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decided: September 24, 1985.


Appeal from the Order of the Superior Court at No. 146 Harrisburg, 1982, Entered on April 19, 1984, Affirming the Order of the Court of Common Pleas of Adams County at No. 80-S-157, Vacating Judgment in Favor of and Entering Judgment N.O.V. in Favor of Appellee, Ed Saxe Real Estate, Inc. 327 Pa. Superior Ct. 429, Nix, C.j., and Larsen, McDermott, Hutchinson, Zappala and Papadakos, JJ. Flaherty, J., did not participate in the consideration or decision of this case. Zappala, J., concurred in the result.

Author: Papadakos

[ 508 Pa. Page 555]


This is the appeal of Michael J. Aiello and Kathy Ann Aiello, Appellants, from that portion of the Opinion and Order of the Superior Court which vacated a judgment entered against Ed Saxe Real Estate, Inc. (Saxe), Appellee, and entered judgment N.O.V. in favor of Saxe, in Appellants' trespass action against Saxe and Sidney F. Jones, Jr. (Jones) for fraudulent misrepresentation.

Appellants, a young married couple, were interested in purchasing real estate on which they intended to build their home and to subdivide the remainder of the land. After talking with Michael Aiello's brother, Appellants decided they would contact Ed Saxe Real Estate, Inc., a local real estate agency, owned by Ed Saxe. Jim Aiello had purchased property through Saxe which he subdivided and sold off successfully and Jim convinced Appellants that Saxe would be helpful in locating land which they could subdivide.

As sole owner of Ed Saxe Real Estate, Inc., Ed Saxe was the licensed broker pursuant to the "Real Estate Licensing and Registration Act," Act of February 19, 1980, P.L. 15, No. 9, § 101, et seq., 63 P.S. § 455.101, et seq., and, as such,

[ 508 Pa. Page 556]

    was responsible for all sales and purchases of real estate negotiated by him or through his salespersons.*fn1 Jones, a licensed salesperson, was employed by Saxe (63 P.S. § 455.603),*fn2 displayed his salesperson license in Saxe's office (63 P.S. § 455.601),*fn3 and was actively supervised and trained by Ed Saxe (63 P.S. § 455.522)*fn4 pursuant to the requirements imposed upon Ed Saxe by the terms of the Act. When Appellants contacted Saxe, Jones was assigned by Saxe to help them.

Appellants explained to Jones their interest in acquiring acreage and he began showing them several tracts, including

[ 508 Pa. Page 557]

    an 87-acre parcel owned by a Mr. Lystad, not a party to this case. This particular tract was the subject of a brokerage agreement between Lystad and Saxe which authorized Saxe to find a buyer for the land.

While viewing this tract, Appellants inquired of Jones whether the property was suitable for a sewage disposal system. Jones assured them that he was familiar with soil types and disposal requirements, that he had reviewed a survey of soils in Huntingdon Township, Adams County (the location of the property), that the soils were good, and that of five percolation tests performed on the subject property, three showed the soil to be suitable for conventional sewage systems and two for sand mounds. Further, Jones stated that had the percolation tests been performed in dry weather, all five would have indicated that the land was suitable for a conventional sewage system.

Based on these representations, Appellants entered into an agreement for the purchase of the 87-acre tract for $80,000.00. A closing was held in due course and Lystad executed and delivered his deed for the property to Appellants. Subsequently, Appellants conducted their own percolation tests and discovered that the soil was unsuitable for any type of sewage system or sand mound. Upon further investigation, they discovered that a prior sales agreement for the same property negotiated by Saxe had fallen through owing to the failure of the land to pass the five percolation tests. Of a series of twenty-one soil probes, twenty had shown that the soil was unsuited for a sewage system and one probe had indicated that the soil was marginally suitable for a sand mound system, but not a conventional system.

Appellants, thereupon, filed a trespass action against their agent, Ed Saxe Real Estate, Inc., a broker, and its salesperson, Sidney F. Jones, Jr., for the fraudulent misrepresentations which induced them to purchase the property. The cause proceeded to trial before a jury presided over by the Honorable Oscar F. Spicer, President Judge of the Court of Common Pleas of Adams County and the jury

[ 508 Pa. Page 558]

    awarded Appellants a verdict for $13,400.00 against Jones and $12,000.00 against Saxe. Appellees' post-trial motions for Judgment N.O.V. were denied and the verdict was reduced to judgment. Appellees appealed to the Superior Court arguing various trial court errors, but, in particular, complaining that the trial court erred in charging the jury that it could find liability against Saxe even if it had no prior knowledge of misrepresentations Jones may have made to Appellants.

Superior Court agreed, ruling that, in Pennsylvania, proof of scienter on the part of the principal at the time of an agent's misrepresentations is required to hold a principal liable in damages. Citing its own line of cases, Littler v. Dunbar, 166 Pa. Superior Ct. 271, 70 A.2d 365 (1950), reversed on other grounds, 365 Pa. 277, 74 A.2d 650 (1950); Shane v. Hoffmann, 227 Pa. Superior Ct. 176, 324 A.2d 532 (1974); Eckrich v. DiNardo, 283 Pa. Superior Ct. 84, 423 A.2d 727 (1980), Superior Court concluded that while the general rule is to the contrary, its cases require that where a broker, as principal, is sued for the fraudulent misrepresentation of its salesperson/agent, scienter of the broker must be established in order for recovery to lie against him. Aiello v. Ed Saxe Real Estate, Inc., 327 Pa. Superior Ct. 429, 476 A.2d 27 (1984).

We granted allocatur in order to review Superior Court's conclusion that our law requires that a principal know of the fraudulent misrepresentations of his agent in order to hold the principal liable. Because we find that Saxe's scienter of his agent's misrepresentation is not necessary in order to hold Saxe liable to Appellants, we reverse Superior Court's Order and Opinion and reinstate the judgment entered against Ed Saxe Real Estate, Inc.

Few legal propositions have been more thoroughly discussed by our Court than those concerning principals and their agents. Out of that considerable body of case law emerges a well-defined rule concerning the vicarious liability of a principal for the misrepresentations of his agent, and the public policy underlying it.

[ 508 Pa. Page 559]

These cases instruct us that a principal is liable to third parties for the frauds, deceits, concealments, misrepresentations, torts, negligences and other malfeasances and misfeasances of his agent committed within the scope of his employment even though the principal did not authorize, justify, participate in or know of such conduct or even if he forbade the acts or disapproved of them, as long as they occurred within the agent's scope of employment. Bachman v. Monte, 326 Pa. 289, 192 A. 485 (1937); Freedman v. Providence Washington Ins. Co., 182 Pa. 64, 37 A. 909 (1897); DeTurck v. Matz, 180 Pa. 347, 36 A. 861 (1897); McNeile v. Cridland, 168 Pa. 16, 31 A. 939 (1895); Independent Bldg. & Loan Assn. v. Real Estate Title Ins. & Trust Co., 156 Pa. 181, 27 A. 62 (1893); Griswold v. Gebbie, 126 Pa. 353, 17 A. 673 (1889); Brooke v. New York, L.E. & W.R.R., 108 Pa. 529, 1 A. 206 (1885); Erie City Iron Works v. Barber and Co., 106 Pa. 125 (1884); Custar v. Titusville Gas & Water Co., 63 Pa. 381 (1869); Shelhamer v. Thomas, 7 Serg. & R 106 (1821); Phoenix Insurance Co. v. Pratt, 2 Binn. 308 (1810); see also, Restatement of Agency, §§ 257, 258.

This rule of liability is not based upon any presumed authority in the agent to do the acts, but on the ground of public policy, that it is more reasonable that when one of two innocent persons must suffer from the wrongful act of a third person, that the principal who has placed the agent in the position of trust and confidence should suffer, rather than an innocent stranger. Erie City; Brooke; Griswold; Cairns v. Pepper, 133 Pa. 114, 19 A. 336 (1890); Hayworth v. Truby, 138 Pa. 222, 20 A. 942 (1890); Independent B & L Association; McNeile; DeTurck; Brooke; Bachman.

This result can be reached similarly on the familiar ground that when an agent exceeds his authority, his principal cannot benefit of his act and at the same time repudiate his authority. He must take the benefit to be derived from the transaction subject to his agent's fraud. Erie; Griswold; Freedman; McNeile; Williams v. Kerr, 152 Pa. 560, 25 A. 618 (1893); Wheeler v. Wilson Mfg. Co. v. Aughey,

[ 508 Pa. Page 560144]

Pa. 398, 22 A. 667 (1891); Penn Natural Gas Co. v. Cook, 123 Pa. 170, 16 A. 762 (1889). Hughes v. First National Bank, 110 Pa. 428, 1 A. 417 (1885); Jones v. National Bldg. Assn., 94 Pa. 215 (1880); Mundorff v. Wickersham, 63 Pa. 87 (1869); Musser v. Hyde, 2 Watts & S, 314 (1841).

Superior Court's reliance on its line of cases (Shane v. Hoffmann, 227 Pa. Superior Ct. 176, 324 A.2d 532 (1974); Littler v. Dunbar, 166 Pa. Superior Ct. 271, 70 A.2d 365, reversed on other grounds, 365 Pa. 277, 74 A.2d 650 (1950)), which were cited as authority for the proposition that scienter is required on the part of the principal at the time the agent makes the misrepresentation were wrongly decided and are based on misreadings of our earlier cases. In Littler, a case involving an action in fraud and deceit brought by purchasers of real estate against the real estate and his broker, it is true that we approved Superior Court's conclusion that proof of scienter on the part of the principal was essential to finding liability against the principal, but that conclusion was based on a misreading of our earlier cases, Keefe v. Sholl, 181 Pa. 90, 37 A. 116 (1897) and Freyer v. McCord, 165 Pa. 539, 30 A. 1024 (1895). Both those cases in turn refer back to Griswold v. Gebbie, 126 Pa. 353, 17 A. 73 (1889), as authority for the proposition that scienter of the misrepresentation is required and here lies the source of the problem.

Griswold involved a suit brought by purchasers of real estate (Mr. and Mrs. Gebbie) against the grantor (Mrs. Griswold) for the fraudulent misrepresentations of her brother-in-law, Mr. John Griswold, her agent. These statements induced the Gebbies to purchase Mrs. Griswold's property. At Mr. Griswold's direction, the property was advertised by circular as consisting of nearly seven acres and when the Gebbies viewed the property, Mr. Griswold verified to them that the property consisted of seven acres. Based on his representations, the Gebbies purchased the property for $23,000.00.

[ 508 Pa. Page 561]

Nearly five years after the Gebbies purchased the property, a survey of the land became necessary and the true acreage was determined to be 4.2 acres. The Gebbies brought suit against Mrs. Griswold, for her brother-in-law's misrepresentation and were successful, receiving a verdict in their favor for $3,640.00.

Mrs. Griswold appealed to this Court arguing that there was no evidence showing that Mr. Griswold's statements were made within the scope of his authority, as her agent, or that his statements were sufficient to show that Mr. Griswold knew the statements to be false or deceitful. In rejecting her claims, the Court, speaking through Mr. Justice Mitchell, made clear that scienter must not only be alleged, but proved. But we there were referring to the requirement that the agent's knowledge that his statements were false or recklessly asserted in ignorance of fact had to be established. It was scienter of the agent and not the principal that was crucial. Accordingly, it was stated that "scienter must not only be alleged, but proved, and the jury must be satisfied that the defendant (agent) made a statement knowing it to be false, or with such conscious ignorance of its truth, as to be equivalent to a falsehood." (Emphasis added.) Griswold, 126 Pa. at 363, 17 A. 73.

We specifically found untenable Mrs. Griswold's argument that she could not be liable for the statements of her agent:

Where, as here, the misstatement is made by advertisement, and by descriptive circular, is repeated at least twice orally in response to the direct question of the intended purchaser, and is altogether unexplained by the person making it, though his principal and those connected with him in the transaction are shown to have been absolutely ignorant on the subject, we cannot say that there was not a prima facie case to go to the jury. Griswold, 126 Pa. at 365, 17 A. 73. (Emphasis added).

In so ruling, the court was only reaffirming the general rule that a principal is responsible for the misrepresentations of his agent made within his authority. In Freyer and

[ 508 Pa. Page 562]

To hold otherwise is to violate public policy and permit the person who held out his agent as worthy of trust and confidence, to escape liability for his agent's deceits and frauds, while at the same time reaping the fruits of his agent's fraud, all at the expense of an innocent third party. Such a holding would be contrary to natural justice and common honesty.*fn7

Accordingly, we perceive no error in the trial court's ruling that Saxe could be held liable for Jones's misrepresentation, even if Saxe had no knowledge of Jones's misrepresentations, and reverse Superior Court's contrary conclusion.

It was undisputed at trial that Jones was hired as a salesman for Saxe; that he had his license displayed in its office; that Saxe was the responsible broker for this transaction; that the commission earned from the sale of the subject property ($5,600.00) was paid over to Saxe, and that

[ 508 Pa. Page 564]

    from this commission, Saxe paid Jones his fee of $1,400.00 for negotiating the sale of the subject property.*fn8

Moreover, under the Real Estate Licensing Act, 63 P.S. §§ 455.522, 455.604(16),*fn9 Ed Saxe was bound to train and supervise the conduct of Jones; to receive commissions generated by Jones's sale; and to pay him his fee for negotiating the sale (63 P.S. §§ 455.604(6), (12)).*fn10 Taking

[ 508 Pa. Page 565]

    all these facts together, they were sufficient for the trial court to conclude that Saxe exercised sufficient control over Jones to make him, as a matter of law, its agent. As such, Jones's misrepresentations concerning the soil suitability of the subject property made while he was trying to persuade Appellants to purchase this property, were representations made in the scope of his apparent authority and bound his principal, regardless of whether Saxe knew of the statements. It is clear that Saxe cannot retain the commission earned by the sale and at the same time repudiate Jones's agency or the statements made by him by means of which it obtained that commission. Saxe accepted the commission subject to Jones's fraudulent statement and the maxim qui sentit commodum sentire debet et onus (he who receives the advantage ought also to suffer the burden) applies.

The Opinion and Order of Superior Court entering judgment N.O.V. in favor of Saxe is reversed and the judgment entered against Ed Saxe Real Estate, Inc., by the trial court is reinstated.


The Opinion and Order of Superior Court entering judgment N.O.V. in favor of Saxe is reversed and the judgment entered against Ed Saxe Real Estate, Inc., by the trial court is reinstated.

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