Case Name: Lucille T. Owen, Et Al., Etc. v. Weldon D. Shelton, Etc.
Court: Supreme Court of Virginia
Jurisdiction: Virginia
Decision Date: 1981-04-24
Citations: 221 Va. 1051
Docket Number: Record No. 790564
Parties: Lucille T. Owen, Et Al., Etc. v. Weldon D. Shelton, Etc.
Judges: 
Reporter: Virginia Reports
Volume: 221
Pages: 1051–1058

Head Matter:
Richmond
Lucille T. Owen, Et Al., Etc. v. Weldon D. Shelton, Etc.
April 24, 1981.
Record No. 790564.
Present: All the Justices.
James M. Minor, Jr. (Terrence R. Batzli; Minor, Forb & Batzli, P.C., on brief), for appellants.
Chandler A. Nelson (Don P. Bagwell; Tuck, Bagwell, Dillard, Mapp & Nelson, on brief), for appellee.

Opinion:
POFF, J.,
delivered the opinion of the Court.
This is an appeal from an order granting summary judgment to a real estate broker in a suit brought by his principals seeking damages for breach of the brokerage contract and a refund of the brokerage commission. No evidentiary hearing was held, and we consider the appeal upon the pleadings and an agreed statement of facts filed pursuant to Rule 5:9 (c).
Among the assets of the estate of Lillie M. Thomasson, deceased, was a tract of land containing 422.64 acres. On October 1, 1976, Lucille Owen and Dorothy T. Estes, executrices of the estate, and C. E. Estes, testamentary trustee (collectively, the plaintiffs), engaged Weldon D. Shelton, individually and trading as Weldon D. Shelton Realty (the defendant), to act as their broker for the sale of the property. The brokerage contract required the plaintiffs to pay a commission "not to exceed five percent of the selling price, in the event the defendant was able to procure a purchaser... and consummate a sale."
As a result of the defendant's efforts, David A. Wilboume and Sandra W. Wilbourne agreed to buy the property. The plaintiffs and the Wilbournes executed a sales contract on November 13, 1976 fixing December 13, 1976 as the date of closing. The Wilbournes were unable to arrange financing, and the sale did not close on that date. The plaintiffs then instructed the defendant "to collect interest from the purchasers, on the amount of the purchase price... for the period of time from December 13, 1976 . . until such time as the transaction was actually consummated" and "not to close said transaction unless, and until, said interest was paid."
The Wilbournes and their attorney met with the defendant on April 19, 1977 to consummate the purchase. The attorney handed the defendant a letter and a cashier's check for $4,386.66, representing interest on the purchase price "for the period of time during which the consummation . . . had been delayed by said purchasers." The letter stated in part:
"We are making this payment under protest in order to go ahead and close the transaction today. We deny that the sellers are entitled to any interest, and the purpose of this letter is to put them on notice that the interest is paid merely to expedite the closing. Mr. Wilbourne reserves his right to demand refund of this interest or to litigate the matter."
Without contacting the plaintiffs, the defendant accepted the cashier's check and the purchase price, delivered the plaintiffs' deed to the Wilbournes, and, retaining $9,400.00 as his commission, disbursed the proceeds of the sale. In July 1977, the Wilbournes sued the plaintiffs for recovery of the interest payment.
In their motion for judgment in the instant case, the plaintiffs alleged that the defendant had "breached his contractual and fiduciary duties", that he had forfeited his commission, and that he was liable to them for "$3,820.59, in attorney's fees, costs and expenses" incurred in their successful defense of the Wilbourne suit, "all to the damage of the plaintiffs in the sum of $13,220.59, with interest thereon at the legal rate from April 19, 1977".
The parties filed briefs in support of their respective motions for summary judgment. Assigning no grounds on the record, the trial court granted the defendant's motion and dismissed the plaintiffs' suit.
On appeal, the plaintiffs contend that the defendant violated his contractual obligations and that they are thus entitled to recover the commission retained by the defendant.
"[A] real estate broker occupies a fiduciary relation to his principal and so long as that relation continues is under a legal obligation, as well as a high moral duty, to give his principal loyal service."
Olson v. Brickies, 203 Va. 447, 450, 124 S.E.2d 895, 898 (1962).
As the plaintiffs say, one of the obligations a broker owes is "the duty to follow his principals' instructions." The defendant was instructed not to close the sale until interest accrued during the delay in closing had been paid. The statement of facts discloses that the defendant followed the letter, if not the spirit, of those instructions.
But a broker's obligation to his principal is broader than the duty to follow instructions. In Mitchell v. Hughes, 143 Va. 393, 403, 130 S.E. 225, 228 (1925), and again in Duncan v. Barbour, 188 Va. 53, 61-62, 49 S.E.2d 260, 264 (1948), we approved the following rule announced in Veasey v. Carson, 177 Mass. 117, 120, 58 N.E. 177, 177 (1900):
"The general rule is well settled that a broker must act with entire good faith towards his principal, and he is bound to disclose to his principal all facts within his knowledge which are or may be material to the matter in which he is employed, or which might influence the principal in his action, and, if he has failed to come up to this standard of duty, he cannot recover."
Hence, incorporated in every contract between a fiduciary and his principal is an obligation, imposed by law upon the fiduciary, to disclose anything known to him which might affect the principal's decision whether or how to act. And, like the duty to follow instruc tions, the duty to disclose continues "so long as [the fiduciary] relation continues". Olson v. Brickles, supra. The defendant contends that "the relationship of principal and agent. . . terminated on or about November 13, 1976, when the contract was executed between the buyer and the seller." We do not agree that the duty to disclose terminated at that point. Since the brokerage contract provided that the commission was due "in the event the defendant was able to procure a purchaser . . and consummate a sale", the fiduciary relationship and the duties it entailed continued until the transaction was fully consummated.
When the defendant received the attorney's letter, he learned that the purchasers challenged the plaintiffs' entitlement to interest and that they reserved the right to litigate the question. As a real estate agent, presumably experienced, the defendant knew, or should have known, that these were circumstances which might influence his principals' decision whether to close. The defendant was also aware that, under the terms of his contract, failure to consummate the sale would defeat his right to a commission. So, with the purchase money in hand, he closed the sale, deducted a commission, and disbursed the proceeds, all without making the disclosure the law requires. We conclude that the defendant violated his fiduciary duty to the plaintiffs.
The price of a violation of the duty to disclose is forfeiture of the broker's right to compensation. Duncan v. Barbour, supra, 188 Va. at 63, 49 S.E.2d at 265. See also Bell v. Real Estate Corp., 206 Va. 853, 860, 147 S.E.2d 277, 282 (1966). This rule illustrates the high regard the law holds for the fiduciary relationship, founded as it is upon one man's trust in the integrity and fidelity of another. The purpose of the rule is more prophylactic than remedial; it is applied, not to compensate the principal for an injury, but rather to discipline the fiduciary in the conduct of the office entrusted to him. See Ferguson v. Gooch, 94 Va. 1, 8-9, 26 S.E. 397, 400 (1896). Applying the rule here, we hold that the defendant forfeited his right to a commission.
The plaintiffs also claim damages for attorney's fees, costs, and expenses incurred in their successful defense of the Wilbourne suit.
Absent a contractual commitment, a successful litigant in an action ex contractu is not entitled to recover attorney's fees incurred in that action, and it appears that this rule was applied against the plaintiffs in the Wilbourne suit. But, we have held that "where a breach of contract has forced the plaintiff to maintain or defend a suit with a third person, he may recover the counsel fees incurred by him in the former suit provided they are reasonable in amount and reasonably in curred." Hiss v. Friedberg, 201 Va. 572, 577, 112 S.E.2d 871, 876 (1960). See also Cemetery Consultants, Inc. v. Ware, 211 Va. 784, 180 S.E.2d 528 (1971).
Here, the plaintiffs' claim is based upon breach of the brokerage contract. As we have said, the defendant's duty to disclose was incorporated by operation of law in that contract. The defendant violated that duty and accepted the interest payment which he knew might, and which in fact did, become the subject of litigation. As the result of the defendant's acts and omissions, the plaintiffs were compelled to incur substantial expenses in defending the Wilbourne suit. We hold that the plaintiffs are entitled to recover those expenses as damages for breach of contract.
That is not to say that the plaintiffs are necessarily entitled to recover all they claim; under the rule in Hiss, litigation expenses are recoverable only to the extent they "are reasonable in amount and reasonably incurred." The judgment will be reversed, the plaintiffs' motion for judgment will be reinstated on the docket, and the case will be remanded for further proceedings. Upon remand, as requested by the plaintiffs the trial court will determine the amount of expenses recoverable under the rule in Hiss and enter judgment for the plaintiffs for that amount and for the amount of the commission retained by the defendant.
Reversed and remanded.
The plaintiffs claim "$3,820.59, in attorney's fees, costs and expenses" incurred in defense of the Wilbourne suit to recover the $4,386.66 interest payment.