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In a 1996 case, the Appellate Court of Illinois, delved into a number of important agency issues. Desiring to list a property for sale, Andrew Letsos called the office of Century 21- New West Realty (“New West”) and reached one of its salespeople, Alex Brusha. Brusha agreed to work with Letsos and in June, 1990, Letsos entered into the first of a series of three-month listing agreements with New West. The listed price in the first agreement was $200,000. The price was lowered a number of times, and in the final listing agreement, dated September 6, 1992 (the “Agreement”), the price was $129,000. The Agreement expired on December 5, 1992, and the parties did not enter into another one. Even so, Letsos still considered Brusha to be representing him, and Brusha acknowledged that he continued to represent Letsos.
Soon after the Agreement expired, Brusha offered to purchase the property, and on March 9, 1993, he and Letsos entered into a contract for $92,000. The contract named New West as the listing broker, to whom Letsos would pay the commission. At some point that same month, Brusha met Anthony Hernandez, and Brusha contracted to sell the Letsos property to Hernandez for $115,000. The Letsos/Brusha transaction closed in July, and the Brusha/Hernandez sale closed that August.
When Letsos subsequently learned of Brusha’s resale to Hernandez, he filed a complaint against Brusha and New West, claiming that both had breached their fiduciary duties to him by not disclosing that Brusha had found a buyer. New West responded that it did not owe fiduciary duties because the Agreement had expired, and Brusha argued he did not have a duty to disclose information he had received in the time between signing the sales contract with Letsos and the closing. The circuit court ruled in favor of Brusha and New West and granted their motions for summary judgment.
On appeal, Letsos raised three issues, the first being that even though the Agreement had expired, Brusha and New West continued to act as his agent, and therefore still owed him fiduciary duties. New West claimed that the agency relationship with Letsos ended when the Agreement expired. While listing agreements usually are in writing, the court explained that they do not have to be. “All that is required is action by the broker and consent by the principal. Consent may be oral, written, or implied by the conduct of the parties.” Here, the court found that the parties’ conduct could have demonstrated their intention to continue the brokerage relationship. The court also pointed out that New West only was entitled to a commission from Letsos’ sale to Brusha if it was Letsos’ agent. Brusha and the brokerage could not on the one hand claim the benefits of an agency relationship by receiving a commission, and on the other hand, deny the existence of that relationship.
Letsos’ second claim was that since a principal/agent relationship existed between New West and Brusha, New West is vicariously liable for Brusha’s actions. New West contended that it is not vicariously liable because its relationship with Letsos was that of independent contractor as opposed to employee. As the court explained, under the doctrine of apparent authority, when a principal creates the appearance that a party is its agent, it may not deny the agency relationship if an innocent third party reasonably relied on the apparent agency and as a result, was harmed. The court found that New West could have been considered to have held out Brusha as its employee and that Letsos reasonably could have believed that Brusha was an employee. In addition, Letsos could have relied on this apparent agency since he thought New West more carefully monitored Brusha’s actions. Since Brusha acted with New West’s apparent authority, and could be considered its agent, New West can be vicariously liable for his actions. The court did not raise a more basic point, namely that under the real estate licensing laws of every state, a real estate salesperson has no authority to act independently of his broker. A salesperson must be licensed with a broker, and therefore is an agent of the broker, who in turn is licensed to act as an agent for the public. So a salesperson is the agent of an agent.
Letsos’ third claim was that Brusha and New West breached a fiduciary duty to him when Brusha purchased his property and resold it immediately for a profit, without disclosing to Letsos that he had found a buyer. Both claimed they did not have a duty to disclose the Hernandez transaction. The court observed that the fiduciary duties inherent in an agency relationship require the agent to disclose “all material facts relating to the relevant transaction or affecting the subject matter of the agency.” It also pointed out that the fiduciary duties continue when a broker, as an agent, enters into a contract with his principal. Here, Brusha’s fiduciary duties to Letsos required his disclosure of all material facts, including the fact that he had found a buyer, and prevented him from dealing to his own advantage and making an undisclosed profit.
The Appellate Court of Illinois reversed the decision and remanded the case for trial. As far as possible remedies mentioned by the court, if New West and Brusha are found to have breached their fiduciary duties to Letsos, the brokerage commission paid by Letsos may be required to be returned to him. In addition, Brusha could be ordered to pay Letsos an amount equal to the profit he made on the sale to Hernandez - $23,000. Not mentioned by the court, but in addition, since many state real estate license laws prohibit conduct which constitutes a breach of fiduciary duty, a broker who violates a fiduciary duty also may be putting his real estate brokerage license in jeopardy. A breach of fiduciary duty also may be a violation of NAR’s Code of Ethics and Standards of Practice.
Letsos v. Century 21-New West Realty and Alex Brusha, 675 N.E. 2d 217, 221 Ill. Dec. 310 (1996).