Cogan v. Kidder, Mathews & Segner, Inc.
| Decision Date | 22 July 1982 |
| Docket Number | No. 46726,46726 |
| Citation | 97 Wn.2d 658,648 P.2d 875 |
| Court | Washington Supreme Court |
| Parties | John COGAN as Personal Representative for the Estate of Joseph C. Banchero, Deceased, Respondent, v. KIDDER, MATHEWS & SEGNER, INC., a Washington corporation; Russell W. Segner and Jane Doe Segner, husband and wife, and the community composed thereof; Jerome E. Mathews and Jane Doe Mathews, husband and wife, and the community composed thereof; and Chris Muller and Jane Doe Muller, husband and wife, and the community composed thereof, Petitioners. |
Keller, Rohrback, Waldo & Hiscock, Pinckney Rohrback, Thom, Navoni, Hoff, Pierson & Ryder, William Evenson, Seattle, for petitioners.
Scott Waytt, Kirkland, for respondent.
John Cogan, executor of the estate of Joseph C. Banchero, alleges defendant/petitioner Kidder, Mathews & Segner, Inc. (Kidder, Mathews) breached its fiduciary duty to him in failing to disclose numerous material facts. We hold Kidder, Mathews violated its fiduciary duty by failing to disclose its dual agency relationship.
On April 6, 1976, John Cogan agreed to list for sale a 10-acre parcel of real estate located in Tukwila, Washington, with Kidder, Mathews, an industrial real estate brokerage firm. Two brokers from the firm, Russell Segner and Jerome Mathews, showed the property to prospective purchasers, including Paul Ginn. In June 1976, Ginn signed and submitted an earnest money agreement on the property for $280,000 cash. The named offerer of the agreement was "Paul Ginn and/or assigns". Cogan also signed the agreement, but first modified it by inserting language which provided the commission of.$19,000 to Kidder, Mathews would be payable only if and when the sale closed. The closing was subject to several conditions including the condition that the purchaser be able to obtain necessary permits and easements, and that closing occur within 120 days of court approval.
On September 24, 1976, Ginn told Kidder, Mathews that he would be willing to sell his interest in the property if he could obtain a $20,000 profit, net of commissions. Kidder, Mathews then undertook the role of Ginn's agent and offered the Tukwila property to Allied Body Works, Inc. for $320,000, $40,000 over the original sale price. Allied accepted on November 8, 1976. Since March 1976, Mathews of Kidder, Mathews had acted as an exclusive purchasing agent for Allied and had shown Allied the Banchero property prior to its purchase by Ginn. Allied had rejected the property at that time.
Allied wrote Cogan in December 1976 informing him it was the assignee of Ginn's interest in the earnest money agreement and that the conditions of the earnest money agreement were now deemed satisfied. Allied's letter disclosed its purchase price was $40,000 over Ginn's original purchase price. On January 10, 1977, 12 days before the closing deadline of the earnest money agreement between Cogan and Allied, Kidder, Mathews called Cogan requesting a 30-day extension of the closing deadline. Cogan was told the request was related to Allied's financing of the purchase. The additional time was actually needed to effect an additional assignment to accommodate the desires of the owners of Allied who wished to arrange financing to purchase the Tukwila property as individuals rather than through the corporate entity. Kidder, Mathews not only failed to fully disclose the reasons for the extension, it also failed to inform Cogan that Ginn had agreed to pay Kidder, Mathews a $20,000 commission for its work and that the realtors were the exclusive purchasing agents for Allied. Cogan agreed to the extension, and, as a result of the delay in closing the Banchero estate, incurred an additional $660 in interest obligations on unpaid succession taxes.
When Cogan discovered that Kidder, Mathews was the agent of Allied and that it received a commission of $20,000 from Ginn for the assignment of the earnest money agreement, he instructed the closing officer to withhold payment of the.$19,000 commission held in escrow, the $20,000 "secret commission", the $660 in additional interest obligations, and the $5,000 earnest money deposit.
The trial court found the agency relationship between Cogan and Kidder, Mathews revived when the stockholders of Allied requested an extension of the closing date. It found Kidder, Mathews had no duty to disclose to Cogan its commission from Ginn and its agency relationship with Allied. The trial court limited damages to $660 in additional interest obligations incurred by the estate as a result of the 30-day extension of the closing date with Allied.
The Court of Appeals reversed all but the trial court's award of $660 to Cogan. It held Kidder, Mathews had breached its fiduciary duty to Cogan by failing to disclose certain material facts, including Kidder, Mathews' representation of Ginn in the subsequent sale of the land, its receipt of a $20,000 commission from Ginn, its position as exclusive purchasing agent for Allied and its failure to fully apprise Cogan of the reasons for Allied's request for a 30-day extension of the closing.
The Court of Appeals directed the trial court to enter judgment against Kidder, Mathews forfeiting not only the $660, but also its.$19,000 commission from Cogan and its $20,000 commission from Ginn. Cogan v. Kidder, Mathews & Segner, Inc., 24 Wash.App. 232, 600 P.2d 655 (1979).
On review, we agree in part with the Court of Appeals and modify its order accordingly.
In Mersky v. Multiple Listing Bureau of Olympia, Inc., 73 Wash.2d 225, 437 P.2d 897 (1968), we held a real estate agent breached her fiduciary duties by failing to disclose to her principal that the purchaser of the principal's property was the realtor's sister. In Mersky, at page 229, 437 P.2d 897, we set out the duties a realtor owes his or her principal:
(T)here flows from this agency relationship and its accompanying obligation of utmost fidelity and good faith, the legal, ethical, and moral responsibility on the part of the listing broker, as well as his subagents, to exercise reasonable care, skill, and judgment in securing for the principal the best bargain possible; to scrupulously avoid representing any interest antagonistic to that of the principal in transactions involving the principal's listed property, or otherwise self-dealing with that property, without the explicit and fully informed consent of the principal; 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.
(Citations omitted.) Where an agent has dual responsibilities or is serving an interest adverse to the principal, disclosure of such a conflict is always required. Thus,
It is of no consequence, in this regard, that the broker may be able to show that the breach of his duty of full disclosure and undivided loyalty did not involve intentional or deliberate fraud, or did not result in injury to the principal, or did not materially affect the principal's ultimate decision in the transaction.
The policy underlying this duty of disclosure is obvious it is both to insure the undivided loyalty of the agent and "to assure the principal that he may have and rely upon the impartial and unreserved fidelity of his agent throughout the course of the transaction for which the agent was employed." Mersky, at 230, 437 P.2d 897.
The Restatement (Second) of Agency § 381 (1958) imposes the same duty of disclosure. An agent has the general duty to use "reasonable efforts to give his principal information which is relevant to affairs entrusted to him", which "the principal would desire to have". Comment d to section 381 states if an "agent has, or if he represents another who has, interests adverse to the principal as to matters within the scope of the agency ... he is under a duty to the principal to reveal such facts in accordance with the rules stated in Sections 389-392." Section 391 states:
Unless otherwise agreed, an agent is subject to a duty to his principal not to act on behalf of an adverse party in a transaction connected with his agency without the principal's knowledge.
The disclosure rule of Mersky and section 391 reflects a prophylactic concern for maintaining unmitigated loyalty in the principal-agent relationship. It guards against the possibility of compromising an agent's absolute duty to his principal. See Restatement (Second) of Agency § 387 (1958). As Justice Brandeis once wrote: "Sunlight is said to be the best of disinfectants, electric light the most efficient policeman." L. Brandeis, Other People's Money, ch. 15 (1914).
Such a duty of disclosure existed in this case. Kidder, Mathews argues its agency relationship with Cogan ended with the signing of the earnest money agreement, and that Cogan was legally obligated to comply with the terms of the earnest money agreement. We agree with Kidder, Mathews that one of its primary responsibilities in its agency relationship was to find a purchaser of the Tukwila property. We disagree with Kidder, Mathews' contention the signing of the earnest money agreement ended its agency relationship. Cogan included language in the earnest money agreement which conditioned Kidder, Mathews' commission on "if and when the sale closes." To the extent Kidder, Mathews continued to work toward closing, it continued as agent of Cogan. The trial court and the Court of Appeals found the principal-agent relationship between Cogan and Kidder, Mathews existed at the time Kidder, Mathews asked Cogan for an extension of the closing date, and we concur in their findings.
What then, was Kidder, Mathews obliged to disclose to Cogan at the time it made the request for the extension?...
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