Title: Ellison v. Alley
Citation: 842 S.W.2d 605
Docket Number: N/A
State: Tennessee
Issuer: Tennessee Supreme Court
Date: November 16, 1992

842 S.W.2d 605 (1992) J. Waymon ELLISON, Plaintiff-Appellee, v. David L. ALLEY, Sr., et. al., Defendants-Appellants. Supreme Court of Tennessee, at Knoxville. November 16, 1992. D. Scott Hurley, Knoxville, for defendants-appellants. John W. Cleveland, Arlene A. Cleveland, Sweetwater, for plaintiff-appellee. O'BRIEN, Justice. We granted appellant permission to appeal in this cause to address the singular issue of whether a real estate broker, found in breach of his fiduciary duty in the transaction of the sale of the client's property, is entitled to commission on the sale of such property. We begin our review mindful that this Court is bound by concurrent findings of fact by the chancellor and the Court of Appeals if such findings are supported by material evidence. T.C.A. 27-1-113. To that end, and because we grant appeal only to review the narrow issue noted, the facts of this case as found by the chancellor and adopted by the Court of Appeals are, in pertinent part, as follows. The trial court treated the defendant's "option" to purchase the plaintiff's farm as a listing contract because that is how the Alley's themselves used it; as a means of securing the right to sell the plaintiff's farm to the Myers. The defendants, when publishing notice of the transaction after the fact, showed the sale as a listing in order to demonstrate the size of their sales volume. The chancellor found in favor of the plaintiff, but awarded only nominal damages of $250.00. The nominal award was based upon the trial court's opinion that the plaintiff had received the fair market value for his property and that it had actually been the Myers family that had been damaged by paying $380,000 for a farm valued at $200,000. The Court of Appeals affirmed the chancellor's finding of breach of fiduciary duty and concurred with the chancellor's treatment of the "options" contract, based on the maxim "equity looks to the intent rather than to the form." Inman, Gibson's Suits in Chancery, Sec. 19 (7th ed.). However, the Court of Appeals modified the trial court's award of damages by determining the plaintiff was entitled to the defendant's profit less a reasonable real estate commission. We are in agreement with the finding of breach of fiduciary duty and the award to the plaintiff of the defendant's *608 profits. But, on the narrow issue upon which this appeal was granted, we find that the defendants are not entitled to a commission on the sale of the Ellison property. It is apparent that the defendants manipulated both the Myers and Ellison transactions in such a manner as to willfully, and wrongfully, conceal their true role and their intention to reap a $180,000 ill-gained profit from the sale of the property. It is well settled that the real estate agent acts as a fiduciary to the client. In any transaction or dealing related to such relationship, "the agent can in no way and under no circumstances act for himself or for any other than the principal without first making full and complete disclosure of the facts to the principal. He cannot profit by his failure to make such disclosure." Heard v. Miles, 32 Tenn. App. 410, 222 S.W.2d 848 (1949), cert. den'd, 18 June 1949. When a broker procures legal title to property, in violation of a fiduciary duty owed to the owner, equity constructs a trust out of the transaction. In such a case, the property owner is entitled to the profits wrongfully received by the broker in the transaction. Smith v. Hooper, 59 Tenn. App. 167, 438 S.W.2d 765 (1968), cert. den'd 1/20/69. The construction of such a trust is without regard to whether the principal received a fair price for the conveyance of the property. McNeill v. Dobson-Bainbridge Realty Co., 184 Tenn. 99, 195 S.W.2d 626 (Tenn. 1946). Likewise, "[w]here a broker's actions in a sale transaction amounts to bad faith or misconduct, the broker is not entitled to a commission on the sale." Hughey v. Rainwater Partners, 661 S.W.2d 690 (Tenn. App. 1983), Perm. to App. den'd 12/19/83; 1983; citing, Christians v. Town of East Ridge, 12 Tenn. App. 101 (1928), cert. den'd 1928; Powell v. Gilbert, 10 Tenn. App. 530 (1927), cert. den'd 1928. It is undeniable that the defendants acted in these transactions with bad faith and beyond the bounds of ethical conduct. To permit the defendants credit for a reasonable commission on the sale of the Ellison property would be no more than offering an undeserved reward for avarice. This cause is remanded for further proceedings consistent with this holding. Costs are assessed against the appellants. REID, C.J., and DROWOTA, DAUGHTREY and ANDERSON, JJ., concur.