Daily Development for Tuesday, March 28, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

BROKERS; DUTY OF BROKER; BROKER LIABILITY; VENDOR/PURCHASER:  Real estate broker was not seller’s agent, but rather a transaction broker, despite broker’s unilateral disclosure at the bottom of the purchase and sale contract that broker represented seller.  The purchase and sale contract did not constitute a written agency agreement, absent seller’s consent.

Stearns v. McGuire, 2005 WL 3036538 (10th Cir. 2005). 

This cute little case is unreported.  It can be cited, but the court indicates that it cannot be relied upon as authority. 

In October 2001, Purchasers asked Broker to locate an investment property in Boulder, Colorado for Purchasers to buy.  Purchasers and Broker were long-time friends.  In December 2001 Broker approached the owner of an apartment complex and stated that he may have some interested buyers for the apartment complex.  Soon thereafter, Broker faxed to Seller a Contract to Buy and Sell Real Estate signed by Purchasers (“Contract One”).  At the end of Contract One, and after Purchasers’ signature, Broker checked boxes to indicate that he was the Seller’s agent and a dual-agent with regard to this transaction.  Seller submitted a counterproposal to Contract One and Broker thereafter faxed a revised Contract to Buy and Sell Real Estate signed by Purchasers (“Contract Two”).  Contract Two gave Broker a 4% commission and indicated, at the bottom after the signature block, that Broker was Seller’s agent for purposes of this transaction.  Seller executed Contract Two. 

Seller later refused to close on the sale of the apartment complex, citing Broker’s failure to disclose pertinent information about the Boulder market or the property and Broker’s failure to disclose his relationship with Purchasers.  Seller was out of town and had not been to Boulder for a number of years.  The relationship with Purchasers was a deep friendship dating from childhood, in addition to prior representation of Purchasers in six deals.  Ultimately Purchasers brought a specific performance action and Seller settled by closing.

 Broker sued Seller for his commission.  Seller answered and asserted a variety of affirmative defenses, including breach of fiduciary duty and estoppel, and also counterclaims for breach of fiduciary duty, negligence, negligent misrepresentation and fraud. 

The United States District Court for the District of Colorado dismissed Seller’s breach of fiduciary duty claim and estoppel affirmative defenses on summary judgment.  Seller appealed.

 The Tenth Circuit affirmed the District Court’s decision and held that Broker acted as a transaction broker and not Seller’s agent because there was no written agreement between Broker and Seller, despite the language at the bottom of Contract Two stating Broker was Seller’s agent.  The Tenth Circuit held that Contract Two did not contain a true manifestation of Seller’s consent for Broker to serve as his agent.  Seller’s signature appeared before the declaration of agency relationship.  Furthermore, Seller testified during a deposition that he did not read Contract Two and considered it “hogwash” or a “hoax.” 

The Tenth Circuit also held that the District Court did not err in rejecting Seller’s estoppel defenses because Seller offered no evidence he was aware of the agency relationship declaration at the bottom of Contract Two, and Seller offered evidence that he did not rely on the terms of Contract Two because he testified he thought Contract Two was “hogwash” and a “hoax.”  Seller argued that Colorado real estate commissioner’s rules required that a broker inform a seller of the capacity in which he is acting, and it was apparently assumed that Broker did not do that here.  But the court held that the Colorado real estate rules were licensure rules, and did not provide an independent basis for estoppel claims or other claims by the Seller.

Accordingly, the Tenth Circuit affirmed the District Court’s dismissal of Seller’s breach of fiduciary duty claim and estoppel affirmative defenses.

Comment 1: What the editor finds puzzling here is that the court assumes that there was no disclosure and, one must conclude therefore, there seems to have been confusion as to the relationship between the broker and the Seller.  Why should the broker skate away from responsibility for this mix up?

Comment 2:   Based upon the hostile attitude the Seller demonstrated in his testimony, the Seller appears to have been his own worst enemy.  It’s almost as if the court concluded that the Seller didn’t deserve to assert that the Broker represented him, in light of the fact that the Seller executed a contract that he admittedly didn’t read and regarded as “hogwash.”  What’s the story there?  We just don’t know. 

Comment 3: Should a broker who admittedly failed to clarify the agency relationship and admittedly confused the relationship by incredible sloppiness in filling out forms be rewarded by a $60,000 commission?  To the editor, this is the fundamental question that the court really fails to answer. 

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