Court Opinion

ID: 9553261
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:26:55.255366+00
Date Added: 2024-06-11T15:30:33.708488
License: Public Domain

Baker, J.
(dissenting) — I dissent. While I agree with the majority’s conclusion that Coldwell owed a continuing fiduciary duty to its principals, I disagree with the reasoning in the majority opinion leading to that conclusion. Specifi*169cally, I disagree that Coldwell’s commission was unearned until closing. The commission was earned when Coldwell procured a buyer acceptable to seller and the purchase and sale agreement was signed. The commission was not payable until closing.
To illustrate this point, consider what would have happened if the transaction had not closed solely due to Wards’ breach. Coldwell would be legally entitled to recover its commission from Wards, because it had earned the commission. See White & Bollard, Inc. v. Goodenow, 58 Wn.2d 180, 187, 361 P.2d 571 (1961). Nevertheless, a continuing fiduciary duty existed, at least to the extent that Coldwell could not act contrary to the interests of its principals, after the commission was earned and before closing. To the extent a broker continues to work toward closing, it continues to be an agent of the seller. Cogan v. Kidder, Mathews & Segner, Inc., 97 Wn.2d 658, 664, 648 P.2d 875 (1982).
I
I disagree with the majority’s holding that Coldwell did not breach its fiduciary duty in failing to disclose its intent to guarantee the Johnstons’ loan.4 Coldwell breached its fiduciary duty to Wards because the loan guaranty was potentially adverse to the Wards’ interest and required their consent.
Wards argue they would have preferred to let the sale to the Johnstons collapse for lack of financing and then have Coldwell locate another buyer. The Wards have solid reasons for this position. The loan guaranty did not protect them and actually made their position less secure. Coldwell’s guaranty secured only the Johnstons’ obligation to the bank, which was also secured by the first deed of trust on the house. The promissory note for the remainder of the purchase price was secured by a second deed of trust. The effect of the guaranty *170was to make it possible for an otherwise unqualified buyer to obtain financing. If the Johnstons became insolvent, the Wards would be left with an uncollectible promissory note. The security value of the second deed of trust would be problematical at best if the bank took conveyance on the first deed of trust. Any argument that the Wards’ concern was not reasonable or that the possible harm was too speculative is refuted by the fact that, in hindsight, these unfortunate events happened.
Coldwell was therefore in a divided loyalty situation which required obtaining its principals’ consent before guaranteeing the buyers’ loan. Coldwell’s guaranty was clearly in the buyers’ interest, enabling them to obtain financing and purchase the house. Coldwell’s guaranty also furthered its own interest in ensuring that its commission would be paid at closing without having to expend the effort to find another, possibly more qualified, buyer.5 However, Coldwell was only entitled to act in its own and the buyers’ interest without prior consent from its principals as long as doing so was not potentially adverse to the principals’ interests. Mersky v. Multiple Listing Bur. of Olympia, Inc., 73 Wn.2d 225, 229, 437 P.2d 897 (1968). It is undisputed that Coldwell’s actions were taken without Wards’ knowledge and consent. It follows that Coldwell breached its fiduciary duty.
The loan guaranty was material. It is correct that the purchase and sale agreement required Wards to sell the house if Johnstons were able to obtain financing. However, if the Wards became aware that they had entered into the agreement with a financially shaky buyer, they nevertheless had options which they could exercise to increase the possibility that the sale would not close. Wards’ refusal to allow Coldwell to guarantee the loan might have ended the sale. Coldwell’s actions deprived Wards of that option.
It is only necessary for Wards to establish that they may have refused to permit their agent to guarantee the buyers’ *171loan. A fact is material if it "might affect the principal’s rights and interests or influence his actions.” (Italics mine.) Mersky, 73 Wn.2d at 229. Nor is it necessary for Wards to show that Johnstons could not have obtained financing elsewhere.
It is of no consequence . . . that the [agent] may be able to show that the breach of his duty of full disclosure and undivided loyalty . . . did not result in injury to the principal, or did not materially affect the principal’s ultimate decision in the transaction.
Mersky, 73 Wn.2d at 231. The loan guaranty was material, as defined in Mersky, unless Coldwell was entitled to guarantee the loan even over Wards’ potential objection. Wards never got the chance to object, to be sure, because Coldwell failed to disclose its intent to guarantee the loan. The effect of the majority’s holding is to allow a real estate agent to guarantee a buyer’s loan which is needed to proceed with the purchase even if the seller is informed and specifically objects to its agent’s doing so.
The dispositive issue in this case is whether Coldwell needed Wards’ consent before guaranteeing the loan. The majority’s holding that the loan guarantee was not material is based on its determination that there was "nothing the Wards could have done about it”. Majority opinion, at 166. The majority would agree that if the Wards’ consent was required, Coldwell’s failure to obtain that consent was a breach of fiduciary duty.
The majority accepts Coldwell’s argument that Wards could not prevent Coldwell from guaranteeing the loan. "The Wards had no contractual right to interfere in any way with the Johnstons’ efforts to obtain a loan.” Majority opinion, at 165. This determination totally misstates the issue. The Wards’ right to direct Coldwell’s actions did not depend on whether Wards had a legal right to terminate the contract of sale. It likewise did not depend on whether "Wards had a right to approve or disapprove the manner in which the Johnstons proceeded in their efforts to acquire a loan.” Majority opinion, at 167. The materiality of the loan guaranty *172depends only on Wards’ right to insist that their agent not act in a manner antagonistic to their interests. This right stems not from the terms of the purchase and sale agreement or the listing agreement with Coldwell, but from the fiduciary relationship which the majority concedes existed at the time. Coldwell’s fiduciary duty to Wards required it 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.
(Italics mine.) Mersky, 73 Wn.2d at 229.6
The majority’s holding that Coldwell owed the Wards this fiduciary duty cannot be reconciled with its determination that Coldwell did not need to obtain Wards’ consent. The sole reason for deciding the issue of whether Coldwell owed Wards a fiduciary duty is to determine whether Coldwell was required to inform the Wards and obtain their consent. Because Coldwell owed Wards a fiduciary duty to only act with their knowledge and consent, it is not necessary to find a contractual duty in the terms of the listing agreement or the purchase and sale agreement.
As a fallback position, Coldwell argues and the majority holds that Wards had no legal right to direct Coldwell not to guarantee the loan. This argument incorrectly assumes that such direction would violate a contract duty of good faith owed by Wards to the buyers. The majority relies on Lonsdale v. Chesterfield, 99 Wn.2d 353, 357, 662 P.2d 385 (1983) and Jones Assocs. v. Eastside Properties, Inc., 41 Wn. App. 462, 471, 704 P.2d 681 (1985), for the proposition that "[a]ll contracts include an implied condition that a party will not interfere with another party’s performance, but will cooper*173ate in good faith.” Majority opinion, at 168. Lonsdale and Jones Assocs. state this black letter rule but are not factually similar or applicable to this case.
Whether Wards’ refusal would violate this duty is debatable. Wards were not themselves obligated to guarantee the buyers’ loan nor make any other unfavorable concessions to the buyers. It follows that they were not obligated to allow their agent to make such concessions. In Watson v. Ingram, 70 Wn. App. 45, 851 P.2d 761 (1993), review granted, 123 Wn.2d 1001 (1994), a real estate seller refused to grant the buyer a few extra days to complete the financing process. Seller had obtained a better offer on the property. Seller’s refusal to extend the closing date caused the first sale to collapse and forced the buyer to forfeit the earnest money. Watson, 70 Wn. App. at 48-49. The buyer argued that seller’s refusal to extend the closing date violated the duty of good faith. This court disagreed. "By refusing to extend the closing date, [seller] was protecting his own interest in what appeared to him to be an unlikely deal. He did not breach any duty of good faith and fair dealing.” Watson, 70 Wn. App. at 58. Likewise, Wards’ decision to protect themselves from selling their house to an unqualified buyer would not have violated any duty owed to the Johnstons.
Even if Wards’ refusal to allow Coldwell to guarantee the loan would violate a duty owed to the buyers, Coldwell was still required to obtain Wards’ informed consent. An argument to the contrary was explicitly rejected in Cogan.7 In Cogan the seller could not void its obligation to sell to the buyer’s assignee, yet the agent still had an obligation to obtain the informed consent of the seller before acting on behalf of the buyer’s assignee.
While [seller] could have refused the extension unless he had received additional consideration, he did not. If he had been told of [agent’s] conflicting relationships his response might well have been different. While [seller] had a good faith obligation to proceed to completion of the earnest money agreement, that duty *174did not obviate [agent’s] duty to inform its principal of all the options available to him in pursuit of his own interests.
The possibility that [seller] could have refused the extension yet still have been legally obligated to close the sale if [buyer’s assignee] chose to comply with the existing closing date does not dispose of [agent’s] duty to disclose its conflicting interests to [seller],
(Citation omitted.) Cogan, 97 Wn.2d at 665. Similarly, the fact that the Johnstons might have obtained other financing or commenced an action for violation of the duty of good faith did not relieve Coldwell of its obligation to disclose all material facts to the Wards and obtain their consent before acting on behalf of the buyers.
II
In the event of a breach of fiduciary duty, the principal (seller) is entitled to recover any profit or commission from the agent regardless of whether the principal can show that the breach caused a loss. Mersky, 73 Wn.2d at 231. Because Coldwell breached a fiduciary duty to the Wards, the trial court properly awarded the Wards the return of the sales commission.
Wards were entitled to any damages which were caused by a breach of Coldwell’s fiduciary duties. See Cogan, 97 Wn.2d at 667 (citing Meerdink v. Krieger, 15 Wn. App. 540, 545, 550 P.2d 42, review denied, 87 Wn.2d 1011 (1976)). Even assuming Wards would have not consented to the loan guaranty, there remains the question of fact as to whether the Johnstons could have obtained financing elsewhere and closed the sale. Summary judgment (for either party) on the issue of the cause of nonpayment of the promissory note to Wards was error. I would remand the issues of causation and damages for trial.
Wards were awarded attorney fees by the trial court. Attorney fees are to be awarded to the prevailing party when a contract specifically provides for fees. RCW 4.84.330. The listing agreement provides for fees in any action to enforce the agreement. I would affirm the award of attorney fees to Wards. The majority’s disposition of this appeal *175makes it unnecessary to determine whether "Wards would be entitled to attorney fees on appeal.
Review denied at 125 Wn. 2d 1006 (1994).

The majority mischaracterizes Wards’ position as arguing for a duty on the part of the agent to disclose its guaranty after the fact. Wards instead argue, correctly, that their agent had a fiduciary duty to disclose its intent to guarantee before doing so, and to follow the directions of Wards as principals before giving the guaranty.

It is not necessary to reach the issue of whether the relationship between Cold-well and Penny Johnston was sufficiently close as to create a third conflict of interest.

The italicized portion is deleted from the same passage in the majority opinion. Majority opinion, at 166.

Neither Coldwell nor the majority follows the duty of good faith argument to this next, necessary step.