Court Opinion

ID: 9705147
Source: CourtListenerOpinion
Date Created: 2023-08-26 00:58:01.652395+00
Date Added: 2024-06-11T18:22:08.292877
License: Public Domain

PER CURIAM:
In this case the trial court rescinded the parties’ real estate sales contract, cancelled the corresponding deeds of trust, and ordered the vendor and its agent (defendant-appellants) to return to the purchaser (plaintiff-appellee) her $7,000 down payment. The court also awarded appellee $3,500 in punitive damages. Briefly stated, appellee Branham entered into a sales contract with appellant, Urban Investments, *95Inc., for property located at 3715 Ninth Street, N.W. Soon after execution of the contract, appellee discovered that repairs (for which appellants were to be responsible) had not been made. She sought rescission of the contract and damages. The trial court granted her relief on the grounds that appellants breached their fiduciary duty to appellee, and that the resulting contract was unconscionable because of appellants’ fraudulent misrepresentations and superior bargaining position. After reviewing the record and the relevant law, we hold, first, that the trial court erred in concluding that appellants had a fiduciary duty to appellee. We disagree, moreover, with the trial court’s unconscionability ruling. Consequently, we reverse the judgment in appel-lee’s favor.
I
In January 1978, having recently inherited $20,000 from her husband, appellee Branham began looking for a home to buy. Branham, her son, and an acquaintance looked at a vacant house located at 3715 Ninth Street, N.W. The house was in a dilapidated condition, but Branham decided to purchase it anyway. Her acquaintance directed her to the office of A-l Realty, a wholly-owned subsidiary of appellant Urban Investments, which owned the Ninth Street property. At the office, Branham met appellant Elaine Willis, secretary of Urban Investments and an employee of A-l Realty. Branham told Willis that she wanted to buy the property if she would not have to put more than $7,000 down. Willis, after checking Branham’s bank reference, said that financing could be arranged if Branham deposited the $7,000. Commenting on the condition of the house, Willis told Branham that the necessary work would be completed in two to three weeks.
Six days later, on January 18, Branham, accompanied by her two grown children, returned to appellants’ office. Willis introduced Branham to Irvin Greenbaum, president of Urban Investments (and Willis’ brother). At that meeting, Branham entered into a contract to buy the property for $52,500, putting $7,000 down and arranging with appellants for two deeds of trust for the remainder. The trial court found it was “understood that [Branham] would move into the house on January 29, and that all necessary repairs would be completed by then.” The trial court also found that during negotiations, Greenbaum was in a superior position to exert his influence because of his status as an experienced real estate broker and his greater sophistication. Additionally, Branham was elderly and had a high school education, no business experience, and “little, if any, comprehension of the provisions of the various documents she signed.”
At the time the sales contract and deeds of trust were executed, Urban Investments held a deed to the property stating it was subject to the interests of Louis Johnson and Aleushia Johnson. Urban Investments also held two unrecorded quitclaim deeds conveyed by the Johnsons. After settlement, appellants recorded both the quitclaim deeds (thereby removing the cloud on the title) and the deed conveying the property to Branham. On January 29, Branham went to the house and found that the repairs had not been started. She demanded rescission of the contract and return of her down payment. Appellants countered with evidence consisting of repair bills and eyewitness testimony showing that the repairs were at least substantially complete one week later.
The trial court concluded that appellants owed a fiduciary duty to Branham and breached it by failing to advise her to obtain independent counsel, by not disclosing that the two quitclaim deeds were unrecorded at the time of settlement, and by not reaching some “understanding” as to the necessary repairs. The trial court, relying on the manner of the negotiations, also concluded that the contract was unconscionable.
II
The trial court predicated its damage award to Branham on appellants’ breach of *96a fiduciary duty of “fair dealing and full disclosure and the utmost protection of [Branham’s] interests in the transaction,” quoting Brown v. Coates, 102 U.S.App.D.C. 300, 302, 253 F.2d 36, 38 (1958). Specifically, the court said that no “competent and honest individual, seeking to protect the interests of the plaintiff,” would “permit” her to sign the contract and settle without reaching an agreement about the necessary repairs, and without advising her to initiate a title search by a competent examiner or to obtain an independent appraisal. Certainly it is true that, if appellants had a fiduciary relationship with Branham, they must be held to a strict duty to act with utmost good faith and loyalty, in furtherance of her interests. The trial court, however, while not misconstruing the nature of a fiduciary duty in this context, nonetheless erred in deciding that appellants had a fiduciary duty to the purchaser here. We conclude the evidence is insufficient to support a finding that a special confidential relationship was established between appellants and Branham requiring appellants to treat the sale as anything other than an ordinary business transaction.
The trial court is correct that, under well settled principles of law, “a broker owes his principal the highest fidelity and is by the obligations of his trust bound to inform the principal fully of every development affecting his interest.” Jay v. General Realties Co., 49 A.2d 752, 755 (D.C.Mun.App.1946) (suit by principal for recovery of secret profit does not have to be based on extreme ground of fraud; it is sufficient if broker did not give principal scrupulous fidelity that law demands); 12 Am.Jur.2d Brokers § 84, at 837 (1964). Because a broker is charged with protecting and advancing the principal’s interests, a broker thus may not serve both parties to a transaction unless, under certain circumstances, the parties fully and freely have consented to the dual representation. Goodman v. Woods, 259 A.2d 594, 596 (D.C.1969); Keith v. Berry, 64 A.2d 300, 302 (D.C.Mun.App.1949); 12 Am.Jur.2d, Brokers, § 87, at 840; see Yerkie v. Salisbury, 264 Md. 598, 601-05, 287 A.2d 498, 500-01 (1972) (where seller employs broker, broker’s duty is to use skill diligence, and zeal for seller’s “own exclusive benefit”).1 In sum, at least in the absence of informed consent by both vendor and purchaser, the “irreconcilable and conflicting” duties of the vendor’s broker (to obtain the highest possible price for the property) and the purchaser’s broker (to buy the property for the lowest possible price) preclude one individual from serving as agent for both principals. Harten v. Loffler, 31 App.D.C. 362, 368 (1908). If a broker attempts to act for both sides, “he is confronted with the impossible task of securing for each the most advantageous bargain possible.” 12 Am.Jur.2d, Brokers, § 87, at 841 (footnote omitted).
In the present case, Elaine Willis, secretary of Urban Investments, and Irvin Greenbaum, president of Urban Investments, were agents for the vendor corporation.2 As such, they owed their fiduciary duty of the “highest fidelity” to the vendor. Jay, supra, 49 A.2d at 755. Thus, unless other circumstances imposed a similar duty toward the purchaser (Branham), appellants were not permitted to serve both parties. See Goodman, supra, 259 A.2d at 596.
We have examined cases where courts have held that the vendor’s broker also owed a fiduciary duty to the buyer. It is readily apparent that these cases present factors in addition to the ordinary business relationship between a prospective purchaser and the vendor’s broker. For example, *97in Brown v. Coates, 102 U.S.App.D.C. 300, 301-02, 253 F.2d 36, 37-38 (1958), relied on by the trial court, plaintiffs first hired the real estate broker to sell their home but were persuaded by the broker to exchange their home for one he showed them. When plaintiffs hesitated during negotiations, the broker affirmatively assured them that they did not need a lawyer because he was one and “would take care of them.” The court there said that, “in this situation,” the broker owed plaintiffs, both as vendors and purchasers, a high degree of fidelity throughout the transaction. Id. at 302, 253 F.2d at 38.
Similarly, in Hammett v. Ruby Lee Minar, Inc., 60 App.D.C. 286, 53 F.2d 144 (1931), cert. denied, 284 U.S. 682, 52 S.Ct. 200, 76 L.Ed. 576 (1932), special circumstances created a fiduciary duty between defendants (a realty company and its president), who were trying to sell the property, and plaintiff, the prospective purchaser. Plaintiff was a long-time friend and former employee of Mrs. Minar, the company’s president; she told a company salesperson that she would not go through with the transaction until she had personally consulted Mrs. Minar. After talking to Mrs. Mi-nar, plaintiff signed a contract for property which she had never seen. In exchange for her regular payments, plaintiff did not receive a deed to the land; instead, she received a personal services contract requiring defendants to deliver the deed at the end of ten years. Id. at 289, 53 F.2d at 147. The contract thus was not a recordable deed, and, consequently, no one would be on notice of plaintiff’s interest in the land.3 The court there said, “These contracts, made in these circumstances, between parties situated as these parties were, cannot receive the sanction of a court of equity.” Id4
In the case before us, however, there is no evidentiary basis for a finding of special circumstances to remove the present case from the general rule that the real estate broker must act for the exclusive benefit of the principal and for that principal only. Unlike Brown, there was no initial vendor-broker relation in this case that later developed into a purchaser-broker relation. Nor, as in Brown, did appellants affirmatively tell Branham not to procure a lawyer because they would look after her. And, unlike the realtor in Hammett, appellants were not friends of Branham; they had no reason to believe she would go forward with the sale only if they advised the same. Nor, as in Hammett, where the purchaser was advised to sign the contract even though she had not seen the property, are there facts in the present case suggesting that an unsuspecting party was lulled into a false security.
In sum, there is insufficient evidence of special circumstances here. That Greenbaum was “in a superior position by virtue of his status” as a broker does not alone imply a fiduciary obligation. The trial court states, “It is inconceivable that any competent and honest individual, seeking to protect the interests of the plaintiff, would permit her to consummate the deal without recommending she obtain independent advice or counsel” (emphasis added). Contrary to the court’s understanding, the law does not charge the vendor’s broker with protection of the purchaser’s interest. At least in this case, where Branham approached appellants after she investigated *98the property in its state of disrepair, appellants were not required affirmatively to advise Branham to obtain outside advice or to refrain from bargaining with her until she did so.
Ill
Having determined that appellants had no special fiduciary obligation to Branham, we turn to the trial court’s determination that the contract itself was invalid and thus not binding. One who signs a contract, of course, is ordinarily obligated by its provisions. Diamond Housing Corp. v. Robinson, 257 A.2d 492, 493 (D.C.1969); Hollywood Credit Clothing Co. v. Gibson, 188 A.2d 348, 349 (D.C.1963). A contract will be unenforceable, however, if one party’s assent was obtained through fraud or misrepresentation, or under circumstances that render the contract unconscionable. Diamond Housing, supra; Hollywood Credit Clothing Co., supra; Williams v. Walker-Thomas Furniture Co., 121 U.S.App.D.C. 315, 319, 350 F.2d 445, 449 (1965). Relief will be afforded because “the minds of the parties did not meet ‘honestly and fairly without mistake or mutual misunderstanding, upon all the essential points involved.’ ” Hollywood Credit Clothing Co., supra, 188 A.2d at 349 (citation omitted). See also Bennett v. Fun & Fitness, 434 A.2d 476, 480 (D.C.1981) (this court applying Maryland law on unconscionability).
A. Fraud. Obviously, there cannot be an honest and fair agreement when one party fraudulently induces another to sign a contract. In such a case, the court will grant relief to the deceived party. Lee v. Fisco Enterprises, 233 A.2d 44, 46 (D.C.1967); J. Calamari & J. Perillo, The Law of Contracts § 9-13, at 277-78 (2d ed. 1977). The essential elements of fraud are: (1) a false representation (2) in reference to a material fact (3) made with knowledge of its falsity (4) with the intent to deceive and (5) action taken in reliance upon the representation. Blake Construction Co. v. C.J. Coakley Co., 431 A.2d 569, 577 (D.C.1981); Remeikis v. Boss & Phelps, Inc., 419 A.2d 986, 988 (D.C.1980); accord Howard v. Riggs National Bank, 432 A.2d 701, 706 (D.C.1981).
Branham points to the property’s general state of disrepair on January 29, 1978 and contends that appellants’ representations that all repairs would be completed by that date5 were fraudulent and induced her to sign the contract.6 It is important to note, however, that a “promissory representation, or a representation as to future events asserted in a common law fraud action, should only be considered a misrepresentation of fact where the evidence shows that the promise was made without the intent to perform, or that the promisor had knowledge that the events would not occur.” Bennett v. Kiggins, 377 A.2d 57, 60-61 (D.C.1977), cert. denied, 434 U.S. 1034, 98 S.Ct. 768, 54 L.Ed.2d 782 (1978); accord Howard, supra, 432 A.2d at 706. The fact that the repairs were not performed by January 29 does not support a conclusion that appellants, in representing that the repdirs would be completed, never intended to carry out the promise; there is no other record evidence to support the inference that appellants’ promise “was made without the intent to perform.” To the contrary, appellants put forth evidence that the promised repairs were completed one week after January 29.
*99If we assume the facts in Branham’s favor — that appellants promised completion of repairs by January 29, that this date was of the essence of the contract, and that the repairs were not done on time — there may be a cause of action for breach of contract. But this evidence does not support a conclusion that the promise was fraudulent. There is no evidence that appellants positively stated that something was to be done, knowing and intending the contrary. See Howard, supra, 432 A.2d at 706 (quoting Bennett v. Kiggins, supra, 377 A.2d at 61).
Nor did appellants’ other actions constitute fraud. The trial court found that appellants (1) failed to disclose their interest in the property, (2) charged Branham for a title search they never intended to conduct for her benefit, and (3) did not disclose to Branham the existence of a cloud on the title. In the first place, although appellants may not have told Branham explicitly about their affiliations with the vendor, Urban Investments, Branham acknowledged during her testimony that she thought she was purchasing the house from Willis and Greenbaum, and the contract itself identifies appellant Urban Investments as the vendor. Thus, appellants did not actively conceal the ownership of the property, nor was Branham under a false impression.
Further, as to the issues concerning title, even if we assume that appellants’ failure to order a title search and to disclose that the quitclaim deeds were unrecorded amounted to misrepresentations, they were not material; the contract provided that any defect of title could and would be remedied at the vendor’s expense and would not permit the voiding of the contract. See Bruffy v. Baker, 69 App.D.C. 266, 267, 100 F.2d 439, 440 (1938) (per curiam) (if vendor is ready and able to remove encumbrances and convey clear title, existence of encumbrances does not relieve purchaser of obligation to buy). The quitclaim deeds, moreover, were recorded shortly after settlement of this contract. The record in this case, therefore, does not support the conclusion that appellants falsely represented material facts to Branham with an intent to deceive and, as a consequence, procured her assent to the contract.
B. Unconscionability. The purpose of the unconscionability doctrine is to prevent “oppression and unfair surprise.” J. Calamari & J. Perillo, supra (citations omitted). Thus a “contract may be unconscionable either because of the manner in which it was made or because of the substantive terms of the contract or, more frequently, because of a combination of both.” Bennett v. Fun & Fitness, supra, 434 A.2d at 480 (citing J. Calamari & J. Perillo, supra, § 9-40, at 325). These two elements are often referred to as procedural uncon-scionability and substantive unconscionability. See Leff, Unconscionability and the Code—The Emperor’s New Clause, 115 U.Pa.L.Rev. 485, 539-40 (1967). Although both elements usually are present in uncon-scionability cases, we have indicated that “in an egregious situation, one or the other may suffice.” Bennett v. Fun & Fitness, supra, 434 A.2d at 480 n. 4.
Usually, the party seeking to avoid the contract must prove both elements: “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” Williams, supra, 121 U.S.App.D.C. at 319, 350 F.2d at 449 (footnote omitted).7 In this case, Branham arguably *100demonstrated an absence of meaningful choice (procedural unconscionability) but failed to put forth evidence that the contract terms were unreasonably advantageous to appellants (substantive unconscion-ability). Under the circumstances, therefore, as elaborated below, we must reverse the trial court’s ruling that the contract was unconscionable and thus subject to rescission.8
Without a prima facie showing that the contract itself or any item of it “affronts the sense of decency,” J. Calamari & J. Perillo, supra, § 9-40, at 325 (citations omitted), it is difficult to grant rescission on the grounds of unconscionability. Without proof that the terms are unfair, the court normally will be unable to ascertain what detriment the weaker party suffered as a result of the bargaining process. Unless the sales tactics are “egregious,” therefore, Bennett v. Fun & Fitness, supra, 434 A.2d at 480 n. 4, the party seeking to avoid the contract will have to show that “the terms are ‘so extreme as to appear unconscionable according to the mores and business practices of the time and place.’ ’’ Williams, supra, 121 U.S.App.D.C. at 320, 350 F.2d at 450 (quoting 1 Corbin, Contracts § 128 (1963)); Tulowitzki, supra note 7, 396 A.2d at 960.
Furthermore, although “[ojoutlandish terms” in themselves may render a contract unenforceable, Bennett v. Fun & Fitness, 434 A.2d at 481, it usually is difficult to determine from the four corners of the contract whether the terms are unconscionable; the commercial setting, purpose, and effect of the contract normally must be considered, and thus established through extrinsic evidence. Patterson v. Walker-Thomas Furniture Co., 277 A.2d 111, 114 (D.C.1971).9
The trial court relied on the manner of negotiations — procedural unconscion-ability — to declare the contract unconscionable here. The court stated “that in light of the divergence in expertise of the parties, the time frame in which the sale was completed, and the inability of the plaintiff to fully read and understand the contract, [] the sale of the property was not the result of an arms-length bargain and is unconscionable.” Even if we assume the correctness of the trial court’s implied finding that the negotiations deprived Branham of a meaningful choice,10 we do not perceive these procedural factors to be egregious enough, in themselves, to support a ruling of unconscionability.
Nor is there record evidence that the negotiations resulted in contract terms that were unreasonably favorable to appellants. The only evidence presented as to the fairness of the terms consisted of the sale price ($52,500) and the value of the title insurance that appellants procured for the property ($16,500). The trial court stated “the *101fact that the policy was in the amount of $16,500 may be some indication as to what defendants felt the property was worth.” Title insurance, however, does not necessarily reflect the value of improvements on the land, and, in any event, appellants procured title insurance for Urban Investments, not for Branham. Thus, without record evidence that appellants insured the property for its resale value, it is speculative to assume that the title insurance policy is relevant here.
Moreover, the salient consideration in a substantive unconscionability analysis is not what the defending party “felt” the value was. Rather, the proper focus is the commercial setting, purpose, and effect of the contract. Branham presented no evidence as to the sale prices of comparable properties in the neighborhood. Nor did she show that appellants’ financing arrangement was unreasonable in light of the business circumstances at the time the contract was executed. Without such objective evidence, a finding that sale of the property for $52,-500 was unreasonably favorable to appellants cannot be sustained on this record.
Basically, a court cannot conclude in a vacuum, by reference to a $52,500 selling price, that this contract is unconscionable. Branham accordingly has failed to carry her burden of demonstrating that the contract is the result of egregious overreaching or, by its terms, is extreme and thus unconscionable relative to the mores and business practices of the time and place the contract was executed.
IV
This case presents an unfortunate situation in which a party entered a sales contract for residential property and later wished she had not. Although we are sympathetic with her situation, we must reverse the trial court’s order that the contract was subject to rescission (and that appellants also must pay punitive damages). There were no fatal defects in the formation of the contract, and there was insufficient proof that the contract was unreasonably favorable to appellants.

Reversed.

. If the broker acts only as a middleman, merely bringing the parties together without advising or acting on either party’s behalf, the broker in some cases may act as agent for both parties. 12 Am.Jur.2d, Brokers, § 87, at 841; see Harten v. Loffler, 31 App.D.C. 362, 370 (1908).

. The trial court states that “the broker fail[ed] to disclose his interest in the property.” Yet, Branham testified that she understood she was purchasing the property from Willis and Greenbaum. In addition, the contract lists Urban Investments as the vendor.

. Additionally, the court referred to the “undue burdens and hazards” imposed on the buyer. Id. at 289, 53 F.2d at 147. Appellee here has not produced evidence of similar, unfair results. See Part III B. infra.

. In Hiltpold v. Stern, 82 A.2d 123, 126 (D.C.Mun.App.1951), the court refers to the vendor who “won the trust and confidence of” the purchaser. Yet the court permitted cancellation of the contract because evidence supported the trial court’s “finding of fraud” that the “price of the land which the defendant induced the plaintiff to buy” did not bear “any reasonable relation to its actual value.” Id. at 126-27. Hiltpold stands for the proposition that the vendor has a duty not to fraudulently induce a buyer into a purchase; it does not follow, however, that the vendor or the vendor’s agent has a fiduciary duty to act solely in the purchaser’s interest.

. The evidence appears unclear as to whether time was of the essence (a repair date was not mentioned in the contract). The trial court, however, stated: “It was understood that plaintiff would move into the house on January 29 and that all necessary repairs would be completed by then.” Whether time is of the essence may be a question for the trier of fact. Murchison v. Peoples Contractors, Ltd., 250 A.2d 920, 922 (D.C.1969). Because we hold that there was no fraudulent misrepresentation, we decline to review the finding that time was of the essence.

. Branham visited the property and observed its condition before consulting appellants. She therefore cannot claim she justifiably relied on any statement by appellants as to the existing condition of the property.

. Accord Diamond Housing Corp., supra, 257 A.2d 492 (tenant defending suit for possession alleged unconscionability of lease containing clause that waived her right to 30 days notice to quit; court disagreed because, although there may have been “absence of meaningful choice” attributable to the parties’ unequal bargaining position, contract term waiving notice to quit was not unreasonable or unfair); Tu-lowitzki v. Atlantic Richfield Co., 396 A.2d 956, 960 (Del.1978) (“[sjuperior bargaining power alone without the element of unreasonableness does not permit a finding of unconscionability or unfairness”); Weaver v. American Oil Co., 257 Ind. 458, 460-462, 276 N.E.2d 144, 146 (1971) (inquiry includes analysis of whether “the clauses involved are so one-sided as to be unconscionable under the circumstances exist*100ing at the time of the making of the contract”); W.L. May Co. v. Philco-Ford Corp., 273 Or. 701, 705-707, 543 P.2d 283, 286 (1975) (“party asserting unconscionability must demonstrate that the clause in question was unconscionable at the time the contract was made”).

. The court determines unconscionability as a matter of law, Patterson v. Walker-Thomas Furniture Co., 277 A.2d 111, 114 (D.C.1971).

. To this end, we encourage the use of discovery so that the party seeking avoidance of the contract may have a reasonable opportunity to present evidence that the substance of the contract is unfair in light of the surrounding circumstances. Patterson, supra, 277 A.2d at 114. Without evidence of the mores and business practices of the time and place, a court has little if any basis on which to conclude that a contract is unreasonably favorable to one party. See id. (sufficient facts surrounding the “commercial setting, purpose, and effect” must be alleged and proved so that court may form a judgment as to existence of valid claim of un-conscionability).

.From the record it is clear that there was some inequality of bargaining strength attributable to appellants’ superior real estate expertise and Branham’s total lack of business experience. But we also note that Branham did not sign the contract until a week after she saw the property, and that she had an opportunity to read the contract: she admitted that she had not read all of the contract before she signed because she “can’t read well without my glasses.”