Assignment
Agency Law
Example
Issue
Mississippi appellate court considered whether a real
estate salesperson, acting as a fully disclosed “dual agent” capacity in a real
estate transaction, breached her fiduciary duty to the buyer when the “salesperson”
disclosed a termite inspection report to the seller - but not to the buyer.
Rule
A real estate licensee owes a fiduciary duty to the
client; requiring full disclosure, frankness and honesty in dealings with the client.
A salesperson had a duty to use the degree of
diligence and care which a reasonable prudent person would ordinarily exercise
in the transaction of business.
Analysis
The Buyers agreed to have the Salesperson ‘Sherry Owen
of Alfonso Realty, Inc’ act as a dual agent; meaning the Salesperson represented
both parties to the real estate transaction. Both parties signed the required disclosure
form agreeing to the dual representation.
The purchase agreement specified the Seller to provide a termite inspection
certificate and report on the property for sale, at the closing. Upon receipt of the termite report by the
inspector, the Salesperson gave a copy of the report to the Seller, but not to
the Buyer.
It was determined after the closing that the property
had sustained an estimate of $35,000 in termite damage. The buyer sued the Seller; Seller’s attorney;
Sherry Owen – dual agent; and the broker - Alfonso Realty, Inc. The lower court ruled in favor of the
defendants. The buyers appealed.
Conclusion
The appeals court ruled that the Salesperson violated
her fiduciary duty to the Buyer when she failed to inform the Buyer about the Termite
Inspection Report prior to the closing. If disclosed, the Buyer may have
exercised their option of canceling the contract. Salesperson beached her fiduciary duty to the
Buyer. The appeals court reversed the lower
court's ruling and remanded the case back to the lower court for jury determination
of liability and damages to be impose upon Sherry Owen and Alfonso Realty, Inc.
Because Sherry Owen and Alfonso Realty, Inc also
represented the buyer (as agent) during the transaction, the Termite Inspection
Report was in fact delivered to the buyer’s agent, but not disclosed. As a result, the seller and their attorney
had complied with the requirements under the P&S agreement. The court upheld the lower court ruling in
favor of the seller and attorney.
Case
Lane v. Oustalet, 850 So. 2d 1143 (Miss. Ct. App.
2002)
Lane v. Oustalet: Dual Agent Breaches Fiduciary Duty
by Giving Information to Only One Client.
A Mississippi appellate court has considered whether a
real estate salesperson, acting as a fully disclosed dual agent in a
transaction, breached her fiduciary duty to a buyer when the salesperson
disclosed a termite inspection report to the seller but not to the buyer.
Kathryn and Baxter Lane ("Buyers") were
interested in purchasing property owned by A.J.M. Oustalet
("Seller"). The Buyers contacted real estate salesperson, Sherry Owen
("Salesperson") of Alfonso Realty, Inc. ("Brokerage"),
about the property. The Buyers received a property condition disclosure
statement ("Disclosure Statement") from the Salesperson which stated
that the home had prior termite damage. After receiving the Disclosure
Statement, the Buyers and Seller entered a purchase agreement. The Buyers agreed to have the
Salesperson serve as a dual agent, meaning the Salesperson represented both
parties to the transaction. Both parties signed the required disclosure form
agreeing to this type of representation. The purchase agreement
specified that the Seller would provide at closing a termite certificate for
the property that stated there were no signs of termite infestation or
termite-caused damage on the property. The contract went on to specify that if
the inspector found a termite infestation or damage, the Seller would be
responsible for correcting any structural damage caused by the termites. The
contract also gave the Buyers the ability to cancel the purchase agreement if
they found the termite damage unacceptable.
The Salesperson arranged for a termite inspection of
the property. The inspector wrote a report ("Report") that described
unrepaired termite damage and recommended the hiring of an expert to determine
if repairs were necessary. The inspector delivered the Report to the closing attorney,
Jerry Rosetti ("Attorney"). The Attorney's fees were paid by the
Buyers to insure that he would represent their interests at the closing. The
Attorney reviewed the Report and gave it to the Salesperson, recommending
consultation with an expert about the termite damage. The Attorney did not give
a copy of the Report to the Buyers.
The Salesperson gave a copy of the Report to the
Seller and advised him of the need to have a construction expert evaluate the
termite damage, but did not give a copy of the Report to the Buyers. The
closing occurred as scheduled, following which the Buyers hired their own
termite company to evaluate the property. They also obtained a copy of the
Report at this time. Following the receipt of both termite inspection reports,
the Buyers hired two contractors to evaluate the amount of damage the termite
infestation had caused. Both contractors estimated that the structural repairs
would cost over $35,000. The Buyers filed a lawsuit against the Seller, the
Attorney, the Salesperson, and the Brokerage. The trial court ruled in favor of
the Seller, the Attorney, the Salesperson, and the Brokerage, and the Buyers
appealed.
The Court of Appeals of Mississippi partially affirmed
the rulings of the trial court and partially reversed the rulings of the trial
court. The court first considered the allegations against the Salesperson and
the Brokerage. The Buyers alleged that the Salesperson had breached her
fiduciary, or heightened, duty to them by failing to disclose the termite
damage to them prior to closing. Quoting from Lee Hawkins Realty, Inc., v. Moss
(click here to read summary), the court found that a salesperson had a
"duty to use the degree of diligence and care which a reasonable prudent
person would ordinarily exercise in the transaction of his business." The
court found that because of this duty, a real estate licensee owes a fiduciary
duty to the licensee's client and this requires "full disclosure,
frankness and honesty in dealings with the [client]."
Here, the Salesperson was a fully disclosed dual
agent, meaning that she owed both the Buyers as well as the Seller a fiduciary
duty. The court ruled that the Salesperson violated her fiduciary duty to the
Buyers when she failed to inform the Buyers about the Report after she had
notified the Seller. If the Buyers had received the Report, they may have
exercised their option of canceling the contract. Since the Salesperson beached
her fiduciary duty to the Buyers, the court reversed the trial court's ruling
in favor of the Salesperson and sent the case back to the trial court for a
jury to determine the amount of liability to impose upon the Salesperson and
Brokerage.
Next, the court considered the Brokerage's public
policy argument against imposing liability on the Brokerage. The Brokerage
argued that it would be unfair to impose liability on a real estate broker for
repair costs that no one knew existed until after the closing. The court said
that while it agreed with the Brokerage's argument, those were not the facts.
The Salesperson received a recommendation to retain a consultant to determine
whether repairs were necessary before closing. Since the Salesperson only made
this information available to the Seller, she breached her duty to the Buyers.
Thus, the court rejected the Brokerage's public policy argument.
The court also considered the allegations against the
Seller and the Attorney. The court affirmed the trial court's ruling in favor
of the Seller, finding that agents of the Buyers had received the Report prior
to closing and that was all that was required of the Seller. The court affirmed
the rulings in favor of the Attorney, finding that the Buyers had failed to
contradict the evidence submitted by the Attorney that he meet the standard of
care required of an attorney in Mississippi. Thus, the court reversed the
rulings in favor of the Brokerage and Salesperson, but affirmed the rulings in
favor of the Attorney and the Seller.
Reference
http://www.realtor.org/legal-case-summaries/lane-v-oustalet-dual-agent-breaches-fiduciary-duty-by-giving-information-to-only-one-client
Lane v. Oustalet, 850 So. 2d 1143 (Miss. Ct. App.
2002)
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