MacDonald v. Roderick

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                                 No. 90-115

 Susan MacDonald, et al.                      Supreme Court

                                              On Appeal from
      v.                                      Caledonia Superior Court

 Charles Roderick, et al.                     October Term, 1991

 Alan W. Cheever, J.

 Joseph C. Benning and Jenifer Jill Mathers, Law Clerk (On the Brief),
   Lyndonville, for plaintiffs-appellees

 Deborah T. Bucknam, St. Johnsbury, for defendants-appellants

 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

      DOOLEY, J.   Charles and Nancy Roderick, defendants, appeal from a
 superior court judgment awarding plaintiffs, Susan McDonald and Thomas
 Smith, a real estate sales commission.  Defendants allege that plaintiffs
 fraudulently induced them to enter into a listing agreement with them.
 They further claim that because the listing agreement violated certain rules
 of the Vermont Real Estate Commission, it cannot be used to require them to
 pay a commission.  We affirm.
      Plaintiffs are real estate brokers who do business through a partner-
 ship called Century 21 Select Realty.  In 1988, they employed Michael
 Griffin as a sales associate.  In September 1988, defendant Charles
 Roderick asked Mr. Griffin to come to defendants' home in St. Johnsbury to
 discuss the sale of the home and surrounding land.  After an initial meeting
 with defendants, Mr. Griffin prepared an exclusive sales listing and pre-
 sented it to defendants for signature.
      Defendants were interested in selling their home because they needed
 money to meet another financial obligation.   Nancy Roderick was very
 reluctant to sell their home and left the room crying when the details of
 the listing agreement were being discussed.  Both defendants asked Mr.
 Griffin whether they would have the right to cancel the agreement.  At one
 point, Mr. Griffin directed Mr. Roderick's attention to a section of the
 preprinted agreement, which provided:
         This contract is not cancellable prior to its express
         termination date, unless by mutual consent of the
         parties hereto; as long as affirmative selling efforts
         are made by Broker on Owner's behalf.

 At another, he stated that defendants could cancel by giving written notice.
 He answered "yes" to an inquiry whether defendants could cancel at any time.
 The court found, however, that under a reasonable view of the
 circumstances at the time the promise was made, defendants' right to cancel
 expired when plaintiffs procured a qualified purchaser.
      Both defendants signed the listing agreement, giving plaintiffs the
 exclusive right to sell the home and surrounding property for $225,000.
 The agreement provided that if the property were sold, plaintiffs would
 receive a commission of 10% of the sales price.  Although the agreement
 stated that it would be effective for one year, the parties agreed that it
 should be effective for only thirty days because of defendants' urgent need
 for money.  Mr. Griffin agreed to make that change in the agreement but did
 not do so.
      Plaintiffs immediately showed the property and, on September 17, 1988,
 obtained a buyer at the terms specified by defendants.  When the purchase
 and sale contract was presented to defendants, however, they stated that
 they no longer wanted to sell.  Mrs. Roderick then wrote a letter to that
 effect and presented it to Mr. Griffin.
      Plaintiffs brought suit for the commission in superior court.  After
 trial without a jury, the court issued findings of fact and conclusions of
 law, holding that plaintiffs were entitled to the commission.
      Defendants' first argument on appeal is that the undisputed testimony
 showed there was constructive fraud as a matter of law, and that such fraud
 defeats plaintiffs' right to a commission.  The constructive fraud claim is
 that because plaintiffs were in a fiduciary relationship with defendants,
 plaintiffs had a duty to disclose that defendants could not cancel the
 contract after plaintiffs produced a ready, willing and able buyer. (FN1)
      The problem with this claim is that it is totally different from that
 presented to the trial court.  The trial court asked each party to detail
 the elements of their claim or defense.  In response, defendants stated that
 they had to prove that "Plaintiffs or their agent intentionally misrep-
 resented a material fact, which was relied upon by the injured party, and
 that fact related to the subject matter of the contract."  The trial court
 specifically relied on defendants' statement of the elements of the defense
 and found that there was no intentional misrepresentation of fact.  Without
 contesting the court's findings,(FN2) defendants seek on appeal to change their
 theory of the case and have us rule that they can prevail based on non-
 disclosure, rather than on misrepresentation.
      We will not ordinarily consider issues raised for the first time on
 appeal.  O'Brien v. Island Corp., 156 Vt. ___, ___, 596 A.2d 1295, 1299
 (1991).  We see no reason to deviate from this rule in this case.  The
 trial court specifically asked defendants to detail their theory and
 followed it in making findings.  Had defendants raised their nondisclosure
 theory below, we are confident that the trial court would have made
 appropriate findings and addressed it.  We would be abandoning preservation
 requirements entirely in allowing this change of theory on appeal.
      Defendants' second argument on appeal is that the listing agreement is
 invalid because it fails to comply with Rule 26 of the Rules of the Vermont
 Real Estate Commission because (1) the identification of the type of listing
 agreement at the top of the document fails to comply with Rule 26(c)(1); and
 (2) the agreement contains an incorrect termination date in violation of
 Rule 26(c)(5).  With respect to the first claim, Rule 26(c)(1) requires that
 the agreement contain:
         (1) Identification of the type of listing agreement in
         boldface type at the top stating only one of the

         NONEXCLUSIVE (open)

 The listing agreement in this case is headed "EXCLUSIVE RIGHT TO LIST AND
 SALES AUTHORIZATION."  Defendants argue that since the words are not
 identical to those in the rule, the agreement does not comply with the rule.
      Defendants' second claim is based on Mr. Griffin's failure to change
 the listing period from twelve months to thirty days as agreed by the
 parties.  Rule 26(c)(5) requires each listing agreement to contain the
 "specific expiration date."
      There is no claim of prejudice with respect to either claimed violation
 of the rules.  There was no confusion about what type of listing agreement
 was involved, and nothing to suggest that the agreement heading affected the
 dealings between the parties.  Because the prospective purchaser was
 obtained well within the thirty-day deadline, to which the parties agreed,
 the failure to amend the agreement to show the actual termination date was
 of no consequence.
      Nevertheless, defendants argue that, under Green Mountain Realty, Inc.
 v. Fish, 133 Vt. 296, 336 A.2d 187 (1975), violation of the Real Estate
 Commission rules automatically voids the listing agreement and prevents the
 broker's recovery of a commission.  Fish involved an oral listing agreement
 and the effect of a Real Estate Commission rule that all listing agreements
 be in writing.  We held the applicable rule had the effect of law and was
 intended to protect the public, ensure fair dealing between the parties,
 standardize procedure and prevent fraud.  Id. at 299, 336 A.2d  at 189.
 Drawing an analogy to the statute of frauds, we held that failure to comply
 with the rule's requirement that the listing agreement be in writing barred
 recovery of a commission.  Id.; see also Currier v. LeTourneau, 135 Vt. 196,
 200, 373 A.2d 521, 525 (1977) (listing agreement signed by husband, but not
 wife, is in violation of Real Estate Commission rule and thus invalid).
      Fish and Currier were limited by Littlefield v. Lamphere, 139 Vt. 77,
 79, 422 A.2d 929, 931 (1980), which held that a listing agreement signed
 only by a husband, without the signature of the wife who also owned the
 property, was enforceable against the husband despite noncompliance with a
 Real Estate Commission rule.  See also Moses v. Gagne, 140 Vt. 43, 47, 433 A.2d 315, 318 (1981) (same).  We have recently held that a broker's sharing
 of a commission with an officer of the purchaser-corporation did not defeat
 the corporation's right to specific performance, even if the fee-sharing
 arrangement violated the Real Estate Commission rules.  Colony Park Assoc.
 v. Gall, 154 Vt. 1, 8, 572 A.2d 891, 895-96 (1990).  Since there was no
 evidence that the fee-sharing arrangement had any effect on the fairness of
 the sales agreement or on the broker's loyalty to the sellers, we held that
 the violation of the rules was irrelevant to the transaction.  Id.
      The Real Estate Commission rules were adopted to protect the public.
 See Vermont Ass'n of Realtors v. State, ___ Vt. ___, ___, 593 A.2d 462, 466
 (1991).  The rules are part of a scheme of professional licensing and
 disciplinary regulation.  See 26 V.S.A. {{ 2252, 2291-2299.  Nothing in the
 statutes or regulations addresses the effect of violations of regulations on
 the broker's right to collect a commission.  For this reason, the statutory
 scheme is different from those in which legislatures specify the conse-
 quences of deficiencies in listing agreements.  See Ranier Fund, Inc. v.
 Bloomfield Real Estate, 717 P.2d 850, 853 (Alaska 1986); Hossan v.
 Hudiakoff, 178 Conn. 381, 382, 423 A.2d 108, 109 (1979); cf. 12 V.S.A. {
 5652(b) (agreement to arbitrate is not enforceable unless it contains an
 acknowledgement of arbitration that follows "substantially" the statutory
      No statute requires that the violation of the regulation defeat
 plaintiffs' right to a commission.  See Coldwell Bankers-Gordon Co. Realtors
 v. Roling, 703 S.W.2d 572, 576 (Mo. App. 1986); Finlay Commercial Real
 Estate, Inc. v. Paino, 133 N.H. 4, 8, 573 A.2d 125, 127 (1990).  The
 regulations do, however, reflect a public policy that may be used as a
 defense against a broker's enforcement of the listing agreement.  See
 Restatement (Second) of Contracts { 179(a) (1981).  In weighing whether to
 deny enforcement of a contract because of public policy, we will consider:
 (a) "the strength of that policy . . ."; (b) "the likelihood that a refusal
 to enforce . . . will further that policy"; (c) "the seriousness of any
 misconduct involved and the extent to which it was deliberate"; and (d) "the
 directness of the connection between that misconduct and the term" of the
 contract to be enforced. Id., { 178(3).
      We interpret our cases as involving a weighing similar to that set
 forth in the Restatement.  See My Sister's Place v. City of Burlington, 139
 Vt. 602, 613-14, 433 A.2d 275, 282 (1981) ("misconduct unrelated to the
 claim to which it is asserted" will not allow a defense to contract
 enforcement based on illegality).  Based on that weighing, a violation of
 the rules of the Real Estate Commission with respect to the form or content
 of a listing agreement will bar recovery of a commission only if the
 violation somehow taints the agreement or makes its enforcement unfair.
 That taint will always be found where an agreement is oral because the
 requirement of a writing ensures that the parties are fully aware of the
 terms of the agreement.  When, as here, the claim is that the violation
 occurred because of failure to use required language or because of the
 omission or misstatement of a required term, there will be no effect on the
 broker's right to recover a commission unless the violation makes recovery
 unfair in the particular case before the court.
      There is no nexus in this case between the asserted violation of the
 Real Estate Commission rules and the dispute between the parties.
 Defendants were not prejudiced by the alleged violations.  It is undisputed
 that if the agreement had fully complied with the rules, with a thirty-day
 listing period and a proper heading, the conduct of the parties would have
 been the same.  Plaintiffs are entitled to their commission.

                                         FOR THE COURT:

                                         Associate Justice

FN1.    Relying on Griffin v. Griffin, 125 Vt. 425, 217 A.2d 400 (1965),
defendants argue that the conduct of plaintiffs' sales associate was con-
structive fraud, even if it was not actual fraud.  Griffin is a constructive
fraud case in which this Court found a duty to disclose certain facts
because of the fiduciary relationship between plaintiff and defendant's
agent.  See id. at 436, 217 A.2d  at 415.  Griffin does not suggest, however,
that nondisclosure allows a defense of constructive fraud where it will not
support a defense of actual fraud.  The difference between constructive
fraud and actual fraud lies in the mental element involved.  See Proctor
Trust Co. v. Upper Valley Press, Inc., 137 Vt. 346, 354, 405 A.2d 1221, 1226
(1979) (constructive fraud is "wrongdoing without bad faith").  We have
often applied to actual fraud cases the Griffin holding that non-disclosure
can have the same legal effect as misrepresentation if there is a relation-
ship of trust and confidence between the parties.  See Silva v. Stevens, 156
Vt. ___, ___, 589 A.2d 852, 859 (1991).  Thus, the real change of theory
here is from a claim of misrepresentation to a claim of non-disclosure or

FN2.    In their brief, defendants relied on what they termed "uncontra-
dicted evidence" but did not challenge any of the trial court's findings of
fact.  In response to a question at oral argument, counsel for defendants
suggested that some of the court's findings were clearly erroneous.  That
statement came too late to challenge the court's findings, and we have not
reviewed them to determine whether they are supported by the evidence.