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Lunsford v. Fraley

April 4, 1997

D. S. LUNSFORD AND LINDA LUNSFORD, HUSBAND AND WIFE, APPELLANTS,
v.
HARRY FRALEY AND THERESA FRALEY, HUSBAND AND WIFE, AND THE MARITAL COMMUNITY COMPOSED THEREOF, AND JOHN DOE THOMAS AND JANE DOE THOMAS HUSBAND AND WIFE; WINDERMERE REAL ESTATE/EAST, INC., A WASHINGTON CORPORATION; AND KATH HAWKES AND JOHN DOE HAWKES, HUSBAND AND WIFE; AND DON RILEY AND JANE DOE RILEY, HUSBAND AND WIFE; AND SUSAN JONES AND JOHN DOE JONES, HUSBAND AND WIFE; AND AUDREY LILY AND JOHN DOE LILY, HUSBAND AND WIFE, DON DEASY AND JANE DOE DEASY, HUSBAND AND WIFE, RESPONDENTS. HARRY FRALEY AND TERESA FRALEY, HUSBAND AND WIFE, AND THE MARITAL COMMUNITY COMPOSED THEREOF, THIRD-PARTY APPELLANTS, V. BETTY CHANDLER AND ROBERT L. CHANDLER, HUSBAND AND WIFE, AND THEIR MARITAL COMMUNITY; THIRD-PARTY RESPONDENTS.



Appeal from Superior Court of King County. Docket No: 93-2-06026-2. Date filed: 08/18/95.

Authored by Walter E. Webster. Concurring: Ann L. Ellington, Mary K. Becker.

The opinion of the court was delivered by: Webster

WEBSTER, J. -- This breach of fiduciary duty action concerns an agent's common law duty to disclose a material fact in a residential real estate transaction. Here, the Lunsfords were trying to buy the Fraleys' home. Windermere Real Estate Company represented both, and the three of them signed a dual agency addendum. During the negotiations an agent learned from the Fraleys that a third party would make an offer on the house. The parties dispute whether the agent told the Lunsfords. After the Fraleys accepted the other offer, the Lunsfords sued Windermere, alleging that it should have disclosed the other offer. Because a reasonable jury could find that the Lunsfords might have changed their bargaining position had they known of the new offer, it could be a material fact that Windermere should have disclosed. Further, nothing in the dual agency addendum excused Windermere from disclosing information about another offer that it learned about from the Fraleys. Hence, the trial court erred in granting summary judgment to Windermere, and we reverse.

FACTS

Theresa and Harry Fraley wanted to sell their home, so they listed it with Juliet Tuck, a Windermere real estate licensee. Tuck worked in Windermere's Bellevue West office. D. S. and Linda Lunsford wanted to buy a house, and Betty Chandler, a real estate licensee associated with Windermere Real Estate/East, Inc. represented them.

When the Lunsfords decided to make an offer for the Fraley's home, Windermere gave each of them a Consensual Dual Agency Addendum. Under that addendum, the Fraleys and Lunsfords recognized that Chandler and Tuck were "Consensual Dual Agents" who would represent both parties. Still, the addendum limited the disclosure of confidential information by Windermere to one or the other:

Except for known material defects or other specific disclosures required by law, Seller and Buyer agree that the salesperson shall not be liable to either party for refusing or failing to disclose confidential or privileged information without permission which in the sole discretion of the salesperson could harm one party's bargaining position including, but not limited, to financing information, motivation, price, terms, negotiating strategies or other private matters. The Fraleys and the Lunsfords consented to the addendum, and waived "any claims they may have arising from this [dual agency] relationship."

Although the parties subsequently agreed on price, they had difficulty resolving issues arising from the Fraleys' earlier remodeling that was done without permits. The parties made written counteroffers, but never signed an identical purchase and sale agreement. During this process, the Lunsfords understood that Windermere would show the house to potential buyers.

While the Fraleys and Lunsfords negotiated, Kath Hawkes, another Windermere real estate licensee, showed the property to the Thomases. The Fraleys told Chandler that they expected to receive a higher offer from another buyer. Chandler alleges that she told the Lunsfords about the Thomas offer, but the Lunsfords deny it. Nevertheless, the Lunsfords believed that they had a binding agreement with the Fraleys. The Thomases offered to buy the home, and the Windermere agents, in conjunction with a Windermere broker, decided that the Fraleys and the Lunsfords had no binding agreement, and that Hawkes would present the Thomases' offer. And Windermere did not advise the Lunsfords that it would present the Thomas offer. The Fraleys sold to the Thomases.

Although the Lunsfords sued the Fraleys, the Thomases, Windermere, its agents, and its broker, it soon nonsuited the Fraleys and the Thomases, and eventually nonsuited all defendants save Windermere. The Lunsfords and Windermere then participated in a mandatory arbitration. That produced a $200 nominal damage award to the Lunsfords for Windermere's breach of fiduciary duty; the arbitrator also awarded them attorney fees. When Windermere filed for trial de novo, the parties stipulated to the facts and filed cross motions for summary judgment. The trial court granted Windermere's motion for summary judgment and for attorney fees, then granted the Fraleys' motion for attorney fees. The Lunsfords appeal both awards.

Discussion

Fiduciary Duty Cause of Action

The Lunsfords assert two breaches of fiduciary duty: (1) failing to disclose the Thomas offer to them, and (2) actively promoting the interests of the Thomases over their interests, resulting in a conflict of interest. *fn1

A principal and an agent create an agency relationship by consenting to it. *fn2 Likewise, two principals can consent to the agent's request to simultaneously serve them, even though they have adverse interests in a transaction. *fn3 If both principals consent, the agent's relationship with each principal is characterized as a dual agency. *fn4 Although it may increase the agent's remuneration, dual agency is perilous. *fn5 For the agent owes each principal the duties of utmost good faith, loyalty, and disclosure. *fn6 Despite having two principals, the dual agency must disclose information ...


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