• TABLE OF CONTENTS
HIDE
 Front Cover
 Title Page
 Foreword
 Table of Contents
 The real estate business - definitions...
 Regulation of the real estate...
 Employment and authority
 Relations of parties
 Performance and termination of...
 Fraud and dishonest dealing
 Compensation and remedies
 Some questions of practice and...
 Contracts
 Title, deeds, conveyances...
 The registration law - the commissions...
 The registration law - who may...
 The registration law - grounds...
 The registration law- penaltie...
 The registration law- miscellaneous...
 Code of ethics: Promulgated by...
 Extracts from rules and regulations:...
 The registration law - being chapter...














Group Title: Florida. Laws, statutes, etc
Title: Principles and practice of the real estate business
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00089521/00001
 Material Information
Title: Principles and practice of the real estate business
Uniform Title: Florida. Laws, statutes, etc
Physical Description: 2 p. l., 145, 5 p. : ; 20 cm.
Language: English
Creator: Florida Real Estate Commission
Poe, Walter H., 1890-
Broome, Lafayette E
Publisher: Florida Real Estate Commission
Manufacturer: Brewton Co., printers
Publication Date: 1937
Copyright Date: 1937
 Subjects
Subject: Real estate business   ( lcsh )
Brokers   ( lcsh )
Real property -- Florida   ( lcsh )
Genre: non-fiction   ( marcgt )
 Notes
Statement of Responsibility: by W.H. Poe and L.E. Broome ... Published under the direction and by the authority of the Florida Real estate commission ...
General Note: "This volume ... is an enlargement and revision of ... Elementary law for real estate brokers, published in 1930"--Foreword.
General Note: "The Registration law": p. 126-145.
 Record Information
Bibliographic ID: UF00089521
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 01868293
lccn - 38002631

Table of Contents
    Front Cover
        Front Cover
    Title Page
        Title Page 1
        Title Page 2
    Foreword
        Foreword
    Table of Contents
        Table of Contents
    The real estate business - definitions and classifications
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
        Page 6
    Regulation of the real estate business
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
    Employment and authority
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
    Relations of parties
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
    Performance and termination of the contract
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
    Fraud and dishonest dealing
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
        Page 42
        Page 43
        Page 44
        Page 45
        Page 46
        Page 47
        Page 48
    Compensation and remedies
        Page 49
        Page 50
        Page 51
        Page 52
        Page 53
        Page 54
    Some questions of practice and policy
        Page 55
        Page 56
        Page 57
        Page 58
        Page 59
        Page 60
        Page 61
        Page 62
        Page 63
        Page 64
        Page 65
        Page 66
    Contracts
        Page 67
        Page 68
        Page 69
        Page 70
        Page 71
        Page 72
        Page 73
        Page 74
        Page 75
    Title, deeds, conveyances and mortgages
        Page 76
        Page 77
        Page 78
        Page 79
        Page 80
        Page 81
        Page 82
        Page 83
        Page 84
        Page 85
        Page 86
        Page 87
        Page 88
        Page 89
        Page 90
        Page 91
    The registration law - the commissions and its duties
        Page 92
        Page 93
        Page 94
    The registration law - who may be required or permitted to register
        Page 95
        Page 96
        Page 97
        Page 98
        Page 99
        Page 100
        Page 101
        Page 102
    The registration law - grounds for revocation
        Page 103
        Page 104
        Page 105
        Page 106
        Page 107
        Page 108
        Page 109
        Page 110
        Page 111
    The registration law- penalties
        Page 112
    The registration law- miscellaneous provisions
        Page 113
        Page 114
        Page 115
        Page 116
        Page 117
        Page 118
    Code of ethics: Promulgated by the National Association of Real Estate Boards
        Page 119
        Page 120
        Page 121
        Page 122
        Page 123
    Extracts from rules and regulations: Promulgated by the Florida Real Estate Commission on November 13, 1928
        Page 124
        Page 125
    The registration law - being chapter 12223, laws of Florida, 1927, and sections 4062 to 4108, compiled general laws, 1927 effective June 1, 1927
        Page 126
        Page 127
        Page 128
        Page 129
        Page 130
        Page 131
        Page 132
        Page 133
        Page 134
        Page 135
        Page 136
        Page 137
        Page 138
        Page 139
        Page 140
        Page 141
        Page 142
        Page 143
        Page 144
        Page 145
Full Text







Principles and Practice

of the

Real Estate Business









By W. H. POE and L. E. BROOME
General Counsel and Assistant Counsel
Florida Real Estate Commission and
Members of the Orlando Bar







Published under the direction and
by the authority of
The Florida Real Estate Commission
O. P. SWOPE, Chairman, Orlando
CHAS. P. GLOVER, Tampa
D. EARL WILSON, Miami


1937





















Copyright, 1937
FLORIDA REAL ESTATE COMMISSION

Printed in U. S. A.

THE BREWTON COMPANY
Printers
Orlando, Florida









"i ,
": "'". t ,i i




-tt









FOREWORD

Section 5 of Chapter 12223, Laws of Florida, requires and
authorizes the Florida Real Estate Commission to foster the
education of real estate brokers and salesmen in order to better
acquaint them with their duties and responsibilities to the public.
The law also requires applicants to show, by passing an examina-
tion, that they are qualified in these respects. At present the
sources of information on these subjects are scattered and not
easily available to the broker who is not a lawyer, but who
comes within the purview of the law at every move. This
volume, which is an enlargement and revision of an earlier
edition, is published to furnish, in convenient and concise form,
a summary of the matters of law and ethics applicable to those
engaged in dealing in real estate for others, and for applicants
for registration in preparing for examinations.
As said by Mr. Justice Cardozo, now of the Supreme Court
of the United States, the real estate broker is supposed, by those
who trust him, to have greater knowledge than they concerning
the laws applicable to his business, and it is, therefore, his duty
to inform himself so that this supposition may be the fact.
It is of little consequence to the client whether his money is lost
through ignorance of the law on the part of the broker, or
through his conscious violation of it.
It is hoped that this volume will result in a better understanding
of the principles sought to be covered by it, and that both
practicing brokers and students will profit by studying it.
F FLORIDA REAL ESTATE COMMISSION,
/ O. P. SWOPE, Chairman.








CONTENTS


Chapter Subject Page
I The Real Estate Business
Definitions and Classifications . . 1
II Regulation of the Real Estate Business 7
III Employment and Authority . .. 14
IV Relations of Parties . . ... 19
V Performance and Termination of the Contract 26
VI Fraud and Dishonest Dealing . .. 36
VII Compensation and Remedies .. .. 49
VIII Some Questions of Practice and Policy . 55
IX Contracts . . . . . .. 67
X Titles, Deeds, Conveyances and Mortgages 76
XI The Registration Law
The Commission and Its Duties .. 92
XII The Registration Law
Who Required or Permitted to Register 95
XIII The Registration Law
Grounds for Revocation . 103
XIV The Registration Law
Penalties . 112
XV The Registration Law
Miscellaneous Provisions . 113
XVI Code of Ethics . . . .. 119
XVII Extracts from Rules and Regulations . 124
XVIII The Registration Law . . .. 126








CHAPTER I
THE REAL ESTATE BUSINESS
Definitions and Classifications
This discussion will deal exclusively with the real estate
brokerage business and related subjects. Accordingly, when in
succeeding pages we use the term real estate business, it should
be understood that we mean the real estate brokerage business.
The real estate business may be defined as the business of
dealing in real estate for others for a compensation, as a whole
or partial vocation. It takes the form of buying, selling, renting
and leasing real property as agent for the owner, purchaser,
lessor or lessee. In Florida, and in some other states, appraising
real estate for others for a compensation is classified as real estate
brokerage activity. The same is true of auctioning and the
handling of mineral or oil leases. In short, the negotiation of
any transaction involving the purchase or sale of real estate or any
interest therein as agent for another is classified legally as real
estate business.
A real estate broker is an individual, partnership or corporation
engaged in the real estate business as described and defined above.
His stock in trade is a personal service rendered to whomsoever
may employ him. His employment may be to buy, to sell, to
rent, to lease, to appraise, to auction real estate, or some interest
therein. If he is engaged in the business of performing any or
all of the functions enumerated he is classified as a real estate
broker or as a real estate salesman depending upon the scope of
his duties and his relationship with his employer.
A-real estate broker operates an independent business, dealing
directly with those who employ his services. Within certain well-
defined limits he becomes the agent of those who engage his
services. A real estate salesman is an individual employed by a
real estate broker, to perform, in the broker's name, any or all
of the services designated as real estate brokerage activity. The
salesman plies his efforts, only as the employee of his broker to
whom he is directly responsible. He becomes, by virtue of his






2 Principles and Practice of the Real Estate Business
employment, the sub-agent of his broker's principal in those
instances, of course, where he is dealing with or for the broker's
principal.
There are certain exceptions and apparent exceptions to the
foregoing classification. An attorney-in-fact, appointed for the
purpose of executing contracts or conveyances relating to real
estate is not held to be a real estate broker. The same is true
of an attorney-at-law, acting within the scope of his duties as
such. It should be pointed out that the normal scope of the
duties of an attorney-at-law does not ordinarily include the
purchase or sale of real estate for a compensation, nor does it
include any of the other functions enumerated. Situations may
arise in the practice of the legal profession which sometimes
necessitate the performance of these functions as an incident to
the practice of law, but if performance of the functions
enumerated is the major object of the employment, or if an
attorney-at-law receives special compensation for such services,
he would be acting as a real estate broker and not as a lawyer.
Nor does the term real estate broker include an administrator,
executor, receiver, trustee or master acting under or by virtue
of an appointment by will or order of a court of competent
jurisdiction. Such persons may dispose of real estate committed
to their charge by virtue of their appointment, and receive
compensation for their services without being classified as real
estate brokers. Nor does the term real estate broker apply to
persons acting as trustee under a deed of trust or trust agreement,
the purpose of which is philanthropic or charitable, or providing
for those who have a natural right to the bounty of the donor or
trustor.
An individual, partnership or corporation engaging in the sale,
rental, etc., of properties of which he or it is part owner is not
classified as a real estate broker unless such individual, partnership
or corporation receives from the proceeds of a transaction a sum
or value greater than his or its part ownership. In short, if a
part owner receives a sum greater than would accrue to his share
of ownership, as payment for rendering any of the services






The Real Estate Business-Definitions and Classifications 3
enumerated, he would be classified as a real estate broker.
A corporation engaged in the sale of its own properties is not
classified as a real estate broker. Under the Florida registration
act, one officer of such corporation is exempt from the requirement
of registration for the obvious reason that it would be futile to
exempt the corporation and provide no medium through which
it could operate. The president of such corporation is designated
by the registration law as the exempted officer, but some other
officer may be designated by the corporate by-laws in lieu of the
president. Any other officer of the corporation except the
person designated as exempt, who may engage in the sale of the
company properties is classified as a salesman in the employ of
the corporation. Likewise any persons, not officers or directors,
employed by the corporation to negotiate real estate transactions
are classified as real estate salesmen.
We have said that a real estate broker is one who handles the
real estate of others for a compensation. The element of
compensation is of primary importance. Without it a party
cannot be classified as either a broker or salesman. Services that
are contributed gratis in all that the term implies do not classify
the contributing party as a broker or salesman.
It is not necessary that the compensation be actually received.
If the party performing services does so in expectation of receiving
a compensation, or requests it or contracts for it or conducts
himself in such manner as to lead those with whom he deals
to expect that he will claim a compensation, the result is the same.
Under the law of most states a single transaction is sufficient
to constitute the party performing the services as a real estate
broker or salesman. This is the rule in Florida. It is the universal
rule that a party advertising and holding himself out generally
as being in the real estate business is classified as a real estate
broker or salesman. It is presumed by law that in such cases he
is in business for profit and expects to receive compensation for
his services.
The manner or form of compensation is immaterial. It may
be monetary consideration or some other form of valuable






4 Principles and Practice of the Real Estate Business
consideration. Nor is it necessary that the consideration be
direct. If there is a profit or gain accruing for services rendered
in negotiating a real estate transaction or performing any of
the services enumerated, the party receiving the profit or gain
for such services is classified as a real estate broker or salesman.
The amount of compensation to which a real estate broker is
entitled is determined by specific contract or by custom. The
broker and his principal, i.e. the person who has employed his
services, may make any contract with respect to the amount and
the manner of payment of compensation which may suit them
to agree upon and as long as the agreement is fairly arrived at
and represents the actual contract of the parties, it will be
enforced by the courts, although the amount of compensation
may be greater or less than the customary rate.
In the absence of a specific contract as to the amount of
compensation and the manner of payment, the broker is entitled
to receive the percentage which is customarily paid in that
particular community for like services. If the customary rate
can be shown by competent proof and with sufficient definiteness,
it will be recognized and enforced by the courts.
The compensation of a broker is paid generally, tho not
invariably, by the person who employed him. The circumstance
that he may be paid by some other person or agency than the
person from whom he accepted employment, renders him none
the less the agent of his employer.
The same general rules apply to the employment and
compensation of a salesman. The salesman is the representative
and employee of the broker who employed him. His compensation
may be determined by specific agreement, but if no specific
agreement exists, the custom of the community regarding the
compensation of salesmen for like services, if such a custom can
be shown, will prevail.
A real estate salesman does not have the right to engage in
the real estate business for his own account. He may not go
into secret competition with his employer. Whatever business
he transacts is the business of his employer. The commissions






The Real Estate Business-Definitions and Classifications 5
or compensation which may accrue from any transaction which
he may negotiate belong first to his employer. Any funds
coming into his possession as payment for services rendered in a
real estate brokerage transaction belong first to his employer and
should be delivered to him or accounted for. The salesman is
then entitled to receive his compensation in accordance with the
terms of his employment contract or in accordance with the
customs of the community.
A salesman is the direct representative of his broker. He is
not the direct representative of the customers or clients of the
office with which he is associated, and this is true although he
may be directly responsible for the employment of his office or
for obtaining a prospect. If the owner of property contacts
him directly and engages him to sell or lease it, the employment
contract belongs not to the salesman, but to his broker. In like
manner, if a prospective purchaser engages a salesman direct
to negotiate the purchase of property for him, the contract of
employment belongs not to the salesman, but to his broker. His
compensation may be greater, in such instances, than where he
is merely assigned by his employer to work on transactions which
he did not bring into the office, but this is a matter for agreement
between the broker and salesman, and should be set forth as a
part of the employment contract or as a special agreement
definitely understood and agreed upon as each specific case arises.
The real estate business is an old and honorable vocation.
It was aptly described in a recent decision of the Supreme Court
of Florida in the following language: "The real estate business
is not an avenue by which one may practice the tricks of his trade
or prey upon the innocent and unsuspecting purchaser, nor is it
a cloak to cover fraud and deception, or a means for designing
persons to short-circuit those who would deal squarely and in
good faith. It is indeed a highly respectable business or profession;
its ethics are well defined and presumed to be known to those
who patronize or engage in that business. No business known
to modern society has a longer or more respectable history. Real
estate is a primary security for credit in all the civilized countries







6 Principles and Practice of the Real Estate Business
of the earth, and the real estate broker in our times, and long
has been, the medium through which, annually many millions
of dollars in earnings and savings are secured or invested. He
is the agent of his principal in every sense, and, when that
relation is undertaken, a fiduciary relation is created which bars
the agent from becoming interested in the business or property
antagonistic to his principal without his knowledge or consent.
Every man, in other words, to whom a business is entrusted by
another, has a trust to perform; and every man is a trustee whose
business is to advise concerning or to operate the business of
another."-Quinn et al. vs. Phipps, 93 Fla. 805, 113 So. 419.








CHAPTER II
REGULATION OF THE REAL ESTATE BUSINESS
The conduct of the real estate business has come to be affected
in large degree by regulatory legislation. Laws of this type have
been enacted in 29 states of the American Union, in the District
of Columbia and in four Canadian Provinces. These laws are
similar in principle, differing, perhaps, in scope and detail, to the
laws existing in practically all the states for the regulation of the
practice of law, medicine, dentistry and other professions. Such
laws are founded upon the principle that the conduct of the
real estate business, like the professions mentioned, is charged
with a public interest and, therefore, the proper subject for
regulation under the police power of the state.
Regulation of the real estate business is a comparatively new
field of legislation. At the beginning of the present century,
real estate license laws were unknown to American jurisprudence
or statecraft. The real estate business was regarded as one of
those fundamental occupations beyond the proper scope of
governmental regulation under the police power of the state.
It was a business in which any person could engage at will,
regardless of his knowledge, fitness, or ability to represent others
in real estate transactions.
The rapid growth of the real estate business as a field for
professional enterprise gave rise, first to the organization of real
estate boards, organized along local, state and national lines like
other professional associations. It is doubtful if any business or
professional association has experienced a more remarkable
development in so short a period of time. The efforts of the
real estate boards are soundly reflected in the rising standard of
ethics in the real estate business and in the development of real
estate license laws.
The first real estate license law was enacted in the state of
California in 1911. Since that time, laws similar in principle
have become the settled policy of a majority of the states, and






8 Principles and Practice of the Real Estate Business
it seems only a question of time until the real estate business will
be the subject of uniform regulation in all of the 48 states.
Real estate license laws should not be confused with
occupational tax laws found in the statutes of most states and
generally in municipal ordinances. There is a fundamental
distinction to be noted in the two types of legislation. Occupational
taxes are levied for the purpose of raising revenue. Such
regulatory features as may be prescribed are purely incidental
to the primary object of raising money. On the other hand,
the primary object of a real estate license law is general regulation
of the real estate business. Such revenue or taxation features
as may be prescribed are purely incidental to the major purpose
of regulation. Occupational tax laws are an exercise of the
taxing power, while real estate license laws are an exercise of
police power. The first is merely to raise money for the public
treasury, while the latter is designed to safeguard the interests
of the public.
The old conception of the real estate business, as one of those
fundamental occupations so elementary in character as not to be
subject to regulation under the police power, has been largely
discarded. Even in states that have not yet adopted real
estate license laws, it is hardly likely that the old conception still
exists. In only one state, Kentucky, has such a law been held
unconstitutional as an improper exercise of police power. Rawles
vs. Jenkins, 212 Ky. 287, 279 S. W. 350. Elsewhere the real
estate license laws have been upheld as proper exercise of the
police power, not prohibited by the State or Federal Constitution.
Bratton vs. Chandler, 260 U. S. 110, 43 S. Ct. 43, 67 L. Ed.
157; Riley vs. Chambers, 181 Cal. 589, 185 P. 855; Zerlin
vs. La. Real Estate Board, 158 La. 111, 103 So. 528; Payne
vs. Volkman, 183 Wis. 412, 198 N. W. 438; Roman vs. Lobe,
243 N. Y. 51; 152 N. E. 461; Prettyman vs. Fla. Real Estate
Commission, 92, Fla. 515, 109 So. 442; State vs. Rose, 97 Fla.







Regulation of the Real Estate Business 9

710, 122 So. 225; Haas vs. Greenwald, 192 Cal. 236;
237 P. 38.*
The principle upon which regulation of the real estate business
is based was stated with exceptional clarity in the New York case
of Roman vs. Lobe. The following exposition of the law is
found in that case:
"Callings, it is said, there are so inveterate and basic, so
elementary and innocent, that they must be left open to all alike,
whether virtuous or vicious. If this be assumed, that of broker
is not one of them. The intrinsic nature of the business combines
with practice and tradition to attest the need of regulation. The
real estate broker is brought by his calling into a relation of trust
and confidence. Constant are the opportunities by concealment
and collusion to extract illicit gains. We know from our judicial
records that the opportunities have not been lost. With temptation
so aggressive, the dishonest or untrustworthy may not reasonably
complain if they are told to stand aside. Less obtrusive, but not
negligible, are the perils of incompetence. The safeguards
against incompetence need not long detain us, for they were
added to the statute after the services were rendered. We
recall them at this time for the light that they cast upon the
legislature's conception of the mischief to be remedied. The
broker should know his duty. To that end he should have 'a
general and fair understanding of the obligations between principal
and agent' . Disloyalty may have its origin in ignorance as
well as fraud. He should know, so the legislature has said,
what is meant by a deed or lease or a mortgage. At any moment
he may have to make report as to such matters to expectant
buyers or lessees. Often he goes further, perhaps too far, and
prepares a memorandum of the contract. He is accredited by
his calling in the minds of the inexperienced or the ignorant with

*Statutes similar in principle and operation relating to the regulation
of the insurance business and the sale of securities have likewise been
upheld generally on same or analogous grounds. Hall vs. Geiger-Jones,
242 U. S. 539, 37 S. Ct. 217, 61 L. Ed. 480; La Tourette vs. McMasters,
248 U. S. 465, 39 S. Ct. 160, 63 L. Ed. 362.







10 Principles and Practice of the Real Estate Business
a knowledge greater than their own." Roman vs. Lobe, 243
N. Y. 51, 152 N. E. 461.
(It is interesting to note that the above opinion was written
by Justice Cardozo, at that time of the Court of Appeals of
New York.)
The decision goes on to say that the legislatures of many
states, awakening to these evils, have adopted statutes similar to
that of New York. After enumerating the states having real
estate license laws (which were considerably fewer in number
than at the present time), the decision points out that "legislation
so general marks a rising tide of opinion which is instructive and
informative."
It is readily apparent from the decision in Roman vs. Lobe,
and from other decisions dealing with the subject, as well as
by an examination of the real estate license laws themselves, that
the major object of such legislation is to promote a high standard
of honesty and competence in the ranks of those who engage in
the real estate business, and to exclude from the business those
who are incompetent and dishonest. To this end governmental
machinery is set up usually in the form of a board or commission,
with administrative and quasi judicial power to enforce the
provisions of the act. Applicants for a license to engage in the
real estate business are required to pass a character examination,
and in some states a written examination of competence is
required. In addition, the administrative agency has power to
cancel, revoke or suspend a license for proper cause shown, or to
prosecute a court action for that purpose. In Florida, the Real
Estate Commission is vested with the power of denial, but must
prosecute an action in the Circuit Court of the county in which
the defendant resides in order to obtain a revocation or suspension.
The accused is in all cases entitled to a fair trial on the issues
involved, in the manner prescribed by law.
In addition to the general requirements of honesty and
competence, there are certain technical requirements which may
vary in different states. The Florida statute requires that every
individual applicant must have capacity to make valid contracts






Regulation of the Real Estate Business 11

and to sue and be sued. The effect of this provision is to require
applicants to be of legal age or to have their minority disabilities
removed by law. Married women seeking a license are likewise
required to have their disabilities removed by appropriate court
action.
Again the Florida statute requires that every applicant must
be a resident of the State of Florida or a corporation organized
or authorized to do business in the State. The constitutionality
of this provision was attacked in the case of State vs. Rose, noted
above. The Court divided evenly on the issue, leaving the
section in force since it requires a majority decision to invalidate
a statute. It may be pointed out in this connection that the
Supreme Court of the United States held constitutional a similar
provision in a statute for the regulation of insurance agents.
La Tourette vs. McMasters, 248 U. S. 465, 39 S. Ct. 160,
63 L. Ed. 362.
When the State, by appropriate legislation, recognizes that
the conduct of real estate business is charged with a public interest
and provides conditions under which it may be conducted, it is
no longer a business in which anyone may engage at will, but
becomes a privilege granted by the State to such persons as can
meet the requirements of the law.
Real estate license laws generally contain three types of
penalties:
1. It is a criminal offense punishable as a misdemeanor to
engage in the real estate business without first qualifying in the
manner prescribed by law. Some of the earlier statutes required
only that persons who engaged in the real estate business "as a
whole or partial vocation" were required to qualify. Hence,
an isolated transaction by a person not generally engaged in the
real estate business was held not to be a violation of the law.
Later statutes have avoided this language and have made a
single transaction a violation of the law. The earlier statutes
have been largely cured in this respect by amendment.
2. An application for license or registration certificate may
be denied on grounds enumerated in the statute, or license may






12 Principles and Practice of the Real Estate Business
be revoked or suspended on approximately the same grounds.
3. A person or company is barred from court action to
recover a compensation for services rendered in a real estate
transaction unless such person or company has qualified under
the law, and holds a license or registration certificate effective
at the time the service was rendered.
Prosecution of offenses of the class first enumerated is
generally vested in the regular prosecuting officer of the State
or jurisdiction in which the offense occurred, and not in the
Real Estate Commission or administrative agency.
The application of penalties of the second class is vested in
the Real Estate Commission or in the courts (as in Florida,
where the power of revocation is vested in the Circuit Court of
the county where the defendant resides).
Penalties of the third class may be seasonably invoked in any
court action for the recovery of a compensation for services'
rendered in a real estate transaction. Application of the penalty
will depend upon the particular language of the statute. It was
the obvious intention of all such laws to prohibit any person or
company from successfully recovering a compensation by court
action unless such person or company had qualified under the
law, and held a license or registration effective at the time the
service out of which the claim arose was rendered. Some of
the earlier statutes failed to achieve this result because of the
circumstance that a license or registration certificate was only
required of persons and companies engaging in the real estate
business "as a whole or partial vocation." It has been held that
such language does not apply to persons or companies not generally
engaged in the real estate business who might seize the opportunity
to negotiate a single isolated transaction. The result has been a
movement to cure this defect, where it existed, by proper
amendment to the law.
It may be stated generally that in states where real estate
license laws are in force, no individual or company can successfully
maintain a suit for compensation for services rendered in a real
estate transaction without having complied with the provisions







Regulation of the Real Estate Business 13

of the law. Moreover, it is not sufficient to comply with the
law after the services are rendered. Compliance must have been
before the services were rendered.
Regulatory laws for the real estate business have become well
established during the last quarter of a century as a permanent
governmental policy. It has already been noted that in only
one state has such a law been held unconstitutional on general
grounds. The real estate license law of North Carolina was
recently held unconstitutional because it was not state-wide in
effect. A new law was quickly enacted curing this defect.
Speaking generally, it may be said that the real estate license
laws have been placed on a solid foundation with a substantial
body of case law, i.e., judicial decisions supporting them.










4:x
/










/








CHAPTER III
EMPLOYMENT AND AUTHORITY
The services of a real estate broker may be employed to
perform any of the functions heretofore enumerated as real
estate brokerage activity. He may be employed to buy or sell
property, to rent or lease it, to appraise it, or to auction it. His
employment is usually by specific contract, but a contract of
employment may arise by implication.
The most common form of employment contract is
authorization to sell property, commonly known as a listing.
The law of agency is applied by the courts to the relationships
created by the listing contract, but it should be understood that
if a real estate broker is an agent, he is at most an agent with
limited authority. Ordinarily the relationship of agency means
that the agent is empowered to act for and in the name of his
principal, and that the contract of the agent, within the scope of
his authority, is binding on the principal. The ordinary authority
of a real estate broker does not extend so far. He is authorized
merely to show the property, to quote price and terms, to point
out its desirable features and to seek through any legitimate
means to bring the prospect into agreement with the owner.
These things he could very well do without employment, except
in so doing he might not become entitled to compensation for
his efforts.
It is well settled that a real estate broker has no power to
bind his principal to a contract of sale or purchase unless the
power to do so has been specifically conferred. It does not arise
by virtue of the ordinary listing contract. Nor does a broker
have the power to execute deeds or mortgages unless the power
is specifically conferred by an instrument in writing, known as
a power-of-attorney.
As pointed out above, the most usual form of employment
contract is a listing. A listing is the employment of a broker's
services by the owner or someone legitimately acting for him,
to sell or to rent specific property. It carries with it an agreement






Employment and Authority 15

either express or implied that the broker is to receive a
compensation for his services in case his efforts are successful.
The listing is the foundation and ground work of the broker's
business. Out of it arises his relation of trust and confidence
with his principal, and upon it he must base his right to be
compensated for his services. Hence, it is highly important for
any person engaging in the business to obtain a thorough
understanding of the subject in all its phases.
A listing is a simple contract not required to be in writing.
In theory an oral listing is as binding as in writing, but as a
matter of common practice, it is always to the advantage of the
broker to obtain the listing in writing, because, in case of
litigation, it is easier to prove. If not in writing, it becomes
necessary, in case of litigation, to produce a preponderance of
creditable testimony in order to prove its existence. Such proof
is not always easy to obtain.
A listing may be to find a purchaser or to effect a sale. In
the first instance it is only necessary for the broker to find a
prospective purchaser who is ready, able and willing to buy on
the terms offered, and present him to the owner. The broker
has then performed his contract of employment and is entitled
to be paid the agreed or customary rate of commission. In the
second instance he must not only obtain a prospective purchaser
who is ready, able and willing to buy on the terms offered, but
must in addition procure a binding contract embodying those
terms, signed by the prospective purchaser. The broker has then
performed his contract and is entitled to be compensated.
A listing may be open or exclusive. An open listing is the
most common form. It is a listing without obligation on the
part of the owner to refrain from employing other brokers.
The owner may give the listing to only one broker or he may
give it to an indefinite number. The fact that he may give it
to only one does not make it exclusive. As long as he retains
the right to list it with others, it is an open listing. Where an
open listing is given to more than one broker, the owner,
provided he remains neutral as to the competing brokers, becomes






16 Principles and Practice of the Real Estate Business
indebted for compensation to only that one of them who
actually sells the property.
An exclusive listing is given to one broker only, with an
agreement that the owner will not list the property with other
brokers during the term of the listing. This is all that the
term "exclusive listing" implies. Its purpose is to allow the
broker holding it to ply his efforts unhampered by interference
or competition from other brokers. It is not as broad in its
scope and effect as most real estate men have thought. It does
not entitle the broker to a compensation in case the property is
sold by the owner to some prospect not procured by the broker.
It does not even entitle the broker to a compensation where the
property is sold through another broker. In the latter event
the broker holding an exclusive listing will have an action for
damages against the owner for breach of contract. His damages
will amount to only what he can prove,' usually the value of
his time expended, the cost of advertising and any other items
incident to his efforts to sell that particular property. In case
he can show that he produced a purchaser who would have
bought the property, but for the owner's action in selling to
someone else, his damages will amount to what the commission
would have been.
In order to bind the owner to pay a compensation in case the
property is sold by some person other than the broker, such a
provision must be written specifically into the contract. It does
not naturally arise as an incident to an exclusive listing. Even
when specifically written into the contract it is not an absolute
guarantee that the broker can recover. It should be borne in
mind at all times that a broker's right to compensation depends
properly on services successfully performed. If a broker neglects
to give an exclusive listing the attention that such a contract
naturally demands, he may forfeit his rights under the contract.
It is quite apparent that when an owner imposes that degree of
trust and confidence in a broker which an exclusive listing
implies, it becomes the duty of the broker to put forth his most
diligent efforts to discharge his contract. He cannot expect to







Employment and Authority 17
neglect his duties and his opportunities and then reap an
undeserved harvest where others have actually performed the
efficient service. His reward comes, rightfully, from successful
enterprise.
A net listing is a contract to sell or rent and obtain a specified
minimum price for the owner. The broker must add his
commission to the net price. He may also add the expenses
incident to closing the transaction. He cannot lawfully obtain a
compensation greater than the usual and customary rate of
commission without the specific knowledge and consent of the
owner. The broker is not permitted to speculate with the subject
matter of the listing contract. If he does so without the
knowledge and consent of the owner, he is guilty of fraud,
and the owner can recover the excess received by the broker
over the net price.
An option contract may sometimes amount only to an exclusive
listing. This will occur where it is understood that the optionee
has no intention of buying the property for himself, but intends
to sell it to someone else for a sum sufficient to net a compensation
for his efforts. A contract of this character is frequently given
as a means of expediting a brokerage transaction. It does not
change the essential relations of the parties and cannot be
considered as a true option which usually implies that the
optionee is seriously considering the purchase of the property for
himself and requires a valuable consideration to support it.
An employment contract may arise by implication. This will
occur where the broker has not received any specific authority
from the owner to negotiate for the sale of the property, but
does so with the knowledge and consent of the owner. The
owner cannot then accept the fruits of the broker's efforts without
becoming liable to him for a reasonable compensation. The
circumstances must of course be such that it can reasonably
be inferred that the parties intended that a compensation should
be paid. As an example, if a party known by the owner to be
engaged in the real estate business negotiates a sale of the owner's
property, the owner is charged with notice that the broker







18 Principles and Practice of the Real Estate Business
expects to be paid, because the broker is customarily paid for
like services, and unless there are peculiar circumstances incident
to the transaction which would negative the idea that a
compensation was expected, the broker could recover. On the
other hand, if a friend or acquaintance of the owner, not
generally engaged in the real estate business or not known by
the owner to be so engaged, should negotiate or assist in the
negotiation of the owner's property, no contract would arise,
unless there were peculiar circumstances incident to the transaction
which indicated that the parties intended that a compensation
should be paid. An express contract arises from the specific
agreement of the parties while an implied contract arises out
of their conduct.








CHAPTER IV
RELATIONS OF PARTIES
In the ordinary real estate transaction a broker stands in a
fiduciary relation with his principal. This term may be described
in common parlance as a relationship of trust and confidence. It
arises whenever trust and confidence is reposed and accepted.
It is generally inherent in the position of a real estate broker who
has been commissioned to perform some service in relation to
other people's property and has its origin in the employment
contract. There may be instances in particular transactions
where it does not exist, but such instances are rare and in such
cases the broker is reduced to a mere middle man, a sort of
introductory agent or messenger with no duties to perform that
would make it possible for him to take unfair advantage of one
side or the other.
The relationship of trust and confidence exists between the
broker and his employer. Whether that employer is the owner
of real estate desiring to sell or a prospective purchaser seeking
to buy is of no consequence. The result is the same in either
event. The employer is generally the person who pays the
compensation, but this is not invariably the case. It may be
arranged by all the parties that someone other than the employer
is to pay the compensation. The employer is at least responsible
for making provision for its payment.
Broadly stated, it is the duty of a broker, as a fiduciary, to
exercise the utmost good faith toward his employer, to give that
employer the benefit of what knowledge and skill he possesses
and to remain loyal to the employer's interests throughout the
course of the transaction. He cannot lawfully assume any
position antagonistic to his principal's interests or become financially
interested in the subject matter of the agency beyond his
commission, without his principal's knowledge and consent.
The foregoing principles have a very practical effect on the
activities of a broker under the various forms of his employment.
If he is employed to sell he becomes the agent of the owner for






20 Principles and Practice of the Real Estate Business
that purpose, and his highest duty is to the owner. Normally
it is his duty to obtain the best price for the property which a
prospect can be induced to give. If he knows that the property
can be sold for more than the owner has authorized, it is his
duty to inform the owner of this fact. If he has received two
varying offers, it is his duty to submit to the owner the highest
and best offer regardless of which was tendered to the broker
first. He may of course submit both of them to the owner, but
he must submit the highest and best offer.
The broker is required to inform the owner of any material
fact or circumstance within his knowledge which might be
calculated to affect the owner's judgment in the transaction.
It is a violation of his duty as a fiduciary to withhold or conceal
from the owner any material information regarding the deal.
The broker cannot lawfully assume any position during the
course of a transaction antagonistic to the owner's interests. He
is prohibited from representing the purchaser or any other
interest without the specific knowledge and consent of the owner.
Nor can he accept compensation from the purchaser or any other
interest without the specific knowledge and consent of the owner.
The broker cannot lawfully become the purchaser of property
listed with him for sale unless the owner knows that the broker
is buying for himself and is informed by the broker of all the
material circumstances which might affect his judgment. A
real estate broker, of course, has the same right to buy and sell
property as any other person, but he must keep his individual
transactions as separate from his brokerage transactions as if
they were the deals of two separate persons. Those with whom
he deals have a right to know whether he is acting for himself
or in his capacity as an agent.
Above all, the broker must not become financially interested
in the subject matter of the agency beyond his commission,
without the specific knowledge and consent of the owner. An
example of this would be where the broker acquires a part
interest in the property along with the purchaser, or advances
money to the buyer to be used in connection with the deal.






Relations of Parties 21

Good faith requires that he act for the best interests of the
owner, and if he should become financially interested in the
property, human nature would make it quite likely that he place
his own interests above those of his employer, and this his
relationship of trust and confidence will not permit. Nor can
a broker lawfully obtain a secret profit at the expense of the
owner. Any sum which he may obtain above the list price
belongs properly to the owner and must be accounted for. The
broker is, of course, entitled to a commission on the actual
selling price.
Where the broker is employed to negotiate for the purchase of
property, his position is reversed. He then owes a duty of loyalty,
good faith and fidelity to the purchaser. He must obtain the
property for the lowest consideration the owner can be induced
to accept and must give the purchaser the benefit of any reduction
of price he may obtain. He must not become financially
interested in the property beyond his compensation, without the
purchaser's knowledge and consent, and is not permitted to
obtain a secret profit at his expense.
After being employed to negotiate for the purchase of property,
a broker cannot purchase it for himself, and this is true even
though there was no definite understanding as to the payment
of a compensation for the broker's services. If he does buy it
himself, he can be compelled to deliver it to the prospective
purchaser at the price he paid for it. The law goes even further
and holds that where a prospective purchaser requests a broker
to submit an offer to the owner for the purchase of property,
nothing being mentioned about a compensation to the broker, he
cannot then purchase for himself. The broker is not required
to act; he can simply dismiss the matter from his mind, but if
he does act, he must act in good faith and cannot take advantage
of the information which comes to him in such a manner as
long as the prospect continues his active interest in the purchase.
If the broker acts for the purchaser and negotiates the purchase
for him, he of course becomes entitled to a reasonable compen-
sation for his services.






22 Principles and Practice of the Real Estate Business
A broker cannot represent both sides of a transaction without
the specific knowledge and consent of both parties. The reason
for this rule becomes perfectly clear when it is considered that
the interests of the buyer and seller are naturally antagonistic.
The buyer desires to obtain the property for the lowest price
possible, while the owner seeks to sell it for as high a consideration
as he can get. The broker cannot stand in the shoes of both at
the same time. Nor can the broker accept compensation from
both the buyer and seller in a transaction without specific
knowledge and consent of both. The reason for this rule is
likewise apparent. By the amount of compensation paid him
the broker failed in each instance to obtain the best price. For
example, a broker employed to sell a property for $10,000.00
does not report the best price if purchaser pays an additional
sum of $500.00 to get the property. The price for which he
actually sold was $10,500.00. In the same manner, if he was
employed to purchase he does not report the lowest price to
the purchaser if the owner reduced his consideration by $500.00
allowed the broker. Representing both sides of a transaction
can only be legal when both the owner and the purchaser know
of the broker's position and actually agree to it. This is true
in an exchange of properties as in a purchase and sale.
It will sometimes occur that a broker is employed to purchase
property for a prospect when he already has property listed for
sale which would be suitable to the prospect. Being already the
agent of the owner, he cannot become the agent of the purchaser
to negotiate for that particular property without the specific
knowledge and consent of the owner, or without informing the
purchaser that he also represents the owner, and it therefore
behooves him to make known to both parties his exact position
and reconcile his relationship with them if possible. Unless they
both agree to the dual relationship, it will become necessary for
him to make a choice as to whom he will serve and sever his
relations with the other.
A broker likewise stands in a relation of trust and confidence
with partners, business associates, corporations for whom he may






Relations of Parties 23
act as officer, or director, and to other brokers or persons with
whom he may engage in joint adventures.
Finally it is the duty of a broker to account to his principal,
or to partners, business associates, joint adventurers, etc., for
funds, profits, property, documents, etc., coming into his
possession, as a result of his employment or association, which
belong to the principal or to the partnership, business associates,
corporation, or joint adventurers, and failure to do so creates not
only a debt on his part, but in addition, amounts to a fraud and
frequently to criminal conversion.
It will be observed that the standard of conduct required of a
real estate broker is essentially different from that required of
persons dealing at arm's length. The latter phrase needs perhaps
to be clarified. Persons are said to be dealing at arm's length
when there is no relationship of trust and confidence involved;
when the parties stand on an equal footing, each looking out for
his own interests. The buyer and the seller in a real estate
transaction are ,dealing with each other at arm's length. Each
is seeking to drive the best bargain possible and neither is charged
with the duty of looking out for the other's interests. Their
interests are antagonistic and legitimately so. Understanding
that, both parties are at liberty to take such steps as they deem
necessary for their own protection.
Conduct which is entirely legal and honest when dealing at
arm's length may become highly unethical, illegal and fraudulent
where a fiduciary relationship exists. This is because of the
fundamental nature of the agency; because the interests of the
principal are the interests of the agent, and the principal has a
right to expect that an agent to whom he entrusted an enterprise
will protect his interests as faithfully and efficiently as he would
do himself, if he were acting in his own behalf. He is obliged
to entrust certain information to the broker regarding the property
and his circumstances with reference to it in order that the
broker may more effectively ply his efforts. He cannot take
the same measures to protect himself in dealing with the broker
as he could in dealing direct with a purchaser at arm's length.







24 Principles and Practice of the Real Estate Business

The very nature of the business requires that he place himself
and his interests, to an extent at least, at the mercy of the broker,
and for this reason the law has thrown its protecting mantle
around the relationship and raised up a different standard to
test the conduct of fiduciaries than that applied to parties dealing
at arm's length. Something more is required of a broker than
the morals of the market place.
Finally, it should be understood that the trust and confidence
which has been discussed is "part and parcel" of a definite
relationship. It does not mean merely that some person trusts
another or believes in his integrity. It is based upon some tangible
business relation in which one of the parties has a legal right
to trust the other. The owner who employs a broker to sell his
property, for instance, has a legal right to trust the broker,
having employed services and agreed to pay for them if the
enterprise is brought to a successful conclusion. On the other
hand, a prospect who may wander into a broker's office on a
shopping tour has no legal right to regard the broker as his
representative, even though he may hold the broker in a high
degree of respect and be entirely willing to repose confidence in
him. He has not employed the broker and does not contemplate
paying him for his services. In the ordinary real estate
transaction, where the broker has been employed to sell, he
stands in a fiduciary relation with the owner and deals at arm's
length with the prospect. Where he was employed to buy he
stands in a fiduciary relation with the buyer and deals at arm's
length with the owner. The broker owes no duty to protect
the interests of any person by whom he has not been employed.
Common honesty of course dictates that he shall not be guilty
of misrepresentations or practice deception with any party to a
transaction negotiated by him, and indeed he can be penalized
in various ways for dishonest dealing, even though no fiduciary
relationship exists. It is sufficient to remember that a broker
must protect the interests of his principal, but is not charged
with a legal duty of protecting or looking after the interests of
anyone else.






Relations of Parties 25

All that has been said in the foregoing discussion relates
equally to salesmen, but it must be remembered that the salesman's
principal is the broker by whom he is employed. He stands in
a relation of trust and confidence with his broker, and owes
that broker his first duty of good faith, loyalty, fidelity and fair
dealing. Insofar as the broker's clients are concerned, the
salesman is only a sub-agent. Indirectly he owes these clients the
same duties as the broker himself, but only as the representative
of his employer. He enters into no direct legal relations with
them. In his activities he simply represents his broker.








CHAPTER V
PERFORMANCE AND TERMINATION OF THE CONTRACT
The listing contract, whether open or exclusive, may be
determined or brought to an end in six ways, viz., by performance,
by lapse of time, by revocation, by abandonment, by renunciation
or by breach. Of these, performance is of the greater interest
to the broker, for generally it is only through performance that
he becomes entitled to compensation.
A real estate broker is employed to perform some service with
reference to real estate. His right to be paid for his services is
usually contingent upon the successful performance of that
service. The broker may labor ever so diligently in the interests
of his employer, but if his efforts do not meet with success, he
gains no right to compensation. On the other hand, if the
broker has successfully performed each and every service for
which he was employed he has discharged his contract and is
entitled to be paid.
It is not always an easy matter, however, to determine whether
the contract has been performed. There is no fixed technique
in the handling of a real estate transaction, as in the writing of
an insurance policy, for instance; and it may sometimes become
difficult in the shifting course of negotiations to determine how
far the broker has performed his contract or to what extent his
activities have influenced the transaction. The real estate business
is not an exact science. Oft times, there are proposals and
counter-proposals with many details to adjust before the parties
reach a substantial agreement and the transaction may be
ultimately closed on some entirely different basis than that
contemplated in the listing contract. Ordinarily this will not
affect the broker's right to commission, provided his efforts were
the actual procuring cause of the deal. If through the efforts of
the broker, a deal has actually been consummated by the
execution of an enforceable contract or the passing of deeds and
mortgages, the broker is unquestionably entitled to his
compensation.






Performance and Termination of Contract 27

If his employment was to find a purchaser, the broker must
produce a prospect ready, able and willing to buy on the terms
offered. He is then entitled to be paid even though the owner
may then change his mind and refuse to sell. By ready, it is
meant that the prospect will deal now or within the time
stipulated; by able it is meant that he has the financial ability to
make the necessary cash and deferred payments, not having
recourse to mere promises of others to loan him the money;
and by willing it is meant that he has definitely made up his
mind to meet the terms specified. Except in cases where the
broker has undertaken to pass upon the financial responsibility
of the prospect, the owner cannot deny that he was ready, able
and willing, if he accepts the offer and closes a contract of sale.
If the broker's employment was to effect a sale, he must not
only produce a prospect ready, able and willing to buy on the
terms offered, but must, in addition, obtain a binding offer in
writing, signed by the said prospect.
A broker may be said to have substantially performed his
contract of employment if his efforts are the procuring cause of
a deal his employer has made. The question as to who is the
procuring cause becomes especially important where there are
two or more competing brokers laying claim to the same
commission. The matter then resolves itself into a question of
fact to be determined by the circumstances of each case. It is
easy to state the cardinal rule, but it may become exceedingly
difficult to apply it. "As between competing brokers, that one
whose efforts are the procuring cause of the deal is entitled to
the commission to the exclusion of the others." The circumstance
that one broker may have shown the property first does not
determine the rights of the competitors. It is well known to
every real estate broker that a sale does not necessarily follow
the showing of property, and the fact that one broker may have
shown it is by no means indicative that he could also have sold it.
Hence, when a dispute occurs over a commission, it is not
sufficient to show merely that one broker showed the property
first. It must be shown that his efforts were actually responsible







28 Principles and Practice of the Real Estate Business
for the consummation of the deal.
Nor is the circumstance that one of two or more competing
brokers has obtained a written contract and a deposit of earnest
money, conclusive evidence that he is the broker entitled to the
commission. A contract accompanied by earnest money is, of
course, very strong evidence that the broker obtaining them
actually made the deal, but if it can be shown that some other
broker actually did the work which induced the prospect to enter
into the contract, and deposit the earnest money, the latter's
rights would be superior. The principle has been very clearly
stated in a New York decision. "It follows as a necessary
deduction from the established rule that a broker is never entitled
to commissions for unsuccessful efforts. The reward comes only
from his success. That is the plain contract and contemplation
of the parties. The broker may devote his time and labor and
expend his money with ever so much of devotion to the interests
of his employer and yet, if he fails; if without effecting an
agreement or accomplishing a bargain, he abandons the effort,
or his authority is fairly and in good faith terminated-he gains
no right to commissions. He loses the labor and effort which
were staked upon success. And in such event it matters not
that, after his failure and the termination of his agency, what
he does proves of use and benefit to the principal in a multitude
of cases that must necessarily result. He may have introduced
to each other parties who otherwise would never have met; he
may have created impressions which, under later and more
favorable circumstances, naturally lead to and materially assist
in the consummation of a sale; he may have planted the very
seed from which others reap the harvest; but all that gives him
no claim. It was part of his risk that, failing himself-not
successful in fulfilling his obligation-others might be left to
some extent to avail themselves of the fruit of this labors."
Sibbold vs. Bethlehem Iron Co., 83 N. Y. 378.
Consideration must be given to all the facts and circumstances
connected with a deal before the rights of the parties can be
finally determined. Even then, it may be a difficult matter to







Performance and Termination of Contract 29
make an absolutely just decision, and in some cases the only
practical and ethical method of settling the controversy would
be to divide the commission between the contending parties on
some equitable basis, giving due consideration to the value of
the services rendered by each.
If the listing is exclusive, it deserves special consideration and
vigorous attention at the hands of the broker. His promise to
put forth unusual efforts is, indeed, the consideration for the
exclusive listing, and unless he complies with his promise, there
is obviously a failure of consideration and the broker has no
right to complain if, because of his negligence and failure to act,
the owner chooses to treat the contract as at an end and sell the
property himself or list it with other brokers.
A listing may be terminated by lapse of time. This is true,
both when by its terms it fixes a definite time limit and when
there is no limit stipulated.
If there is a definite time limit the broker must perform
within the time allowed to him. Otherwise he has not complied
with the terms of his contract and is not entitled to compensation
for his efforts. It is, of course, true that if a broker continues
his efforts to sell after the expiration of the time limit, with the
knowledge and consent of the owner, a new contract or an
extension of the old one will result, and the broker would be
entitled to a compensation if his efforts are successful and a
sale results, but unless he has permitted the broker to proceed
with his efforts under circumstances implying a promise to pay
for the services, the owner is under no further obligation to
the broker after the expiration of time allowed. He may then
refuse to deal with a prospect produced by the broker without
becoming liable for the payment of a compensation.
If the listing does not specify a definite time limit, it will
in any event expire upon the lapse of a reasonable time.
This seems to be one of the most difficult principles for the
layman to grasp, but it is one of the most familiar rules of
law. Any contract which specifies the performance of definite
acts without stating the time allowed for performance, is subject







30 Principles and Practice of the Real Estate Business
to the same rule. So, if a contract of sale is drawn without
stating when the deal is to be closed, it will be held that the deal
must be closed within a reasonable time, and if it provides that
an abstract is to be delivered without limiting the date for
delivery, the abstract must be delivered within a reasonable time.
And so a listing without a time limit will nevertheless expire if
the property remains unsold after the lapse of a reasonable time.
What is reasonable will depend upon the circumstances of
each case. The condition of the market, the known wishes and
necessities of the owner, the fluctuation of values and many
other factors may enter into a determination of a reasonable
time. The announcement of extensive public improvements
nearby which would greatly enhance the value of the listed
property, the discovery of oil or valuable mineral deposits or
the happening of any contingency which would materially alter
the value of the property or legitimately affect the owner's
intentions with reference to it, might operate to bring the
listing to an end.
Again the listing will cease to be effective through mere lapse
of time. The point is best illustrated by reference to an unusual
decision of the Supreme Court of Alabama. A broker had
accepted a listing which did not stipulate a time limit. The
decision did not indicate how diligent he may have been in trying
to sell the property, but after the lapse of nine years he produced
a prospect who was ready, able and willing to buy on the terms
stipulated in the listing. The owner had forgotten all about
the matter, and refused to sell, whereupon the broker sued for
the usual commission. It did not appear from the decision
whether there had been any change in the value of the property
or whether the circumstances of the owner had altered. The
court simply held that nine years was an unreasonable length
of time for a listing to remain in force and effect. Erswell vs.
Ford, 205 Ala. 494, 88 So. 429.
Of like tenor was an Iowa decision-Armstrong vs. Sowns-
berry, 187 Iowa 1224. It is easy to follow the logic of these







Performance and Termination of Contract 31

decisions, because it would have been utterly fantastic to hold
otherwise, but it is not so easy to determine on a placid market,
when a listing begins to lose its effect and the reasonable length
of time expires. As a practical proposition, the broker should
contact the owner at reasonably frequent intervals and confirm
such listings provided he wishes to continue his efforts, and save
himself from possible loss of commissions.
A listing may be terminated by revocation on the part of the
owner. Whether it is an open or an exclusive listing does not
alter the rule. Revocation may be accomplished by notice to the
broker of the owner's intention, or by acts inconsistent with the
listing. For instance, a sale of the property by the owner himself
to someone not procured by the broker, or through some
other broker will operate to revoke the listing when knowledge
of it reaches the broker. The owner always has the power to
revoke a listing, unless it is coupled with an interest (a rare
circumstance), but he does not always have the right to do so.
An open listing is generally without consideration when made,
and unless the broker has contributed services which operate to
furnish a consideration and place the owner under obligation
to him, the owner may revoke the listing at any time without
liability for commission.
The same rule applies to many so-called exclusive listings.
We have seen that the consideration for an exclusive listing is
usually the broker's promise, expressed or implied, that he will
put forth unusual efforts to sell the property. If he fails in
this respect, there is a failure of consideration and the owner
may revoke the listing at any time without liability.
The owner, however, must act in good faith. He cannot
legally ascertain the identity of a prospect with whom the broker
is dealing, revoke the listing, and then deal directly with the
prospect. Such an action would amount to bad faith on his
part and he could not avoid liability to the broker if he actually
sold to the prospect.
A listing may be terminated by abandonment. If a broker,
after procuring a listing, fails to make any effort to sell, but






32 Principles and Practice of the Real Estate Business

simply forgets the matter, he may be said to have abandoned
the contract and the owner is at liberty to treat it as at an end.
Or if the broker does anything inconsistent with the existence
of the listing as, for instance, refusing to show the property
to a prospect or refusing to take any part in pending negotiations
where he was employed to effect a sale, the contract will be
held to have been abandoned. The courts have also held that a
listing may be treated as abandoned unless the broker undertakes
to sell within a reasonable time.
A listing may be terminated by renunciation. This may be
accomplished by the mutual agreement of the parties to abandon
it, or the broker may notify the owner that he will no longer
pursue his efforts under it.
Finally a listing may be terminated by breach on the part
of either party. The right to breach and the power to do so
are not the same thing. Either party to a contract has the power
to breach it, but he cannot do so without laying himself liable
to the other for damages.
It is a breach of the contract if the owner refuses to accept a
purchaser, ready, able and willing to buy on the terms offered,
who is tendered him by the broker, or if the owner refuses to
accept a binding contract of sale tendered by the broker under
the same circumstances. The broker having performed his part
of the contract is entitled to his compensation. It is likewise a
breach of the contract if the owner fails to deliver the property
or is unable to do so by reason of a defective title. A broker
is not charged with knowledge of a defective title, but is entitled
to assume that the owner can deliver what he has contracted to
sell, and unless the broker had actual knowledge that the property
could not be delivered, his right to compensation is not impaired.
Moreover, the relations of the parties as discussed in the
foregoing chapter is by no means a one-sided affair. The owner,
as well as the broker, is charged with the duty of dealing fairly
and in good faith. He cannot employ the broker's services and
then actively prevent the broker from performing those services.
He cannot sell the property to someone else after the broker has







Performance and Termination of Contract 33

produced a purchaser ready, able and willing to buy, and escape
liability for the broker's compensation; or having sold the property
before performance on the part of the broker, he cannot keep
the sale secret and allow the broker to continue his efforts without
liability for damages, or for the full compensation if the broker
actually produces a buyer. Nor can the owner defeat the broker's
claim where the transaction fails due to his own misrepresentations
or fraud, or where he attempts by deceit, trick, scheme or device,
to over-reach the broker, appropriate his prospect and sidestep
his liability for payment.
It is a breach of the contract if the owner, after giving one
broker an exclusive listing, sells through another broker during
the life of the listing. For such a breach, a broker may recover
damages. His damages will amount to only what he can prove,
generally the cost of advertising, the value of his time expended,
any funds actually disbursed in promoting his efforts and any
other items which can be shown as legitimate expenditures or
liabilities incurred in connection with the contract. The broker
cannot recover the commission unless he can show that he
produced a prospect ready, able and willing to buy on the terms
offered before notice that the property had been sold, or that he
was negotiating with a prospect who would have bought, but
for the owner's action in selling to someone else.
The courts have general held that the owner has a right to
sell the property himself to a prospect obtained by his own efforts
without liability to the broker for compensation, unless he
conferred upon the broker the exclusive right to sell as
distinguished from the exclusive agency to sell. The right to
sell is inherent in the ownership, and unless the owner has, for
a consideration, parted with that right, he cannot be penalized
for exercising it. He could not, of course, keep the sale secret
and allow the broker to push his efforts to a successful conclusion
without becoming liable for compensation. He may, by specific
contract, bind himself to pay the broker a commission in case the
property is sold by himself or by anyone else, but to achieve this
result the contract must be clear and specific, leaving no doubt







34 Principles and Practice of the Real Estate Business
as to the intention of the parties. In such cases it would be a
breach of the contract for the owner to sell the property himself.
Where the contract merely confers upon the broker the
exclusive agency to sell, it is only a breach of contract if the
owner sells through some other broker.
We have seen that a listing, if not limited as to time, will
remain in force and effect for a reasonable time. Conversely,
a broker holding such a listing contract has the right to a
reasonable time in which to perform his contract. It is perhaps
a breach of the contract for the owner to revoke the listing
before the expiration of a reasonable time, or where there is
a specific time limit to revoke it before the expiration of the
time allowed. But in either event, unless the broker has
substantially performed his contract, his damages would be
negligible, and in most cases, scarcely sufficient for serious
consideration.
We will now consider a breach of the contract on the part of
the broker. It is perhaps, technically, a breach for the broker to
fail to do anything regarding the listing, but since no one could
show that any efforts he might have made would certainly have
been productive of results, no damages could be shown, and such
a breach is theoretical only.
The broker is required to use the same degree of care and
skill in all that he undertakes to do that a man of ordinary
prudence and business judgment would use in like circumstances.
Failure to do this is a breach of his contract for which he may
lose his commission, together with such damages as the owner
may sustain by reason of the broker's negligence or lack of care.
Any violation of the fiduciary relation on the part of the
broker is a breach of the contract, for which the broker loses his
right to the agreed compensation. If, by reason of bad faith
on the broker's part, his principal has sustained loss and damage
the broker can be held liable for the same. Numerous examples
of this principle could be cited, and some of them will be treated
in a subsequent chapter on fraud.
A breach of contract generally gives rise to an action for







Performance and Termination of Contract 35

damages on the part of the injured party. The generic term
"damages" includes both liquidated damages, such as the amount
specified by contract, and unliquidated damages, which must be
established by competent proof. A forfeiture of earnest money
in accordance with the terms of a sales contract is an example
of the former. The expenses incurred by a broker in advertising
a listed property, the value of his time expended in trying to
negotiate a deal, and the money spent for gasoline and other
incidentals in showing the property are examples of unliquidated
damages. These items would have to be established by competent
proof.
Speculative and remote damages cannot be recovered by either
party. The owner cannot sustain an action against a broker
on the theory that he could have sold the property if he had
worked at it, although his theory might possibly be true. What
may have happened had the broker exerted himself is so speculative
and remote as not to merit consideration. In the same way
it is entirely speculative as to whether the broker could have
found a purchaser where his listing was revoked before a
purchaser was actually found, and he cannot recover on such a
speculative contingency. If, however, the broker has complied
with the terms of his contract, his right ceases to be speculated,
but can be definitely established by competent proof.








CHAPTER VI
FRAUD AND DISHONEST DEALING
A detailed discussion of fraud is of particular importance in a
work of this character, not because real estate brokers are more
prone to dishonest dealing than other business and professional
men, for it can be stated with confidence that as a class, they
are endowed, at least, with average honesty and probably stand
upon a level in this respect somewhat above the moral standards
of the ordinary business world, but because the opportunities
afforded in the real estate business for the practice of fraud are
peculiarly abundant. It is, therefore, important that a real
estate broker should be thoroughly familiar with the subject,
both for his own protection and for the protection of those with
whom he deals.
The courts have consistently refrained from establishing any
fixed definition of the term. The subject is so broad that they
have refused to handicap themselves by unalterable precedents,
but leave themselves free to deal with each case as it arises.
There are, of course, certain broad general principles relating to
the subject, but the courts will not limit themselves by specific
or narrow definition in the application of these principles. They
will simply hold that a particular set of circumstances is fraud
and that another set of circumstances is not, leaving themselves
free to ferret out and deal with fraud in whatever guise it may
be found. It can readily be seen that in case a fixed definition
of the term should be established, no sooner would it be done
than the keen and facile minds of confidence men would begin
to devise methods of circumventing the definition, and procuring
illegitimate profits outside of and beyond the definition.
Fraud may be said to exist whenever trust and confidence,
legitimately reposed, is violated and betrayed, or when any person
legitimately relying on the word or actions of another is deceived
and misled to his damage. Fraud on the part of a real estate
broker, when it occurs in a transaction, usually arises out of
some violation of his duty to his employer, but it may also be







Fraud and Dishonest Dealing 37
practiced on someone with whom the broker has not entered into
a fiduciary relation.
Fraud or bad faith on the part of a real estate broker may and
ought to call forth severe penalties. He will first be deprived
of all rights to the compensation to which he would have been
entitled if he had faithfully discharged his trust. He is then
required to pay over to the injured party any and all illegitimate
profits he may have received in connection with his fraudulent
actions, without regard to any loss of time or expenditure of
money on his part, and finally if his misconduct has caused loss
or damage to his client which can be measured by the legal
yardstick, he is required to pay that also.
For many frauds, such as obtaining money under false
pretenses, using the mails to defraud, embezzlement, bribery and
the like, the law provides punishment by fine or imprisonment
or both after conviction in the criminal courts. Not all frauds,
however, are crimes, and such as do not fall in that classification
are dealt with by the courts by application of the principles of
remedial justice, rather than by actual physical punishment.
In foregoing chapters we have discussed the employment of
a broker, the relations arising out of his employment and the
discharge and termination of his contract. An understanding
of all of these subjects is material to a proper grasp of the subject
of fraud. We have pointed out that a broker must exercise the
utmost good faith with his employer, that he cannot purchase
property for himself which has been listed with him for sale, or
which he has been commissioned to buy, without the knowledge
and consent of his employer, that he cannot represent interests
adverse to those of his employer, that he cannot accept
compensation from both parties to a transaction without their
knowledge and consent, that he cannot become financially
interested in the subject matter of his agency beyond the amount
of his agreed compensation without his principal's knowledge
and consent, and that he cannot obtain a secret profit. All of
these things are examples of the manner in which fraud may be
practiced.






38 Principles and Practice of the Real Estate Business
One of the most glaring examples of fraud is a secret profit.
It is also one of the most frequent examples, because of the
unusual opportunities afforded in the real estate business for
obtaining it, coupled with the temptation to profit beyond the
agreed compensation. It may be accomplished in various ways,
viz., by selling at one figure and reporting a consideration at a
lesser figure, the broker pocketing the difference, or by injecting a
fictitious purchaser into the transaction and pretending to resell
at a higher figure for such fictitious purchaser, or by obtaining a
buyer at a consideration higher than that stipulated in the listing,
buying the property himself at the list price and reselling to the
prospect.
Where a secret profit has been obtained by a broker an
application of remedial justice will take the following course.
He is first deprived of any and all compensation in the
transaction. Where it has not actually been paid the broker's
principal can treat the contract as breached and refuse to pay it.
If the broker has actually received the compensation it may be
recovered in its entirety by his principal. That is to say, the
principal may obtain a judgment for it. The principal may then
recover the secret profit from the broker in its entirety, and in
addition may recover such damages as he can prove. This may
seem a harsh rule, but it is in fact only simple justice.
The fair and proper course for the broker to pursue would be
to sell the property at the higher figure, report the actual selling
price to the owner and receive his compensation on the actual
selling price. By obtaining a secret profit he has violated every
duty which he owed to his principal. He has been guilty of
bad faith to the owner; he has failed in his duty to inform the
owner of all the material circumstances, and concealed from
him the possibility of selling at a higher price. He has failed
to remain loyal to his principal and has allowed his own interests
to conflict with those of his principal; and, finally, he has
converted and appropriated to his own use money which does
not belong to him. It is perfectly obvious that the penalties
against him ought to be severe. He ought justly to be deprived






Fraud and Dishonest Dealing 39

of his ill-gotten gains and lose the compensation which a faithful
discharge of his obligations would have entitled him. Moreover,
he ought to be compelled to answer in damages, if such have been
sustained. He ought certainly to be deprived of the opportunity
of practicing fraud upon others, and finally if the facts warrant
it, he ought to be prosecuted for criminal conversion.
Reversing the position of the parties does not change the
result. If the broker represents the purchaser he must not
deceive the purchaser as to the actual price of the property. He
cannot buy at one figure, obtain a higher one from the purchaser
and pocket the difference. Nor can he buy the property himself
and resell to the purchaser at a higher figure.
Taking either angle of such a transaction, whether the broker
represents the buyer or the seller, it is no defense to say that
the purchaser paid what he agreed to pay and the owner received
what he asked for the property and both ought to be satisfied.
There is no possible conception of law or morals or honesty under
which a broker could be entitled to a secret profit. After selling
his services and getting paid for them it is a gross fraud on his
part to secretly appropriate a portion of the fruits his services were
employed to produce.
We have discussed the fraud involved in a secret profit at
length, because it is a concrete illustration of the violation of
nearly every duty which a broker owes to his client. There are,
of course, many other forms of fraud. Secretly representing
both parties to a transaction is another example. Receiving a
compensation from both parties without their knowledge and
consent is yet another.
There is no rule of law or ethics more important for a broker
to know than that which prohibits the acceptance of double
commissions. To demonstrate its importance let us examine its
possible results. Assume that a broker is employed to sell a
specific property with the usual understanding that a commission
is to be paid on the selling price. Assume next that the same
broker is employed to find and negotiate for the purchase of a
specific type of property, the purchaser agreeing to pay the






40 Principles and Practice of the Real Estate Business
broker the usual and customary rate of compensation for his
services. Let us then assume that the property already mentioned
as having been listed by the broker is of the type desired by the
prospective purchaser and altogether suitable to his purpose. It
is, of course, the obvious thing for the broker to sell the prospect
the property which he already has listed for sale. Finally we will
assume that neither the owner nor the purchaser know of the
broker's double agency; that the transaction is closed and each
pay the agreed commission, without being informed by the
broker of the double commission and without in any way finding
out the true facts until a later date. What then is the result?
Approaching the matter from the angle of the owner we find
that the broker was employed to sell the property, and by virtue
of that fact assumed a position of trust and confidence with the
owner. We find further that he accepted employment at the
hands of a prospective purchaser, which insofar as a deal with
the specific property he had listed was concerned, was antagonistic
to the interests of the owner. His double employment was
therefore a breach of contract with the owner which amounted
to a fraud, resulting in a forfeiture of his right to the agreed
compensation. He could be required by appropriate court action
to return the commission which he received from the owner.
Assuming for the sake of concrete figures that the price fixed
by the owner was $10,000.00 and that the purchaser paid that
price and also paid the broker $1,000.00 for his services, it can
readily be seen that the prospect actually paid $11,000.00 to
get the property. Hence, the broker did not report the best
price to the owner and for his breach of contract he can be made
to answer in damages. The owner may recover, not only the
commission which he paid the broker, but the additional $1,000.00
which the prospect actually paid.
Approaching the matter from the angle of the purchaser, we
arrive at the same result. The purchaser employed the broker's
services and the broker thereby owed him all the duties of a
fiduciary. His secret representation of the owner was a breach
of his contract with the purchaser for which he forfeits his






Fraud and Dishonest Dealing 41
right to compensation from the purchaser. Moreover, it was
his duty to obtain the property for the lowest figure the owner
could be induced to accept, and if we assume that the owner
paid $1,000.00 commission, then he actually received $9,000.00
and obviously would have sold for that price net to him. There-
fore the broker failed to report the best price, and by his
fraudulent breach of contract has damaged the purchaser to the
extent of $1,000.00. He can, not only be compelled to return
the commission paid him by the purchaser, but must answer in
damages to the purchaser to the extent of $1,000.00.
The net result of such a transaction is that a broker may
not only lose all of the commissions promised him, but in
addition may be required to dig into his own resources in
settlement of just damages his bad faith has occasioned. This
example illustrates how dangerous it may be for a broker to
accept conflicting employment, and how impossible it is to
reconcile a dual relationship unless he goes honestly to each
party and advises him fully of his contract with the other, and
obtains the consent of each to the dual relationship.
Sometimes each party to a deal is represented by brokers,
particularly where property is to be exchanged. Each broker
is required to use his best efforts to secure as advantageous terms
as he can honorably do. It would, therefore, be a gross violation
of duty for one to accept money from the other in order to
induce his own client to accept the proposal of the other, and
the pooling of commissions between brokers representing adverse
interests is merely another method of betraying confidence.
It would be impossible to discuss every possible type of fraud.
As a matter of fact, there are undoubtedly some types which
have not yet been committed and are at the present time unknown
to the law. The fertile brains of confidence men can be trusted
to devise methods of dishonest dealing which as yet have not been
tried. But the great and lasting principles of Equity may be
trusted to deal with fraud and dishonesty in whatever guise it
may appear.
From previous discussion relating to the duties of fiduciaries






42 Principles and Practice of the Real Estate Business
it may perhaps be inferred that a broker is free to deal as he
pleases with those who have not employed his services and with
whom he does not stand in a relationship of trust and confidence.
This is very far from the law. It is true that he does not owe
the public generally or individual members of the public with
whom he may deal at arm's length the same duties that he owes
to those persons who engage his services. He is not required
to inform them of his profits or to warn them of the dangers
which may beset their path. It is no part of his duty to actively
protect their interests. He usually has his hands full if he
properly protects the interests of those who have actually
employed his services. He is not obligated to tell them that
they can buy for less or sell for more, for unless he represents
them, that is their own concern, not his. If he buys property
which they want without having invited and received their trust,
he may keep it, and if he owes them money it is an ordinary debt
and nothing more. But this does not permit the broker to be
guilty of material misrepresentations or concealments, or to
engage in schemes and tricks to ensnare the public or any
individual member of it.
Ordinarily a broker does not represent the prospect. In the
great majority of transactions he represents the owner and
deals at arm's length with the purchaser. In such cases he
does not owe the purchaser the duties of a fiduciary, but he must,
nevertheless, deal squarely with the prospect. If he misrepresents
the property, or conceals factors known to him which would
materially affect the purchaser's judgment, or by some scheme
or device, tricks the purchaser into buying something he does not
want, he is guilty of fraud, although no fiduciary relationship
existed.
The term misrepresentation should be understood both in its
legal and ethical significance. Morally a misrepresentation is any
statement which is untrue and known by speaker to be untrue.
Something more is required, however, to amount to a legal
misrepresentation. The statement must, of course, be untrue.
It must be known by the speaker to be untrue, or must, if its






Fraud and Dishonest Dealing 43

truth or falsity is unknown to the speaker, be uttered with a
reckless disregard for the truth, and with no reasonable grounds
to believe it.
It must relate to some material fact which would if believed
affect the judgment of the person to whom it was made, and
which if acted upon would react to his detriment or damage.
It must relate to a past or existing fact, and not to something
to happen in the future, unless to a promise which the party
does not intend to keep, or to information he claims to have of
certain future events which he does not actually possess. It
must be made to the complaining party, or in such a manner
as to be conveyed to him, with the intention of deceiving him,
or it must be made publicly with the intention of deceiving
whosoever may hear of it and act upon it. Moreover, the
complaining party must have had a right to rely upon it. The
expression of an opinion is not a misrepresentation, even if the
opinion is unfounded or wrong. Nor can mere "puffing" be
classed as misrepresentation. "Puffing" has been recognized in
law as a natural right of mankind since ancient times arising as it
does from that instinctive egotism that makes a man believe or
pretend to believe that what he owns is better than the goods,
wares and property of anyone else. Buyers and owners practice it
themselves and a real estate broker can scarcely be blamed, in law
at least, if he indulges in a bit of harmless "puffing".
One of the material tests of a misrepresentation is whether or
not the complaining party had a right to rely upon it. Under
the harsh rule of the common law which has come down to
us from an earlier day, the purchaser bought at his peril. This
was the grim rule of "Caveat emptor" (let the buyer beware).
It has been softened and modified in recent years and the law
is tending more and more to the view that the buyer is entitled
at least to a modicum of protection.
Ordinarily a statement as to value or future prospects is not
considered as a representation, but merely the expression of an
opinion, and a prospect has no right to rely upon it. Value is a
matter on which expert appraisers often differ, and unless the







44 Principles and Practice of the Real Estate Business
statement is so far out of line with actual facts as to be obvious
to any reasonable person, such a statement cannot be properly
called a misrepresentation. Even if unreasonable, the statement
is not an actionable representation unless the complaining party
was in such position that he could not formulate an opinion of
his own, but was compelled to rely upon it, as for instance when
buying "sight unseen".
A statement as to future prospects is not a misrepresentation,
but merely the expression of an opinion. The opinion may be
unsound and so grossly exaggerated as to indicate that the speaker
does not believe it himself. Nevertheless, a prospect has no right
to rely on such statements, since no one can foretell with
absolute accuracy how future prospects may develop. There are
too many uncertain factors which enter into future developments,
and this is a circumstance which every reasonable person knows
or ought to know. His own opinion may be as good or better
than the person making the statement. In any event, in the
matter of future prospects a purchaser is supposed by law to act
upon his own judgment and not be guided by the opinions of
others either unfounded or well-founded. In such a matter he
takes his own chance.
The same rule applies when considering statements as to
productivity, a mere statement that certain land is productive
may be considered an opinion, but if the speaker goes further and
undertakes to give statistics as to past production, he is guilty
of misrepresentation if he knowingly mis-states the facts.
Ordinarily if a prospect has inspected the property about which
the representation is made he is supposed to have acted on his
own judgment and not on the representations of the broker,
but this is not always true. If the representations relate to
matters concerning which special or expert knowledge would be
required to formulate an opinion and the prospect does not possess
such knowledge, and means of ascertaining the truth or falsity
of the representations are not readily available he may be justified
in relying upon the statements.
In the same way, if the statements relate to some feature of






Fraud and Dishonest Dealing 45
the property which is not apparent by ordinary inspection, the
prospect is entitled to rely on the statements of the broker. So,
if a broker states that a building is of hollow tile construction
the prospect is not required to remove a section of the structure
to find out if he is speaking the truth. If the statement is false
and known by the broker to be false, it is a misrepresentation.
If untrue, it is also a misrepresentation if the broker had no
knowledge as to the type of construction, for he ought not to
state something as a fact unless he knows it to be true.
The relations of the parties and the degree of knowledge
possessed by each on the subject matter of the representations has
a bearing on the right of one of them to rely upon the state-
ments of the other. One who has employed the broker's services
generally has a right to rely on his statements unless he knows
them to be false. One who has not employed a broker's services
does not have a right to rely upon his representations except in
special circumstances. In buying real estate a purchaser is charged
with the duty of looking out for his own interests and making
his own investigation before entering into a contract. He may,
of course, employ someone to do it for him, and pay for the
services, but unless he does so he is not in position to complain
if he acts upon representations which could have been investigated
by the exercise of ordinary prudence. A buyer must not close
his eyes to obvious facts, or rely upon inconsistent representations.
He must make use of all the ordinary means available to examine
the property and make up his own mind. Neither the state nor
any branch of it can undertake to protect a person who will not
exercise ordinary diligence to protect himself.
It is obvious that in dealing with a stranger to local values and
conditions greater care must be exercised than if the prospect is
possessed of as much knowledge as the broker, and is familiar
with local values and conditions. This rule is peculiarly applicable
in the sale of citrus groves, pecan groves and the like. A stranger
to such property might easily be deceived both because he has
no knowledge of his own upon which to formulate an opinion
and also because he rarely knows how to obtain authentic






46 Principles and Practice of the Real Estate Business
information on short notice. Many things which would not
amount to misrepresentations if dealing with someone who has
a reasonable degree of knowledge of such properties, may become
gross misrepresentations when made to a stranger wholly without
such knowledge. Mere inspection of a grove would add little to
a stranger's knowledge and he therefore could not be said to have
relied upon his own investigation. A real estate broker is
generally expected to have expert knowledge of property and
property values, or at least a greater degree of knowledge than
persons in other pursuits, and the stranger is justified in assuming
that he actually possesses the knowledge he claims to have.
A misrepresentation as to title and particularly the existence
and extent of encumbrances, is actionable even though the injured
party, acting prudently, could have investigated these matter by
reference to the public records. Attention is particularly called
to the fact that special assessment liens and past due taxes are
encumbrances, and no representation against encumbrances should
be made where special assessment liens exist, though all paid to
date, and that a warranty against encumbrances is broken when
they exist.
It has been held that a real estate broker, being at most a
special agent, has no authority to make representations as to title
unless the owner makes such representations to him under
circumstances showing that it is intended that he should repeat
them, or otherwise authorize him to make such representations.
A broker, in making representations as to title or encumbrances,
should state the source of his information, in order to be
absolutely certain to relieve himself of any liability.
In concluding this chapter we will summarize some of the
things which a broker must not do if he wishes to avoid a charge
of fraud. A broker must not, directly or indirectly, purchase
or be interested in the purchase of property listed with him,
without first advising the owner of such interest, nor must he
allow his salesmen to do so, with his knowledge. And if he is
acting for the purchaser, he must not become the purchaser of the
property in which his client is interested, or even property which







Fraud and Dishonest Dealing 47
is suitable to the purpose of his client, if the latter is seeking
property for a particular purpose, without regard to any particular
tract, while the negotiations are in progress and without the
client's consent; and he must not break off the negotiations for
that purpose. The broker must not conceal from his client any
offers that he receives, and this is especially true where he receives
a better offer than one that the owner is considering. On the
other hand, the broker must not conceal the price at which
property is listed, and attempt to secure a better one, without
authority, as the owner may have offered the property at a
bargain in order to dispose of it quickly.
The broker must not manipulate a sale in such manner as to
make a profit greater than the amount agreed upon, or the
customary commission. In this connection also it may be stated
that because the owner has priced his property at a certain "net"
to him, the broker is not entitled to speculate with the property
and procure a profit. The price quoted means that the
commission, and not profit, together with other expenses, must
be added in order to arrive at the sales price. It is legal to agree
to give the broker all over a certain price as his commission, but
this intention should be clearly expressed or at least there must
be some expression or conduct inconsistent with another view.
Finally, it may seem, from the previous discussion that the
law provides undue protective measures in favor of those who
engage the services of brokers and treats his customers with
more or less indifference, not only permitting, but often requiring
the broker to deal with them at arm's length. It must be
remembered, however, that a broker's client is generally the
person to whom he must look for his compensation, and one
who pays for services is entitled to receive what he pays for.
Nevertheless, the principles of agency -do not wholly fit the
situation of a real estate broker, although they have been adopted
by the courts as analogous. In an open listing it would seem
that the obligations of a real estate broker should be more
nearly those of a middle man, and that he should be charged
with no greater duty toward one party than to the other, for it







48 Principles and Practice of the Real Estate Business
is well known that open listings are not difficult to obtain, and
are generally placed with as many brokers as may suit the fancy
of the owner. It is because of this very circumstance that so
many controversies arise between competing brokers over the
right to commissions; controversies which often would require
the wisdom of Solomon to properly settle. There is small logic
in surrounding the owner with all the manifold safeguards which
the law of agency affords and still leave him free to raise up
as many competitors as he may choose to hamper or defeat a
broker's efforts. An open listing being usually without tangible
consideration when given would not seem a sufficient base to
build a complete structure of agency upon.
With an exclusive listing the circumstances are materially
different. The owner has limited the handling of his property to
one broker to the exclusion of others, and that broker ought, very
properly, to be held to the strict rules of agency.
Of course, we must not overlook the temptation for the
broker to try to induce the owner to accept the price and terms
agreeable to the purchaser, thereby closing the deal, for, though
his commission may be somewhat less, he may consider that more
to his own interest than to lose it entirely. Therefore, in
criticizing the law, we must not overlook the temptations that
may assail the weak, under different rules.








CHAPTER VII
COMPENSATION AND REMEDIES
The matter of compensation was discussed in a limited way
in the chapter on definitions and classifications. It was touched
upon indirectly in the chapter on performance and termination
of the contract, and again in the chapter on fraud. In those
instances, however, our comments on the element of compensation
were purely incidental to the main topic under discussion. A
more complete treatment seems necessary for a better under-
standing of this important phase of the real estate business.
Controversies and litigation could frequently be avoided if real
estate brokers, generally, understood more clearly the principles
involved.
The essence of the real estate business is a service rendered
in a real estate transaction for which a compensation is earned.
The compensation is generally a percentage of the considera-
tion for which the property is sold or leased. It is commonly
referred to as a commission. It may, however, be a fixed
sum, determined in advance or during the progress of the
transaction. In rare instances it may take the form of a
regular salary, as where a large property owner places his
holdings with one individual for management, or sale, or
where a salesman may be employed on full time at a fixed salary.
The right to a compensation must arise out of an employment
contract either expressed or implied, and is generally contingent
upon services successfully performed. The compensation may
be in money, credits, promissory notes, mortgages, real estate,
personal property or any other form of valuable consideration.
A "gift" bestowed on account of services rendered in the
negotiation of a real estate transaction is, in fact, a compensation,
even though the parties do not call it so.
The rate, or amount of compensation, is not fixed by law,
but is a matter to be determined by agreement of the parties.
It may be a sum greater or less than the customary rate. It
frequently occurs, however, that no specific agreement is made






50 Principles and Practice of the Real Estate Business
as to the rate or amount to be paid the broker. In such instances
the percentage customarily paid in the particular community for
like services will prevail, provided the custom is sufficiently well
established and well known as to charge the parties with
knowledge of it. Where no agreement is made, and it is not
possible to show the existence of a customary rate, the broker
will be entitled to a reasonable compensation for his services to
be determined by all the circumstances.
The compensation is due and payable when the services have
been successfully completed or when the parties have agreed that
it shall be paid. It is not deemed expedient to discuss any
considerable number of examples, because too much space would be
required. A few examples should suffice to illustrate the principles.
If a broker is employed merely to find a purchaser, he has
performed the services for which he was employed when he
produces a prospect ready, able and willing to buy on the terms
offered and presents him to the owner. The broker is then
entitled to compensation. If he is employed to effect a sale,
he earns his compensation when he produces a prospect who is
ready, able and willing to buy on the terms offered, and induces
him to enter into a binding contract to purchase. If his
employment includes the closing of the deal, his compensation
is earned when he brings the parties into agreement and
consummates the transaction.
The compensation is payable in money unless some other form
of payment is agreed upon. It is payable in its entirety
immediately upon the performance of the services unless the
broker has agreed to defer payment of all or a part of it. It is
due and payable unconditionally and without regard to a particular
fund, unless the broker has agreed that it shall be paid from some
particular fund. It may be agreed that the broker is to receive
part payment upon completion of the services and the balance
out of deferred payments, or it may be agreed that the broker
is to receive his compensation entirely out of deferred payments.
In this latter event, default of the purchaser will not necessarily
defeat the broker's claims. He cannot, of course, receive







Compensation and Remedies 51
payment in the manner agreed upon, but he will, nevertheless,
be entitled to the agreed or customary rate on the sum recovered
at a foreclosure sale.
It is axiomatic that a broker is not entitled to compensation
unless he has produced a prospect who is ready, able and willing
to buy on the terms offered. However, if the owner accepts
a prospect tendered in good faith by the broker and enters into
a binding contract with him, he cannot then raise the objection
that the prospect was not, in fact, ready, able and willing to
buy. The -broker has performed the services for which he is
customarily employed when he produces a prospect acceptable
to the owner, and who is, in fact, accepted by him. It matters
not that after the deal has been made the purchaser defaults in
his payments, unless payment of compensation is, by agreement,
made contingent upon actual payments by the purchaser. The
broker is not an insurer of the good faith or financial ability of
the purchaser. Of course, if the broker has knowledge that
the prospect is not financially able to go through with the deal
as agreed upon, or that he is not dealing in good faith, it is his
duty to inform the owner, and failure to do so is a breach of
faith on his part, for which he forfeits his right to a compensation.
Bad faith in any form on the part of the broker will defeat
his right to a compensation. This phase of the law has been
discussed at length in the chapter on Fraud, and it is not deemed
necessary to discuss it further.
The duty to exercise good faith is reciprocal and is equally
binding on the owner or employer of a broker. If the broker
has faithfully performed the services for which he was employed,
he cannot be deprived of his right to compensation by the deceitful
or fraudulent acts of his employer. The owner cannot thwart
the efforts of his broker, prevent the consummation of a deal, and
escape liability for compensation; nor can he wrongfully revoke
the broker's authority after substantial performance of the services
and avoid liability. The owner cannot accept the broker's
prospect, switch him to some other broker with whom he may be
on more friendly terms and avoid liability to the first broker.







52 Principles and Practice of the Real Estate Business
Moreover, it is the duty of the owner to make known to his
broker all of the facts and circumstances which may effect the
successful consummation of the deal. If he conceals from the
broker facts and circumstances touching his own ability to deliver
the property, he is nevertheless liable for compensation even
though he may be unable to go through with the deal; provided
of course, the broker has performed the services for which he
was employed or has been prevented by the owner's default.
The owner cannot defeat the broker's right to a compensation
by withdrawing the property from the market and refusing to
go through with a deal after the broker has substantially
performed his contract; nor can the owner pretend to break off
negotiations with the broker's prospect and continue the negotia-
tions at a later date in order to escape liability for the payment
of a compensation. These are a few instances of the manner
in which the owner or employer may be guilty of bad faith
toward his broker. As a general rule, it will suffice to say that
the owner is equally bound to the exercise of good faith and
cannot avoid liability to the broker by his own deceit, double
dealing or fraud.
The broker is, of course, not entitled to compensation where
his authority is fairly and in good faith revoked before he has
substantially performed his contract, but the owner cannot
appropriate the broker's prospect and deal with him after
revocation of authority without liability for compensation. This
statement needs, however, to be qualified. Circumstances,
including lapse of time, may be sufficient to indicate that
subsequent negotiations arise from an entirely new deal,
unconnected with the broker's efforts. In such a case the
broker could not be entitled to a compensation, for in order to
establish his right, it is necessary that his efforts shall have been
the procuring cause of the deal. Lapse of time is one of the
most potent factors in determining whether or not the transaction
is, in fact, a new deal, but each case must rest upon its own
particular facts and circumstances.
It is not necessary that a transaction be closed on the identical





Compensation and Remedies 53
terms stipulated in the broker's authority. Such a perfect deal
is rarely completed even by the most skillful brokers. It is
sufficient if the owner accepts the broker's prospect and deals
with him on some basis determined by negotiation. The ultimate
consideration paid by the prospect may be greater or less than
that stipulated in the broker's authority, or the terms may be
materially different from those first quoted, but this will not
affect the broker's right. The owner cannot reduce or raise the
price, or change the terms and thereby defeat the broker's right.
It is common knowledge that the great majority of transactions
cannot be successfully consummated without more or less extensive
negotiations. This is indeed one of the reasons for employing
the services of a broker. The owner cannot accept the fruits of
a broker's efforts without incurring liability for compensation.
The foregoing discussion has been largely based upon
transactions where the broker is employed by the owner. It
should be pointed out that the same principles apply with equal
force when the broker represents the purchaser. The relationship
and mutual duties then exist between the broker and the
purchaser, giving rise to similar rights and obligations.
In states where real estate license laws have been enacted,
the right of a broker to a compensation is, in addition to the
foregoing principles, affected by the provisions of the law. Real
estate license laws generally provide that contracts for the
payment of a compensation for services rendered in the negotiation
of a real estate transaction are void and unenforceable unless the
person making the claim has property qualified under the act
to engage in the real estate business. Moreover, the person
making the claim must have qualified at the time the service was
rendered. Also the qualification must have been complete and
not merely in the process of completion at the time the service
was performed. In states having such laws a real estate broker
cannot maintain a suit for the recovery of a compensation unless
he held a license or registration certificate properly issued under
the law at the time the service was rendered, or the contract of
employment made.






54 Principles and Practice of the Real Estate Business
The employment contract of a broker, referred to in its most
common form as a listing, is a simple contract not required to
be in writing. But the statutes of some states require that such
contracts shall be in writing. In such states the broker cannot
maintain a suit for the recovery of a compensation unless he can
prove his authority by a memorandum in writing, signed by the
employer or his duly authorized agent. In Florida and in most
of the other states, a broker's authority is not required to be in
writing.
It is said that wherever a right exists there is also a remedy,
and this is true of a real estate broker's legitimate claim for a
compensation, even though that remedy may sometimes appear
inadequate and futile. If the legitimate claim of a broker to a
compensation is denied, he may sue on his employment contract
for recovery of the amount earned. Where the amount or
rate of compensation was not stipulated in the employment
contract, the suit should be for the customary rate or for the
reasonable value of the services. Where the owner has wrong-
fully revoked the broker's authority, or fraudulently thwarted
his efforts, the broker may sue for damages not to exceed the
amount of his compensation.
The broker does not have a lien for his services on the real
estate involved in the transaction, nor is he entitled to impress
a lis pendens on the property in a suit to recover a compensation.
His action must be to collect a debt arising out of an employment
contract or a suit for damages based upon breach of contract.
If the broker has in his possession papers or documents of his
employer pertaining to the deal out of which the claim arose,
he has a lien on such papers or documents for the payment of
his compensation. Moreover, if the broker has in his possession
any portion of the consideration paid in the transaction accruing
to his employer, he may retain such portion as will satisfy his
legitimate claim.
The broker may be required to answer in damages to the
owner or purchaser for any negligence, fraud or bad faith on
his part which result in material injury.






CHAPTER VIII
SOME QUESTIONS OF PRACTICE AND POLICY
We approach this chapter in a spirit of humility, conceding
at the outset that our comments are based, not on actual
experience, but only on observation over an extended period of
years.
The real estate business in Florida is one of the most active
vocations or professions. Florida differs in this respect from
most of the other Southern states, where values are more
stabilized, less subject to rapid fluctuation, and where there is no
enormous transient population of tourists for a part of the year.
It is yet a pioneer state, endowed with immense possibilities for
future development. The real estate business is always more
active under such conditions. On the other hand, the opportunities
for wildcat promotion are also peculiarly abundant. These
opportunities always go hand in hand with rapid and sound
development. There is accordingly greater need for strict
regulation in Florida than in most of the other states.
The primary object in negotiating sales for others is the
making of money, as in other fields of human endeavor, but in
the real estate business, consisting as it does of the rendition of
professional services, greater stress must be laid on the manner
and methods of making it than in some other lines of business.
The real estate broker owes duties to the public, to his associates,
to his competitors and to those with whom he deals, all of which
tend to limit and restrict him within the confines of a high degree
of professional conduct in acquiring wealth. Those who allow
themselves to be controlled by greed, who indulge in sharp
practice and in shady enterprises, not only build up bad
reputations for themselves, but reflect upon others engaged in
the same business or profession and help to bring the whole state
into disrepute, especially injuring such a state as Florida, where
real estate forms so large a part of the undeveloped resources.
A very large percentage of those engaged in the real estate
business need no instruction. Nor do they need regulations in






56 Principles and Practice of the Real Estate Business
order that they may deal fairly with their clients and prospects.
Unfortunately, however, some people believe that the major
qualification for a real estate broker is the ability to talk people
out of their money, and that clever deception and sharp practices
are to be condemned only when they are unsuccessful in
producing profits. It is for the former that instruction is
necessary, and the latter must be controlled by regulations or
prevented entirely from engaging in the business.
We have discussed at length the legal rights, duties, and
obligations incident to the real estate business. It is imperative
to understand these fundamental principles, but there are other
things of almost equal importance to a broker's success. One
of them is a comprehensive understanding of the principles of
ethics.
The field of ethics is something separate and apart from the
field of law. The law deals with what must and must not be
done. Ethics is concerned with what ought and what ought
not to be done. The fact that some violations of ethical principles
may also be violations of the law does not affect the distinction,
for many violations of sound ethics are not violations of the law.
Ethical principles occupy a realm of thought and action higher
than the law, binding only upon the conscience of mankind.
The law cannot attempt to enforce ethical principles, but
unethical conduct ultimately provides for its own punishment,
in the loss of respect of fellow workers, in a damaged reputation
with the public, and a failure to obtain the rewards which in
the long run accrue to honest and upright dealing. We will
not attempt a detailed discussion of the subject, but have
written into this volume in a subsequent chapter, the "Code of
Ethics" adopted by the National Association of Real Estate
Boards. A detailed study of this code is recommended to those
not already familiar with it.
It will be observed that this code uses the word "Realtor".
While this term refers to real estate brokers, it is a trade mark,
which no one has a right to use except those who belong to a






Some Questions of Practice and Policy 57
constituent board of the National Association of Real Estate
Boards.
There is a widespread tendency in real estate circles to misuse
the term "Client". It is frequently used by brokers to designate
their prospects or customers, when as to these prospects or
customers it is rarely applicable. It is a term which brokers
appear to have borrowed from the legal profession. In its legal
significance a client is a person who has employed the services
of a lawyer to conduct a lawsuit or to perform some other
legal service. The client is, of course, indebted to his lawyer
for the services rendered. If it is correct at all for a real estate
broker to use the term, it should undoubtedly be used to
designate a person who has employed the broker's services, and
not to a mere prospect or customer. So, an owner who has
listed property with a broker could be designated as his client,
and a prospective purchaser who has employed a broker to
negotiate for him could likewise be designated as the broker's
client. But unless there is actually a contractual or fiduciary
relationship existing the use of the term is incorrect.
Many times a broker considers himself the representative of
the prospect when in fact he has no contractual relationship with
such prospect whatever, but actually represents the owner from
whom he h8lds a listing. There need be no misunderstanding
along this line if the broker will only remember that his
obligations arise out of his original employment contract.
Confusion, or failure to correctly understand his relations
sometimes springs from the informality of listings, which as we
have seen need not be in writing to be valid, and may have their
origin in somewhat informal conversations, or be based entirely
on the conduct of the parties.
It would simplify matters and tend to clarify the understanding
of all parties if listings were always reduced to writing. For
this purpose only a simple form would suffice. It should always
show that the broker has been employed by the owner to perform
certain specific services and that the broker is to receive a certain
sum or a specific percentage as compensation in case he successfully






58 Principles and Practice of the Real Estate Business
performs the services. The listing should also designate the
property with sufficient definiteness to identify it, and the price
and terms should be stipulated. If the broker is to be allowed
any latitude in the quotation of price and terms this fact ought
to be indicated. It is better to designate a time limit.
In an exclusive listing it should be stated in addition to the
above that the owner is not to list with other brokers, and if it is
desired that the owner shall refrain from any efforts to sell the
property himself this provision must be written into the listing.
Further, if it is intended that the broker shall be entitled to the
usual compensation if the property is sold by someone else,
including the owner, during the life of the listing, such a
stipulation must appear in the listing. A bare exclusive listing in
which the owner agrees not to list with other brokers will not
achieve this result. Bearing in mind that a listing is an
employment contract, the importance of having its terms definitely
understood and reduced to writing becomes at once apparent.
Net listings are frequently given, but as a general rule, they
cannot be said to be good policy. We have seen that in a net
listing a broker is only entitled to add the usual and customary
commission together with any incidental expenses such as abstract
costs, etc., in order to arrive at the selling price. This is always
true unless the owner has specifically authorized the broker to
receive any excess above the net price and expenses. Regardless
of the legality of such an agreement, however, it can be
condemned as bad business policy, for if it should become known
that the broker has received excessive profit in the transaction,
both the owner and the purchaser will become dissatisfied and he
will in all probability lose their business in the future, as well as
the business of other persons who may hear of it.
The handling of rentals presents many vexatious problems.
Most brokers who handle this class of business have at one time
or another had the experience of placing tenants for a stipulated
period of time, receiving their commission on that basis, only to
have the tenants move without warning or notice after only a
short occupancy. If the broker himself has acted in good faith






Some Questions of Practice and Policy 59

without knowing of the tenant's intention, he cannot be blamed,
for unless he guaranteed that the tenant would remain for the
stipulated period, he performed his contract when the tenant was
accepted by the owner. Yet sound business policy will indicate
that he ought not to stand on his legal rights. He will find it to
his ultimate advantage to refund the unearned portion of the
commission or to furnish another tenant for the unexpired term
without additional charge. Of course, if the owner rents the
property immediately through his own efforts or through some
other agency, the broker is relieved of this moral obligation, even
though the owner may have paid another commission. The
owner ought, at least, to afford the broker an opportunity to
furnish another tenant.
Custom does not seem to have established the rate of commission
on rentals as definitely as in the purchase and sale of real estate.
Different communities frequently have established different rates
and even in the same communities there is not always found a
uniformity of practice. Primarily, of course, the rate of
commission to be paid depends upon the agreement of the broker
and owner. However, it would be a distinct advantage to the
rental business generally if uniform rates could be established,
due consideration being given to varying local conditions.
Property management has become an extensive and lucrative
business in some sections of the state due to a large number of
absentee owners, and better business relations would undoubtedly
be promoted if certain standards could be established and adhered
to.
It has become increasingly customary in recent years to handle
the closing of real estate transactions through escrow contracts.
An escrow is the placing of funds, valuable papers, deeds,
mortgages, etc., in the hands of a disinterested third party, usually
a bank or trust company, to be held pending the happening of
certain contingencies stipulated in the escrow agreement. There
are many advantages in such a method. As a general rule the
actual agreement of the parties is set out with much greater
attention to detail than in an ordinary memorandum, and there






60 Principles and Practice of the Real Estate Business
is no doubt as to what the agreement actually is. Both parties
are equally protected against default or breach of contract by
the other. Specific directions are given in the face of the
agreement as to how the deal shall be handled and what
disposition is to be made of funds, papers, etc., in case of a
default by one or the other. Altogether it is the most satisfactory
manner of closing a real estate transaction yet devised, especially
if large sums and valuable properties are involved. The purchaser
pays over the required deposit to the escrow agent and the owner
executes and delivers his deed. If a mortgage is involved it is
also executed and delivered to the escrow agent. All of them are to
be held by the agent pending the performance of each and every
condition of the contract. Upon full performance of the Contract,
the owner gets his money and perhaps a mortgage, the purchaser
gets his deed, and the broker receives his commission. If the
title proves to be bad and is legitimately rejected, the papers are
returned to the owner and the money to the purchaser, the
broker getting no part of it. If, on the other hand, the purchaser
is unable to produce the means to comply with the contract, the
deed is returned to the owner, the mortgage to the purchaser
and the money forfeited as liquidated damages and divided
between the owner and the broker in accordance with the terms
of the contract. There would be much less chance for misunder-
standing and expensive litigation if all sizable deals were handled
in this manner.
Deposits of earnest money with a real estate broker are not to
be confused with escrows. A broker is not a disinterested third
party, but is acting for one party or the other. Earnest money is
a deposit of a stipulated amount with the owner or his broker
to demonstrate the good faith of the prospect. Disposition of the
earnest money may become a problem upon the failure of a
transaction. What disposition should be made of it when held
by the broker depends entirely upon the reasons for the failure
of the transaction. If the owner cannot deliver good title or
refuses to do so, or if he changes his mind and declines to sell,
the earnest money should be returned intact to the purchaser.







Some Quesanom of practice and Policy 61
On the other hand, if the purchaser is unable for any reason to
proceed with the transaction or changes his mind and declines
to do so the money should be divided between the owner and
the broker in accordance with their agreement as to compensation.
In this division the broker cannot be entitled to a sum greater
than his commission on the whole transaction would have been.
It will sometimes occur that upon the failure of a transaction
both the owner and the purchaser will claim the earnest money
and demand it of the broker. In such a case the broker cannot
safely pay it to either, because if he does he may be required to
pay it again. The only course he can safely pursue is to hold it
until the rights of the parties are settled either by litigation or
by arbitration, or by some other method and then pay the money
to that person to whom it is awarded.
A broker receiving a deposit of earnest money may hold it
himself pending the closing of the transaction or he may pay it to
the owner. In the latter case his own liability for it ceases unless
he has agreed with the purchaser to hold it himself. Whether
a broker should hold the money or deliver it to the owner is a
question of policy to be determined by the broker in each specific
transaction. If he is afraid the owner may change his mind
and default in his agreement, his course would be to hurry the
earnest money into the owner's hands as soon as it can be done.
The likelihood of a default on the part of the owner is definitely
lessened under such circumstances and the broker has done what
he legitimately could to prevent it. If, however, the broker
should be skeptical of the intentions of the purchaser, it would
appear expedient for him to retain the deposit pending the closing
of the transaction. He is then in position, if the purchaser does
default, to retain that part of the deposit which legitimately
belongs to him without the necessity of a contest with the owner.
The broker should not in any event mix earnest money with
his own funds, but should keep such money segregated until the
deal is closed and the rights of all the parties determined.
There are certain details in connection with the closing of a
transaction with which a broker should be familiar. One of






62 Principles and Practice of the Real Estate Business
them is in the matter of prorating taxes and insurance. This is
generally a matter of simple arithmetic determined entirely by
the particular date a transaction may be closed. Bearing in mind
that taxes are assessed as of the first of January and become due
and payable on the following November 1st, it becomes a simple
matter to apportion the amounts to be paid by each party based
upon the number of months in the tax year that each is to hold
the property. In the same manner insurance premiums are
prorated, except that whereas the premium has generally been
paid, the taxes may not have been. In a transaction prior to
November 1st, it is the unpaid taxes due on the latter date that
are subject to prorate, while on insurance premiums already
paid the owner is entitled to credit for the unearned portion of
the premium.
In closing a transaction it would be found highly expedient to
compile a "settlement sheet" showing complete details of the
closing, including the total consideration, cash paid, mortgages
involved, items charged or credited to each party and the manner
in which the funds involved are disbursed.
A real estate broker ought to know something about the
principles of appraising. The public generally imputes to him
an expert knowledge of real estate values and investments.
Regardless of how correct or incorrect this attitude may be as
applied to individual brokers, it is an attitude which the public has
a right to assume, for otherwise the broker occupies no useful
place in the economic structure, except perhaps the doubtful
ability to sell any article without regard to its value. Something
more is required of a real estate broker than mere salesmanship,
no matter how important that factor may be to his success.
There has developed in comparatively recent years, within the
ranks of the real estate profession, a specialized branch of activity,
devoted to appraising. The technique of appraising has been
developed to a remarkable extent and the subject has been
exhaustively treated in a number of technical works. A real
estate broker, unless he has specialized in this branch cannot be
expected to be familiar with the technique employed by expert







Some Questions of Practice and Policy 63
appraisers, but he certainly ought to know something of the
fundamental principles upon which values are founded.
We do not propose to discuss appraising as such. Indeed we
have no technical knowledge upon which to base a discussion.
We will, however, undertake to point out some of the things
which have a bearing on values, and which obviously should be
considered in any general effort to arrive at a concrete opinion.
Location, of course, is of prime importance, regardless of
whether the property under consideration is rural, or urban,
residential or business. Varying factors must be considered in
appraising the location of different types of property with due
regard to the purpose for which each is to be used.
In residential property, for instance, consideration must be
given to the general character of the neighborhood, the type of
surrounding property, the kind and extent of improvements,
including streets, sidewalks, lighting, sewers, and beautification,
proximity to schools, churches and transportation lines, the distance
from the business district, the trend of development and the
possibility of future changes.
In consideration of business some of the same factors will apply
though in a different way. With due regard to the kind and
type of business property and the business to be conducted, a
location is best where it is most easily accessible to the greatest
number of people. Proximity to a civic center or a bank, theatre
or large office building are all factors in appraising the value
of location .in business property. Other things being equal a
corner location is obviously more valuable than an inside one,
because of greater opportunities for display and greater accessibility.
If the property is improved the type of construction is important.
Likewise its suitability to the purpose for which it was built or
its adaptability to other purposes. The age of a building, its
condition of repair, the usage it has received, are all factors to
be considered. Above all, the income to be derived from it as
an investment and the possibility of future enhancement is of
paramount importance, particularly in estimating the value of
business, property. This factor is of lesser importance where







64 Principles and Practice of the Real Estate Business
residential property is concerned, because other factors enter
into the construction of homes than the prospects of securing a
rental. Yet, even if occupied by the owner, a residence has a
definite and tangible rental value, and this is a factor to be
considered in arriving at its value.
A property may be said to have two distinct values, i.e., its
market value- and its intrinsic value. Market value is that figure
for which it could be reasonably sold on today's market. The
selling price of approximately similar properties may serve as a
fair criterion in estimating market value. Intrinsic value is
based upon the actual worth of the property. Generally it is the
intrinsic value with which an expert appraiser is concerned. He
takes into consideration all the factors calculated to affect its
value and compiles his findings, indicating by logical reasoning
the actual value of the property. The price of real estate is
affected like that of all other commodities, by the ancient law of
supply and demand. If the demand is great the market value
tends to rise above the intrinsic value. Conversely, when the
demand falls below normal, the market value tends to fall below
the intrinsic value.
Depreciation and obsolescense are likewise factors to be
considered in estimating the value of property. Depreciation
comes about by wear and tear and usage, by inattention to
indicated need for repairs and the ordinary deterioration which
goes with its age. Obsolescence is the state of being outmoded,
or out of date. Buildings tend to become obsolete by increasing
age, but this is not a necessary factor. The trend of development
may render a comparatively new building obsolete, and this is
also true if it is no longer suitable for the purpose for which
it was constructed and is not readily adaptable to some other
useful purpose. Moreover, it would be possible to construct a
building which would be obsolete as soon as completed. A livery
stable on a location suitable to a garage would be such an example.
Unearned increment is that increase in value which comes
about, not by reason of any improvements to the property itself,
but because of other and unrelated factors. For instance, an







Some Questions of Practice and Policy 65
extensive program of public improvements will operate to
enhance the value of adjacent property. In the same manner
the discovery of oil or valuable mineral deposits nearby, the
location of an educational institution, and many other things
may operate to enhance the value of property without in any
way changing its character, or entailing the expenditure of
money upon it. Fortunes have been made many times in growing
cities by buying just ahead of the development trend and later
cashing in on the unearned increment.
It is important that brokers in the larger cities familiarize
themselves with the zoning ordinances of their respective
communities. Such ordinances have a direct bearing on the uses
to which a property may be devoted. It may amount to a
misrepresentation if a broker states to a prospect that property
can be used for a particular purpose when such usage is prohibited
by ordinance. Such a statement would always be a misrepre-
sentation if known by the broker to be false, or if he were
without knowledge on the subject, but made the statement
notwithstanding his lack of knowledge.
The real estate profession should shun and combat with the
utmost determination those high-pressure circus methods of
selling so prevalent in the hectic days of 1925. Unless restrained,
these methods generally develop in any period of unusual activity
in the real estate market, and are undoubtedly responsible, in
part at least, for turning sound development into a "boom" with
its ridiculous inflation of values and inevitable crash. One of
the most alluring snares practiced in those exciting days was to
promise a prospective purchaser to resell the property for him
at a substantial profit within a stipulated time. Such a promise
is subject to strong condemnation on its face. If the broker can
accomplish such a thing, why doesn't he buy the property himself
and take the profit, or if he represents the owner, why should
he seek to obtain a profit for someone else to whom he owes no
duty when he could wait the stipulated time and give the owner
the benefit.
It is utterly amazing that people will continue to be deceived







66 Principles and Practice of the Real Estate Business
by such methods, but each "boom" seems to produce a fresh crop
of gullible victims. Those who practice such methods ultimately
encompass their own downfall, but unfortunately in doing it they
work injury to countless victims and injure the reputations of
honest brokers. In the long run a successful real estate business
can only be built and maintained by the practice of high ethical
standards, by following a course of rugged honesty and delivering
services of value to the public.








CHAPTER IX
CONTRACTS
Real estate brokers should not attempt to draw complicated
contracts, but should refer all such matters to an attorney. It is
advisable, however, that they should understand some of the
general principles involved.
A contract should be written in simple and ordinary language,
and should be free from ambiguous or uncertain provisions. It
should clearly express all of the terms that are to be binding and
nothing should be left out because it is "understood" by all
parties, as it is frequently not understood, and too often the
parties change their minds about what was understood. Another
common fault of contracts is the failure to properly describe
what is to occur upon breach. If the parties should all live until
the completion of the contract, and no breach occurs, no written
contract would be necessary, and as its sole purpose is to prevent
misunderstandings and provide for a breach, these two points
should always be kept in mind in drawing it. A contract may
provide for drastic remedies in event of breach, but be extremely
lenient so long as its terms are observed. No party should object
to terms which will adequately protect the other in the event
that a breach occurs.
Real estate brokers are concerned chiefly with three forms of
contracts, viz., listing contracts, which have already been
considered, options, and contracts for the sale of real estate.
An option is an agreement, based upon a consideration,
whereby the owner of property grants to another the right to
buy the property, or nominate a purchaser, for a limited period
of time, and in which the optionee does not agree to buy or
pay for the property unless he shall so elect. A contract for sale
of the property differs in this, that the vendee agrees to buy the
property, and does not reserve an election.
These contracts involve the same elements as other contracts.
There is required at least one party on each side of the contract,
and all parties must be competent in law to make contracts.






68 Principles and Practice of the Real Estate Business
There must be a valuable consideration to support the contract.
It is not, however, essential in contracts to name a money
consideration. If each party agrees to do something which will
benefit the other, or will be a detriment to himself, and which
he is not otherwise obliged to do, it is sufficient. There must
be a consideration on both sides, else the contract is not enforceable.
There must have been a meeting of the minds upon the subject
and terms, else there is no contract. Thus, if the seller thinks
that he is selling one tract and the buyer thinks that he is buying
another, no contract results, unless there was culpable negligence
by one, or fraud by the other, of the parties. In case of a mutual
mistake of fact, either party may, by returning all that he has
received under the contract, procure its cancellation by the court.
This meeting of minds must not have been accomplished by
fraud, for if there is material fraud in the inducement, so that,
if the facts had been known, the party deceived would not have
agreed to it, the apparent contract will be cancelled. Another
principle in this connection is that if the parties were agreed, but
the contract as drawn and signed failed to express this agreement,
the contract may be reformed by the court so as to express the
agreement.
Option contracts are often written with less care and detail
than are sales contracts, but they should be just as complete,
because they may be converted into sales contracts by a simple
notice, in writing and signed by the parties, that the option is
exercised. We shall, therefore, merely speak of the contract, and
make a distinction between option and sales contracts only when
necessary.
Such contracts are required to be in writing, or some
memorandum thereof in writing must be made, and signed by
the party to be charged in a legal proceeding, under what is known
as the statute of frauds. The purpose of this statute is to
prevent parties from establishing contracts through perjured
testimony. As a matter of fact, the statute more often permits
people to escape the obligation of contracts fairly and honestly
made. But every contract which relates to matters of importance






Contracts


ought to be in writing, whether required or not, in order to
prevent misunderstandings, honest or otherwise. But even in
the face of the statute, the courts do not permit a real injustice
to result. The law does not make the contract void, but merely
prevents proof of it, if the other party objects to it on that
ground. Therefore, if a party pays part of the purchase price
and goes into possession, and perhaps makes improvements, the
courts will require the other party to carry out the oral contract,
and to convey under its terms. But the mere payment of all or
a part of the purchase price is not sufficient ground for the
court to permit the contract to be proved and enforced as
payment is not open and notorious like possession, and perjury
might be resorted to equally in the proof of the payment. But
the rule is relaxed, perhaps illogically, when the buyer sues
for a return of his money after a refusal of the seller to deliver
the property. The courts will receive oral testimony to prove the
contract and payment and the refusal to deliver, and adjudge a
return of the money, so that the seller may not turn the statute
into an instrument of fraud; but if the buyer attempts to
recover more than he has paid, that is, the excess in actual value
over the purchase price, as he may do where the contract is
written, the court will decline to hear the oral evidence for
that purpose.
The alternative of a "memorandum" instead of a contract
does not mean much, because the memorandum must at least
mention every term of the contract, though not necessarily in the
rounded phrases usually employed in the latter. Thus, the
memorandum might say, "Terms: $1,000 cash, bal. 1-2-3 years
at 6%". If any doubt exists as to the meaning of this, it may
be explained according to the customs and usages of the
business. Many other terms are capable of abbreviation in this
manner; but every term that is to be binding on the other party
must be expressed with sufficient definiteness that it may be
clearly shown to conform to some custom or usage, if not stated
with such fullness that the layman can understand it.
To comply with the statute of frauds, the contract or






70 Principles and Practice of the Real Estate Business
memorandum must contain the names of the parties, the
consideration, a sufficient description of the property affected,
the purchase price, the terms on which it is to be paid, a description
of all mortgages, assessments and other liens to be assumed or to
which the contract is subject, a reference to building restrictions,
if any; any obligation that is to be assumed by the seller to
furnish abstracts, the time of closing and contingencies respecting
defects of title, and forfeiture or other clauses deemed necessary
for the protection of either party.
The contract does not comply with the statute, unless it
contains the first four items. If terms are not given, the
purchase price is deemed payable in cash. If mortgages or other
encumbrances are not mentioned, the seller thereby contracts
that there are none, as every contract is presumed to be one to
convey a good and merchantable title, free and clear of
encumbrances, unless the contract provides otherwise. But the
seller is only required to provide such a title, not an abstract
showing it, unless he agrees to do so. Unless a time for closing
is mentioned, the time is fixed by demand and tender of
performance on one side, at which time the other side must be
ready, allowing only a reasonable time to execute papers and
make out or cash checks. It is therefore important to set a
specific time for delivery of abstract, examination and report
on the title, and also the time which the seller has in which to
cure defects of title, which are pronounced by the attorneys
to be remediable by affidavits, deeds, releases, satisfactions, or
suits to quiet title. Building restrictions are usually held to be
an encumbrance and should be set out in full or reference
made to the public records where they can be found. There are
cases in Florida which hold that the usual building restrictions
are not such encumbrances as entitles the purchaser to object
where the law or valid ordinances of the city imposed substantially
the same restrictions, but substantial additions to these restrictions
constitute encumbrances, remediable by damages, and if so
burdensome as to render the title delivered substantially different
from that described in the contract, the buyer may rescind the







Contracts


contract and recover the money already paid. So, also, if an
outstanding mortgage or lien, not mentioned in the contract,
cannot be discharged by an application of the purchase money,
the purchaser cannot be compelled to accept the title. It is
apparent, then, that great care should be taken to see that these
terms are placed in the contract. With the exception that the
true consideration may always be shown, oral testimony is not
available to vary, contradict, add to, or subtract from a written
contract, unless it shows on its face that it does not contain all
of the terms, except in proceedings to reform the contract,
where such testimony must be clear, cogent and convincing.
Unless the contract provides otherwise, neither party has any
remedy for a breach of contract except to sue for damages, or
cause the other party to specifically perform it, or in a limited
class of cases, have it cancelled, in which case the other party
must be put as nearly as possible in the same position that he
occupied before the contract was made. The ordinary form
of installment contract provides that, upon default in any
payment of principal or interest, and perhaps, the breach of the
other terms, the contract shall be void and the seller may keep
all payments as liquidated damages. This provision is inserted
for the benefit of the seller, and does not prevent him from
electing to sue for the purchase price or forclose the contract.
It may be explained, however, that this term means no more
than that the seller may keep an amount equal to his actual
damages, as it would be inequitable to allow him to retain the
property and also the entire purchase price except a small last
payment. The courts will not uphold a forfeiture clause when
it operates oppressively and clearly imposes a penalty out of
proportion to the resulting damage, and will relieve against it by
requiring the foreclosure of the contract, rather that a forfeiture.
The particular language employed in a contract often has a
decisive effect on its construction, a consideration of which is
beyond the scope of this book, and offers a good argument
against the preparation of any but the simplest contracts by
others than competent attorneys. We must confine ourselves







72 Principles and Practice of the Real Estate Business
to one illustration. The terms where a seller agrees "to deliver
a good and sufficient deed", or "a good and sufficient deed
conveying a merchantable title", or to deliver such a deed
"conveying a merchantable title of record", or "to deliver an
abstract showing a merchantable title", are very common, and
it may generally be believed that there is little difference in
meaning. We shall assume that no other terms limit or modify
the meaning of these terms. The first two mean the same,
because in any event, a merchantable title is presumed to be
intended. The last two mean the same, except that the last
imposes the additional obligation to furnish an abstract, but
differ from the first in that the merchantable title must be
shown by the public records, an abstract being merely a compiled
index to the records. If the title depends upon adverse possession,
it may comply with the first two, but not the latter two, provisions.
In a large percentage of sales of real estate, an existing
mortgage is to remain after the contract or deed is executed.
The property is sometimes sold or conveyed "subject" to the
mortgage, which means simply that the purchaser must pay it
if he wishes to retain the property, but is not under any obligation
to do so, and the obligation of the seller remains exactly the
same on the notes. If the purchaser "assumes and agrees to pay"
the mortgage indebtedness, he becomes personally liable directly
to the holder of the notes, and the seller though not relieved of
his obligation, becomes a surety, liable to be discharged by
extensions of time or other transactions between the holder
of the notes and the purchaser which operate to release the seller.
An option requires a definite consideration, and although it
may be provided that the consideration may be applied on the
purchase price in event of the exercise of the option, it must
not be provided that it is to be wholly returned in case the
option is not exercised, for then there would be no consideration.
But a contract of sale is not required to express a consideration
other than the payment of the purchase price, or exchange of
other properties. It may also be noted that a consideration may
be the surrender of a right possessed by a party as well as the






Contracts 73

payment of money or conveyance of property; or the considera-
tion may move to a third party.
It remains to discuss the formal requirements of a contract of
sale. Where the seller is a man, a single woman, or a married
woman licensed as a free dealer, the contract need only be
signed. Signing means the placing of the signature in any
part of the contract, with the intention of being bound, and
not necessarily at the end of it, although that is generally the
place where the signature is found. The same rule applies as
to the buyer. In enforcing the contract, where one has actually
been made, it need only be signed by the one against whom it
is sought to be enforced, acceptance by the other alone being
necessary. Thus, the seller, except a married woman not a
free dealer, may sue the purchaser, though the purchaser alone
signed, and the purchaser may have specific performance though
the seller alone signed, by producing the contract and showing
that it was actually delivered and accepted.
Where the seller is a married man, the contract should not
only be signed by him, but should be executed by the wife in
the manner stated below, or the purchaser may not be able to
procure a deed which will bar the right of dower, and moreover,
will not be entitled to damages or abatement in price for failure
of the seller to deliver the title free from the right to dower,
if he knew that the seller was married unless the seller specifically
undertakes to procure execution by the wife. Where the seller
is a married woman, not a free dealer, the purchaser will have
no remedy for failure to deliver unless the contract is so executed
by the woman, and the contract is signed by the husband, except
to have a recovery of any sum paid, with a lien on the property
for its repayment. If so executed, he can not recover damages
for a failure to deliver, but may have the contract specifically
enforced, or recover back what he has paid. Contracts where a
married woman, not a free dealer, is a party must not be signed
by her, but must be under seal, and must be signed, sealed and
delivered in the presence of two disinterested witnesses, and
acknowledged before a notary public, separately and apart from







74 Principles and Practice of the Real Estate Business
her husband, in the form provided by statute, and when the
property belongs to the husband, the contract should recite that
she signs it for the purpose of relinquishing her rights of home-
stead and dower. Except in these cases, a contract need not be
acknowledged, unless it is intended to have it recorded, in which
case the statute makes an acknowledgment necessary.
Where a married woman, not a free dealer, is a purchaser
she cannot be compelled to pay for the property. The seller
can only cancel the contract, if that is provided for, or have
her equity in the property sold. But a married woman, or for
that matter, any other person, may not recover money paid on
the purchase price, if the seller is ready, able and willing to
perform his contract, on the ground that the contract is not
enforcable against her.
Except where a married woman, not a free dealer, is the
seller, or has the right to dower, an agreement need not be
written entirely as a formal contract. If a complete agreement
can be deduced from them, it may be incorporated in a series
of letters and telegrams which are so connected as to reflect
the agreement. A contract usually results from a series of
offers and counter-offers, finally resulting in a definite agreement,
when some offer from one side is finally accepted by the other.
The various offers which are followed by counter-offers are not
material to the contract except where the counter-offer involves
only some of the terms, as the counter-offer is, in effect, a
rejection of the first offer, although some of the terms are
agreed to, which terms are often brought forward in the
correspondence by implication when an agreement is reached
as to the other matters. These points are important in order
that the proper distinction is made in contracts by correspondence
between those parts of the negotiations that finally become parts
of the contract and those other proposed terms that are later
rejected, adopted or modified. Except as to those terms agreed
to, the negotiations of the parties are merged into the contract,
and are of no importance, other than to throw light on the
intentions of the parties when that is obscure, or the contract
is ambiguous.






Contracts


The description of the property which is the subject matter of
a contract or option is one of major importance. Unless one
is able, by virtue of the description, records and nototiety, to
locate the property on the ground, the whole contract fails to
meet the requirements of the statute of frauds. If the property
is correctly described by metes and bounds, or by government
subdivisions, or lot and block numbers of a recorded plat properly
referred to, no difficulty will be encountered. But too often
the description describes lots and blocks of an unrecorded plat,
or to a street number, or to "My farm near Horseshoe Lake",
or the like. In such cases, oral testimony is admitted to clarify
the intention of the parties, but no oral testimony as to the terms
of the contract itself is admitted. Thus in the last mentioned
case it may be shown that the seller had only one farm in the
vicinity, which makes the contract certain, but if it appears that
he had two or more farms of that description, oral testimony
will not be admitted, over objection, to show which one the
parties had in mind, thus defeating the contract. Also, as to
street numbers, it may be observed that this is often insufficient
because there is often more than one such number allocated to
one building or lot, and the parties have left the contract uncertain
as to whether the whole, or only a part, of the building or lot
was intended. Ordinarily contracts referring to unrecorded plats
are sufficient, if the plat is sufficiently described as to be
identified with certainty, though the parties will be left in an
uncertain position should the plat be lost or destroyed. Contracts
should always describe the property with reference to recorded
instruments or plats, or by metes and bounds referable to some
well-established point or line.
The construction of contracts after they are made, the effect
of breach, and the remedies accorded to the parties are subjects
beyond the scope of this book, and are matters that should be
referred to attorneys.








CHAPTER X
TITLE, DEEDS, CONVEYANCES, AND MORTGAGES
The scope of this chapter will be limited to a consideration of
those matters connected with the subject which should be known
to a real estate broker, and which does not require a foundation
of legal training usually possessed only by those who have seriously
studied the law. No attempt will be made to discuss base or
determinable fees, fees tail, executory devises, conditional
limitations, springing or shifting uses or the like, and a discussion
of conveyances by administrators, executors, guardians and
other like officers whose authority depends upon compliance with
statutes will be admitted.
The simplest and at the same time the most comprehensive
title is the fee simple, which is equivalent to absolute ownership,
except as to the right of the state to impose taxes, provide
reasonable regulations for the public health and welfare, and
to take such portion of it for public uses as may be necessary,
by paying its value to the owner. Title may be acquired by
deed, will, descent or adverse possession ordinarily, and occasionally
by court decree based upon a resulting or constructive trust or
by estoppel.
The fee simple title may be divided among several owners
holding at the same time or successively. Where one person is
the absolute owner with full power to dispose of it as he sees
fit at any time, he holds an estate in fee. If he owns the
property for the period during which he shall live only, he has a
life estate, and the person who is next entitled after his death
has an estate in remainder, which may be for life or in fee.
But this cannot go on forever, as no estate can be limited to
any person except he be living at the time, or who may be born
within twenty-one years after the death of some person or
persons who are in being at the time of the conveyance. If
there is no person named to receive an estate after the death of
a life tenant as the owner of a life estate is called, the title will
return to the grantor, or his heirs, and they are said to hold the






Titles, Deeds, Conveyances and Mortgages 77
reversion in fee. When it can be determined to whom property
will go, either as individuals or a class of individuals who are in
being, and it is certain that the event which determines that it
will go to them has happened, the remainder is vested, otherwise
it is contingent.
Where a party, by lease, has the right to the use and possession
of property for a fixed period, he has an estate for years. This
is usually considered as a chattel interest, being subject in many
respects to the law governing personal property rather than
relating to real estate.
When more than one person owns an interest in property,
they are joint tenants, tenants in common or tenants by the
entirety. Joint tenancies have ceased to be of much importance
since the passage of the statute which takes from it its most
important incident, survivorship. Under the common law, when
parties were joint tenants, the title of a deceased joint tenant
enured to the others, instead of descending to his heirs, and was
not subject to disposition by will. A joint tenant could, however,
dispose of his interest by deed or other conveyance, and thereafter
his grantee holds an undivided interest as tenant in common, and
the others hold as tenants in common as to him and as joint
tenants as to each other. The statute now provides that the
doctrine of survivorship no longer applies, which, except as to
certain matters of interest only to lawyers, removes the practical
distinctions between joint tenancies and tenancies in common.
But, despite the statute, the same result can be accomplished
by conveying to the named grantees for their joint lives, with
remainder over to the survivor of them, and his heirs. This is
not, however, a joint tenancy, and none of the parties could, by
conveyance, destroy the title of the survivor as to his interest,
as it becomes a vested alternate remainder. A joint tenancy
arises when the parties derive their title from the same instrument
and at the same time, but not by will or descent, each have an
identical interest in the whole property, and all have possession.
The modern tendency is to construe ownership as a tenancy in
common rather than joint tenancy, and in drawing conveyances,






78 Principles and Practice of the Real Estate Business
it should be provided specifically, either in the granting or
habendum clause, whether the grantees take as joint tenants or
tenants in common.
Tenancies in common exist where all of the owners have the
right to possession of the property, and are not joint tenants.
They may have derived title from different grantors, at different
times, and their undivided interests may be unequal. Tenants in
common may always have partition of the property into units
of proportionate value to their respective interests, to become
their own separate property, except where it is the subject matter
of a joint adventure, the purpose of which is not yet accomplished,
or a right to terminate it has not otherwise accrued.
An estate by the entirety is a peculiar estate which arises when
property is conveyed to parties who are husband and wife. The
deed need not describe them as husband and wife, if that
relation in fact exists, but it ought to do so in order to notify
others of the estate created. The most important incident of
the estate is that neither party owns individually any interest in
the property, yet each owns all of it. This paradox arises because
of the common law fiction that a husband and wife are one
person, dissoluble only by death of one, at which time the other
emerges as the sole owner of the property. To this it may be
added that an absolute divorce puts the estate at an end, but
neither party is entitled to all of the property, a tenancy in
common resulting. As a result of this peculiar estate, the
property is not subject to a debt, even for taxes, except inheritance
taxes, which accrues against only one of the parties, but the
property is subject to ad valorem taxes and special assessments,
levied against the particular property.
The commissioner of internal revenue claims that a lien for
income taxes of the husband is alien to his "right of property"
in the estate by the entirety; but to so hold would be to set aside
the established law of the State, and we will contend otherwise
until the supreme court of the United States decides the question.
Therefore, in determining the worth of a man for the purpose
of credit, no account should be taken of any property in which






Titles, Deeds, Conveyances and Mortgages 79
he is a tenant by the entirety. But, if he purchases property and
has the title taken in the name of himself and wife, and it
operates to defraud his existing creditors, the deed may be set
aside as fraudulent. In drawing a deed with the view of
creating this state, the grantees should appear as "John Doe and
Jane Doe, his wife", and not "John Doe or Jane Doe, his
wife", as in the latter case, no grantee is actually named and the
deed is void. If the parties do not intend to create this estate,
but wish to convey to a husband and wife as tenants in common,
apt words should be used in the granting or habendum clause
indicating this intention. Where property is held by the entireties,
it may be conveyed by a joint deed or mortgage signed, sealed
and acknowledged by both husband and wife, and witnessed as
all other deeds. A homestead cannot be claimed in property
held by the entireties, and it is subject to any legal joint indebted-
ness of the husband and wife. A purchase money lien is superior
to the title of the husband and wife.
A homestead partakes of the nature of an estate, and when
there are children, it enures to the benefit of the wife and
children. A homestead exists in favor of a head of a family,
residing thereon, as to 160 acres of land, or one-half acre, if
located within an incorporated city, regardless of value. Such
property is exempt from forced sale, except for taxes or assess-
ments, or for the purchase money, or for the erection or repair
of improvements, or for house, field or other labor performed
on it. The owner of the homestead may convey or mortgage
the property by an instrument duly executed by such owner,
and the wife, if any. If there are children, the owner cannot
dispose of the property by will. The homestead character is lost
by abandonment, which results from the permanent discontinu-
ance of its use as such, or by acquisition of another homestead.
A homestead right is not lost by a divorce, if there are minor
children which the husband is, by law or the decree of the court,
bound to support, provided the husband does not abandon the
homestead. Differing from other interest in this respect, the
use of money, which ought to have been used to pay creditors,







g0 Principles and Practice of the Real Estate Business
for the purchase of the homestead, does not afford such creditors
a ground for declaring the transaction fraudulent, because the
purpose of the Constitution is to allow the head of a family to
own a home free from his debts, without regard to them. But
if he uses trust funds to purchase or improve the property, the
beneficiary may subject the property to its repayment. It cannot
be doubted that the exemption laws of Florida are too liberal, and
encourage dishonesty, rather than merely serving the beneficent
result that lawmakers hope to secure by frustrating the attempts
of harsh creditors to completely pauperize a family which has an
improvident or unfortunate head. There should be a reasonably
liberal limitation as to value.
Dower is an estate which enures to the benefit of a widow,
being a life interest, at common law, in one-third of the lands
owned and possessed by her husband at any time during coverture
(the status of marriage), and which has not been relinquished
by her in the prescribed manner.
Under the present law in Florida, dower consists of "one-
third part in fee simple of the real property owned by the husband
at the time of his death, or which he had before conveyed,
whereof she had not relinquished her right of dower as provided
by law, and one-third part absolutely of the personal property
owned by her husband at the time of his death", or, if the
husband leaves a child or children, none of which is a child of
the widow, the dower shall not exceed a child's part. The
widow also has dower in personal property not necessary to be
considered here. If there is a will, the widow may, within nine
months, elect to take dower, otherwise she must take what her
husband has provided for her. Dower property is to be allotted
without considering debts, inheritance taxes or cost of adminis-
tration, which must be paid from the balance of the estate, except
of course such liens as are hereinafter mentioned remain against
the property. The widow may, if she so desires, take in lieu
of dower, all of the property if the husband leaves no children,
or a child's part if there are children, but all debts must be paid
before her share is allotted to her. The widow cannot take







Titles, Deeds, Conveyances and Mortgages 81

dower in the homestead under the present statutes.
Under the statute and common law, this right exists only in
legal, and not in equitable estates. Some confusion has been
introduced in this connection by a recent decision of the supreme
court holding that a wife had dower in property when her
husband had only a contract of sale, but had gone into possession.
This decision appears to be at variance wth established principles
of law, and probably will not be extended beyond the peculiar
facts of that case; but until the court speaks further, all
assignments of contracts should be executed by the wife as well
as the husband, especially if they have entered into possession.
Until the death of the husband, the wife has only an inchoate
right of dower. This right can only be divested by a conveyance
or mortgage properly executed by both the husband and wife
in the manner heretofore described in referring to contracts, or
by reason of other liens, taxes, and assessments made paramount
by law. Adverse possession does not extinguish the right to
dower during the lifetime of the husband; and it is doubtful
whether it is effective afterwards, though the passage of a long
period of time without any assertion of the right by the wife,
during which the property has been transferred to parties
without notice of her rights has been held to bar dower. A sale
of property at an execution sale under a judgment against the
husband does not divest the right of dower.
As mortgages are not estates, and in addition are equitable, a
wife does not have dower in them, so that, where a mortgage
is given to the husband alone, it is not necessary for the wife to
join in an assignment, release or satisfaction. Dower does not
attach as against a lien for the purchase price, whether a vendor's
lien or a mortgage, even though she did not assent to the lien or
join in the mortgage. When the husband leaves a will, the wife
has a right to elect whether she will take dower, or under the
will; and if he dies intestate, she may take dower, which is a
life estate, or she may elect to take as an heir. This share, if
there are no children, or one child, is one-half of the real estate
and personal property, or if there are two or more children, she






82 Principles and Practice of the Real Estate Business
shares equally with the children, taking a fee simple, if her
husband's estate amounted to that, but this inheritance is subject
to the debts of the husband. The debts, of course, as in other
cases, are paid out of the personal property, if it is sufficient,
before resort to the real estate.
The most usual conveyance employed in transferring the title
to real estate is a general warranty deed. There is, however,
no magic in a warranty deed. If the grantor is insolvent, the
warranty is valueless. They are simply bargain and sale deeds,
containing covenants that the grantor will warrant and defend
the title against the lawful claims of all persons whomsoever.
A covenant is a promise made under seal of the promisor.
A bargain and sale deed is the familiar one in which the
party of the first part "grants, bargains and sells" the property
to the party of the second part "to have and to hold the same,
unto the party of the second part, and to his heirs, in fee simple,
forever". The first clause is the "premises", usually called the
"granting clause", and contains the name of the parties, the
"grant, bargain and sell", the consideration and the description
of the property; then comes the "habendum", the "have and to
hold" clause, and then the "reddendum" clause which reserves
something to the grantor, which is some right or restriction, and
not land, the latter being an "exception" usually contained in
the description of the property. These clauses are sufficient to
convey all of the title which the grantor may have, which is all
that any deed can convey. However, the grantor may not have
any or all of the title which is described, but that title may later
be acquired by him. In order that this may enure to the
purchaser, it is usual to add a "covenant of Seizin" in which the
grantor covenants that he is "seized of an indefeasible estate in
fee simple in said premises, and has full right to convey the
same". This is as far as the grantee can ordinarily protect
himself when the grantor is not financially responsible. But,
whether he is or not, it is usual to add a covenant against
encumbrances, which makes the grantor responsible for any
mortgages, liens or assessments, not otherwise provided for in







Titles, Deeds, Conveyances and Mortgages 83

the deed, and a covenant of warranty. In the older forms, other
covenants, such as those for quiet enjoyment and further
assurance, couched in ornate language were added. They add
but little to the safety of the grantee, but may be added if
desired. The statutes set forth a very short form of deed in
which all of the covenants mentioned are implied, as though
written in full, and this form of deed is recommended.
A special warranty deed is one in which the grantor warrants
the title only against claims of the grantor, his heirs, administra-
tors and executors. It is a usual form in conveying a tax title.
While sufficient to convey an after-acquired title, the grantor
assumes no liability if the grantee loses the property to a
paramount title.
A quit claim deed is, properly speaking, not a conveyance, but
a release of all the right, title and interest of the grantor. He
may have the fee, or he may have nothing. If he has no title,
but afterwards acquires it, he may take the property from the
grantee, notwithstanding the deed. An important difference
between this and other deeds mentioned is that the grantee cannot
claim to be an innocent purchaser as against persons claiming
under unrecorded deeds or other liens or trust of which he had
no notice. Quit claim deeds are therefore ordinarily used only
for the purpose of curing defects of title and releasing outstanding
interests of doubtful validity, or which are only apparent and
not real. Contracts of sale imply that a warranty deed, and
not quit claim, will be given unless so specified.
Deeds of single men, single women and married women who
are free dealers may be effective when signed, sealed and delivered
in the presence of two witnesses. If they are to be recorded,
they must be acknowledged before a notary public or other
officer mentioned in the statute, as the voluntary act and deed
of the grantor for the consideration and purposes therein
expressed. If the grantor is a married man, the wife should
sign, seal and deliver the deed in the presence of two witnesses
(who may be the same for the husband) and the deed or
acknowledgment should recite, though perhaps it is not absolutely






84 Principles and Practice of the Real Estate Business
necessary to the validity of the instrument, insofar as dower
are relinquished. In this case acknowledgment is absolutely
necessary to the validity of the instrument, insofar as dower
and homestead are concerned, and the notary must recite that
he examined the wife separate and apart from her husband,
and that she acknowledged that she executed the same freely
and voluntarily and without compulsion, constraint, apprehension
or fear of or from her husband. All acknowledgments should
recite that the parties appeared personally before the notary and
that they were known to be the parties who executed the
instrument. An acknowledgment over the telephone is void.
A notary cannot amend his certificate after the instrument has
been delivered, even though it does not speak the truth. A
notary may be one of the witnesses to the instrument. No
person who is interested in the transaction, such as a party, or as
officer of a corporation which is a party, is competent to take
an acknowledgment. Where the grantor is a married woman
not a free dealer, the husband must join in the execution of the
deed, and an acknowledgment with the same formalities and in
the same form as that just described is essential to the validity
of the deed.
It may be well to remark somewhat on the peculiarities of
married women's law at this point. A married woman cannot
be sued on her covenants in a deed, but she may be stopped by
them. In explanation, where a party has contracted that
something is true, or by their words, silence or conduct, have led
another to believe it true, and that person has changed his
position in reliance thereon, the first party is not permitted to
deny it, even though untrue, which is called equitable estoppel.
Therefore, if the woman has covenanted that she has a title,
she will not be permitted to assert an after-acquired title of
equal or lesser dignity. However, an estoppel will not be
effective in the face of the statute made for the protection of
the married woman, so that she will not be stopped to deny a
separate examination, even though she has received the purchase
price of the property. The certificate of acknowledgment is







Titles, Deeds, Conveyances and Mortgages 85
prima facie proof of the facts recited, but it may be overcome
by proof which is clear, cogent and convincing. Where,
however, forgery is charged, and especially where there is
connivance by the notary, ordinary proof, by a preponderance
of the evidence is sufficient.
Liens are of several sorts, such as vendor's liens, materialmen's
and laborers' liens, and mortgages. Liens in invitum, such as
for taxes and assessments are of different sort. They are superior
to conventional liens regardless of the time of accrual, unless
otherwise provided. Liens for income taxes, however, date only
from the filing of the lien in the collector's office, and are not
superior to mortgages and conveyances prior in time. Such liens
are not, however, affected by the foreclosure of mortgages in
the State courts, and the only way to free the property from
them is to notify the collector to foreclose, and if he does not
do so, file a bill in federal court, as provided by statute. Liens
for state and county taxes are superior to those for city and
district taxes and special assessments, unless the special acts
governing them provided otherwise.
Materialmen's and laborers' liens are creatures of the statute
and will not be discussed herein, other than to say that, when
properly perfected and recorded, they are prior to mortgages
given after the first materials are delivered or labor performed,
and during the progress of construction, or within 30 days after
completion. If no lien is filed prior to the expiration of that
time, or if the lien has been filed more than one year, it is safe
to take a mortgage, unless a proceeding for foreclosure is
pending. But a mortgage given before the furnishing of labor
and materials, or for that matter, any other lien or mortgage,
is prior to it only to the extent of money actually advanced or
irrevocably agreed to be advanced at that time, as mortgages
cannot exist except as an incident to an actual indebtedness.
A vendor's lien is the right of the grantor of property to
subject the land as security for the unpaid purchase money. It
exists without any special agreement, and even in spite of a
recital in the deed that receipt of the consideration is






86 Principles and Practice of the Real Estate Business
acknowledged. It is sometimes reserved in the deed. The lien
may be enforced by a bill in equity, which results in a sale of
the property to pay the amount found due. It is always good
as against the grantor, his wife, heirs and devisees. As to
judgment creditors and subsequent purchasers, including all
those who may acquire liens, it is good only in the event that
it is reserved in the deed or other instrument of record, or they
have actual notice of it.
A mortgage is any instrument in which property is conveyed
as security for a debt. The usual form of real estate mortgage
begins with what appears as an absolute conveyance of the
property, followed by what is known as a defeasance clause, in
which it is stated that notes have been given, describing them,
or a certain debt created, and providing that the conveyance
shall be void if all of the conditions are performed, and
providing for foreclosure in case of default.
It is important that certain incidents of mortgages be known.
It is important that, where the notes are payable at different
intervals, the mortgage contain a provision that, where the
interest, or a note or installment of the debt is in default, or
other breach occurs, all of the notes or installments shall at
once become due and payable, because otherwise, if the mortgage
is foreclosed, the lien is exhausted, and there is no security for
the balance not yet due. Peculiar situations also arise where
some or all of the notes are assigned or negotiated. As between
several assignees, the several notes are equivalent to separate
mortgages with priorities depending upon the date of maturities,
but as between the assignor and assignee, the note held by the
assignee is to be paid first. The parties may, by contract, provide
otherwise. Some courts have held that where the mortgage
contains an accelerating clause, described above, the notes are
of equal priority, and the proceeds of the foreclosure should be
prorated, but the supreme court of Florida has not yet passed
upon this question.
Where the property mortgaged is a hotel or apartment house,
or an industrial plant, the description of the mortgaged property







Titles, Deeds, Conveyances and Mortgages 87

should include furniture, machinery, and other personal property
which is essential to a continuance of the business for which
the building is designed, as the value of such building will be
greatly depreciated by the removal of such property, and much
of it will not be covered, unless specifically described.
Very often mortgaged property is intended for subdivision
into lots or small farms, and a purchase money or other mortgage
is placed upon it. Unless there is a release clause, the only
right of a purchaser is to have the security marshaled, that is,
to require the property to be sold in the inverse order of
alienation, until there is a sufficient sum raised to pay the mortgage.
If that is not accomplished until his property is reached, he must
redeem by paying the amount still unpaid. In that case he is
subrogated to the rights of the mortgage, and may foreclose on
the balance of the property for the amount so paid. It is proper
to provide in the mortgage or a separate agreement for the
release of proposed units upon the payment of a stipulated
amount. The unit should be the smallest which it is intended to
sell to one purchaser, and it should be provided that a release
may be obtained at any time before foreclosure sale, and not
merely while not in default. Under such a clause, the mortgagor
is not entitled to redeem less than the whole property unless
there has been a bona fide sale, or that privilege is specifically
provided for in the agreement.
The defeasance clause does not always appear in the mortgage.
It sometimes is contained in a separate instrument. But it is
not necessary that it be in writing. Sometimes a deed, absolute
in form, is delivered as security. In such cases, the deed will
be construed as a mortgage. Of course, when it is claimed that
a deed absolute in form is in fact a mortgage, the court must
be convinced by clear proof that it is so, because while not
exactly inconsistent with the deed, it is nearly so.
Mortgages must be foreclosed in chancery court, even though
in the form of a deed of trust, apparently authorizing a sale by
the trustee upon default. Analogous to this, sometimes a debtor
conveys property to the creditor with the understanding that he






88 Principles and Practice of the Real Estate Business
may obtain a reconveyance within a certain time if the debt is
paid, otherwise the title is to remain in the grantee. Regardless
of this agreement, it is nothing more than a mortgage, and to
bar the equity of redemption it must be foreclosed.
The mortgagor and all subsequent purchasers, mortgagees,
lienors or judgment creditors have a right to redeem from the
mortgage by paying the amount due, and this right continues
until they are made parties to a foreclosure suit and the property
is sold thereunder. Upon redemption, such party may foreclose
as to the mortgagor, and those having liens or titles inferior or
subsequent to the holder, and these, in order, have a like right
to redemption and subrogation, until all are paid or the property
is finally sold under foreclosure.
Mortgages should contain provisions as to the default for
failure to pay taxes and assessments, and for carrying insurance.
It is also advantageous to the mortgagee to have the mortgage
cover rents, issues and profits while the mortgage is in
default. To cover such rents, issues and profits at all times
frequently works hardship on the mortgagor. It is well
also to provide that upon filing a bill of foreclosure, the holder
of the mortgage may have a receiver appointed. In such cases
the court will usually appoint a receiver without proof of
inadequacy of the security and insolvency of the mortgagee.
It is beyond the scope of this book to enter upon a discussion
of express trusts and the various estates that may be created
thereby. There are two forms of implied trusts that may be
of interest to brokers. They are resulting and constructive trusts.
A resulting trust arises in favor of a person who furnishes
a part or all of the purchase price of property, or becomes
obligated to pay it at or before the time that the conveyance is
made, and title is taken in the name of another person. The
payment of part of the purchase price after the conveyance does
not give rise to a resulting trust, but sometimes a lien arises.
If the title was taken in the name of another to defraud
creditors, no trust arises, as it is purely equitable, and equity
does not favor those who commit fraud. And, where the






Titles, Deeds, Conveyances and Mortgages 89
conveyance is taken in the name of the wife or child, it will
be presumed that the purchase money was intended as a gift,
and no trust arises unless it is proved that no gift was intended.
Also, where title is taken in the name of some other person,
the resulting trust does not arise if it is shown that a gift or
loan was intended. A resulting trust arises by operation of law,
and not by reason of a written instrument, and is not effective
against a subsequent grantee or lienor who had no actual
notice of it.
A constructive trust is one that arises through fraud, or
because of the failure of an express trust, or the invalidity of a
conveyance, and is in favor of the person who is justly entitled
to the property. Thus, if a broker, attorney, executor,
administrator, trustee or other fiduciary, buys property in his
own name which he should have bought for the person for
whom he was acting, the law raises a constructive trust in favor
of the other, whether he bought with his own funds or the
funds of that other. Sometimes a person acquires title by reason
of an express trust, compliance with which cannot be compelled
because not in writing, or because of a failure of some condition
and a constructive trust arises. A broker is employed to sell
property to a certain person, or for the purpose of accomplishing
some object or transaction, and the title is conveyed to him in
order to facilitate it, but the deal is not concluded. A constructive
trust is implied. The same rules as to the effect on the rights of
subsequent purchasers applies to constructive as to resulting trusts.
Where there is a resulting or constructive trust, the person
having the title holds it for the benefit of the party equitably
entitled to it, and the court will compel him to convey it, or
such interest as the other party may be entitled to, to such party.
We now have to consider records, notice, and title by estoppel.
The law provides that deeds, mortgages, liens and other instru-
ments affecting the title to real estate shall not be good as to
subsequent creditors, purchasers or lienors without notice, unless
the instrument is filed in the office of the clerk of the circuit
court and recorded as required by law. Any one who proposes







90 Principles and Practice of the Real Estate Business
to acquire an interest in real estate is always bound to notice the
rights of all persons in possession of the property. Also when
they have information of the existence of any claim, which
diligent investigation would have revealed fully, they take subject
to such claim, but mere rumor which cannot be traced, is not
notice. Knowledge of a right, title, interest or lien, or of
facts which on investigation would disclose the full extent of
the claim, is actual notice. But, though a person has such
notice, he may examine the merits of the claim, and buy the
property without sacrificing his status as an innocent purchaser
any further than to be bound to give that claimant whatever
he is entitled to under his claim.
Where the instrument is properly recorded, and it is in the
chain of title, anterior to a conveyance, mortgage or judgment,
the creditor or grantee is bound by it constructively whether he
knows anything about it or not. He is, however, not bound
to give it any greater effect than it appears to have, so that notice
of it, actual or constructive, does not enlarge the estate or rights
which it purports to grant. Many instruments are recorded
which are not entitled to record, either because they do not come
within the classes that the statute names, or they are not
acknowledged, or are defectively acknowledged. In such cases,
if a purchaser or his agent actually sees the record or sees
reference to it in an abstract, he has actual notice; but if he
has no such actual notice, he is not bound by its presence in the
record. The same is true as to instruments that are not in the
chain of title. The same rules apply to judgment creditors and
those who take mortgages, or liens, as to purchasers. In an,
event such purchasers must have paid value. Heirs, devisees and
the beneficiaries of gifts and gratuitous trusts are bound by all
valid claims whether recorded or not.
Title is not exactly conveyed by the record, but arises by way
of estoppel against those who, by their negligence in failing to
record an instrument, allow others to be deceived as to their
rights. Thus, if A, gives B. a mortgage or deed, who fails to
record it until after A. has conveyed to C. who pays a valuable






Titles, Deeds, Conveyances and Mortgages 91
consideration and has no notice of it, C. takes free from the lien
or title of B., though strictly speaking, if A. had already
conveyed, he had nothing to convey to C., but the law estops B.
from showing his mortgage or deed, which gives C. the only
apparent title.
If brokers adopt the rule of advising their clients to immediately
record all mortgages, deeds or other liens or conveyances, and to
never buy property or take mortgages when they have knowledge
of claims, or without interviewing every person in possession of
the property to find out whether they are claiming as tenants or
otherwise, or without having the title examined by a competent
attorney, they will perform a useful service.
Brokers should not attempt to do more than fill out blanks
in approved forms of conveyance, where an attorney has advised
that the grantor has a fee simple title, and that title is being
conveyed. If other estates, or trusts, are involved, the broker
should decline to draw any documents, unless he is also a
practicing attorney.









CHAPTER XI
THE REGISTRATION LAW
The Commission and Its Duties
The Florida real estate commission is composed of three
members, who are required to be resident citizens of the State,
whose vocation for at least ten years prior to their appointment
shall have been that of real estate brokers. They are appointed
by the Governor, one each year for a term of three years.
They elect the chairman from their number. The chairman is
the executive officer, and empowered to do anything that
the commission can do except to render final decision on
informations, or promulgate rules and regulations. It is implied,
of course, that the chairman shall be governed by law and the
rules and regulations, and act in harmony with all resolutions,
decisions and policies of the commission as a whole.
The commission is not merely a licensing body. It is its duty
to investigate all complaints filed with it, and to prosecute such
of them as appear to have merit. At times it acts as an
inquisitorial body, such as a grand jury; at other times in a
quasi-judicial capacity, like a court; and at other times as a
prosecutor. But it does not become a prosecutor until, in the
exercise of its quasi-judicial power, it has heard and decided
the issue.
It is an old adage that what is everybody's business is nobody's
business. Unless there is a body or officer charged with the
duty of detecting, investigating, and prosecuting violations, few
will ever be brought to the attention of the authorities. Aside
from actual disbarment, the legal profession has more to keep
its members within the scope of ethical conduct than brokers,
because from ancient times its ethics have been taught to its
beginners, and they have been handed down from one generation
to another, while the effort to teach real estate brokers any
particular ethical standard is of recent origin and imperfectly
done. Then, too, disbarment of a lawyer is a more serious
thing to him than the revocation of the registration of a broker,






The Commission and Its Duties 93
due to the number of years preparation that he has invested,
which with the disbarment over his head, becomes almost entirely
useless to him. Nearly his sole recourse in the past has been to
become a real estate broker, and even this is denied him under the
registration law. The fear of disbarment, though that is too
uncommon, is more poignant than is the fear of revocation to
the average broker, whose knowledge, whatever it may be, may
be profitably employed otherwise. But it is to be regretted that
lawyers do not have some officer or board equipped to investigate
complaints and prosecute its unfaithful, because the fewness of
disbarments does not correctly reflect the true ratio of good and
bad. Unless some client becomes savagely disgruntled, or the
lawyer gets to be a public disgrace, nothing is done about it, as
it is nobody's business to do it.
While every person who engages in acting as a broker should
bear his proportion of the expense of investigation and registration,
yet the occasional person who sometimes violates the law by
negotiating a small sale is not as serious a matter as many brokers
seem to think. The law was not intended to create a monopoly,
and if it were, a fee of ten dollars per annum fails to have any
appreciable effect in that direction. If the poacher pays it, the
competition still exists. If the registered brokers would assist
in inculcating in the minds of the public that people are safe in
dealing with registered brokers, because of the regulations
imposed, than with the secretive, surreptitious and irresponsible
violator of the law, their business would increase, and they would
have no cause to fear the "curbstoner". The only serious
consequence resulting from these violations is the fact that the
commission has no jurisdiction of the offender in case he
commits fraud; but it is perhaps only retributive justice if those
who deal with such persons should become the victims of
uncontrolled fraud. The commission is able to detect and
correct the condition, where the persons involved do any
considerable business, but the occasional violator may escape unless
the commission has the full support of the registered brokers who
are in position to know local conditions by daily contacts; and







94 Principles and Practice of the Real Estate Business
even then the prosecution is in the hands of the local prosecutor
who is oftentimes little interested in what he deems a minor
infraction of the law.
As before stated, the commission is not a collection agency
under the law, but it can often be instrumental in securing
adjustments for the public by advice and suggestions. The
public is helped when a broker who, through a misconception
of his rights, has apparently defrauded someone, and upon
learning their rights, makes restitution; and the broker is helped
where the complaint is held to be unfounded, and the complainant
abides by the decision, and offers him no more trouble. These
matters are handled in a confidential manner, and no more
publicity results than the parties choose to give it, and often this
voluntary adverse publicity ceases much sooner than it would
but for the investigation and decision by the commission.
The commission serves without any compensation whatever,
except necessary traveling expenses to attend its meetings, which
are held only when accumulated business demands it. The
executive offices are located where the chairman resides, so that
no expense is incurred in transacting the great volume of detail
which is not required to be submitted to the commission except
by way of reports. The commission is, therefore, practically no
expense to the registered brokers, and the funds of the commission
are devoted solely to such clerical, legal, and field expenses as
are necessary.
The commission passes upon all cases where there is any charge
made against an applicant or registrant, granting or denying
registration, and dismissing or certifying to the courts charges
against registrants, as it may find the facts to warrant.








CHAPTER XII
THE REGISTRATION LAW
Who May Be Required or Permitted to Register
All persons, partnerships and corporations who come within
the scope of the definition of a real estate broker or salesman
are required to register, or they must not do the things within
that scope. This definition does not vary greatly from the
common law definition of a broker, limited to real estate
transactions. A broker is one who buys or sells, or offers to
buy or sell, or negotiates the purchase or sale of property which
is owned by others. When that property is real estate, the
person so acting is a real estate broker. Our definition defines
real estate to be "real property, or any interest in or concerning
the same, including mineral rights or leases". As defined, it
not only covers the outright sale of the fee simple title, but
includes lesser estates and leases, standing timber and other
rights, but does not include mortgages which are not interests
in real estate in this state. The term has been broadened in this
definition from that of similar laws in other states where it has
been held that the law does not cover leases for timber, gravel,
mining and other interests which are comprehended within the
term "any interest in or concerning the same". The terms of
the statute are also broader than in some other states by including
participation in negotiations calculated to result in a sale, or
procuring, or assisting in the procuring of buyers or sellers. This
was to avoid the effect of decisions in those states holding that
the law did not apply to a person who merely finds a purchaser-
which is perhaps the largest part of a broker's activities. The
law also includes those who hold themselves out to the public
as brokers, whether they have succeeded in selling anything or
not. It is often difficult to prove an actual sale, but not so
difficult to prove that the party has held himself out as being
receptive to such business. It is also provided that, in order for
the law to apply, some compensation or valuable consideration
for the services must be paid, promised or expected. This term




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