Ward v. Coldwell Banker/San Juan Properties, Inc.

872 P.2d 69, 74 Wash. App. 157

• Court: Court of Appeals of Washington
• Decided: June 7, 1994
• Docket: 31492-1-I
• Status: Published

Opinions

Scholfield, J.

Coldwell Banker/San Juan Properties, Inc. (Coldwell) appeals from a summary judgment in favor of Blair and Beth Ward (Wards). The trial court ruled that Coldwell breached a fiduciary duty it owed to the Wards by failing to disclose information about the buyers of the Wards’ home and by guaranteeing the buyers’ bank loan without disclosure to the Wards or their consent. The court found Coldwell liable for the return of the real estate sale commission and the unpaid balance on the buyers’ promissory note.¹ We reverse.

Facts

In April 1990, the Wards listed their San Juan Island home for sale with Coldwell. Penny Johnston, an officer of Coldwell, and her husband Patrick offered to buy the house. The Wards were aware that Johnston worked for Coldwell. The purchase and sale agreement that the parties executed on April 23,1990, stated that "purchaser Penny L. Johnston is a licensed real estate agent.”² The offer was conditioned on the Johnstons’ obtaining a "conventional purchase loan”. If such a loan were not obtained, the sale agreement would terminate, and the earnest money would be returned to the Johnstons. The following day, the Johnstons applied for a loan from San Juan County Bank (Bank). On May 11, 1990, the Bank declined the loan because the Johnstons’ debt-to-income ratio was too high until one of their other two loans was retired (by the sale of one of their "spec” houses).³

However, the Bank was willing to make the loan when Coldwell agreed to guarantee the Johnstons’ obligation to the Bank. Coldwell made a corporate resolution to make the guaranty after determining that it would be "beneficial” to Coldwell. Coldwell did not tell the Wards about the Bank’s original decision to decline the Johnstons’ loan application and did not inform the Wards or obtain their consent before making the loan guaranty.

In April 1990, the Johnstons discovered dry rot in the house. The extent of the damage they discovered is disputed. The matter was at least temporarily resolved and the sale closed on May 24, 1990. The Wards received a net cash payment in the amount of $113,601.25. The Wards also received a note secured by a second deed of trust on the property for $32,000.

In January 1991, the present litigation commenced with the Johnstons suing the Wards for concealing extensive dry rot in the house. When the Johnstons lost their suit they declared bankruptcy, and the Wards were not able to collect on the promissory note. The litigation continued on the issue of Coldwell’s liability to the Wards for its role in the sale of the house to the Johnstons.

The Wards and Coldwell each moved for summary judgment. The trial court granted summary judgment for the Wards against Coldwell on August 28, 1992, for return of its real estate commission in the amount of $11,200 and $32,000 on the promissory note. On December 21,1992, the trial court awarded reasonable attorney fees and costs to the Wards in the amount of $33,342.25, based upon attorney fees provisions in paragraph 9 of the listing agreement and paragraph 18 of the real estate purchase and sale agreement (hereinafter P&S).

Coldwell appeals.

Fiduciary Duty

Because the issues involved in this appeal were decided on summary judgment, we engage in the same inquiry as the trial court. In doing so, we must consider all facts submitted and all reasonable inferences from the facts in the light most favorable to the nonmoving party. Summary judgment should be granted only where reasonable persons could reach but one conclusion. Wilson v. Steinbach, 98 Wn.2d 434, 437, 656 P.2d 1030 (1982). If reasonable minds could draw different conclusions from undisputed facts, or if all of the facts necessary to determine the issues are not present, summary judgment is improper. Fleming v. Stoddard Wendle Motor Co., 70 Wn.2d 465, 467, 423 P.2d 926 (1967); Byrne v. Cooper, 11 Wn. App. 549, 523 P.2d 1216, 75 A.L.R.3d 170, review denied, 84 Wn.2d 1013 (1974).

We first decide whether Coldwell’s fiduciary duty to the Wards ended when the parties signed the P&S.

When the listing agreement was entered into, Coldwell became the agent of the Wards and owed them a fiduciary duty for the purpose of finding a buyer. See Mersky v. Multiple Listing Bur. of Olympia, Inc., 73 Wn.2d 225, 228, 437 P.2d 897 (1968). It is undisputed that Coldwell’s actions occurred after the agreement between the Wards and the Johnstons was made. Coldwell cites authorities to the effect that when the buyer and the seller have entered into a purchase and sale agreement, the broker’s commission has been earned, and his fiduciary duty to the seller terminates.

Ward argues, however, that where the sale is conditioned on the buyer obtaining financing, the broker has not earned his fee until the sale closes. Failure to obtain financing can terminate the agreement and, thus, the broker will have failed to procure a willing and able buyer. We agree with Ward. In this case, the sale closed, and Coldwell’s guaranty of the bank loan came between signing the P&S and the closing.

In support of its position, Coldwell cites Dryden v. Vincent D. Miller, Inc., 56 Wn.2d 657, 354 P.2d 900 (1960). In Dryden, the seller accepted the offer, retained the earnest money, and signed the earnest money receipt which contained the following provision:

"I HEREBY AGREE to the above sale and to all the foregoing terms and conditions, and agree to pay VINCENT D. MILLER, Inc., as agent, a commission of $9000.00 for services rendered.

"In the event earnest money receipted for is forfeited, one-half of same shall be retained by or paid to VINCENT D. MILLER, Inc., as agent, to the extent of commission above stated and the balance to the undersigned as owner.”

Dryden, at 658.

The parties then entered into a contract for sale of the property, and the purchasers made a down payment of $15,000. They obtained the down payment from two lumber companies as an advance against timber to be cut and removed from the property purchased. After the buyers defaulted, the Drydens sued them, but settled the case for $1,500 and a quitclaim deed to the property. The Drydens then sued Miller to recover the $9,000 commission they had paid. The trial court held in part that the broker had not earned his commission because he breached his fiduciary duty to the sellers by not disclosing the source of buyers’ down payment.

On appeal, the court reversed, holding that when the seller accepted the purchaser and agreed to pay the broker’s commission for "services rendered”, the broker had earned his commission. Dryden, at 660, 662.

As to the broker’s failure to disclose its knowledge of how the purchasers raised the down payment, the court stated at page 662:

Nor does the trial court’s conclusion that the appellant failed to disclose that the purchasers were obtaining the money for the down payment by advances against the timber on the land justify the judgment. The court found, upon conflicting evidence, that appellant acquired this knowledge after the earnest-money receipt was signed. At the time the earnest-money receipt was signed, appellant had performed its obligation to produce a purchaser acceptable to the sellers, and was then (in the absence of a finding of fraud, which is not here present) entitled to receive its commission.

The difference between Dryden and the case before us is that in Dryden the broker had earned his commission before learning about the buyers’ timber advance. Here, the commission was not earned until the sale closed, and the broker’s knowledge of its own guaranty preceded the closing.

Paragraph 2 of the listing agreement provides for payment of a 7 percent commission when the agent procures a purchaser on terms acceptable to the seller or the seller sells the property during the term of the agreement or within 6 months thereafter to a buyer whose attention was gained through actions of the agent. None of these conditions occurred until after Coldwell guaranteed the Bank’s loan to the Johnstons.

While Coldwell also relies on Cogan v. Kidder, Mathews & Segner, Inc., 97 Wn.2d 658, 648 P.2d 875 (1982), that case does not support its argument. In Cogan, the seller’s agent found a buyer, and an earnest money agreement was signed. Before closing, the agent requested an extension of the closing on behalf of the buyer’s assignee without disclosing its dual agency to the seller. The court found that the agent’s fiduciary duty continued until closing.

We agree with [defendant agent] that one of its primary responsibilities in its agency relationship was to find a purchaser . . . We disagree with [agent’s] contention [that] the signing of the earnest money agreement ended its agency relationship. [Seller] included language in the earnest money agreement which conditioned [agent’s] commission on "if and when the sale closes.” To the extent [agent] continued to work toward closing, it continued as agent of [seller].

Cogan, 97 Wn.2d at 663-64. The same holds true in the present case.

In Pilling v. Eastern & Pac. Enters. Trust, 41 Wn. App. 158, 702 P.2d 1232, review denied, 104 Wn.2d 1014 (1985), the seller sued the realtor for breach of fiduciary duty in failing to monitor the closing of the sale. The Pilling court rejected the seller’s contention that the realtor’s agents had a fiduciary duty which extended beyond the earnest money agreement to the closing. The Pilling court distinguished Cogan on the basis that in Cogan, the earning of the commission was conditioned upon the closing of the sale. In Pilling, the agent simply failed to act. Pilling stands for the proposition that the agent’s duty to act to protect the interests of the principal ends when the purpose of the agency is accomplished and the commission is earned.

Coldwell’s commission was not earned until the sale closed. To the extent Coldwell was acting to close the sale, it owed an ongoing duty to the Wards until the sale closed.

No Breach of Fiduciary Duty

The trial court concluded there was a breach of fiduciary duty by Coldwell because it guaranteed the Johnstons’ loan from the Bank and did not disclose this fact to the Wards. The trial court’s reasoning is set forth in its oral decision on attorney fees and states in part:

The evidence showed that the Johnstons had been refused a loan and had no other options. The sale survived because San Juan Properties guaranteed the Johnstons’ loan. Neither the Johnstons’ poor credit standing nor San Juan Properties’ loan guaranty] were disclosed to the Wards by San Juan Properties, though these were clearly material facts which San Juan Properties had a duty to disclose. Failure to disclose these facts deprived the Wards of the opportunity to have the sale terminated as provided in paragraph 3; had the Wards terminated the sale, this entire lawsuit could have been avoided. While San Juan Properties argued that the Wards would have proceeded with the sale despite the Johnstons’ poor credit standing and despite San Juan Properties’ guarant[y] of the loan, the evidence does not show this precisely because of the fact that the Wards were deprived of the opportunity to evaluate their options in light of all the material facts.

The trial court correctly noted that the principal and agent relationship was based upon the listing agreement. However, the Wards’ legal position with respect to the Johnstons’ obtaining a conventional loan must be based upon the provisions of the P&S. In that agreement, the Wards agreed to accept a down payment of $128,000 and a "2nd Note secured by a Deed of Trust for the balance due seller”. The note was to be paid upon the sale of either of two other properties "of buyers”, but no later than 18 months from closing.

In paragraph 3, the offer was conditioned on buyers’ obtaining a conventional loan by May 21,1990. Paragraph 3 then provides:

If not so obtained, this agreement shall terminate and earnest money shall be refunded to Buyer.

Thus, the P&S contained two contingencies, both for the benefit of the buyers. The first was "buyers!’] satisfaction of a building inspection [by] May 1, 1990” and the other was buyers’ being able to obtain a conventional loan.

The issue in this case involves the conventional loan. The P&S contains no restrictions on how or from what sources buyers might obtain a loan or loans in the amount needed to close the transaction. The Wards had no contractual right to interfere in any way with the Johnstons’ efforts to obtain a loan. Whether the Johnstons might require a guaranty was of no legal concern of the Wards. It follows that it made no difference whether the Johnstons obtained a guaranty of their loan from a friend, a relative, another lender, or Coldwell.

The Wards’ theory, adopted by the trial court, was that Coldwell had a duty to disclose to the Wards that the Bank had initially declined to make the loan without a guaranty and that Coldwell provided that guaranty. The trial court adopted the contention that if the Wards had been fully apprised of the facts when the Bank initially declined to make the loan, the Wards could somehow have intervened and terminated the transaction. This contention is incorrect.

If, upon the Bank’s initial refusal to loan, a guaranty had been obtained from some source other than Coldwell, Cold-well would have had no fiduciary duty to disclose that fact. The authorities make it clear that the duty to disclose is limited to disclosing material facts. Although the trial court clearly referred to the Coldwell guaranty as a material fact, we believe it could not be material when there is nothing the Wards could have done about it. The Wards had the right to have the agreement terminated pursuant to paragraph 3 if the loan were not approved by a lender by May 21, 1990, and the Johnstons could not otherwise tender acceptable performance. However, the Wards had no right to interfere with the Johnstons’ efforts to obtain that loan, and once the financing condition was met, the Wards were legally obligated to perform. For these reasons, the trial court’s ruling in this case requires an examination of the factors that make a fact a material fact.

In Mersky v. Multiple Listing Bur. of Olympia, Inc., 73 Wn.2d 225, 229, 437 P.2d 897 (1968), the court imposed a duty upon real estate brokers

to scrupulously avoid representing any interest antagonistic to that of the principal in transactions involving the principal’s listed property, . . . and to make, in all instances, a full, fair, and timely disclosure to the principal of all facts within the knowledge or coming to the attention of the broker or his subagents which are, or may be, material in connection with the matter for which the broker is employed, and which might affect the principal’s rights and interests or influence his actions.

(Italics ours.)

Restatement (Second) of Agency § 391 (1958) provides that an agent is under a duty to his principal not to act on behalf of an adverse party without the principal’s knowledge. Comment b under § 391 reads as follows:

An agent can properly deal with the other party to a transaction if such dealing is not inconsistent with his duties to the principal. Thus, an agent employed to sell can properly lend money to the buyer to complete the purchase or he may "split” his commission with the buyer, unless because of business policy or otherwise it is understood that he is not to do so.

12 Am. Jur. 2d Brokers § 89 (1964) states in part as follows:

It is the interests of the employer that furnish the criterion as to what information is material in the sense that it should be communicated by the broker to his employer; what is material in one case may not be so in another. Thus, it may happen that the identity of a purchaser is not a material fact necessitating the disclosure of the name of the latter where there is nothing in the surrounding circumstances of a case to render that fact of any importance to the seller, but under different surroundings it may become of vital importance, as where the prospective purchaser has already bought an adjoining parcel of land and for that reason might be coerced into giving a higher price for the particular tract in question.

(Footnotes omitted.) From these authorities, it is clear that the broker’s duty to disclose is limited to information known to the broker which the principal can use to make decisions about the transaction in which the broker is involved. Of course, one must not overlook the duty of a broker to scrupulously avoid representing any interest antagonistic to the interest of his principal as stated on page 229 of Mersky.

It is clear to us that Coldwell did not violate any duty to the Wards. Had the Wards learned of the guaranty and the circumstances surrounding it when it occurred, whether they liked it or not, there was nothing they could do about it.

The trial court misconstrued paragraph 3 of the P&S when it reasoned that the failure to disclose the circumstances surrounding the guaranty "deprived the Wards of the opportunity to have the sale terminated” and "deprived [the Wards] of the opportunity to evaluate their options”. The Wards had no rights under paragraph 3 other than to wait until May 21, 1990, and terminate the agreement if no lender’s approval had been obtained by then.

The trial court’s reasoning suggests that the Wards had a right to approve or disapprove the manner in which the Johnstons proceeded in their efforts to acquire a loan. Such is not the case. The Wards’ interest was limited to the end result. Thus, Coldwell’s failure to disclose the guaranty and the reason for it was not a breach of a duty to the Wards.

It should be further noted that everything Coldwell did was to the Wards’ advantage and furthered Coldwell’s duty to provide the Wards with an able and willing purchaser. It surely is not unusual for a real estate broker to render advice and assistance to a prospective purchaser in helping to finance a purchase.

The argument was made in this case that, had full disclosure been made, the Wards could have directed Coldwell not to guarantee the loan. If we are correct in our interpretation of the effect of paragraph 3 of the P&S, then Ward did not have a legal right to so direct Coldwell, and such a direction by Ward, if followed, would have amounted to an unlawful interference with the Johnstons’ performance.

All contracts include an implied condition that a party will not interfere with another party’s performance, but will cooperate in good faith. Lonsdale v. Chesterfield, 99 Wn.2d 353, 357, 662 P.2d 385 (1983); Jones Assocs. v. Eastside Properties, Inc., 41 Wn. App. 462, 471, 704 P.2d 681 (1985).

The facts upon which we base this decision are undisputed. We perceive no material factual issues to prevent the entry of summary judgment in favor of Coldwell ruling that Coldwell did not breach its duty to the Wards. The judgment in favor of the Wards for return of the real estate commission in the amount of $11,200, $32,000 on the note, and $33,342.25 in attorney fees is reversed.

Coldwell contends that the Wards’ loss on the note did not arise from its guaranty of the loan, but from the presence of dry rot in the house and the litigation triggered by that condition. This contention presents a legitimate issue which we shall not address due to our disposition of the issues on other grounds and for the additional reason that the record is not adequate for resolution of that issue on summary judgment.

Since the summary judgment did not dispose of all issues between these parties, the case is remanded to the trial court for further proceedings.

Reversed and remanded.

Coleman, J., concurs.

1 Attorney Timothy Kosnoff appeals an award of sanctions against him in the action by the buyers, Patrick and Penny Johnston (Johnstons), against the Wards for fraudulent concealment of the condition of the house in cause 32290-7-1. The two cases were consolidated for argument in this court but will be decided in separate opinions. The award of sanctions against Mr. Kosnoff was reversed in cause 32290-7-1.

2 he parties dispute what the Wards knew and what Coldwell told them about Coldwell’s relationship with the Johnstons.

3 he record does not indicate any particular credit problems with the Johnstons other than that they had such high debt that the Bank would not extend more credit without a guarantor.