Professor Charles E. Rounds, Jr., professor of law at Suffolk University in Boston and author of LORING:  A Trustee's Handbook, was the keynote speaker at a recent semi-annual meeting of the Massachusetts Association of Buyer Agents (MABA). In his presentation "Demystifying the Rights, Duties and Responsibilities of a Fiduciary", Rounds covered the legal rights and responsibilities of the parties in a real estate transaction.

Rounds told the members that the duties of a fiduciary require "full, absolute disclosure, undivided loyalty, and absolute confidentiality."

Addressing 'Agency' in a legal context, Rounds explained that the Common Law has five facets: property, contract, agency, trust and tort. The Common Law is distinguished from law created by the enactment of legislatures. It comprises "the body of those principles and rules of action, relating to the government and security of persons and property, which derive their authority solely from usages and customs of immemorial antiquity, or from the judgments and decrees of the courts recognizing, affirming, and enforcing such usages and customs; and, in this sense, particularly the ancient unwritten law of England. 1 Kent. Comm. 492"

The agent is exempt from undivided loyalty when:

• Duties are ministerial (that is non-discretionary).
• When there has been full and fair disclosure and informed consent. (Consider though - can there ever be informed consent when the client is unrepresented by independent counsel?)
• When a court tolerates divided loyalty in the face of no actual injury (that is, the court abrogates the "no further inquiry rule" and adopts a facts and circumstances test as those in the designated agency movement essentially advocate.)
• When there is permissive legislation (for example, Chapter 339, Missouri, effective 9/1/97).

Citing Missouri's designated agency legislation, Rounds said the bottom line is that no amount of legislation can erase all of the applicable common law. A court, for example, most likely always will have to fall back on common law principles when adjudicating what constitutes 'informed consent,' 'confidential information,' and 'ministerial acts.'

The common law proscriptions against fraud, deceit, and misrepresentation will always be with us as well. In the end, it is unlikely that "dual agency" legislation with all its disingenuousness will accomplish much. If anything, it fosters confusion by sowing the landscape with jargon, e.g. "designated broker," "limited agency," and "transaction brokerage relationship."

Rounds ended his presentation by stating that in the real estate industry, everyone who is breaching fiduciary duties is liable and open to lawsuit. To "abrogate the common law" is a dangerous situation. Rounds said that legislative changes are simply authorizing the appearance of impropriety. In the Commonwealth of Massachusetts, there are inherent conflicts in the way most real estate "agents" appear to be doing business. It is still a 'caveat emptor' - buyer beware - situation.

Pat Rioux
pat@ired.com

Reprinted with permission from the International Real Estate Digest, c 2000, www.ired.com