Daubman v. CBS Real Estate Co.
254 Neb. 904, 580 N.W.2d 552, 1998 Neb. LEXIS 163 (1998)
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Rule of Law:
A real estate agent who materially breaches their fiduciary duty to a principal by prioritizing their own interest in a commission or the interests of a third party over the principal's interests forfeits their right to be paid that commission. The principal is not required to prove they suffered separate monetary damages to justify the forfeiture.
Facts:
- Allen and Renee Daubman contacted Arlene Engelbert of CBS Real Estate Co. to determine the market value of their home.
- Engelbert informed the Daubmans that she was working with potential buyers, the Pedersens, and represented them as financially strong, pre-approved for a loan, and capable of buying the home.
- Based on this, the Daubmans signed a 'one-party listing agreement' with CBS, granting it the exclusive right to sell the property only to the Pedersens.
- The Daubmans accepted the Pedersens' offer, which was contingent on the Pedersens obtaining financing within 30 days.
- The Pedersens' first loan application was likely to be denied. Without the Daubmans' knowledge or authorization, Engelbert helped the Pedersens apply for a loan with a second lender.
- Engelbert incorrectly advised the Daubmans that the purchase agreement remained valid while the second loan application was pending.
- As the closing date neared, the Daubmans needed to sign a six-month apartment lease but hesitated due to the loan uncertainty.
- Engelbert, without authorization from the Daubmans, contacted the Daubmans' prospective apartment complex operator, which resulted in the operator pressuring the Daubmans to sign their lease immediately.
- The sale to the Pedersens ultimately closed, but the Daubmans instructed the escrow agent not to pay the commission to CBS due to Engelbert's conduct.
Procedural Posture:
- Allen E. Daubman and Renee A. Daubman sued CBS Real Estate Co. and its agent, Arlene Engelbert, in the district court (court of first instance) seeking the return of their real estate sales commission.
- After a bench trial, the district court entered judgment in favor of the Daubmans.
- CBS and Engelbert, as appellants, appealed the decision to the Nebraska Court of Appeals (intermediate appellate court).
- The Court of Appeals vacated the district court's judgment and remanded with directions to dismiss the case.
- The Daubmans, as petitioners, successfully petitioned for further review to the Supreme Court of Nebraska (highest court).
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Issue:
Does a real estate agent's material breach of fiduciary duty to a principal, such as by misrepresenting a buyer's financial status and acting against the principal's interests to secure a sale, require the agent to forfeit their commission?
Opinions:
Majority - Caporale, J.
Yes. A real estate agent who materially breaches their fiduciary duty forfeits the right to a commission. The court found that Engelbert breached her fiduciary duties to the Daubmans by putting her and the Pedersens' interests ahead of the Daubmans' interests. The court identified several breaches that, in aggregate, were material: 1) misrepresenting the Pedersens' financial status as 'pre-approved' for a loan, 2) moving the loan application to a second lender without authorization and providing incorrect legal advice about the contract's validity, and 3) contacting the Daubmans' potential landlord without permission, which placed detrimental pressure on them. The court reasoned that an agent has a duty to act solely for the benefit of the principal, and a willful disregard of this obligation nullifies the right to compensation, regardless of whether the principal suffered separate monetary damages.
Analysis:
This decision reinforces the stringent nature of the fiduciary duty owed by a real estate agent to their principal. It establishes that a complete forfeiture of commission is an appropriate remedy for a material breach of loyalty, even when the underlying transaction is completed and the principal suffers no other quantifiable financial harm. The ruling serves as a significant deterrent for agents against engaging in self-dealing or prioritizing the closing of a sale over their client's best interests. It clarifies that a series of disloyal acts can cumulatively constitute a material breach, justifying the denial of compensation.
