SUPREME COURT OF ARIZONA
En Banc
IVO QUEIROZ, an unmarried man, ) Arizona Supreme Court
) No. CV-08-0308-PR
Plaintiff-Counterdefendant/ )
Appellant, )
) Court of Appeals
v. ) Division One
) No. 1 CA-CV 07-0309
DANIEL HARVEY, )
) Maricopa County
Defendant-Counterplaintiff/ ) Superior Court
Appellee. ) 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. Phoenix
By Charles W. Wirken
Attorneys for Ivo Queiroz
JENNINGS, STROUSS, & SALMON, P.L.C. Phoenix
By David B. Earl
David Brnilovich
Attorneys for Daniel Harvey
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. The proposed purchase price
was $150,000, with $68,000 due at closing. Harvey was to
finance the balance of $82,000. 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. Repeated efforts to reach
Harrison were unavailing. Finally, on Friday of that week,
Harvey’s agent told the escrow agent that the contract was
cancelled. 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,” knowing that Harvey had cancelled the contract.
Finally, the court found that Harrison had not testified
truthfully.
¶5 The court of appeals reversed. Queiroz, __ Ariz. at
__, ¶¶ 18, 22, __ P.3d at __. The court held that an agent’s
fraudulent or dishonest acts could not be attributed to a
principal for purposes of an equitable defense absent the
personal involvement or knowledge of the principal. Id. at ¶
31. 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. at ¶ 32. It consequently remanded for
further proceedings. Id.
¶6 We granted 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 have jurisdiction under Article 6, Section 5(3) 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 specific
performance is reviewed for an abuse of discretion. Kimball v.
Statler, 20 Ariz. 81, 84, 176 P. 843, 844 (1918). 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 We reject these arguments. Under ordinary principles
of agency law, an agent’s acts bind the agent’s principal.
E.g., Restatement (Third) of Agency § 6.01 (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 of assent ratifies an agent’s conduct). “A
representation by an agent made incident to a contract or
conveyance is attributed to a disclosed . . . principal as if
the principal made the representation directly when the agent
5
had actual or apparent authority to make the contract or
conveyance . . . .” Id. at § 6.11. This includes “the
circumstances under which representations made by an agent
affect a principal’s legal position in actions brought to
enforce or rescind a contract.” Id. at cmt. a.
¶9 Other courts have similarly concluded that a principal
seeking specific performance may be bound by an agent’s
inequitable conduct. 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). In addition, the
rule that the principal is bound by his agent’s conduct is
consistent with long-established principles of equity. See
Dawson v. McNaney, 71 Ariz. 79, 87, 223 P.2d 907, 912 (1950)
(equitable rule will not be applied to “defeat the ends of
justice” and “perpetrate a fraud”); Giovani v. Rescorla, 69
Ariz. 20, 25, 207 P.2d 1124, 1127 (1949) (equity denies title to
6
property “obtained through actual fraud, misrepresentations,
concealments, or through undue influence, duress, taking
advantage of one’s weakness or necessities, or through any other
similar means or under any other similar circumstances”). Each
of these cases stands for an unexceptionable rule: Principals
may not benefit from the inequitable conduct of their agents.
III
¶11 The court of appeals, however, declined to apply this
rule. The court concluded that the unclean hands doctrine
implicates the moral blameworthiness of the party who seeks
equitable relief. Queiroz, __ Ariz. at __, ¶¶ 25, 31, __ P.3d
at __. 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. Id. The
court found support for this proposition principally in one
Arizona case and two cases from other jurisdictions. None of
these cases, however, is apposite.
¶12 For example, the court of appeals reasoned that Weiner
v. Romley, 94 Ariz. 40, 381 P.2d 581 (1963), supported its
conclusion. 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 to mean that principals must themselves act willfully.
Queiroz, __ Ariz. at ___, ¶¶ 29-30, __ P.3d at __. The court
7
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 Associated Press is also inapposite, as it addresses
one company’s effort to defend itself against charges of
inequitable conduct by pointing out the inequitable conduct of
its opponent’s agents. 240 F. at 984, 989. Here, in contrast,
Queiroz seeks specific performance by relying on the very
inequitable acts committed by his own agent to secure the
contract. Associated Press does not countenance employing the
inequitable conduct of one’s own agent as a sword.
8
IV
¶15 Queiroz’s additional arguments are equally
ineffectual. 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 be forced to perform the sale-and-financing contract.
This claim, of course, is belied by the 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
relationship with Queiroz. Cf. Copylease Corp. of Am. v.
9
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, it was actually inequitable. We defer to the
superior court’s findings that Harrison’s conduct 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. City of Phoenix v. Fields, 219 Ariz. 568, ___, ¶
26, 201 P.3d 529, 535 (2009). We conclude that the evidence
supports the superior court’s finding that Harrison acted
inequitably. Harrison’s conduct misled Harvey 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
goes to the heart of the transaction” and that both principal
10
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