While an accord and satisfaction may be set aside by one who enters into such an agreement without a full understanding of the material facts, nevertheless, if after learning the facts, he affirms the transaction, it is effectual and binding upon him.
5. INDEMNIFY — Precise Damages — Undeterminable — Evidence Presented — Undisputed Direct Testimony — An Amount Owed — Requirement — Judgment Enter — That Amount. Although the precise amount of damages due plaintiffs under indemnity agreement they had entered with defendant could not be determined from the evidence, there was undisputed direct testimony of an amount owed, and thus, under such circumstances, plaintiffs are not to be deprived of recovery of the amount owing under the agreement, accordingly judgment must be entered for the undisputed amount testified to.
Appeal from the District Court of Grand County, Honorable Claus J. Hume, Judge.
Stern, Quinn Newton, P.C., Ronald S. Stern, for plaintiffs-appellees-cross appellants.
John C. Doherty, Esq., Pferdesteller, Vondy, Horton Worth, P.C., Anthony L. Worth, for defendants-appellants.
Richard and Janet Wheeler filed suit against Carl F. Rabe, Inc., a real estate company, and against Carl Rabe, individually, contending that defendants violated their fiduciary duties in the sale of plaintiffs' restaurant and bar. Plaintiffs sought damages and in addition sought to have a promissory note executed by Rabe and payable to plaintiffs, reduced to judgment. Defendants generally denied the allegations of the complaint and affirmatively pled accord and satisfaction. After trial to the court, judgment was entered in favor of plaintiffs in the amount of $62,878.89. We modify the judgment.
Plaintiffs listed their property in Kremmling, Colorado, for sale with the defendant corporation, a real estate company owned and operated by Carl Rabe. A buyer, Pierce, represented by Rabe as financially responsible, signed a contract to purchase. When Pierce failed to appear to two closings of the sale, plaintiffs became apprehensive. The transaction was then modified so that when the closing finally occurred, the purchaser advanced no funds toward the sales price. Rabe himself advanced $10,000 cash, waived his $15,000 commission, and signed a note payable to plaintiffs for an approximate $25,000 discount on the purchase price. The property was transferred to Pierce, who signed a note payable to Rabe for the purchase price less the amount of an assumed loan. Pierce operated the business for a short time and then disappeared from the scene. Rabe took over the business, operated it without success, and made only two payments to plaintiffs on his note.
Subsequently, an agreement was drawn, titled "Agreement for Assignment of Security," dated February 19, 1974, which provided that Rabe would sell his interest in the property back to plaintiffs and that plaintiffs would cancel and deliver Rabe's note back to him. Plaintiffs were to take immediate possession and operate the property for Rabe until March 4. The papers necessary to consummate the transactions were to be held in escrow until March 4, 1974, presumably so that creditors could be notified.
Rabe agreed that there would be no liabilities against the property except a financing statement which had been a lien on the property at the time plaintiffs originally sold the property.
The escrow papers and possession were apparently delivered March 4, 1974. Later, the parties executed an "Indemnity Agreement" dated April, 1974, wherein Rabe agreed to "pay any and all debts or liabilities of any nature, . . . whether or not due and payable," except the original financing statement, and agreed to protect and indemnify and hold plaintiffs harmless in respect of any and all loss, damage, or expense occasioned by such debts or liabilities, including reasonable attorneys' fees incurred in defending any action commenced by any creditor in collecting such debts. Plaintiffs have since re-sold the property.
I.
Most of the trial was consumed with evidence relative to Rabe's fiduciary relationship to plaintiffs and the representations he or his salesman made concerning Pierce's financial responsibility. Rabe's derelictions, if any, however, in investigating and reporting on Pierce, are not properly transferable to the later transactions between Rabe and Wheeler or to any breach of those later contracts. At the closing, Rabe became involved in the sale as a principal, putting up $10,000 cash and personally signing a note to plaintiffs, in addition to waiving his commission for acting as broker in a real estate transaction.
[1] In Williams v. Wagers, 117 Colo. 141, 184 P.2d 497, our Supreme Court has clarified the conditions necessary for an agent to deal with his principal as another principal:
"When the usual fiduciary relationship of principal and agent already exists, it is evident that the agent cannot properly deal with his principal as an independent buyer . . . unless and until he has made a complete disclosure of all facts concerning his principal's property which he has had or has acquired during the fiduciary relationship, so that both parties can be put in position where they can deal with each other on equal terms and with all facts possessed by the agent disclosed to his principal."
Here, the trial court specifically found that Rabe was "actively involved as a participant" in the sale; that the Wheelers closed the sale because they felt secure in having Rabe personally responsible for the payment; and, that "Rabe personally assured plaintiffs that he would pay the note to them irrespective of what might ultimately happen." Thus, plaintiffs were dealing with Rabe as a principal in the transaction, and any damages they may allege must be sought under the note or the later Agreement for Assignment of Security or Indemnity, not under the terminated original principal-agent relationship. In addition, even if Rabe had continued as the Wheelers' agent, he was free to deal with them as a principal because of his full disclosure of the financial arrangements made at the closing. There is no question here of the agent's concealing the fact that he was actually acting as principal and thus violating his agency. Lestoque v. M. R. Mansfield Realty, Inc., 36 Colo. App. 32, 536 P.2d 1146; M.S.R. Inc. v. Lish, 34 Colo. App. 320, 527 P.2d 912.
[2] Accordingly, because all of the alleged damages depend upon the breach of a defuciary duty arising out of the agency relationship, which relationship ceased before the first closing at which Rabe became involved as a principal, because at that time there was no evidence of a change of position by plaintiffs or any damages incurred by them, the evidence does not support the findings of the trial court, and the complaint must be dismissed as to the claims for relief which depend on fiduciary duty.
II.
In addition to claims for breach of fiduciary duty, plaintiffs seek relief under the note given by Rabe at the first closing, even though the Agreement for Assignment of Security provided that the note be cancelled and an additional Indemnity Agreement between plaintiff and Rabe was subsequently signed. Plaintiffs contend that the Agreement for Assignment of Security is an executory accord without satisfaction. They maintain that since the alleged outstanding debts covered by the Indemnity were not paid, they are entitled to payment on the underlying promissory note, which would otherwise have been cancelled by the Agreement for Assignment of Security. Rabe contends that the Agreement and Indemnity constitute an accord and satisfaction of the note. We agree with the latter contention.
[3] The Agreement may not itself satisfy the requirements of an accord and satisfaction because it is not expressly denominated as one. See Hinkle v. Basic Chemical Corp., 163 Colo. 408, 431 P.2d 14. The additional factors, however, of the cancellation of the original note by the Agreement and the later Indemnity satisfy the requirements of Hinkle that there be sufficient evidence of an intent to discharge the original debt by the giving of the writing itself. See Adams v. White, 173 Colo. 51, 476 P.2d 36.
Furthermore, the pretrial order establishes that the Agreement and Indemnity were intended to take the place of the note:
"Plaintiffs contend that the Agreement for Assignment of Security was initially vitiated by the breaches of the warranty contained therein and that an attempted accord and satisfaction [the indemnity] is null and void since there was never satisfaction. Plaintiffs therefore contend that they are entitled to payment on the promissory note which would otherwise have been payable by the Agreement for Assignment of Security." (emphasis added)
Consequently, we hold that, as a matter of law, by accepting the Indemnity Agreement after they knew of the purported outstanding debts, plaintiffs affirmed the substitution of the Agreement for Assignment of Security in place of the note.
[4] While an accord and satisfaction may be set aside by one who enters into such an agreement without a full understanding of the material facts, nevertheless, if after learning the facts, he affirms the transaction, it is effectual and binding upon him. See Metropolitan Bank v. Cox, 134 Colo. 260, 302 P.2d 188. In this case, plaintiffs knew of the supposed debts before they agreed to accept the Indemnity from Rabe, and thus they may not now disaffirm that acceptance.
At the commencement of the trial in this action, Rabe stated that he would confess judgment upon being shown an itemization of outstanding bills owed by virtue of the indemnity agreement. But, at the conclusion of the evidence, the trial court found that plaintiffs had presented no competent evidence from which the court could find the amount owing under the security agreement.
[5] Although the precise amount cannot be determined from the evidence, there is undisputed direct testimony of an amount owed, and thus under the circumstances of this case, plaintiffs should not be deprived of recovery of the amount owing under the indemnity agreement. Peterson v. Colorado Potato Flake Mfg. Co., 164 Colo. 304, 435 P.2d 237.
While we agree that some of the testimony was vague, and in general terms, plaintiffs did testify without objection that they had paid $5,000 on bills that had been submitted to Rabe's agent for payment. In individual itemization, taking the lesser of figures when giving a range, and not counting many items for which no specific amount was given, the total amount is nearly five thousand dollars, and this amount should be awarded plaintiffs.
Additionally, the Indemnity Agreement provides for attorneys fees incurred by plaintiffs in defending any action or in collecting any amount due plaintiffs in accordance with the Indemnity Agreement.
Accordingly, the cause is remanded to the trial court with directions to vacate the judgment entered, to enter judgment in favor of plaintiffs and against defendant Rabe in the amount of $5,000, and to hold hearings and determine the amount of reasonable attorneys' fees due the plaintiffs for services in the trial court and this court in collecting said $5,000, and to enter judgment in favor of plaintiffs for the amount of attorneys' fees and costs found owing by defendant Rabe to plaintiffs.
JUDGE BERMAN and JUDGE KELLY concur.