Real Property Transactions – Hansen – Fall 2013
NB- mistakes that young lawyers make- process the material practically: ask how do I use that rule, why does it matter. A business owner will ask what can I do, their approach is all that is not prohibited is permitted.
I. Brokers
A. Role
1. A broker is a go between, passes information. An “honest broker” may have an interest but not a hidden interest; doesn’t distort parties info; relatively non self-interested; confidentiality- if understood, will tell other side “I can’t tell you x”
2. Licensed prof in most states, subject to revocation. Supervisory role. Supervising the deal-Broker of Record (tells DRE he’s in charge). May also act as sales agent in a deal. Sales Agents have less training, experience.
3. Brokers list, expose, hold out, negotiate sales, exchanges, arrange financing, help parties invest $ in 2d deeds of trust, purchase business opportunities
4. A party is not req’d to be licensed to do some things that brokers do: Finders can locate property, but not negotiate or give advice. Owner can sell his own land.
5. DRE handles licensing, own disciplinary proceedings, ce
6. Brokers are not Realtors- those are members of pvt assn w/ own guidelines—leading to customs- may be important in defining std of care. Local Board of Realtors runs the MLS.
7. Brokers list, expose, hold out, negotiate sales, exchanges, arrange financing,
B. Listings –MLS
1. Used to be exclusive, discriminatory – broken up by anti-trust suits, now anyone can list if you pay the fee.
2. Used to include an agmt that made the buyers agt a sub agt of the listing agt, changed in 1992. But check the listing agreement for subagency languageà this creates liability, imputed knowledge. ( If you choose an agent and he was supposed to do or tell you something and fails to, your only recourse is to go after him or his supervising Broker).(Sue the one with insurance.)
3. There are 5 types of listings, 3 are legit, 2 are mutants & gen’ly prohibited by public policy.
(a) Open Listing – classic type of K but rare, seller engages Broker ( but not exclusively) to find buyer. Broker get commission if he can show that he is the “procuring cause” of sale. (like proximate cause). Br don’t like this kind of K – no predictablity of recovery. What if several brokers talk to the buyer- fights btwn br or Seller could end up owing more than 1 comm. Under an open listing the broker has no duty of didligence b/c the listing is not exclusive; yet not illusory K b/c of cov of good faith & fair dealing; also facts may show more duties undertaken.
(b) Exclusive – if you bring me a buyer on my terms, w/in listing period, you are owed comm.
(c) Exclusive Agency- like but owner may sell himself w/o paying comm. Br don’t like. Comm Buyers may use.
(d) There are many diff flavors of a-c
(e) Net- Seller tells Br what he needs to make, Br gets any amount above this. Not gen’lly allowed – too easy to take advantage of seller (conflict of int, fid duty). If seller gets indep advice, may be ok
(f) Option Listing -gives broker option to buyà built in conflict of interest
(g) Listing agmt needs careful reading to determine which type it is. Gen’lly Br can’t do business w/client unless client gets indep advice.
C. Broker Misconduct
1. Fraud- types –Hard to prove, especially reliance.
(a) Deceit- lying about facts
(b) Negligent misrepresentation- being careless about the truth
(c) Promissory fraud- lying about intentions
(d) Concealment- requires duty to speak; fiduciary has this duty
2. Co-mingling of funds- Put deposit in your own account- borrow for a while. Taking a risk with other parties money that they didn’t bargain for; punished whether risk or not.
3. Temporal Fraud- Ponzi scheme/pyramid scheme—production of apparent wealth
(a) Hypo-at Close Buyer has not enough cash (20%), tells escrow holder- I’ll make it good next week. If holder says ok, that’s temporal fraud. Often slides by.
(b) Hypo- investmts start to go bad, mort br feeds kitty from own pocket but didn’t tell investorsà people kept investing, his $ and new investors $ went to payoffs. (all had a risk they never consented to) In a class action new investor wld have diff harms than older investors.
(c) Secret Profit hypo- if I get $ from you for a great investmt, take it to Reno and gamble & win, then give you your return, you can still sue me even though no $ damages—can sue for disgorgement of my profits- unconsented risk. However, if you made a ton of money the jury won’t give you anything.
D. Sample Listing Agreement pp 15-16
1. NB –preprinted K’s find out whose K it is!
2. Terms of Sale- can’t be TBD- b/c this is what br’s comm is contingent on. How br defines success should be clear. Important- be very specific about terms. Price, terms, what is included & not, how long for close of escrow, how long for inspection. If all cash to seller at close say so.
3. Par. 3 refers to MLS rules
4. Par. 5 is a product of 25 years of consumer litigation – used to be % only now perhaps flat fee.
5. 5.3 withdrawal from sale clause. In Blank, ct says you owe full comm if you withdraw at any time- said not a breach, a choice-alt performance.(BS)(Chuck says doesn’t look like a rational negotiated choice- would look better if based on time elapsed or other proration- looks like disguised penalty clause). Cld also be considered liquidated dam cl. – since 78 these are presumptively valid.
(a) Gen’lly how willing are cts to hold sword of Damocles over breachor? In K efficient breach theory argues agst- but doesn’t acct for transaction costs-so parties try to disincentivize breach by calling it bad faith br – a Tort- hard to show.
(b) Blank- judge makes easiest call, could have done equity but its more work. (squabbling kids)
6. 5.2 penumbra (5A2) In Ca listing must be for fixed period of time (usually 1yr or less) – Tail protection
7. Par.5 Attorney Fees (also sec 13)
(a) American rule- in civil lit, ea pty pays own fees regardless of outcome unless varied by K or by stat (CC 1717- no 1 sided K prov)
i. tail wagging the dog- 250 K caseà mult. Litigation case = 1 mil in feesà drives litigation, private settlement
ii. think who is likely to be on the other side, collectability
1. homebuilder-1st time buyer
2. landlord-tenant
3. best with parties of = weight
(b) 3d Party Tort –a civil wrong may have as its consequence a dispute btwn 2 parties- tortfeasor liable for legal fees.
i. Escrow hypo: 5 conditions must be met before close; escrow gets sloppy- one party says it closed, the other says noà dispute. Both sides may be able to recover from escrow agt. Then apportion. Can’t recover fees for suing escrow only each other if it was escrows fault. (aka Tort of Another)
(c) ADR –concept- civil cts not very good/fast at resolving disputes- must be a better way. Law of unintended consequences (ie freon) todays reform is tomorrow’s problem. Usually has section for separate initialling on the K. Pay attn if not initialled in the right place.
i. Mediation –mediator has no power, can be neutral or neutral evaluator.
ii. Arbitration- pvt judging- may not even be an atty. If no right of appeal, arbitrator can rule opposite the law- Upheld by cts b/c result of a pvt agmt.
ld be disclosed in sellers form, possible narrow duty on broker if expert shows.
(a) Hypo- new homebuilder got ASTM phase 1, came back Ok. During grading PGE sends out fliers re monitoring wells, gas facility problem- says that it is all okay. Must homebuilder disclose that? Did PGE mislead?
(b) Smith v Richard- home & avocado fields. Broker didn’t notice avocado blight—ct said it only affected non residential portion, no duty to inspect (only duty w/in curtilage), still must disclose if known.
(c) See 2079.2 means that now brokers std of care usually requires expert testimony to find breach.Note about experts, engage early as non testifying consultant, once you change to testifying expert all prev info vulnerable to discovery.
(d) What if seller misreps, broker doesn’t know, inspection wouldn’t reveal. CC 3343- measure of damages is only diff btwn what is worth with defect and what was paid- not btwn as represented and actual- more narrow measure than in tort (don’t reward fools? Strange policy)
(e) As is doesn’t insulate seller from requirement of disclosing any hidden defect that he knows about- 1102 checklist still req’d.
H. Agency Issues
1. Agency arises from the facts- agency is as agency does. It can exist btwn both sides of the transaction. It is allowed for broker and it can easily be created by brokers actions.
2. Law says dual agency must be disclosed; Residential-disclosure must be in writing. A broker who doesn’t disclose can lose his commision.
3. Duty to disclose dual agency also includes disclosing the implications of dual agency.
4. Picture of agency: Sà Brß B (trad, prob dual agency); Sà Br (listing) ß Br (buyers)ß B (modern, might not result in dual agency; but there will be if buyers broker is a subagent of listing agent, either by K or by actions; however Buyers broker might not be sellers agt even if paid by him.
5. Salahutin case (1 acre pcl req’d)- brokers are fiduciaries, a breach of this duty is constructive fraud (longer SOL than neg) (115). Agents duties include duty not to be careless. Not a failure to inspect case- broker should not have broadcast sellers info w/o checking it out.
6. Huijers case- review of when commision is due. Ct used Failure of disclosure of dual agency to prevent specific performance. How?
(a) Broker (who has buyer) finds seller helps him set price; B goes for it right away; S says must be too low, backs away (then must ask was it too low, was it influenced by undiscl dual agency- did broker breach duty to S?) Maj- thinks S might be bludgeoned into sale b/c Buyer said “have to pay comm anyway”-altho this statement was gen’lly correct, there had not been a proper discl of dual agency under higher residential std so broker was not really entitled to comm—thus agmt btwn B& S based on a false statement.
(b) Judge is thinking 1) who is Huijers- why does he know the law- either he is pretty sophisticated or it was a set up piece btwn broker & buyer.
