Daily Development for Thursday, November 29, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu
ATTORNEY/CLIENT; SCOPE OF AUTHORITY; ATTORNEYIN FACT: Attorneys at law are not
automatically presumed to be attorneys in fact for the purpose of binding their
real estate clients to a contract.
Busciglio v. DellaFave, 840 A.2d 897 (N.J. App. Div. 2004)
A real estate broker prepared a contract for the sale of residential property.
It contained a standard attorney-review clause allowing each party to have its
attorney review the contract within a three business day period. If the attorney
disapproved, he or she was required to notify the real estate broker as well as
the other party within the three business days. If no disapproval was received
within those three days, then the contract became legally binding as written.
Two days after the contract was signed, the buyer's attorney wrote to the
seller's attorney expressly disapproving the contract and simultaneously
offering an amendment to the contract in the form of a contract rider. The cover
letter said that the signature of the seller's attorney in place of the actual
seller was acceptable "to expedite conclusion of the attorney review." The
buyer's attorney then added that he was instructing his client to forward
payment to the seller's attorney to be deposited in his trust account, but that
it should not be deposited until the amendment was signed by both the seller's
attorney and the seller.
A day later, the seller's attorney responded that he had not seen the completed
contract of sale, but he still proposed changes to both the contract of sale and
the rider and faxed them to the buyer's attorney, who signed the changes as
"approved," and faxed them back. The next day, the seller's attorney sent a
letter to the buyer's attorney acknowledging that he had received the completed
agreement of sale, which, at that time, was signed by the seller. He also
returned the rider, signing it on behalf of his clients and noting that it was
subject to his previous letter that the buyer's attorney had already approved.
On the very next day, the seller's attorney wrote to the buyer's attorney to say
that the seller had requested that he "not revive the contract of sale." The
buyer then sued the sellers for specific performance of the amended contract.
Neither attorney had obtained a written retainer agreement setting forth the
scope of either attorney's representation. Furthermore, neither the seller nor
the buyer had signed any of the changes to the contract of sale or executed a
power of attorney appointing their respective lawyers as attorney-in-fact.
The Court held the essential terms of a contract could be satisfied from the
letters written between the attorneys, but there was a question as to whether
the seller's attorney had the authority to bind the seller to the contract. If
the seller expressly authorized its attorney to sign on behalf of them, specific
performance could be ordered. Here, the lower court did not address the issue of
express authority. When it ordered specific performance, it focused upon the
actions of the seller's attorney without determining if he could bind his client
to the contract. Apparent authority must be established "clearly and
convincingly" by the actions of a principal, not those of its alleged agent.
Therefore, the Court reversed the lower court and remanded the matter for a
trial to determine whether the seller had either expressly or implicitly
authorized its attorney to bind it to the amended contract.
Comment 1: Where should the law be on this issue? Should it be different for
commercial transactions as opposed to residential transactions? Remember that
residential purchasers have only foggy notions of the process that is really
going on, but in general acknowledge that their best interest is served by
prompt movement toward resolution of minor difficulties and a closing. Thus,.
they buy into the result, but do they buy into the process? Of course, the best
procedure is for attorneys to do nothing until they actually meet and obtain an
executed engagement agreement. But this could take some time, and the rough and
tumble of a hot real estate market may make such arrangements a luxury that the
parties can’t afford.
Comment 2: In commercial transactions, on the other hand, it is more likely that
the parties have entrusted negotiating authority to their counsel, and where
this is not the case attorneys would be well advised to notify the other side
clearly that their client’s signature is necessary to finalize any deal. . See,
e.g. In re Hudgins, 188 B.R. 938 (Bkrtcy. E.D. Tex. 1995) (the DIRT DD for
2/2/96) (Attorney has authority to commit mortgagee client to forbearance
agreement with his signature where client's president had participated
intermittently in negotiations conducted by attorney and appeared to acquiesce
in attorney's authority.) Compare: Shafer v. Barrier Island Station, Inc., 946
F.2d 1075 (4th Cir. 1991) (no implied authority).
Comment 3: Is there a difference between the attorney having the authority to
negotiate and having the authority to transfer the client’s position? See
Diversified Development & Investment, Inc. v. Heil, 889 P.2d 1212 (N.M. 1995).
(the DIRT DD for 8/22/95) (Attorney does not have implied authority to extend
orally his clients' option contract deadline when the contract requires
modifications to be in writing, but may nevertheless have implied authority to
express the position of the client on the same issue.)
Comment 4: In Diversified, above, the issue was whether the attorney could
transmit the client’s waiver of a deadline, which presumably could be
accomplished orally through estoppel, even though the contract required a
writing. What about where the Statute of Frauds expressly requires the signature
of the party to be bound. Is the attorney’s signature enough? For a case
upholding the attorney's agency authority, as against a claim that the authority
was verbal and therefore invalid under the Statute of Frauds when applied to
real estate transactions, see Nelson v. Boone, 890 P.2d 313 (Haw. 1995)
Items reported here and in the ABA publications are for general information
purposes only and should not be relied upon in the course of representation or
in the forming of decisions in legal matters. The same is true of all commentary
provided by contributors to the DIRT list. Accuracy of data and opinions
expressed are the sole responsibility of the DIRT editor and are in no sense the
publication of the ABA.
Parties posting messages to DIRT are posting to a source that is readily
accessible by members of the general public, and should take that fact into
account in evaluating confidentiality issues.
ABOUT DIRT:
DIRT is an internet discussion group for serious real estate professionals.
Message volume varies, but commonly runs 5 15 messages per work day.
Daily Developments are posted every work day. To subscribe, send the message
subscribe Dirt [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription, send the message signoff DIRT to the address:
listserv@listserv.umkc.edu
for information on other commands, send the message Help to the listserv
address.
DIRT has an alternate, more extensive coverage that includes not only commercial
and general real estate matters but also focuses specifically upon residential
real estate matters. Because real estate brokers generally find this service
more valuable, it is named “BrokerDIRT.” But residential specialist attorneys,
title insurers, lenders and others interested in the residential market will
want to subscribe to this alternative list. If you subscribe to BrokerDIRT, it
is not necessary also to subscribe to DIRT, as BrokerDIRT carries all DIRT
traffic in addition to the residential discussions.
To subscribe to BrokerDIRT, send the message
subscribe BrokerDIRT [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription to BrokerDIRT, send the message signoff BrokerDIRT
to the address:
listserv@listserv.umkc.edu
DIRT is a service of the American Bar Association Section on Real Property,
Probate & Trust Law and the University of Missouri, Kansas City, School of Law.
Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of
Law, UMKC School of Law, but Professor Randolph grants permission for copying or
distribution of Daily Developments for educational purposes, including
professional continuing education, provided that no charge is imposed for such
distribution and that appropriate credit is given to Professor Randolph, DIRT,
and its sponsors.
DIRT has a WebPage at:
http://cctr.umkc.edu/dept/dirt/
-----
To be removed from this mailing list, send an email message to
listserv@listserv.umkc.edu with the text SIGNOFF DIRT.
Please email manager@listserv.umkc.edu if you run into any problems.
See <http://www.umkc.edu/is/cs/listserv/unsubscribing.htm> for more information.