Daily Development for Thursday November 30, 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; DUTY OF CARE: Broker has duty of care to advise clients regarding content and significance of contracts that Broker introduces to contract; but duty is satisfied where sophisticated client is capable of appreciating such significance on its own and has an opportunity to read the document before signing.

Snyder v. Lovercheck, 992 P.2d. 1079 (Wyo. 1999), discussed further under the heading: "Vendor/Purchaser; Misrepresentation; "As Is" Clause; Fraud.

In another aspect of the case, the court concluded that clause contained in a real estate contract that disclaimed reliance on any representations by seller precluded the buyer from recovering from the seller for negligent misrepresentation concerning the condition of certain wheat fields that the buyer acquired.

In this part of the case, the court discussed the question of whether the buyer had a cause of action against Buyer's own broker for failing to warn Buyer of the presence of the disclaimer clause so that the buyer could strike it. The buyer and his broker had conducted conversations with the seller and seller's broker concerning the presence of an adverse rye grass condition in the wheat fields. The seller had represented to the buyer that the wheat fields had been very productive in past and that the condition affected only a small part of the total area. The crops were planted, but had not sprouted at the time of the sale, so it was difficult for the seller to assess the condition easily on his own.

Obviously, the broker was fully aware that the seller had sought and obtained the representations concerning the rye grass problem. The broker was also fully aware of the language, as it was form language in the standard Wyoming real estate sale contract for property of this type.

A specific Wyoming statute provides that "[f]ailing to advise the buyer and Seller of all terms of the proposed sale at the time an offer is presented including estimated discounts and closing costs" is a breach of the broker's duty to his client. The court noted that the "terms of the proposed sale" includes the terms of the sale agreement, including the "boiler plate" in that agreement. Thus, it appeared that the buyer had a pretty good case if he could show that the broker failed to instruct him of the risk of accepting a disclaimer clause where he clearly was relying upon representations that the seller had made.

In response, the broker cited several cases from other jurisdictions in which the court had concluded that even where a real estate broker breached his duty of care, the broker was relieved of responsibility for his error by the client's act of signing the contract.

The court rejected the theory that a broker has no responsibility with regard to explanation or disclosure of contract terms simply because the client has signed the contract. If the broker can't give such advice, the broker has a duty to advise the client to obtain it elsewhere. But the court did conclude that the nature of the duty must be evaluated in the context of the client's own experience, sophistication and opportunity to read and understand the contract himself.

The court acknowledged that typically, having found the existence of a duty such as one to make a "full, fair and understandable" explanation of the contract, the court would remand to the trial court for a determination of whether the duty had been breached. But the court, simply on the basis of the record, had little patience with the buyer's claim that he was undone by the carelessness of his broker:

"[Buyer] fancies himself a sophisticated purchaser. He has bought, sold and traded various parcels of real estate several times in the past. He was negotiating the purchase of a 1,960 acre farm for $526,500.00. He was savvy enough to require that the sellers prepare a statement of condition of property. The statement provided that the 'Sellers [made] no other representations of any kind relating to said property.' [Buyer] read the document, and expressed neither concern nor confusions about the language. [Broker] was justified in believing that a similar provision in the contract was understandable and acceptable to Snyder."

Buyer, in other words, was "too sophisticated for his own good."

Comment: Note that the evidence that the court relies upon to conclude that the Buyer was sophisticated enough to understand the disclaimer clause in the contract was the Buyer's insistence on a disclosure statement in advance of the contract, and Buyer's apparent acceptance of the language in the disclosure statement that no other disclosure had been made. But, although the opinion is vague on the point, it appears that the disclosure statement that Buyer so readily accepted contained the critical representation that the Buyer later complained was false.

One could certainly argue that the insistence on the disclosure statement suggests that Buyer in fact was quite concerned about the representations about the condition of the wheat field, and Buyer actually understood he was waiving any claim based upon the falsity of that representation, he never would have signed the contract. This argument suggests that Broker should have recognized this paradox and made certain that Buyer understood the meaning of the form disclaimer clause in the contract.

In short, the Editor likes the overall theory, but in application the Editor feels that the court came up short. The Editor, would have remanded here.

BROKERS; LICENSING: Licensing statute requiring that any "person" who negotiates a real estate agreement must be licensed by the Real Estate Commission does not apply to a trust, as a trust is not a "person."

H.E.Y. Trust v. Popcorn Express Co., Inc. 2000 Tex. App. Lexis 5496 (8/17/00)

The Texas real estate statute defined a person as "an individual or a corporation, foreign or domestic." Since the operative facts in the case, the Texas statute was amended to include within the definition "an individual or other entity, including but not limited to a governmental body, limited liability company, limited liability partnership, partnership or corporation, foreign or domestic." The court applied the old definition, but opined that even the new definition might not reach trusts, as trusts conceivable are not an "entity."

It should be noted that, although the observation appears to be superfluous to its reading of the statute, the court noted that the trust in question did business only through a licensed broker. Consequently, the court concluded that no harm resulted from the failure to apply the statute here, since the individual engaged in the provision of services was licensed and supervised by the state.

Comment: It the statute doesn't apply, then what difference does it make whether the trust operates through a licensed individual? The court's literalist interpretation of the statute is at odds with its reliance on the special facts. The editor, by the way, would prefer a "non literalist" interpretation in which the special facts would be relevant. BROKERS; LICENSING; "REAL ESTATE:" A right to operate a popcorn distribution facility in a city airport facility is not a lease, but a license, even though denominated a "real estate lease" on its face, and consequently negotiation of a contract conferring such a right is not the provision of services as a real estate broker within the meaning of the state real estate licensing laws.

H.E.Y. Trust v. Popcorn Express Co., Inc. 2000 Tex. App. Lexis 5496 (8/17/00)

Unfortunately, the court does not give us any information about the terms of the agreement with the airport. We don't know whether the popcorn seller had a specific location, operated out of a pushcart or kiosk, or through several pushcarts or kiosks, or through some other arrangement. Consequently, it is difficult to make any judgment about whether the characterization of the popcorn selling right as a license was really correct. It should be noted that the operation was a substantial one, as the broker's five percent commission amounted to $49,000 per year.

The lesson of the case is a good one for brokers and lawyers, make sure you understand the nature of the rights with which you are dealing.

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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