Fine v. Southern California Business Sales, Inc.

Opinion

KINGSLEY, J.

In 1979, respondents owned a tavern—the Toehold Saloon—which they agreed to sell to Leanna Knemeyer. This transaction was handled by Southern California Business Sales, Inc., a real estate broker, which also acted as the escrow holder. Leanna Knemeyer agreed to pay the respondents $3,500 in cash, provide them with a $8,000 secured note, and assume an existing note for $7,000. To prevent the liquor license from lapsing, Knemeyer took possession of the property before the escrow closed.

[482]

At that time, the escrow holder told respondents that everything was going smoothly, and that the purchase price and the notes had been placed into escrow. In fact, the only money put into escrow was $2,250 to cover Southern California Business Sales’s commission on the transaction. Knemeyer failed to assume the outstanding note or to make any payments on it. The holder of that memorandum subsequently sued the respondents for the $7,000 due under the acceleration clause.

After some nine months of operating the tavern, Knemeyer offered to return it to the respondents. All of the fixtures had been removed from the building, the liquor license revoked, and the lease terminated. In short, the business had been completely closed and all its assets disposed of without Knemeyer ever having paid into escrow any part of the purchase price. The respondents accordingly brought suit against Knemeyer and Southern California Business Sales. Both declared bankruptcy. Respondents then sought to recover from the Real Estate Education, Research and Recovery Fund— a fund established by law to recompense people defrauded by the conduct of anyone holding a real estate license. From the fund, the trial court awarded the respondents the maximum compensation of $ 10,000 and $44.83 in costs.

I

The Real Estate Commissioner appeals from that order. Section 10472, subdivision (b)(6) of the Business and Professions Code required that before an applicant might recover from the fund, he must prove “That he has diligently pursued his remedies against all the judgment debtors and all other persons liable to him in the transaction for which he seeks recovery from the Recovery Account.” The commissioner here concedes that the applicants have made a diligent effort to recover from Southern California Business Sales and Leanna Knemeyer. It appeals, however, on the ground that certain officers and employees of Southern California Business Sales have not been sued in their individual capacities for their part in defrauding the respondents. Respondents support their failure to pursue these individuals—Donald Hardie, the president of Southern California Business Sales, his son, Brad Hardie, vice-president and salesman, and his daughter-in-law, Jackie Hardie, the escrow officer—on the ground that they are not personally liable.