Quechee Lakes Rental Corp. v. Boggess

 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
 that corrections may be made before this opinion goes to press.


                                 No. 89-457


 Quechee Lakes Rental Corporation             Supreme Court

                                              On Appeal from
      v.                                      Windsor Superior Court

 Stephen J. Boggess and                       September Term, 1991
 Mary B. Boggess


 Ellen H. Maloney, J.

 P. Scott McGee of Hershenson, Carter, Scott & McGee, Norwich, for
   plaintiff-appellant

 Michael F. Hanley of Plante, Hanley & Gerety, P.C., White River Junction,
   for defendants-appellees


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      JOHNSON, J.   Plaintiff, Quechee Lakes Rental Corporation (QLRC), a
 licensed real estate corporation in Vermont, appeals from a superior court
 order denying its claim for a broker's commission for the sale of defend-
 ants' residential property.  The trial court held that plaintiff was not
 entitled to receive a broker's commission because it breached its fiduciary
 duty to defendants, Mary and Stephen Boggess.  We affirm.
      On November 9, 1985, Mary Boggess, the owner of a Quechee Lakes
 condominium unit, and her husband Stephen, entered into a listing contract
 with QLRC to sell the condominium.  The Boggesses agreed to pay QLRC an
 eight percent broker's commission if it sold the furnished unit within a
 year for $289,500.  In May, 1986, Maureen Bacon, a licensed real estate
 salesperson employed by QLRC, showed the property to a prospective buyer who
 offered to purchase the condominium at less than the full listing price.
      A series of negotiations followed.  On May 30, 1986, the buyers' first
 offer, for $275,000, lapsed because it was not timely accepted.  During a
 telephone conversation with Maureen Bacon, Steven Boggess falsely stated
 that he had received a $280,000 offer for the property.  Bacon asked Boggess
 if he would consider a $281,000 offer.  Boggess indicated that he would con-
 sider, but not necessarily accept, such an offer.  Bacon, although not
 authorized to do so, then told the buyers that Boggess would accept a
 $281,000 offer.  In response, the buyers offered $281,000 for the unfurn-
 ished condominium, but included a mortgage contingency.  The Boggesses were
 hesitant to accept this offer.  After Boggess informed Bacon that he was
 considering taking the unit off the market, Bacon telephoned the buyers and
 suggested that they needed to make a full purchase price offer without
 contingencies, if they wanted to be assured of the purchase.
      Because the buyers were hesitant, Bacon and a QLRC vice-president,
 Edward Elliott, informed the buyers that if they made a $289,500 offer, QLRC
 would purchase the condominium's furnishings for $8,500 upon closing.  This
 would effectively make the buyers' $281,000 offer a full-price offer.  The
 buyers agreed to this arrangement, and on June 23, 1986, they offered
 $289,500, without contingencies, for the condominium.  The Boggesses were
 never told that a collateral arrangement was made between the buyers and the
 realtors regarding the condominium's furnishings, and the realtor's com-
 mission was not decreased as a result of the reduction in the sales price
 from $289,500 to $281,000.  The June 23 offer was sent to Boggess on June
 26, 1986.  He began to express concerns about taxes which would result from
 the property's sale in 1986, and asked Edward Elliott to delay closing until
 January, 1987.  The buyers agreed, and, on July 15, 1986, Elliott sent a
 contract to Boggess modifying the closing date.  Boggess, however, did not
 return the contract.
      In late July, Boggess consulted with an attorney for his mortgage
 brokerage firm in Massachusetts, and based on this consultation, made a
 counter-offer.  Among other things, the counter-offer increased the amount
 of the buyers' security deposit, transferred responsibility for the deposit
 to the seller, required the buyers to execute a note and mortgage, and
 reserved "[i]n the sellers' sole and uncontrolled discretion" the election
 to reject the sale by October 12, 1986.  The counter-offer was sent to the
 buyers on July 31, 1986.  The buyers were "quite shocked" when they received
 the counter-offer "on or about August 2 or 3, 1986."  They concluded that
 Boggess did not want to sell and would continue to throw "monkey wrenches"
 into further attempts to reach agreement.  That same day, during a telephone
 conversation with Bacon, the buyers expressed their frustration and anger
 about Boggess's counter-offer.
      On August 4, 1986, Elliott contacted Boggess's attorney, Raphaele
 Terino, and informed him that Boggess had turned down a full-price offer and
 could be liable for the broker's fee.  That same day, Boggess responded and
 agreed to rescind his counter-offer, and accept the buyers' offer.  One day
 later, on August 5, Elliott informed Bacon that Boggess accepted the
 buyers' offer.  In the meantime, however, Bacon had already arranged to show
 the buyers some other Quechee Lakes condominium units on August 8.  Bacon
 did not inform the buyers of Boggess's change of heart immediately because
 she did not wish to expose the buyers to further aggravation.  Instead,
 aware of the anger expressed by the buyers, Bacon decided to wait three days
 until August 8, to give this information to the buyers, when they were
 scheduled to return to Quechee to look at other units.  Bacon did not obtain
 Boggess's consent to wait three days to inform the buyers.  When Bacon did
 inform the buyers that Boggess changed his mind, she did so in such an
 indirect manner that it made no impression on them.  The trial court found
 that the actions of both Bacon and Elliott "reflect[ed] the realtors' strong
 desire to keep the [buyers] interested as customers."
      During the buyers' visit on August 8, QLRC showed them another more
 expensive unit, owned by QLRC's parent, Quechee Lakes Corporation, and
 offered a discount of $55,000 on the full price as a "furniture discount."
 The buyers decided to purchase this condominium from QLRC for $385,000 minus
 the discount.  QLRC received a larger broker's fee for this sale than the
 expected fee for the sale of the Boggess unit.  Boggess was not informed
 that the buyers had purchased another unit until he received a letter from
 QLRC dated August 15, 1986.
      The trial court concluded, based on the foregoing facts, that QLRC
 breached its fiduciary duty by failing to disclose its interest in the sale
 and reduce its commission,  It also concluded that QLRC was negligent in
 failing to immediately communicate the seller's change of heart regarding
 the buyers' latest offer.  Accordingly, it denied QLRC its commission.  QLRC
 argues on appeal that it did not breach its fiduciary duty to the Boggesses
 and, in any event, the Boggesses were not harmed because QLRC produced a
 buyer willing to purchase the property on their terms.
      We agree that QLRC breached its fiduciary duty to the Boggesses, but we
 base our opinion on a ground not specified by the trial court.  In doing so,
 we do no violence to the trial court's findings of fact or our proper
 function as an appellate court.  The trial court's findings of fact were
 supported by the evidence.  We affirm because QLRC failed to communicate
 material information from its principal to the buyers and acted in a manner
 antagonistic to the interests of its principal.  The trial court character-
 ized this behavior as negligence, but, however it is labeled, it defeats
 plaintiff's claim.
      Under a listing agreement in Vermont, a real estate broker is an agent
 of a seller and owes the seller the duties of a fiduciary.  Vermont Real
 Estate Commission Rule 30(a).  A real estate broker, as an agent, must act
 "with the utmost good faith and loyalty for the furtherance and advancement
 of the interests of his [or her] principals."  Prouty v. Blanchard, 93 Vt.
 206, 209, 106 A. 831, 833 (1919).  A person employing a broker to negotiate
 a sale "bargains for the disinterested skill, diligence and zeal of the
 broker for his [or her] own exclusive benefit."  Yerkie v. Salisbury, 264
 Md. 598, 603, 287 A.2d 498, 501 (1972).  Part of this duty requires that a
 broker disclose all matters that are material to, and might affect, the
 principal's actions.  Strout Realty v. Wooster, 118 Vt. 66, 70, 99 A.2d 689,
 692 (1953).
      As a fiduciary, QLRC had a duty to disclose to its principals any
 material information relevant to the sale.  Contrary to the trial court,
 however, we conclude that the material breach to be drawn from the facts is
 Bacon's failure to immediately communicate to the buyers that Boggess had
 rescinded his counteroffer and was willing to accept the last offer made by
 the buyers.  "It is the general rule that a real estate agent must act in
 compliance with the instructions of his principal."  Id.  In other words, a
 broker cannot be "controlled by his own judgment, rather than that of his
 principal."  Id.  Here, Bacon waited three days to tell the buyers that
 Boggess rescinded his counter-offer and was willing to accept their offer,
 and then did so in such an indirect manner that it made no impression on
 them.  As the trial court found, Bacon failed to make Boggess's change of
 heart clear to the buyers.  To make matters worse, Bacon's reason for
 waiting was out of concern for the buyers, and not in furtherance of some
 purpose consistent with that of her principals.  We can think of few matters
 more important to be immediately disclosed on behalf of a seller than
 acceptance of an offer, and Bacon's failure to disclose it breached her
 fiduciary duty to the Boggesses.  Had QLRC acted conscientiously and
 promptly in communicating the seller's agreement to accept buyers' price,
 the sale might have gone through and this lawsuit avoided.  This conclusion
 cannot be avoided on any view of the underlying facts.
       Admittedly, Steven Boggess was a difficult client.  He is not free
 from fault, (FN1) but neither is QLRC.  Throughout the negotiations, QLRC
 exacerbated the situation by not dealing with Boggess in a straightforward
 manner.  Bacon gave the buyers a false impression that Boggess would accept
 an offer for $281,000.  Later, when Boggess was considering taking the
 property off the market because he felt he could list the property for a
 higher price, Bacon suggested to the buyers that they make a full price
 offer without contingencies.  When the buyers were hesitant, the brokers
 offered to make up the difference between $281,000 and the full price upon
 closing, without disclosing that they were in on the transaction.  Later,
 QLRC's actions were directed at retaining the buyers as customers, rather
 than selling the Boggess property, and their efforts were successful.  The
 buyers eventually bought a property, which was owned by QLRC's parent cor-
 poration, Quechee Lakes Corporation, at a substantial "discount."  Although
 not every questionable action by QLRC rose to the level of a breach of
 fiduciary duty, those actions demonstrate the climate in which the breach
 occurred.  QLRC shares with Boggess responsibility for creating that
 climate.
      QLRC argues that, whatever its conduct, it produced a buyer prepared to
 purchase the property at the full listed price, and, therefore, it is
 entitled to its commission.  We are not willing to hold, however, that
 QLRC's breach of its fiduciary duty, in the backdrop of this case, carries
 no penalty.  We apply the well-settled rule of agency law that an agent who
 conceals material information from a principal, or does not otherwise comply
 with the principal's intentions, is not entitled to collect a commission on
 the sale.  Restatement (Second) of Agency, { 469 (1958); see Janes & Jacob
 Real Estate, Inc. v. Dave's Automotive, Inc., 150 Vt. 162, 165, 552 A.2d 380, 382 (1988).  Comment a of section 469 of the Restatement provides an
 explanation of this rule:
         An agent who, without the acquiescence of his principal,
         acts for his own benefit or for the benefit of another
         in antagonism to or in competition with the principal in
         a transaction is not entitled to compensation which
         otherwise would be due him because of the transaction.
         This is true even though the conduct of the agent does
         not harm the principal, and even though the agent
         believes that his conduct is for the benefit of the
         principal and that he is justified in so acting.

 In Moore and Co. v. T-A-L-L, Inc., 792 P.2d 794, 800 (Colo. 1990), the
 Colorado Supreme Court adopted this section of the Restatement when it held
 that a broker's breach of a fiduciary duty to a seller results in a for-
 feiture of the right to a sales commission regardless of whether the seller
 suffered any harm, even if the broker has not engaged in fraud, self-dealing
 or taken a secret profit.  In that case, a broker failed to disclose a sub-
 stantially higher offer made to him prior to closing, but after a contract
 for sale was made with a buyer.  Id. at 797.  The broker disclosed the
 details of the higher offer to the buyer under contract, and orchestrated
 meetings between the contracted buyer and the new buyer, all without dis-
 closure or authorization from his principal.  Id.  The agent's disloyalty
 left the principal without information on which it might have renegotiated
 the sale.  Id.  Although the principal received a full price offer, the
 court upheld the trial court's order denying the broker's right to a
 commission on the sale. Id. at 800. The court stated: "To hold otherwise
 would reward the broker for conduct violative of the broker's basic duty to
 the seller."  Id.
      Moreover, the broker's fiduciary duty to the seller does not end when
 the broker procures a ready, willing and able buyer on the seller's terms.
 Broker misconduct occurring subsequent to the broker's production of a buyer
 has been held to violate the broker's fidiciary obligation.  See Id. at 799
 (where agency agreement authorizes broker to sell property, broker's
 fiduciary obligation continues through closing); Wallace v. Odham, 579 So. 2d 171, 175 (Fla. Dist. Ct. App. 1991)(breach of fiduciary duty provided
 ground to bar commission even though acts of breach occurred after broker
 abandoned agency contract).  Therefore, QLRC was not relieved of its duty of
 loyalty to the sellers after it produced a buyer.
      We are persuaded by the reasoning of Moore that certain basic duties
 are inherent in a real estate contract.  A seller who contracts with a real
 estate broker should be able to expect loyalty as well as price.  QLRC's
 failure to inform may well have been the single most significant reason the
 sale did not materialize, given the buyers' interest in completing a sale.
 Therefore, we hold that when a real estate broker breaches a fiduciary duty
 to a principal, the broker is not entitled to receive a commission if some
 potential harm to the principal may have been caused by the breach, even
 though no actual harm is shown.
      Affirmed.

                                         FOR THE COURT:




                                         Associate Justice

         
FN1.      Boggess's counterclaim for damages from the loss of the sale of the
 property were denied by the trial court, which found that Boggess was the
 "architect of his own undoing."  No appeal was taken from the judgment on
 the counterclaim.


------------------------------------------------------------------------------
                                   Dissenting



 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P.
 40 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
 that corrections may be made before this opinion goes to press.


                                 No. 89-457


 Quechee Lakes Rental Corporation             Supreme Court

                                              On Appeal from
      v.                                      Windsor Superior Court

 Stephen J. Boggess and                       September Term, 1991
 Mary B. Boggess


 Ellen H. Maloney, J.

 P. Scott McGee of Hershenson, Carter, Scott & McGee, Norwich, for
   plaintiff-appellant

 Michael F. Hanley of Plante, Hanley & Gerety, P.C., White River Junction,
   for defendants-appellees


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      DOOLEY, J., dissenting.   If the trial court had accepted the theory
 adopted by the majority, I would be tempted to affirm and join the majority
 opinion.  The trial court did not accept this theory for good reasons, and
 the majority opinion is not consistent with the standard for reviewing the
 trial court's findings and decision.  As a result of the majority's
 decision, the sellers, whose manipulations were the sole cause of their
 losing a sale on terms they set, escape the legal consequences of their
 actions.  I dissent.
      The majority characterizes the trial court decision as concluding that
 the brokers breached their fiduciary duty by "failing to immediately com-
 municate the seller's change of heart regarding the buyers' latest offer."
 The decision is then restated as "QLRC failed to communicate material
 information from its principal to the buyers and acted in a manner antag-
 onistic to the interests of its principal."
      In fact, the trial court found a breach of fiduciary duty, that would
 deprive the brokers of their commission, only in their failure to disclose
 the "side deal" for the furniture.  The court found that the failure to
 inform the purchasers of the sellers' changed position was "negligence" with
 no "disloyalty, fraud or bad faith."  It also found that Stephen Boggess was
 the architect of his undoing, that the buyers were "exasperated and mis-
 trustful" of him and that independent of any actions of the broker, "they
 decided to have no further dealings" with the sellers.
      The majority recognizes that its decision rests on conclusions not
 drawn by the trial court.  It states, however, that it does "no violence to
 the trial court's findings of fact."  I strongly disagree.  A central part
 of the majority's analysis is that if the broker had immediately commun-
 icated the sellers' change of heart "the sale might have gone through and
 this lawsuit avoided."  This is directly contrary to the trial court's
 finding that "Q.L.R.C. and its agents . . . were not the cause of Boggess'
 failure to sell [the condominium] . . . [i]ndependently of any actions of
 Q.L.R.C., [the buyers] . . . decided to have no further dealings with the
 defendant."  As the majority states, the trial court's findings, including
 this one, are supported by the evidence.  It is improper for this Court to
 ignore the trial court's finding.
      I agree with the majority that the applicable law is found in { 469 of
 the Restatement (Second) of Agency.  It provides that "[a]n agent is
 entitled to no compensation for conduct which is disobedient or which is a
 breach of his duty of loyalty . . . ."  As the comment quoted by the
 majority points out, the duty of loyalty is breached if the agent "acts for
 his own benefit or for the benefit of another in antagonism to . . . the
 principal."  Id., Comment a.  There is nothing in the section or the comment
 to suggest that negligence alone, without improper motive, creates a breach
 of duty of loyalty.  The trial court found as fact that the broker did not
 act for its own benefit, and that factfinding must be upheld if not clearly
 erroneous.  See, e.g., Musselman v. Southwinds Realty, Inc., 146 Ariz. 173,
 175, 704 P.2d 814, 816 (1985) (whether breach of fiduciary duty occurred is
 a question of fact).
      What the majority has really concluded is that the broker was self-
 dealing in order to earn a higher commission on a sale of another con-
 dominium to the buyers.  This is directly contrary to the trial court's
 finding that the broker did not switch the buyers to another condominium to
 earn a higher commission.  There was evidence that the buyers were so angry
 with the sellers because of the sellers' actions that they would not even
 drive by the condominium on which they had made an offer.  The broker could
 fairly surmise that fueling that anger was pointless and might further
 injure the principal.  It was not clearly erroneous for the trial court to
 conclude that the broker's delay in notifying the buyers, and the method of
 notification, was negligence but was not induced by improper motives and was
 not disloyal.
      There is a second reason why this creation of a new theory on appeal to
 deny the commission is improper.  The broker discharged its obligation under
 the listing agreement when it produced a buyer "ready, willing and able" to
 purchase on the terms specified by the seller.  See Arjay Properties, Inc.
 v. Hicks, 143 Vt. 335, 338, 465 A.2d 777, 778-79 (1983).  If a sale doesn't
 occur because of the sellers' "fault or inability to complete it," the
 broker is still entitled to a commission.  Pond v. Carter, 126 Vt. 299, 305,
 229 A.2d 248, 252 (1967).  Under the majority's theory, the breach of fid-
 uciary duty occurred after the seller had rejected the full-price offer of
 the buyers and after the buyers had irrevocably decided to have no further
 dealings with the seller.
      Although even a breach of fiduciary duty that does not result in harm
 may prevent recovery of the commission, there must first be a "duty" that
 was breached.  At best, the presence of a duty here is arguable and depends
 on a finding, not made by the trial court, of an agency relationship that
 continued beyond the rejection of the full-price offer.  On this point,
 neither the Colorado nor the Florida case cited by the majority is helpful.
 The Colorado opinion addresses the obligation of the broker when a contract
 of sale specifically provides that the broker is to sell the property.
 Moore and Co. v. T-A-L-L, Inc., 792 P.2d 794, 799 (Colo. 1990).  The Florida
 case involves a listing agreement that "requires the broker not only to find
 a purchaser but actually to affect the sale or procure a binding contract of
 purchase."  Wallace v. Odham, 579 So. 2d 171, 174 (Fla. Dist. Ct. App.
 1991).  The listing agreement in this case did not give the broker the power
 to sell, nor did it require an actual sale for the broker to earn a
 commission.  I do not believe we should create a duty that goes beyond the
 point where the broker earned the commission.
      The sale of real estate through brokers has been a fertile area for
 litigation in this state and elsewhere.  See Zeigler, Brokers and Their
 Commissions, 14 Real Est. L.J. 122, 122 (1985) (real estate brokers'
 commission disputes "have given rise to more litigation in the history of
 American law than just about any other type of conflict").  In fact, the
 relationship between brokers and buyers and sellers of real estate is
 fraught with potential conflict.  A thoughtful analysis of the role of the
 real estate broker points out:
         The broker attempting to fulfill his duties to both
         buyers and sellers confronts a seemingly unresolvable
         dilemma.  The obligation to hold the interest of his
         principal above all others conflicts with his public
         responsibility to deal fairly with nonprincipals in real
         estate transactions.  Although most transactions are
         concluded without complaint from either party, the
         thoughtful broker should realize that only the rare
         conveyance does not involve at least a technical
         violation of law or regulation.

 Currier, Finding the Broker's Place in the Typical Residential Real Estate
 Transaction, 33 U. Fla. L. Rev. 655, 674 (1981).  The broker made an attempt
 to deal fairly with the potential buyer despite roadblocks put up by the
 seller.  The majority holds that a technical violation of law, made
 negligently and without improper motive resulting in no harm to the seller,
 deprives the broker of a commission.  The rule the majority creates
 encourages a seller to search for some harmless, innocent violation of a
 broker's duty as a justification for denying a commission to a broker who
 has produced exactly the sale that the seller seeks.  The result is neither
 just in this case nor wise as a matter of general policy.  Accordingly, I
 dissent.
      I am authorized to state that Chief Justice Allen joins in this
 dissent.


                                              Associate Justice