Daily Development for Monday, March 27, 1995

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

As Promised: A few more tidbits on brokers:

BROKERS; DUTY TO DISCLOSE; FIDUCIARY DUTY: Notwithstanding seller's representations and absence of basis to mistrust those representations, if Buyer's broker passses on these representations, broker has fiduciary duty to confirm that property meets client's standards or to disclose that no such investigation has been made. Salahutdin v. Valley of California, Inc., 29 Cal. Rptr. 2d 463 (Cal. App. 1994).

This potentially far reaching decision holds that the broker was guilty of constructive fraud because broker represented to sellers that the property met buyers' minimum one acre requirement. The seller had represented the size to be in excess of one acre, and indeed a boundary fence enclosed more than one acre, but the actual boundary of the parcel enclosed less than one acre. Broker relied entirely on seller's representation and made no independent investigation. Under the facts, the size discrepancy was critical to the buyer's interests. The buyers were relatively unsophisticated, but the court does not appear to view the buyer's level of sophistication as an important consideration in the case. It is interesting to note that the seller's broker was able to rely upon a California statute indicating that the broker's general duty of disclosure requires no independent investigation of conditions asserted by owner. The court holds, however, that the statute does not absolve the buyer's broker of independent fiduciary responsbility to the client. (The court does not indicate whether the buyer's broker took a separate fee from the buyer, as opposed to simply splitting a multiple listing fee with the seller's broker.)

Comment: The National Association of Realtors, one of the most powerful lobbying organizations in the country, has been working diligently for the adoption of state laws shucking the duty of inspection imposed upon brokers by case law in the 1980's. More recently, brokers have been pushing for ways to avoid agency status entirely. It is likely that this case, if followed on appeal, will generate even greater activity by the NAR. Check your local statutes.

BROKERS; AGENCY; DUAL AGENCY: New York court holds that landlord may assent to dual agency implicitly when it is aware that broker is working with existing potential lessee at the time that the broker enters into listing agreement with landlord. Coldwell Banker Residential Real Estate v. Berner, 609 N.Y.S.2d 948 (App. Div. 1994)

Comment: Although this ruling is probably dicta in the case, it is troublesome. Shouldn't the broker have the responsibility to make it clear when a dual agency exists? Absent a disclosed dual agency, shouldn't a client who signs a listing agreement be entitled to assume that it has the broker's undivided loyalty? Although it can be granted that the commercial leasing market has far more divided loyalty issues than many other markets, the broker is still the professional with control of the vital facts, and putting a duty to make things clear on the broker seems to be an acceptable way to govern the marketplace. Note: This case, by the way, has a number of other interesting features concerning the legal expectations of a landlord dealing with a leasing broker. It is worth a read for all broker's lawyers.

BROKERS; AGENCY; DUAL AGENCY: Although listing agent and buyer's agent are both employed by the same broker, the listing agent cannot be charged with the buyer's agent's fiduciary duties or any liability resulting from the buyer's agent's breach of fiduciary duties. Moser v. Bertram, 858 P.2d 854 (N.M. 1993). Buyer had retained an agent to represent buyer in acquiring a house listed with another agent of same brokerage company. After the deal had essentially collapsed, buyer submitted one more offer through buyer's agent, but the other agent sold the property to another. Buyer alleged that the other agent had a fiduciary duty to the buyer because that agent was employed by the same broker as buyer's agent. Comment: The case appears to be very narrow - addressing only the liability of the other agent, and not that of the broker. Further, the case is somewhat murky about the exact basis for the breach of duty claim anyway.

Dirt readers: In the above case, is the broker liable for breach of fiduciary duty [ed. - one would hope so, but probably not based on the court's attitude]? If not, then what happened to the duty of loyalty [ed. blowin' in the wind]? Would it matter whether the broker had actually disclosed that it was operating as a dual agent [ed. maybe - see below]? Should it be enough to have a general disclosure, [ed. - no] or should the dual agency be disclosed specifically in connection with each property [ed. - yes]?

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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