CHARLES J. BROWN, M.D., Plaintiff, v. RANDALL A. ROTH, MARY JO
ROTH, LAKE PROPERTIES LIMITED, H.B. PETHEL COMPANY, INCORPORATED
AND AMERISPEC, Defendants
Vendor and Purchaser--realtor--square footage--reliance on appraisal
Summary judgment was improperly granted on claims for breach of fiduciary duty and
negligent misrepresentation against a realtor arising from plaintiff's purchase of a house with
fewer square feet than represented where the realtor had relied upon the square footage in an
appraisal. There was a genuine issue of material fact as to whether defendant exercised
reasonable care in obtaining and communicating to plaintiff the heated square footage; a real
estate agent's reliance on a reliable appraiser for computation of square footage is evidence of
the agent's compliance with her standard of care but is not conclusive. Summary judgment on
fraud and unfair and deceptive trade practices claims was proper because there was no evidence
that defendant knew it had communicated false square footage information.
Appeal by plaintiff from order filed 23 March 1998 by Judge
Dennis J. Winner in Mecklenburg County Superior Court. Heard in
the Court of Appeals 23 February 1999.
Pinto Coates Kyre & Brown, PLLC, by David L. Brown and
Martha P. Brown, for plaintiff-appellant.
Waggoner, Hamrick, Hasty, Monteith and Kratt, PLLC, by S.
Dean Hamrick and John W. Bowers, for defendant-appellee Lake
Properties Limited.
GREENE, Judge.
Charles J. Brown (Plaintiff) appeals from the trial court's
granting of Lake Properties Limited's (Defendant) motion for
summary judgment.
In June of 1993, Randall and Mary Roth (the Roths) owned a
house and property (collectively, the Property) located in
Huntersville, North Carolina, and hired Defendant as their real
estate agent to sell the Property. As a result of this decision,
Lori Ivester (Ms. Ivester), a licensed real estate agent and
employee of Defendant, was responsible for obtaining information
from the Roths, and preparing a multiple listing form. On the
multiple listing form, Ms. Ivester represented, among otherthings, that the Roths' house contained 3,484 square feet of
heated living area.
(See footnote 1)
Ms. Ivester received the information
regarding square footage from an appraisal performed, for the
Roths, by H.B. Pethel Company, Inc. (Pethel), a well known and
highly respected appraiser. Ms. Ivester did not verify the
information in the Pethel appraisal independently prior to
preparing the multiple listing form.
Also in the summer of 1993, Defendant hosted an open house
at the Property to attract potential buyers, which Plaintiff
attended. At the open house, Plaintiff met Earl Crosland (Mr.
Crosland), another employee of Defendant and a licensed real
estate agent, who showed Plaintiff the Property. At the open
house, Plaintiff received a copy of the multiple listing form
prepared by Ms. Ivester, which represented the Roths' house as
having 3,484 heated square feet. Shortly after the open house,
Plaintiff contacted and met with Mr. Crosland about his interest
in making an offer to purchase the Property. Mr. Crosland
informed Plaintiff he could represent Plaintiff in the purchase
of the Property as the buyer's agent.
On 25 September 1993, Plaintiff and Defendant entered into a
"Dual Agency Agreement," wherein they agreed Defendant would act
"as agent for both [the Roths] and [Plaintiff]" with respect to
the sale and purchase of the Property. The record reveals that
this "Dual Agency Agreement" was signed by Plaintiff and
Defendant. The signature line for the seller on this form
agreement is blank. There is no indication in this record that
the Roths consented, orally or in writing, to permit Defendant to
serve as a dual agent. On 1 October 1993, Plaintiff offered topurchase the Property for $565,000.00, and his offer was accepted
by the Roths on 3 October 1993. The closing on the Property was
held on 12 November 1993 and Defendant received, from the Roths,
a 5 percent commission totaling $28,250.00.
In December of 1995, in an effort to take advantage of lower
interest rates, Plaintiff decided to refinance the Property, and
had an appraisal performed by Varnadore & Associates (Varnadore).
The Varnadore appraisal indicated the Roths' house contained only
3,108 heated square feet, nearly 400 square feet less than the
amount represented on the multiple listing form. It is not
disputed that the 3,108 figure represents the correct heated
square footage of the Roths' house.
On 14 November 1996, Plaintiff filed a complaint against the
Roths, Defendant, Pethel, and Amerispec, but subsequently
dismissed all parties except Defendant voluntarily. Plaintiff
seeks relief from Defendant under four claims: (1) breach of
fiduciary duty; (2) negligent misrepresentation; (3) fraud; and
(4) unfair and deceptive trade practices. On 14 January 1997,
Defendant filed its answer, which contains a cross-claim for
indemnity against Pethel for any erroneous representations of
square footage contained in Pethel's appraisal. Defendant moved
for summary judgment, and that motion was granted as to all
claims in an order filed 23 March 1998.
In its order granting Defendant's motion for summary
judgment, the trial court concluded, inter alia, that Defendant,
as a realtor, "could reasonably rely on the measurements of a
house by a trained and professional appraiser who had a good
reputation for appraisals in [the] general area in which the
house was located."
A real estate agent has the fiduciary duty "to exercise
reasonable care, skill, and diligence in the transaction of
business [e]ntrusted to him, and he will be responsible to his
principal for any loss resulting from his negligence in failing
to do so." 12 C.J.S. Brokers § 53, at 160 (1980). "The care and
skill required is that generally possessed and exercised by
persons engaged in the same business." Id., § 53, at 161. Thisduty requires the agent to "make a full and truthful disclosure
[to the principal] of all facts known to him, or discoverable
with reasonable diligence" and likely to affect the principal.
Id., § 57, at 172; James A. Webster, Jr., Webster's Real Estate
Law in North Carolina § 8-9, at 243 (Patrick K. Hetrick & James
B. McLaughlin, Jr. eds., 4th ed. 1994) [hereinafter Webster's
Real Estate Law in North Carolina] (agent has duty to disclose
all facts he "knows or should know would reasonably affect the
judgment" of the principal). The principal has "the right to
rely on his [agent's] statements," and is not required to make
his own investigation. 12 C.J.S. Brokers § 57, at 172.
"Generally, a broker must act solely for the benefit of his
principal, who first employed him, and may not undertake to
represent an interest adverse to the principal." Id., § 62, at
187. A broker, however, may act as the agent of two parties with
adverse interest, "with the full knowledge and consent of both."
Id., § 62, at 189; 12 Am. Jur. 2d Brokers § 112 (1997) (absent an
agreement between the seller and the purchaser, "a broker may not
act as agent for both the seller and purchaser in the same
transaction"). A broker acting as a dual agent "may still be
liable in damages to one of the parties for a breach of duty to
such party by reason of his acts in the course of the
transaction." 12 C.J.S. Brokers § 62, at 189. In other words,
the dual agent "owes all fiduciary and other agency duties to
both principals." Webster's Real Estate Law in North Carolina §
8-9, at 243.
In this case, there is some question as to whether there
exists a lawful dual agency, as there is no indication in this
record that the Roths agreed that Defendant could serve as both
an agent for the seller and for the purchaser. In any event, itis not disputed that Defendant and Plaintiff entered into a
contract wherein Defendant agreed to act as Plaintiff's agent in
the purchase of the Property. Thus Defendant had a fiduciary
obligation to make a full and truthful disclosure to Plaintiff of
all material facts, with regard to the Property, known by it or
discoverable with reasonable diligence. The heated square
footage of the Roths' house was a material fact and was
discoverable by Defendant with reasonable diligence
(See footnote 2)
and thus
should have been disclosed by Defendant to Plaintiff.
Defendant does not contest its duty to disclose to Plaintiff
the square footage of the Roths' house. It nonetheless argues
there was no breach of its duty to Plaintiff. In other words,
Defendant contends it was reasonable for it to rely on the square
footage computation made by the Roths' appraiser and the
communication of that number to Plaintiff discharged Defendant's
duty to Plaintiff. We agree that a real estate agent's reliance
on a reliable appraiser for the computation of the square footage
of a house, when that agent represents the buyer, is some
evidence of that agent's compliance with his standard of care.
It is not, however, conclusive as a matter of law. Indeed, the
North Carolina Real Estate Commission (Commission) suggests that
real estate agents "are expected to personally measure all
properties they list and accurately calculate their square
footage. They must not rely on tax records, information from a
previous listing, or representations of the seller or others."
N.C. Real Estate Comm'n, Residential Square Footage Guidelines 5
(1999). The Commission further suggests that "where a complex,
odd-shaped dwelling is involved, agents should advise the seller(or buyer, if appropriate) to seek the assistance of a State-
licensed or State-certified appraiser or an experienced engineer
or architect in calculating the square footage." Id. Thus
genuine issues of material fact exist as to whether Defendant
exercised reasonable care in obtaining and communicating to
Plaintiff the heated square footage of the Roths' house, and
summary judgment was not proper on the breach of fiduciary duty
and negligent misrepresentation claims. N.C.G.S. § 1A-1, Rule
56(c) (1990) (summary judgment not appropriate if genuine issues
of material fact exists); Forbes v. Par Ten Group, Inc., 99 N.C.
App. 587, 595-96, 394 S.E.2d 643, 648 (1990) (the question of
"reasonable care" depends upon the circumstances of each case and
is usually a question for the jury), disc. review denied, 328
N.C. 89, 402 S.E.2d 824 (1991); Helms v. Holland, 124 N.C. App.
629, 635, 478 S.E.2d 513, 517 (1996) (negligent misrepresentation
requires the failure to exercise reasonable care and competence
in obtaining and communicating information). Because there is no
evidence in this record that Defendant knew it had communicated
false square footage information to Plaintiff, summary judgment
on the fraud and unfair and deceptive trade practices claims was
proper.
(See footnote 3)
Forbes, 99 N.C. App. at 594, 394 S.E.2d at 647 (fraud
requires showing that misrepresentation was made with knowledge
of its falsity).
In so holding, we reject Defendant's argument that Marshall
v. Keaveny, 38 N.C. App. 644, 248 S.E.2d 750 (1978), requires we
affirm the trial court. In the Marshall case, the purchaser'sfalse misrepresentation claim, filed against the seller, was
dismissed because the purchaser had access to the house and could
have measured its size. There is no indication, in that case,
that the house was complex and difficult to measure.
Furthermore, the claim in that case was against the seller, not
against the purchaser's agent, who was employed for the sole
purpose of assisting the purchaser in purchasing a house, and
owed a fiduciary duty of reasonable care and competence to the
purchaser.
Affirmed in part, reversed in part, and remanded.
Judges LEWIS and HORTON concur.
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