Daily Development for Wednesday, February 23, 2000

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

BROKERS; LISTING AGREEMENT; TERM: The expiration of a buyer-broker relationship varies with the circumstances, and can be delayed beyond the express terms of the written agreement.

Walker v. Woodworth, 981 P.2d 1282 (Or. Ct. App. 1999).

On October 21, 1993, a buyer and broker executed an agreement ("Agreement"), contracting broker to act as buyer's exclusive representative for negotiating the purchase of an apartment complex. The agreement allowed the broker to obtain other buyers for that property during the representation. By its terms, the agreement was to expire on April 1, 1994. Closing was scheduled on April 15, 1994. The transaction did not close because the parties could not agree on the distribution of the tenants' security deposits; causing the buyer not to perform. As the parties left the closing the broker assured the buyer that he would "work things out."

The broker did continue to try to work things out. The deal was complicated by the fact that there were three successive installment land contract assignees in the title, and one of them was in default on the original contract. Thus a number of people had to consent in order for the deal to go through, and some of these individuals were upset with the buyer for walking out of the first closing. Nevertheless, it appears that broker persevered in trying to put together a deal.

On April 26, 1994, after a setback in the arrangements to put together the deal with the buyer, an owner asked the broker to buy the property. Over the next few days, it appears that there were a number of written and verbal exchanges between the broker and this owner relating to the possibility and terms of the broker's purchase..

In the meantime, however, the broker continued to communicate with the buyer and buyer's attorney. The broker requested the buyer to confirm new terms for closing, including broker's commission, which the buyer confirmed on April 29, 1994. On May 2, 1994, the broker notified the buyer that he was terminating their agreement effective April 1, 1994, and the broker bought the subject property.

The court notes that it appears that most of the contracts by which the broker agreed to purchase the property were first dated May 1 (prior to the broker's formal withdrawal from representation) but later redated to May 4 (the day after withdrawal). The date at which the broker provided new earnest money for the broker's purchase, however, remained May 1 in the documents.

The buyer sued for breach of fiduciary duty. The trial court dismissed on summary judgment, but it is not clear that the trial court's ruling was based upon the lack of evidence of breach of fiduciary relationship.

The Court of Appeals of Oregon reversed the trial court. On the fiduciary relationship point, the court noted that the parties could have extended the term of the agreement by their conduct, and it was unclear exactly when their relationship ended. Thus, there was a genuine issue of material fact. If their relationship was in effect, the broker owed a fiduciary duty to buyer and could not purchase the property himself.

As to the other potential grounds on which summary judgment might have been granted, the Court of Appeals concluded rather summarily that none those issues could be resolved in favor of the broker on summary judgment, either.

Comment 1: Yes, there are close calls and lots of confusion these days as brokers rewrite their agency relationships, but this is not a case in which there should be any confusion or doubt. If the facts are as indicated, and the broker was dealing with the buyer to reschedule a closing, including the commission, and three days later attempted to claim that the agency relationship ended a month earlier, so the broker could buy the property himself, then the question shouldn't even be regarded as a close call. The relationship was still alive.

When the broker simultaneously was negotiating to acquire the property for himself during this relationship, the broker was guilty of self dealing. To find otherwise would be to permit brokers to invoke or reject agency responsibilities virtually at will unless supported by a written agreement. The dynamics of the marketplace frequently create situations in which brokers lead parties to believe that the broker is functioning as their agent, and brokers ought to be responsible for standing up to the obligations that relationship entails.

Comment 2: The court takes some pains to try to analyze whether the broker actually closed on the contract prior to the time that the broker formally terminated the agency relationship. But even if this had been the case, and the broker did terminate the relationship prior to buying on his own, wouldn't there still have been a breach of fiduciary relationship here? The broker clearly was dickering to buy on his own while simultaneously stringing along the buyer and allegedly working the buyer's deal.

The broker undoubtedly would argue that, despite his best efforts, the buyer's deal was dead and that the broker took an opportunity that would not have been available to buyer. But the broker is in control of the dynamics. Brokers commonly turn dead deals around - it's their genius, why they make the big bucks. It's impossible now to know what would have happened if the broker were working solely in the buyer's interest. So the broker shouldn't be able to argue that the buyer couldn't have made at least the same deal that the broker got.

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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