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Diamond v. Chiate

Supreme Court of Arizona

July 16, 1956

Irving L. DIAMOND and Edward L. Perry, d/b/a Diamond & Perry, Realtors, Appellants,
v.
Mac CHIATE, Appellee.

Rehearing Denied Sept. 25, 1956.

[81 Ariz. 87] Stahl, Murphy & Blakley, and Keith W. Ragan, Phoenix, for appellants.

Beer & Seaman and C. Edwin Thurston, Phoenix, for appellee.

UDALL, Justice.

This is an appeal by plaintiffs, Diamond and Perry, licensed realtors, from a judgment entered upon a jury verdict for defendant-appellee, Mac Chiate, in an action for a brokerage commission.

On March 3, 1952, Chiate listed for sale with plaintiffs a retail package liquor business which included a Series No. 9 liquor license, an inventory in the amount of $4,000,[81 Ariz. 88] and all fixtures and equipment. The listing contract which was in writing indicated that Chiate owned the property to be sold, and provided for a broker's commission of ten per cent of the sales price in the event the brokers were successful in securing a purchaser in accordance with

Page 584

the terms and conditions of such contract. Diamond and Perry procured a prospective purchaser, one Schumacher, who was ready, willing and able to buy said property on the seller's terms, and the latter signed a contract to purchase the business and license on April 13, 1953. On April 24, 1953, Chiate signed said contract, agreeing inter alia to sell said property and unreservedly promising to pay to Diamond and Perry the sum of $3,500 as a commission. There were recitations in the contract to the effect that (1) the seller was the sole owner of said personal property 'and that the same is clear, free and unencumbered except as herein stated', and (2) 'Said property to be free and clear of all purchase and installment contracts, chattel mortgages, judgments, mechanics and materialmens liens, personal property, license and sales taxes, and all other liens and encumbrances, except as here stated.' The sale was never consummated due to the fact that Chiate actually did not own the liquor license but merely had what he considered to be an option to buy, and was unsuccessful in exercising this purported option. The $2,000 earnest money paid by Schumacher was returned to him. Subsequently, plaintiffs demanded their commission from Chiate, who refused to pay them. This suit followed.

At the trial plaintiffs relied on the above facts, while Chiate based his defense on the allegation of his answer 'that one of the conditions upon which said business was listed with plaintiffs for sale was that defendant was not the owner of said liquor license and could only sell the same upon defendant's being able to purchase said license from the owner thereof' and on the fact that before listing the property he had informed the plaintiffs he did not own the liquor license, merely having an option to buy. Neither the listing contract nor the purchase contract, both of which were admitted into evidence, contained any provisions indicating that Chiate did not own the license or that the brokers' commission was to be contingent upon Chiate's being able to purchase it from the true owner; to the contrary, the contracts without ambiguity designate him as the owner.

It should be noted that defendant's answer contains no charge of fraud or misrepresentation on the part of plaintiffs in procuring the listing or in obtaining the purchase contract dated April 13, 1953. Furthermore during the trial there was no claim made that the contracts in question were induced by deceit or misrepresentation.

[81 Ariz. 89] Under the theory that it might show evidence of bad faith on the part of plaintiffs the trial court admitted into evidence conversations between Perry and Chiate leading up to the execution of the listing contract insofar as said conversations tended to show that plaintiffs knew that defendant did not then own the property concerned. This evidence was admitted over the repeated objections of plaintiffs that such testimony violated the parol evidence rule. Since the jury found in favor of defendant we must assume that the verdict was based on the testimony that plaintiffs knew Chiate did not own the liquor license at the time he signed the listing contract, but merely possessed an option to buy it. The next discussion occurred on April 14, 1953, when Perry brought the purchase contract to Chiate to sign. On this occasion Chiate advised Perry that he was going to see his lawyer and start negotiations to exercise his option to purchase the license. On April 24, 1953, after having consulted with his attorney, defendant signed the purchase contract notwithstanding his statement to Perry at the time that he could not do so because he did not own the property. During this same conversation and before he signed the contract Chiate admitted that Perry had told him he had been advised by the husband of the owner of the license that the license would not be sold to Chiate.

At the close of all the evidence counsel for plaintiffs made a motion for a directed verdict which the court denied. The case

Page 585

was then submitted to the jury and it returned a verdict for defendant. Thereafter, plaintiffs moved to set aside verdict and for judgment in accordance with motion for directed verdict, and, in the alternative, motion for new trial. All of these motions were denied and judgment was then entered for defendant Chiate on the verdict. A timely appeal was perfected.

In substance, plaintiffs (appellants) assign as error: (1) the admission by the trial court of evidence leading up to the execution of the listing contract as being in violation of the parol evidence rule and not within the issues of the pleadings; (2) the failure of the evidence to show knowledge of an incurable defect in title on the part of plaintiffs or any bad faith on their part, and (3) that the uncontroverted evidence indicated it was the intention of the parties that the defendant was to perfect his title in order to be able to perform in accordance with the terms of the listing and purchase contracts executed by the parties.

The first question to be decided concerns the admissibility of earlier conversations between the parties, since they clearly have the effect of altering the subsequent written contracts. A reading of the transcript [81 Ariz. 90] makes it crystal clear that the trial court, in admitting such testimony, was relying, as it had a right to do, upon the majority decision of this court rendered in Sligh v. Watson, 1950, 69 Ariz. 373, 214 P.2d 123, 129, wherein the admission of similar testimony was upheld in a completely analogous situation. That decision was rendered by a divided court (3 to 2) and the respective views, which need not be reiterated here, are fully set forth in the majority and minority opinions. Plaintiffs have asked that the court, as now constituted, re-examine this decision. This we have done.

It will be recalled that in the Sligh case, supra, the court held that parol evidence of the broker's knowledge of defects in the seller's title was admissible on the theory that it was to establish a breach of the brokerage contract, because it was relevant to the question of good faith dealing between the parties, even though the owner possessed like knowledge. The pleading of such mutual knowledge of a defect in title was considered equivalent to pleading a ...


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