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Does abandonment of a client terminate a real estate listing contract?

May 23rd, 2015 | By | Category: Real Estate Broker Law

California Broker Law – Terminating agency and breaking exclusive listing agreements through revocation, abandonment, or renunciation.

Abandonment of exclusive listing agreements

Podcast:  Listen to Attorney Steve discuss abandonment of exclusive listing agreements on our real estate law podcast.

Introduction

This blog is about the real estate broker that gets a listing and fails to perform any services (prompting the seller to assume the broker was abandoning the transaction, and then prompting the seller, based on that assumption, to want to abandon and revoke the agency as well).  Then when another diligent agent scoops up the listing, Broker#1 wants to get paid on the commission earned by Broker #2, (possibly but not necessarily arguing they are the procuring case).   Does the failure to adhere to fiduciary duties cancel the right to a commission?  Is this a case of abandonment of agency or renunciation of agency?  Let’s explore, shall we?

A real estate broker owes fiduciary duties the minute they enter into the contractual relationship (i.e. sign the listing contract)

Failure to adhere to fiduciary duties can not per se terminate a listing contract, but rather, it can terminate the right to any real estate commission.  This is an important concept.  As the Court noted in Ziswasser v. Cole & Cowan, Inc., 164 Cal. App. 3d 417, 421, 210 Cal. Rptr. 428, 429-30 (Ct. App. 1985), fiduciary duties come in an impressive array of individual duties:

“A real estate broker is a fiduciary who has “the same obligation of undivided service and loyalty that [the law] imposes on a trustee in favor of his beneficiary. A fiduciary must disclose all material facts to his principal concerning the subject of the agency….it almost goes without saying that the general fiduciary duty owed by the agent to his principal includes the duty to make a full and complete disclosure to him of all material facts which the agent knows and which might influence the principal with respect to the transaction and to his willingness to enter into it.”
As set forth in, Roberts v. Lomanto, 112 Cal. App. 4th 1553, 1563, 5 Cal. Rptr. 3d 866, 873 (2003): “When a broker is engaged by an owner to market the owner’s property, an agency relationship is created.”  There is a duty of due care and diligence: “A broker is obligated to exercise reasonable skill and care in the performance of his or her duties.”

Broker’s who hold themselves out as specialists or with special real estate designations cane be held to a higher standard of care.

In certain cases, the broker may have held him or herself out as a “certified specialist” or “expert” in this field or that.  As noted in Wilson v. Hisey (1957) 147 CA2d 433, 438, 305 P2d 686, 690 these brokers or salespersons may be held to a higher standard of care:
“Holding an agent out as a professional with superior knowledge in real estate transactions, brokers are subject to the standard of care that would be exercised by a reasonably prudent real estate broker or salesperson acting in a similar capacity.”

Duty to be honest and truthful at all stages of the real estate transaction

There is also a duty to be honest and truthful with the Seller or other real estate client in every real estate transaction.  See Ward v. Taggart (1959) 51 C2d 736, 741, 336 P2d 534, 537.  This would include the requirement that a presentation of “comps”(supporting a purported market analysis to set the fair market value for a listing agreement) be the product of legitimate research and a true measure of the value of the property as opposed to a lazy or fraudulent attempt to underprice the property in an effort to get it sold (this should be considered a bad faith act, deceptive, and a fraudulent omission of the true comps that support the real value of the property).  Where you have this type of bad faith, deceit, laziness, and failure to price the property at what it should be sold for (which of course costs the property owner money, and in some cases can be the difference between a short sale which will leave the seller with negative credit, and walking with equity in the seller’s pocket).  Quite a dramatic difference.

There is case law that suggest a bad faith failure to perform services, disloyalty or fraud can quash the right to a commission.

As noted above, if there is bad faith, fraud, deceit in regard to handling the listing contract, this can breach the broker fiduciary duty and negate any right to earn the commission.  In Ziswasser v. Cole & Cowan, Inc., 164 Cal. App. 3d 417, 424-25, 210 Cal. Rptr. 428, 432 (Ct. App. 1985) the Court noted:

“A case more closely related factually to the instant one is Tackett v. Croonquist (1966) 244 Cal.App.2d 572, 53 Cal.Rptr. 388. There, the defendant brokerage company received information from one Lohr that he wanted to sell or exchange a parcel of land. An agent of the broker showed the plaintiffs, who wished to sell or exchange their motel, a certain parcel of land, stating that it was Lohr’s property. However, it was not the property for sale. An exchange was completed. The error in location was subsequently discovered and plaintiffs brought an action for negligent misrepresentation against the brokerage company. In reversing the trial court’s judgment awarding the broker’s commission to the plaintiffs, the court reviewed the circumstances in which a broker loses his right to receive a commission or to retain a commission that has been paid. The court observed that “[a]n agent is entitled to no compensation for conduct which is disobedient or is a breach of his duty of loyalty; such conduct, if constituting a wilful and deliberate breach of his contract of service, disentitles him to compensation for even properly performed services for which no compensation is apportioned. (Rest. Agency, § 469.) The court then cited several cases holding that where there is no disloyalty, bad faith, or fraud, an agent is not deprived of his right to compensation. Reasoning that since the trial court found the broker’s representations were negligently made and not with the intent to induce action, the Tackett court concluded that the representations amounted to constructive rather than actual fraud and thus the broker was entitled to retain his commission.”

If you have been the victim of a breach of fiduciary duty by a real estate agent, contact us to discuss your legal rights.  We can also defend Realtors, sales agents, and brokerages who are involved in a real estate commission dispute, board hearing, or state or federal litigation case.

A seller can terminate a listing agreement

In case its not clear, a seller under an exclusive listing agreement does have the right to terminate and cancel the contract where the broker or agent is providing false comps, failing to perform services to market the property, etc.  This passages comes from the California Bureau of Real Estate website:

“B. Exclusive Agency An exclusive agency is an agreement by which the owner agrees to employ a particular real estate broker and no other to solicit buyers, tenants/lessees, or lenders. Under an exclusive agency listing, the broker’s right to a commission is protected as against other brokers for the duration of the listing agreement. However, under an exclusive agency agreement, the owner retains the right to sell, encumber or rent/lease the property on his or her own and, in that event, the owner can terminate the agency agreement and defeat the broker’s claim to a commission or other compensation.”

Again, if you are involved in a real estate commission dispute, board or ethics hearing, contact us by filling out the contact form below.  The facts of the case need to be closely examined, and where “procuring cause” is an issue, these factors can be explored as well.

Failure to serve the client and abandonment will cancel a listing contract

A common type of complaint arises where the real estate agent fails to perform valuable services under the Contract.  The owner of the property normally hires the agent to list the property in the MLS, and to advertise it on various internet websites, hold open houses, or negotiate with the bank or mortgage servicer in loan modification situations.  Failure to perform, or even start to perform these services evidences an abandonment of the contract, and possibly a renunciation of the agency.

Under the California Civil Code Section 2355:

An agency is terminated, as to every person having notice thereof, by any of the following:

(a) The expiration of its term.
(b) The extinction of its subject.
(c) The death of the agent.
(d) The agent’s renunciation of the agency.
(e) The incapacity of the agent to act as such.

Abandonment is a form of renunciation but different in terms of legal concept.  In Ben-Zvi v. Edmar Co., 40 Cal. App. 4th 468, 474-75, 47 Cal. Rptr. 2d 12, 15 (1995), as modified (Nov. 21, 1995) the court discussed the concept of renunciation of the agency by the agent:

“An agency may be terminated by “[t]he agent’s renunciation” of it. (Cal Civ.Code, §2355, subd. (d)) There is no evidence here that appellant renounced her agency. In fact, the evidence demonstrates that after she left Israel and before Edmar terminated the contract, appellant’s husband requested that Edmar mail her checks to her United States address. He testified that he did tell Ron how to contact them in the United States. This conduct is inconsistent with an intent to renounce the agency.”
As you can see, you need facts that show the agent had an intent to renounce the agency, and did in fact do so.  The Court continued drawing the distinction with abandonment of agency:
“Respondents also contend that appellant “abandoned” the agency by failing to personally perform any services for Edmar, moving, and “infuriating” Ron. “A mutual abandonment of an agency terminates the relationship between the parties.” (Preszler v. Dudley (1957) 153 Cal.App.2d 120, 124, 314 P.2d 138.) Abandonment occurs, however, only where both contracting parties agree “that the contract is terminated and of no further force and effect.” (C. Norman Peterson Co. v. Container Corp. of America (1985) 172 Cal.App.3d 628, 640, 218 Cal.Rptr. 592.) For the reasons stated above, there is no evidence that appellant agreed to terminate the contract.”
The Court discusses that if there was an obligation to perform some type of service under the terms of the contract, failure to perform those services could constitute abandonment of the agency:
“Nor does appellant’s alleged failure personally to perform services amount to an abandonment. The contract does not require her to personally engage in any marketing or distribution activities. It only requires her to sell $5,000 of Edmar products each year. She met that requirement by hiring Ron to do so and he did.”
In another California case, the Court held that abandonment can be implied from the circumstances.  In C. Norman Peterson Co. v. Container Corp. of Am., 172 Cal. App. 3d 628, 643, 218 Cal. Rptr. 592, 600 (Ct. App. 1985) the Court noted:
 “In contrast, abandonment requires a finding that both parties intended to disregard the contract, and abandonment may be implied from the acts of the parties.”
As mentioned above, where the listing agent fails to perform any services, this evidences an intent to abandon or renunciate the listing contract.  If the seller hires a new agent or broker, this evidences the owners intent to abandon the agency, (even if not otherwise verbally cancelled) and can support the facts needed to show a mutual abandonment.

Agency can be revoked by the principle or renounced by the agent

In another case touching on the above points the Court in Preszler v. Dudley, 153 Cal. App. 2d 120, 123-24, 314 P.2d 138, 141 (1957) held:
“An agency usually depends on the assent of both parties and therefore may be revoked by the principal or renounced by the agent at any time……substantially correlative to the power of the agent to withdraw his assent is the power of the principal to withdraw his assent. Even though it may not be terminated by the act of one of the parties, it may, given the necessary conditions of form and consideration, be terminated through the subsequent release by the party in interest, or the agreement of both parties to rescind or cancel the contract between them. A mutual abandonment of an agency terminates the relationship between the parties. Whether an agency was mutually abandoned is a question of fact. An abandonment is a matter of intent and is to be ascertained from the facts and circumstances surrounding the transaction out of which the abandonment is claimed to have resulted; it may be implied from the acts of the parties.
The above cases indicate the important of having a real estate lawyer closely examine the facts of your case to determine what the respective legal rights of the parties are.

Contact our Real Estate arbitration & litigation law firm

We can help brokers, sales agents, and property owners who may be involved in a real estate commission dispute, local real estate board arbitration, CAR mediation (note that C.A.R. mediation requires agreement of both parties), state or federal lawsuit or ethics hearings and real estate accusations.  We offer low cost and flexible legal fees and tenacious legal representation.  Call us at (877) 276-5084 or fill out the contact form below to have one of our real estate lawyers call you, normally within  24 hours.
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