Daily Development for
Friday, September 19, 1997
by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
BROKERS; DUTY TO DISCLOSE; MATERIALITY OF INFORMATION: Seller's broker who represents seller of property does not breach fiduciary duty of loyalty by failing to disclose to seller that buyer is negotiating purchase of another property as well.
Olsen v. Vail Assoc. Real Estate, Inc., 935 P.2d 975 (Colo. 1997).
Sellers owned certain real estate, and they engaged the brokers to find a buyer and represent them in the sale. Brokers found a buyer, but after preliminary negotiations, the sellers removed certain of the property from the deal. Brokers recommended to the buyer that he consider buying another parcel as well, and contacted the owner of the other parcel. The owner would not negotiate the sale through brokers or any other realtor, but brokers did facilitate negotiations between the owner and the buyer. The buyer eventually closed on both sales, but when the sellers learned that the buyer had paid fifteen times as much per acre for the other property as they received, they brought suit, alleging a breach of fiduciary duty by the brokers based on their nondisclosure of the buyer's negotiation for the additional property and the final sale price of that property.
The Colorado Supreme Court affirmed the court of appeals, holding that no breach had occurred. The court pointed out that brokers' counsel had stipulated that they would have had a duty to reveal to seller the sale price of the other property had they known it, but indicated there was not duty to disclose it in this case, where they had neither knowledge of the price or that a contract for the additional property had been entered into until after the sellers and the buyer had already entered into their own contract. The court also noted that the other property controlled access to the seller's property for development purposes, and that consequently sellers already expected that the buyer of their property might ultimately try to buy the other property. Further, they knew that the owner of the other property had negotiated to sell it before.
Sellers also contended that brokers had entered into an undisclosed dual agency without sellers' consent. This would have been a breach of fiduciary duty and might itself have barred the commission. The court no undisclosed dual agency had existed because the brokers had played a very limited role in facilitating the negotiations between the buyer and the owner of the additional property.
Comment 1: The court here is upholding a determination by the trial court based upon the evidence presented. Brokers should not "take this case to the bank." The sellers had the burden of proof to demonstrate that the nondisclosure of the negotiations on the other parcel was harmful to them. They failed to do so. But many circumstances could be imagined in which such information might have been useful to a client. The sellers, for instance, might have been on friendly terms with the neighbor and, had they discovered that negotiations were going on, might have contacted the neighbor to discover what they could about those negotiations.
Comment 2: The notion that the broker's disclosure duties stop with the execution of the contract also is somewhat misleading. Other cases have imposed broader duties, at least as to periods pre closing, where the client's overall interests might be benefitted by information the broker knows. For a case holding that there is no fiduciary responsibility at all following closing, see: Robinson v. Grossman, D020486 (Cal. App. 4th Dist. 8/13/97) (Information concerning broker's communications and other activities post closing, when seller was complaining of undisclosed defects, not admissible to show breach of fiduciary duty).
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