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THE STATE OF SOUTH CAROLINA
In The Supreme Court
Gwendolyn N. Darby, Petitioner,
v.
The Furman Company,
Inc., Respondent.
ON WRIT OF CERTIORARI TO THE COURT OF
APPEALS
Appeal From Greenville County
Marc H. Westbrook, Circuit Court Judge
Opinion No. 24919
Heard November 18, 1998 - Filed March 15, 1999
REVERSED
Sally G. Calhoun, of Beaufort, for petitioner.
Larry D. Estridge, of Wyche, Burgess, Freeman and
Parham, of Greenville, for respondent.
TOAL, A.J.: This matter is before the Court on a writ of certiorari
to review the Court of Appeals' decision in Darby v. The Furman Co., No. 97-
UP-241 (S.C. Ct. App. filed April 4, 1997). The case involves a breach of
fiduciary duty claim against a real estate broker. The Court of Appeals
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remanded for further factual findings. We reverse.
FACTUAL/PROCEDURAL BACKGROUND
Petitioner Gwendolyn N. Darby ("Darby") owned a large tract of land in
Greenville County. In 1987, Darby contacted respondent Furman Company,
Inc. ("Furman") and spoke with its agent, Bill Fogleman ("Fogleman"). Darby
expressed interest in selling 53 acres of her Greenville County property and
signed an "Exclusive Right to Sell" contract on May 5, 1987. In that contract,
Darby agreed to pay a $500 per acre real estate commission. .
Fogleman produced Yarborough Real Estate Development Company
("Yarborough") as a potential purchaser. Yarborough planned to develop the
property into a new housing subdivision. Darby signed a Contract of Purchase
and Sale with Yarborough on May 15, 1987. Under the terms of that contract,
a purchase money note add mortgage provided most of the purchase price. The
contract required Darby to subordinate her security interest to the buyer's
anticipated development financing. Their agreement placed no cap on the
amount to which Darby's interest could be subordinated.
After Darby signed the purchase contract in May, agent Fogleman and his
wifejoined purchaser Yarborough and another real estate developer in forming
Squires Creek Partnership ("Squires Creek"). Yarborough then transferred its
interest in the real estate sales contract to Squires Creek. Squires Creek closed
the sale of the -property with Darby in December of that year. The trial
produced conflicting testimony as to the extent Fogleman revealed to Darby his
partnership interest with Squires Creek. Fogleman claims that he fully
disclosed his interests to Darby. Darby maintains that she was unaware of the
nature and extent of Fogleman's involvement with the purchaser. Fogleman
did testify that he never put into writing any disclosure to Darby.
Squires Creek obtained more than $1.2 million in development financing
for the project. The development project failed and the construction lender
foreclosed on the property. Not only did Darby lose her land, but the foreclosure
action eliminated her purchase money note and mortgage. Darby obtained a
judgment against Squires Creek for the value then owing on its promissory note
plus interest ($315,056.45). The Foglemans, who paid $30,000, are the only
ones to have made a payment on this award. Darby has also sued and reached
a confidential settlement with the attorney who advised her on the contract.
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In the present case, Darby sued Furman on a theory of vicarious liability
for Fogleman's breach of fiduciary duty and fraud. She sought the total amount
to satisfy her earlier judgment along with the return of $26,500 in commission
fees she paid to Furman, The trial court judge heard the case without a jury
and found that Darby's breach of fiduciary duty claim was the equivalent of a
claim for constructive fraud. The judge found that Darby failed to prove the
reliance element of her cause of action and then dismissed her claim with
prejudice. Darby alleged on appeal that the trial court: (1) abused its discretion
in denying her motion to transfer the case to the jury roster; (2) erred in
granting Furman a directed verdict on the fraud claim; (3) erred in finding for
Furman on her breach of fiduciary duty claim; and (4) ruled improperly on her
damages.
The Court of Appeals affirmed the trial court on all the issues except the
return of the real estate commission and remanded that issue to the trial court
for further findings. Darby then petitioned this Court for a writ of certiorari
that was granted on the following issue:
Are real estate brokers allowed to retain a sales commission when
they become the purchaser of the property?
LAW/ANALYSIS
Darby argues that Furman must disgorge the real estate sales
commission because Fogleman failed to satisfy his fiduciary obligations when
he became the purchaser of the property. We agree. Real estate agents occupy
a fiduciary relationship with their clients and are, under a legal obligation as
well as a high moral duty to give loyal service to the principal. Hamby v. St.
Paul Mercury Indemn. Co., 217 F.2d 78, 80 (4th Cir. 1954). The duty of an agent
to make full disclosure to his principal of all material facts relevant to the
agency is fundamental to the fiduciary relationship of principal and agent. Bost
v. Bankers Fire & Marine Ins. Co., 242 S.C. 274, 283, 130 S.E.2d 907, 911-12
(1963); see also Designer Showrooms, Inc. v. Kelley, 304 S.C. 478,405 S.E.2d 417
(Ct. App. 1991)("A broker owes a duty to its principal to keep it fully and
properly informed of all material facts.").1
"Perhaps the most important fiduciary duty the broker owes to the principal.
. ." Paula C. Murray, The Real Estate Broker and the Buyer: Negligence and the
Duty to Investigate, 32 Vill. L. Rev. 939, 944 (1987).
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In South Carolina, a person cannot be both the seller's agent and the
purchaser of the property without an inherent conflict. Pollitzer v. Long, 295
S.C. 28, 30, 367 S.E.2d 18, 20 (1988); see also Designer Showrooms, Inc. v.
Kelley, 304 S.C. 478,405 S.E.2d 417 (Ct. App. 1991)("There is a repugnancy of
one serving as both broker for a principal and purchaser for that same
principal."). By becoming a member of the entity with an outstanding offer to
purchase the property of his principal, Fogleman abandoned his position as an
agent to sell and became a purchaser of the property. In order to complete the
transaction and keep any commission for the sale, Fogleman's fiduciary duty
required him to inform Darby of these material facts and obtain her express
permission to continue. See 12 Am. Jur. 2d Brokers § 120 (1997) ("Generally,
a broker can neither purchase from, nor sell to, his or her principal, unless the
later expressly consents or acquiesces to the transactions with full knowledge
of all the facts and circumstances.").2 Even though Darby could not maintain
a case for breach of fiduciary duty against Furman with regard to the overall
sale of the property, that does not mean Fogleman satisfied all his fiduciary
duties and earned the commission.
When selling to himself, a real estate broker fails to satisfy his fiduciary
duty to disclose all material facts to the principal if the broker fails to secure an
agreement from the seller acknowledging both his change in position along with
the seller's right to refuse the commission's payment. See 12 Am. Jur. 2d
Brokers § 120 (1997); cf Designer Showrooms, Inc. v. Kelley, 304 S.C. 478) 405
S.E.2d 417 (Ct. App. 1991) (holding that a broker was not entitled to the sales
commission where he secretly sold the property to himself because he breached
a fiduciary duty and had ceased to act as the seller's agent). This disclosure
requirement is intended to satisfy the strict fiduciary requirements placed on
an agent when the agent becomes the purchaser of the principal's property. See
Am Jur. 2d Brokers § 118 (1997).
When selling to himself, a broker must meet the extremely high
standards of his fiduciary obligation as well as carry the burden of proof to show
R. 105-20 that requires: "No broker or salesman shall either directly or
indirectly buy for himself or for a corporation or any other business in which he
holds an interest or for a close relative, property listed with him or property for
which he has been approached by the seller or prospective buyer to act as
broker, without first making his true position clearly known to all parties
involved." (emphasis added).
p.16
full disclosure of his position to the principal. In a situation where the agent is
on both sides of a transaction, the broker can only meet these responsibilities
by obtaining an agreement of at least the same formality as the initial
agreement creating the agency relationship. Cf S.C. Code Ann. § 40-57-137(M)
(Supp. 1998)("A [real estate broker] may act as a disclosed dual agent only with
the prior informed and written consent of all parties.").3
In the present case Darby and Furman had a written agency agreement.
Thus, in order to claim the commission, Fogleman and Furman would have to
produce a written agreement signed by Darby acknowledging Fogleman as a
member of Squires Creek and recognizing Darby's right to chose not to pay the
commission. Oral explanations by Fogleman fully disclosing his position in
Squires Creek would be insufficient to secure the commission. Fogleman
admits he did not make any disclosure or obtain a waiver in writing. Darby is
therefore entitled to recover the commission.
CONCLUSION
Based on the foregoing, the decision of the Court of Appeals is
REVERSED.
FINNEY, C.J., MOORE, WALLER, and BURNETT, JJ-, concur.
real estate brokers acting as a "dual agent" in transactions. Here, Fogleman
had an even greater conflict than mere dual agency, he became part of the
purchaser of the property.
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