Jerry owns a shopping center. He hired Patricia, a real estate broker, to lease vacant stores and to find a buyer for the shopping center. They agreed she would receive a 2 percent sales commission when she produces an acceptable purchase offer.

More than a year later, Patricia offered to buy the shopping center for $11 million. She told Jerry that was the market value of the property. Relying on her representations, Jerry accepted Patricia’s purchase offer.

Purchase Bob Bruss reports online.

Later, Patricia asked Jerry for permission to assign her purchase contract to another buyer. He agreed after again being told by Patricia the shopping center was only worth $11 million.

When the sale closed, Jerry paid Patricia a $110,000 sales commission. However, he later read in the newspaper his shopping center sold for $12.2 million, not the $11 million he received.

Jerry then discovered Patricia received a $1.2 million fee for assigning her $11 million purchase contract to another buyer. He then sued Patricia for fraud, breach of fiduciary duty, constructive fraud, negligent misrepresentation, and breach of contract.

Patricia replied that because she was the buyer she no longer had a fiduciary duty to Jerry so she had no obligation to disclose the $1.2 million assignment fee she received from the buyer.

IF YOU WERE THE JUDGE would you rule that listing broker Patricia breached her fiduciary duty to seller Jerry?

The judge said YES!

When listing agent Patricia’s purchase offer was accepted by the seller that did not terminate her fiduciary duty to her principal, Jerry, the judge began. She continued to have a duty to disclose all material facts that arose during the term of the listing, he continued.

“When a broker is engaged by an owner to market the owner’s property, an agency relationship is created. The agent has fiduciary duties to the seller to disclose all material facts. If the agent, or a relative or associate of the agent, purchases the property, the agent’s fiduciary duties continue even though he or she may be a principal in the transaction,” the judge emphasized.

That duty included disclosing the $1.2 million “secret profit” Patricia received for assigning her $11 million purchase contract, the judge ruled. Because Patricia failed to disclose the $1.2 million secret profit, which belongs to her principal, she is ordered to pay Jerry $1.2 million and return the $110,000 sales commission she received, the judge concluded.

Based on the 2003 California Court of Appeal decision in Roberts v. Lomanto, 5 Cal.Rptr.3d 866.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

***

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