IVO QUEIROZ v DANIEL HARVEY
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SUPREME COURT OF ARIZONA En Banc IVO QUEIROZ, an unmarried man, ) ) Plaintiff-Counterdefendant/ ) Appellant, ) ) v. ) ) DANIEL HARVEY, ) ) Defendant-Counterplaintiff/ ) Appellee. ) ) ) ) _________________________________ ) Arizona Supreme Court No. CV-08-0308-PR Court of Appeals Division One No. 1 CA-CV 07-0309 Maricopa County Superior Court No. CV2005-004469 O P I N I O N Appeal from the Superior Court in Maricopa County The Honorable Colin F. Campbell, Judge The Honorable Bethany G. Hicks, Judge AFFIRMED ________________________________________________________________ Opinion of the Court of Appeals, Division One ___ Ariz. ___, ___ P.3d ___ (App. 2008) 2008 WL 2058233 (May 15, 2008) VACATED ________________________________________________________________ GUST ROSENFELD, P.L.C. By Charles W. Wirken Attorneys for Ivo Queiroz Phoenix JENNINGS, STROUSS, & SALMON, P.L.C. By David B. Earl David Brnilovich Attorneys for Daniel Harvey Phoenix THOMAS, THOMAS & MARKSON, P.C. Phoenix By Neal B. Thomas Attorneys for Amici Curiae Arizona Association of Realtors, West USA Realty, Inc., and John Hall & Associates ________________________________________________________________ 1 R Y A N, Justice ¶1 In this opinion, we address whether a court may consider a real estate agent s inequitable conduct in deciding if the agent s principal is entitled to specific performance of a contract for the sale of real estate. We conclude that the agent s inequitable acts may be imputed to the principal whether or not the principal knew of the agent s misconduct. I1 ¶2 Daniel Harvey listed ten acres of land in Tonopah for sale. Through his agent, Charles Harrison, Ivo Queiroz offered to purchase the land, along with an additional ten acres. The purchase offer called for a $1,000 earnest-money payment and a closing date of February 15, 2005. was $150,000, with $68,000 due finance the balance of $82,000. The proposed purchase price at closing. Harvey was to A counteroffer, faxed the next day and accepted by Queiroz, retained the closing date and the earnest-money requirement, but changed escrow agents. Harrison faxed the contract to the escrow agent on December 10, but sent no earnest money during the following week. ¶3 Harvey and his agent became concerned about Queiroz s 1 Because this case was tried to the bench and findings of fact were entered, we defer to the superior court s findings of fact unless clearly erroneous. Valley Med. Specialists v. Farber, 194 Ariz. 363, 367, ¶ 11, 982 P.2d 1277, 1281 (1999). 2 failure to deposit the earnest money. Harrison were unavailing. Harvey s agent cancelled. told the Repeated efforts to reach Finally, on Friday of that week, escrow agent that the contract was Either that night or the next day, Harrison learned that Harvey had cancelled the contract. Nevertheless, on the next Monday morning, Harrison took two money orders amounting to $1,000 to a branch of the escrow company. Several hours later, Harvey s written notice of the cancellation arrived at another branch of the escrow agent s office.2 Harvey s agent returned Harrison s earnest money, informing him that the contract had been cancelled. ¶4 Queiroz sued Harvey, seeking specific performance of the contract. The superior court found that Harrison had acted inequitably and thus denied Queiroz specific performance. The court determined that Harrison lied about the source of the earnest money, testifying that it was Queiroz s when in fact it was Harrison s. The court found that in providing the earnest money Harrison either made an undisclosed loan to Queiroz or commingled his own money with Queiroz s funds. The court 2 The contract called for written notice before cancellation. The superior court concluded that the failure to timely pay the earnest money was a material breach. The court of appeals, however, concluded that payment of the earnest money before the written notice of cancellation had been received cured the breach. See Queiroz v. Harvey, __ Ariz. __, __, ¶¶ 18, 22, __ P.3d __, __ (App. 2008). Harvey did not seek review of this holding. 3 further found that Harrison s subterfuge went further when he printed his name, rather than signing it, on the purchase offer because he did not have the required earnest-money check, failed to return phone calls, and raced to the escrow agent to deposit the funds, Finally, knowing the court that Harvey found that had cancelled Harrison had the contract. not testified truthfully. ¶5 The court of appeals reversed. __, ¶¶ 18, 22, __ P.3d at __. fraudulent or dishonest principal for purposes acts of Queiroz, __ Ariz. at The court held that an agent s could an not equitable be attributed defense absent personal involvement or knowledge of the principal. 31. to a the Id. at ¶ The court concluded that it could not determine whether Queiroz knew of Harrison s conduct and therefore could not decide whether the superior court would have reached the same result based solely on Harrison s misrepresentations about the escrow check. Id. further proceedings. ¶6 We granted at ¶ 32. It consequently remanded for Id. review because whether an agent s inequitable conduct is chargeable to the principal is an issue of statewide importance and is likely to recur. ARCAP 23(c). We 5(3) have jurisdiction under Article 6, Section of the Arizona Constitution and Arizona Revised Statutes ( A.R.S. ) § 12-120.24 (2003). 4 II ¶7 A trial court s grant or refusal of performance is reviewed for an abuse of discretion. Statler, 20 Ariz. 81, 84, 176 P. 843, 844 (1918). specific Kimball v. Queiroz does not dispute that specific performance, although a routine remedy in actions involving contracts for the sale of real property, may properly be refused on the basis of unclean hands. See MacRae v. MacRae, 57 Ariz. 157, 161, 112 P.2d 213, 215 (1941) ( It is a cardinal rule of equity that [one] who comes into a court of equity seeking equitable relief must come with clean hands. ). Rather, Queiroz argues that a mere agency relationship does not suffice to establish inequitable conduct and that such conduct should not be imputed to an innocent principal. ¶8 of We reject these arguments. agency E.g., law, an Restatement agent s (Third) acts of Under ordinary principles bind Agency the § agent s 6.01 principal. (2006) (stating general rule that principal may work through an agent to secure contract with third party); id. at § 1.01 (agent acts on the principal s behalf ); see also id. at § 4.01 (explaining that manifestation representation of by assent an ratifies agent made an agent s incident to conduct). A a or contract conveyance is attributed to a disclosed . . . principal as if the principal made the representation directly when the agent 5 had actual conveyance or . circumstances affect a apparent . . . under authority Id. which principal s at make 6.11. legal position the This representations enforce or rescind a contract. ¶9 § to in contract includes made by actions an or the agent brought to Id. at cmt. a. Other courts have similarly concluded that a principal seeking specific performance inequitable conduct. may be bound by an agent s E.g., Handelman v. Arquilla, 95 N.E.2d 910, 913 (Ill. 1951) (rejecting specific performance based on agent s material misrepresentation); Alexander v. Hughes, 472 P.2d 818, 819-20 (Or. 1970) (affirming the denial of specific performance when agent misled opposing party about nature of document signed). ¶10 The Restatement and the cited cases are consistent with the duties both agents and principals owe to third parties in the context of the sale of real property. See Lombardo v. Albu, 199 Ariz. 97, 100-01, ¶¶ 13-15, 14 P.3d 288, 291-92 (2000) (noting common law and regulatory duties). rule that the consistent principal with is bound long-established by his In addition, the agent s principles of conduct equity. is See Dawson v. McNaney, 71 Ariz. 79, 87, 223 P.2d 907, 912 (1950) (equitable justice rule and will not perpetrate be a applied fraud ); to defeat Giovani v. the ends of Rescorla, 69 Ariz. 20, 25, 207 P.2d 1124, 1127 (1949) (equity denies title to 6 property obtained concealments, or through through actual fraud, undue misrepresentations, influence, duress, taking advantage of one s weakness or necessities, or through any other similar means or under any other similar circumstances ). of these cases stands for an unexceptionable rule: Each Principals may not benefit from the inequitable conduct of their agents. III ¶11 The court of appeals, however, declined to apply this rule. The implicates court the moral equitable relief. at __. concluded that the blameworthiness unclean of the hands party doctrine who seeks Queiroz, __ Ariz. at __, ¶¶ 25, 31, __ P.3d Thus, the court held that imputing inequitable conduct of an agent to a principal is not appropriate absent a showing that the principal knew of the agent s misconduct. court found support for this proposition Id. principally Arizona case and two cases from other jurisdictions. in The one None of these cases, however, is apposite. ¶12 v. For example, the court of appeals reasoned that Weiner Romley, 94 conclusion. Ariz. 40, 381 P.2d 581 (1963), supported its In Weiner, this Court held that when inequitable conduct was not willful, unclean hands would not apply. Id. at 42-43, 381 P.2d at 582-83. The court of appeals understood this must to mean that principals act willfully. Queiroz, __ Ariz. at ___, ¶¶ 29-30, __ P.3d at __. The court 7 themselves reasoned that if an individual s act must be willful for an equitable defense to apply, then, a fortiori, a principal who does not act at all, because his agent does, cannot be found to have acted willfully. Id. at ¶ 31. Weiner, however, does not speak to the issue in this case, which is whether an agent s conduct may be imputed to his or her principal. ¶13 Closer to the point, yet nevertheless distinguishable, are Vulcan Detinning Co. v. American Can Co., 67 A. 339, 340-41 (N.J. 1907), and Associated Press v. International News Service, 240 F. 983 (S.D.N.Y. 1917). In the former, the New Jersey court simply rejected imputing the conduct of a defendant s agent in a prior transaction to the defendant in the separate transaction before the court. Vulcan Detinning, 67 A. at 341. In this case, however, the alleged misconduct occurred within the very transaction that was the subject of the litigation. ¶14 one Associated Press is also inapposite, as it addresses company s effort to defend itself against charges of inequitable conduct by pointing out the inequitable conduct of its opponent s agents. Queiroz seeks inequitable contract. specific acts 240 F. at 984, 989. performance committed by his by own Here, in contrast, relying agent on to the very secure the Associated Press does not countenance employing the inequitable conduct of one s own agent as a sword. 8 IV ¶15 Queiroz s ineffectual. additional arguments are equally First, he claims that we should protect innocent principals from the misconduct of the agents they choose to hire. There are cases in which, as a matter of fact, a principal cannot be charged with the acts or knowledge of his or her agent. E.g., Restatement (Third) of Agency § 6.10 cmt. b (outlining situations in which purported principal may not be bound by agent). This is not such a case. The principles of agency discussed above refute Queiroz s policy argument that we should protect all principals from liability, especially given that without Harrison s acts, the deal here would not have been completed. As between the principal who has retained an unscrupulous agent and an innocent third party who relies on the agent s misrepresentation, it is the third party who deserves protection. ¶16 Queiroz also argues that, notwithstanding Harrison s inequitable conduct, Harvey has suffered no harm and thus he should This be forced claim, of to perform course, is the belied sale-and-financing by the contract. transaction, which requires Harvey not only to sell the property, but also to carry the mortgage for Queiroz. Thus, ordering specific performance in this case would effectively place Harvey in a continuing 9 relationship with Queiroz. Cf. Copylease Corp. of Am. v. Memorex Corp., 408 F. Supp. 758, 759 (S.D.N.Y. 1976) (refusing to order specific performance of contracts which are not capable of immediate enforcement, but which require a continuing series of acts and cooperation between the parties for the successful performance of those acts ) (internal quotation marks omitted) (applying California law). V ¶17 In his response to the petition for review, Queiroz preserved the issue of whether, assuming Harrison s conduct may be imputed, superior it was court s actually inequitable. findings that We Harrison s defer to conduct the was inequitable and that his statements and actions were dishonest and misleading. Valley Med. Specialists, 194 Ariz. at 367, ¶ 11, 982 P.2d at 1281. Consequently, we are in no different position than the court of appeals would have been in reviewing the record. 26, City of Phoenix v. Fields, 219 Ariz. 568, ___, ¶ 201 P.3d 529, 535 (2009). supports the inequitably. superior Harrison s court s We conclude that the evidence finding conduct that misled Harrison Harvey acted regarding Queiroz s capacity to go forward with the earnest-money payment and concealed his potential inability to make payments on an ongoing basis. See Lombardo, 199 Ariz. at 100, ¶¶ 12-13, 14 P.3d at 291 (noting that the ability of the buyer to perform 10 goes to the heart of the transaction and that both principal and agent have a duty to disclose). VI ¶18 For the foregoing reasons, we vacate the court of appeals opinion and affirm the judgment of the superior court. Because the contract here requires the prevailing party to be awarded reasonable attorneys fees, we grant Harvey s request for attorneys fees. _______________________________________ Michael D. Ryan, Justice CONCURRING: _______________________________________ Ruth V. McGregor, Chief Justice _______________________________________ Rebecca White Berch, Vice Chief Justice _______________________________________ Andrew D. Hurwitz, Justice _______________________________________ W. Scott Bales, Justice 11
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