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Does a broker have a duty to tell a seller about the buyer's negotiations to purchase adjoining tract?
A decedent’s estate listed the decedent’s ranch for sale. The broker introduced a developer to the property who wished to buy it. The developer, however, wanted ultimately to control all of the buildable land in the particular Colorado river valley where the decedent’s ranch was located. The developer’s attorney told him to attempt also to acquire the only other privately owned tract in the valley.
The developer initially asked the listing broker to inquire about the willingness of the other owner to sell his tract. The other owner refused to deal with any real estate broker, and instead insisted on dealing directly with the developer. The developer and the other ranch owner negotiated a sale contingent upon the developer’s acquisition of the decedent’s ranch. On the same day, the developer signed contracts to acquire both parcels. The listing broker was to be paid a commission only on the decedent’s sale.
The developer closed on the decedent’s sale, and three months later he closed on the sale of the other tract. The developer paid $400 per acre for the decedent’s property, and $6,000 per acre for the other parcel. Upon learning of the terms of sale of the other tract, the decedent’s heirs filed suit against the listing broker for breach of fiduciary duty for failing to inform them of the developer’s negotiations for the acquisition of the other property, and the price the developer paid for the property.
The Colorado Supreme Court affirmed the trial court’s dismissal of the plaintiffs’ claims. The Court noted that the listing broker did owe a fiduciary duty of disclosure to its principal, the decedent’s estate, but that duty only extends to "material" facts of which the broker has actual knowledge. The Court concluded that the mere fact that the developer was negotiating with the other parcel owner was not a "material" fact because the developer’s mere negotiations with another parcel owner would not, alone, change the estate’s negotiation strategy.
The Court did conclude, however, that the price negotiated by the developer for the other parcel would be very "material" to the estate in its negotiations with the developer for the sale of its tract. The Court concluded from the record, however, that the listing broker did not learn of the sales price that was negotiated for the other tract until after the estate had already entered into its contract to sell the decedent’s tract to the developer. Thus, the listing broker’s acquisition of this material information came too late to have any impact upon the estate’s negotiations.
The Court held that the listing broker did not breach any duty to the plaintiffs even though the listing broker did not disclose to the estate the developer’s purchase price of the other tract even after the listing broker did learn of it. The Court reaffirmed that this information, at the time the broker learned it, was no longer "material" because it could not have had any impact upon the estate’s transaction with the developer.
Finally, the Court held that the listing broker did not engage in undisclosed dual agency because there was not any evidence that the listing broker ever represented the developer in his dealings with the other tract owner. The Court concluded that the mere inquiry on behalf of the developer to the other tract owner about his willingness to consider selling his property to the developer was insufficient as a matter of law to give rise to an agency relationship between the broker and the developer.
While the broker escaped liability here, this case turned entirely upon the Court’s determination about what information was, or was not, "material" to the broker’s clients. To avoid having one’s business future turn on a court’s after–the–fact assessment of "materiality," brokers should always err on the side of information disclosure, especially to their own clients. A simple rule of thumb to assess whether a fact is "material" is to ask yourself if you would rather have the information if you were in the client’s position. If the answer is "yes", the information is probably "material" to the client. 935 P.2d 975 (Colo. 1997).
This article was taken from the April 1998 issue of the Risk Management Reporter.
Please note that the comments and opinions contained herein are not to be construed to be legal advice by the author, Victor O. Schinnerer & Company, Inc., or the CNA/Schinnerer errors and omissions insurance program.
This information is made available to you for your risk management program. No action should be based on this information without appropriate advice from legal counsel and a review of currently applicable statutory and case law.
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