Daily Development for
Friday, July 11, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

BROKERS; FIDUCIARY DUTY: A broker does not violate a fiduciary duty to a client by lending money pursuant to a legally unenforceable security agreement (while simultaneously listing the property) and later taking private action to enforce that agreement.

Sannerud v. Brantz, 928 P.2d 477 (Wyo. 1996).

Owner of a motel owed $22,000 on the original $160,000 purchase price under an installment land contract. To avoid forfeiture, owner borrowed money from broker B. B demanded that O give to B a deed to the property subject to a buyback option that gave B the $22,000 plus an interest component. O remained in possession of the motel and apparently operated it. As part of the same deal, O listed the property for sale through B for a price of $150,000, under a commission ageement whereby B would get a commission of 10% of the first $100,000 and 50% of anything over that amount.

O soon became disillusioned with B's marketing efforts, and attempted to cancel the listing agreement and stopped paying B. B immediately seized possession of the motel and kept possession, apparently for six years. O brought this lawsuit to recover possession and establish that the deed to O was in fact an equitable mortgage. O also alleged a breach by B of B's fiduciary duty as O's agent, but the opinion does not disclose what remedies O sought for such breach. The trial court found for O on the issues of possession and characterization of the deed, but found that B had not breached her fiduciary duty.

On appeal, the Wyoming Supreme court affirmed both aspects of the trial court ruling. On the fiduciary duty count, the court stated simply that it gave broad leaway to the findings of the court below. Further, it stated, apparently, that the fiduciary duty was satisfied by full disclosure:

"The district court found that [O] understood the nature of the transaction and [B] disclosed what she knew or understood about the transaction when it determined[B] did not breach her fiduciary duty as a realtor. We will not interfere with the decision of the district court and accord its factual determinations great deference unless there is a procedural error or a clear abuse of discretion. The judgment must be sustained unless clearly erroneous, manifestly wrong, or totally against the evidence. The court's determination that [O] was fully informed and understood the nature of the transaction is not clearly erroneous or contrary to the evidence. Therefore, we affirm that decision."

Comment: It is harder to imagine a clearer case of an absolute deed clogging the equity of redemption, and one hopes that the appeal was not motivated by the broker's lawyer telling her that she had a chance to win on that issue. The broker had a laches and estoppel claim, but the court held that it had not been raised properly below.

The editor's puzzlement about the decision is the exoneration of the broker's conduct from the standpoint of fiduciary relationship.

First, isn't there something in broker law about a broker "tying" a listing agreement to another economic benefit, such as, for instance, a loan to a desperate owner?

Second, shouldn't there be a rule about a broker abusing the trust relationship by structuring and attempting to enforce a clearly inequitable land transaction? The editor has seen brokers use these absolute deed devices to attempt to avoid the foreclosure requirement all too often. The fact that they are unenforceable no doubt is part of Finance Law for Brokers Course 1A. It should be a breach of fiduciary duty for a broker to use a known unenforceable and inequitable device to take advantage of a client's impecunious situation to strip a client of what appears to have been over $100,000. And it shoulnd't matter if the client knows and assents to the terms of the deal. That's what the equity of redemption is all about - to protect borrowers from themselves.

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