AGENCY RELATIONSHIPS AND DISCLOSURE SUMMARY

AGENCY RELATIONSHIPS AND DISCLOSURE SUMMARY

Various rules of agency affect real estate licensees. As the principal's agent, the broker has the duty and
obligation, among other fiduciary duties, to exercise the utmost care (and depending upon the fact situation,
reasonable care), integrity, honesty, and loyalty and to maintain confidentiality. California Law also imposes
duties upon the listing agent with respect to the other principal to the transaction. These duties include, but are
not necessarily limited to, the exercise of reasonable skill and care, the obligation to act honestly and fairly and
in good faith, and the duty to disclose all facts which are known or should be known to the broker and which
materially affect the value, desirability or implicitly the intended use of the property.

The seller and the real estate brokers acting as the agents of the seller for the purposes of making disclosures
about the property and its conditions do not have the duty to "explain" the practical or legal effect or impact of
the disclosures. (Sweat v. Hollister (1995), 37 Cal. App. 4th 603, 609). However, the agent of the principal to
whom the disclosures are being made owes fiduciary duties to that principal which include "explaining" the
significance and consequences of that which has been disclosed, or should have been disclosed, and the agent is
obligated to "counsel" the principal so that the principal can make an informed and considered decision to buy,
sell, lease, exchange, borrow or lend. "Counseling" includes conducting any required inquiry or recommending
that an inquiry be undertaken to ensure that the principal makes informed and considered decisions. (Field v.
Century 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18; Salahutdin v. Valley of California (1994) 24
Cal.App.4th 555; Galeppi v. Waugh (1958) 163 Cal. App. 2d 507, 511).

Section 2079.13 et seq. of the Civil Code establishes an agency disclosure format where the transaction involves
residential property improved with one to four dwelling units. This disclosure format applies to all transactions
involving a sale or a lease of such residential property for longer than one year. A "sale" also includes an
exchange of the property, or a real property sales contract as defined in Civil Code § 2985. To comply with this
law, statutory forms have been provided which the licensee must use.

1. Disclosure and Confirmation of Actual Agency Relationships

The agency disclosure form sets forth the real estate broker's disclosure obligations and describes certain duties
a licensee owes to a principal in a real property transaction, whether the broker is the "seller's agent," the
"buyer's agent", or is acting as a "dual agent." The form must contain the entire text of § 2079.16 of the Civil
Code, and it should be delivered to the principal in a real property transaction as soon as practical and when the
relationship between the agent and the principal becomes more then casual. (Civil Code § 2079.14).

The listing broker or his or her agent (the salesperson or broker associate) must deliver the form to the seller
before entering into a listing agreement. The cooperating or selling broker or his or her agent (the salesperson
or broker associate) must provide the form to the seller as soon as practical and before presenting the offer.
Should the cooperating or selling broker not deal face to face with the seller, then the form may be delivered by
the listing broker. The agency disclosure form may also be delivered to the seller by certified mail. The
cooperating or selling broker must deliver the form to the buyer as soon as practical before signing the offer to
buy. Should the offer be not prepared by the cooperating or selling broker, then the form must be delivered to
the buyer no later than the next business day following the receipt of the offer from the buyer. (Civil Code §
2079, 14 (d).)

One reported case has discussed the phrase "as soon as practical." (Leendert P. Huijers v. Gordon R. DeMarrais
(1992) 11 Cal.App.4th 676). In this case, a listing broker was required to disclose the intended agency

relationship to and obtain consent from the seller at the time of the signing of the listing by the seller. The
Leendert case speaks to the practice of some brokers leaving unanswered the agency relationship(s) they intend
with the seller until such time as a buyer is procured. Presumably, the listing broker would not know whether
he or she would be acting as a dual agent or as an exclusive agent of the seller, and whether the buyer will be
separately represented or unrepresented, until the specific buyer is identified. Rather than leaving unanswered
the intended agency relationship(s), the listing broker is well advised to disclose to and obtain the consent from
the seller to the agency relationship intended at the time of the seller's signing of the listing agreement.

Should the actual facts later prove to be distinguishable from the listing broker's original belief, then the listing
broker should make and deliver a new disclosure describing the revised agency relationship(s) and obtain the
written consent of the seller to this revision. An example would be where the listing broker believes at the
outset that he or she will be acting as a dual agent, (i.e., represent both the seller and the buyer in selling the
listed property), but what actually occurs is that the buyer is represented by a cooperating broker. The
cooperating broker may present the offer as the exclusive agent of the buyer requesting the listing broker act as
the exclusive agent of the seller. In this case, the initial dual agency disclosure and consent would require
revision and a new agency disclosure must be prepared and delivered conforming to the facts. In other words,
the agency disclosure must be re-disclosed to clarify and confirm any changes in the nature of the agency
relationship that arose during the course of the transaction. Practitioners must be mindful of the fact that the
dual agency disclosure obligations apply equally to commercial real estate transactions. (L. Byron Culver &
Associates v. Joudi Industrial & Trading Corp. (1991) 1 Cal.App.4th 300).

Whether the disclosure form is issued at the outset or as a result of a later revision, the broker must obtain a
receipt from the principal receiving the disclosure. When the disclosure form is delivered by certified mail,
then no further receipt is required. Should a seller or a buyer refuse to sign the receipt, the broker or his or her
agent must "set forth, sign, and date a written declaration of the facts of the refusal.” (Civil Code § 2079.15).

Civil Code § 2079.16 includes the required text of the agency disclosure. The disclosures set forth in this
statutory framework include a list of duties owed by the real estate broker as an agent and fiduciary of the
principal to whom the disclosures are being made. The disclosures are essentially as follows: a duty of utmost
care, integrity, honesty and loyalty in dealings with the agent's principal; and the duty to exercise skill and care
in performance of the services rendered by the agent; the duty to act honestly and without fraud or deceit and to
act fairly and in good faith; and the duty to disclose of all material facts known to or which should be known to
the agent affecting the value or desirability of the property not known to or readily observable by the parties to
the transaction.

In summary, the real estate broker or his or her salesperson or broker associates shall, as soon as practical and
after the relationship becomes more than casual, disclose to the buyer and seller the agency relationships
intended by the broker or brokers involved in the transaction. The alternatives are "listing agent" (acting
exclusively for the seller), "selling agent" (acting exclusively for the buyer), or "dual agent" (acting for both the
buyer and seller). This agency disclosure must be consented to in writing by the seller and buyer. The
acknowledgment by and the consent to the intended agency relationships may be in a separate document, and
may be confirmed no later than in the purchase agreement. Furthermore, the statutory scheme set forth in Civil
Code § 2079.13 et seq and the other duties of disclosure and fiduciary responsibility continue to apply. (Civil
Code § 2079.24).

The phrase, "as soon as practical," has been defined to mean at the time the listing broker obtains the signature
of the seller on the listing agreement. (Leendert P. Huijers v. Gordon R. DeMarrais (1992) 11 Cal.App.4th 676,
684). Disclosing the agency relationships intended by the parties and obtaining the principal's consent thereto
will establish a rebuttable presumption that the relationships disclosed are the actual agency relationships
intended between the parties.

2. Statutory Limitations and Definitions

In addition to establishing a disclosure format, Civil Code § 2079.13 et seq. imposes various limitations upon
the conduct of and adds definitions regarding the performance of the special agency role of the real estate
broker acting in the sale transaction. Among such limitations and definitions are the following:

a. A listing broker who is also a selling broker is a dual agent and may not be the agent for a buyer only. (Civil
Code § 2079.18).

b. Payment of compensation to the broker and agent in the transaction does not in and of itself determine who is
the broker's principal. (Civil Code § 2079.19).

c. A real estate broker functioning as a dual agent may not disclose to the seller that the buyer is willing to pay
more the buyer's written offer to purchase, nor may a dual agent disclose to the buyer that the seller will take
less than that which is set forth in the listing agreement, without the express written consent of the party
authorizing the disclosure (this limitation in effect prevents the broker, when acting as a dual agent, from
negotiating the price and related financial terms on behalf of either the seller or buyer or both). (Civil §
2079.21). Practitioners who issue broker price opinions (commonly called BPOs) should pay particular
attention to § 2079.21. For instance, a licensee who issues a BPO at the request of a seller should provide a
copy of the BPO to the buyer when acting as a dual agent. Consent of the seller should be obtained. Prudent
practitioners should also notify the seller of the prospect that the buyer (in a dual agency situation) may have the
right to receive the BPO although it was initially prepared only for the Seller.

d. A listing broker acting as the seller's agent may also sell the property to an unrepresented buyer without
necessarily becoming a dual agent. (Civil Code § 2079.22). The licensee may not advise or counsel the buyer
and must disclose that the buyer is unrepresented. Prudence dictates that only sophisticated buyers may be
unrepresented in these circumstances.

The Real Estate Law includes authority mandating that real estate licensees disclose when they are acting as
dual agents. Section 10176(d) of the Business and Professions Code requires that a licensee not proceed to
represent more than one party to any real estate transaction without the knowledge or consent of both. Further,
Civil Code § 2079.17 requires that the agency relationship intended or any change in the agency relationship
regarding the agents of either party to the transaction must be in writing and must be consented to by all
principals.

Although Civil Code § 2079.13 et seq. applies only to 1 to 4 residential units, Business and Professions Code §
10176(d) imposes dual agency disclosure requirements in all real property and real property secured
transactions. This Business and Professions Code Section is largely a restatement of the common law
obligations of an agent to disclose all material facts to a principal. (Business and Professions § 10176(a) and,
e.g., L. Byron Culver & Assoc. v. Jaoudi Industrial & Trading Corp. (1991) 1 Cal.App.4th 300, 304.) The real
estate licensee, however, when applying 10176(d) should not misunderstand the phrase "knowledge or consent."
While the phrase appears in the disjunctive, it can only be read in the conjunctive, i.e., to proceed to act with
knowledge implies consent and one cannot consent to that which one has no knowledge.

3. Ostensible or Implied Agency

A broker must recognize that an agency relationship can result from the conduct of the parties even though there
is no express employment agreement and regardless of the source of compensation. In addition, the duties of
agency can arise even where there is no expectation of compensation. For example, if a relative or friend acts
on behalf of another, and agrees to do so without being paid, he or she will be subject to the duties and
responsibilities of a gratuitous agent. Agency relationships created from the conduct of the parties are known as
ostensible or implied agencies. (Civil Code §§ 2300, 2307, 2308).

In a typical real property or real property secured transaction, the real estate broker enters into a written contract
with the seller, lessor or the borrower, and the broker agrees to exercise due diligence to find a buyer, a
tenant/lessee or a lender. This is called the listing agreement, and the listing broker is the actual agent of the
employing principal. The listing broker is authorized to act as a special agent of the employing principal in
dealing with other persons relating to the contemplated real property or the real property secured transaction.
Confusion often arises about when and under what circumstances the listed broker might unintentionally
become the agent of the buyer, the tenant/lessee, or the lender.

When performing these fiduciary duties on behalf of a principal to the real property or real property transaction,
the listing broker must exercise care to avoid unwittingly becoming the agent of the other principal to the
transaction. Because agency relationships can arise out of the conduct of the parties, independent of any

express agreement, the listing broker must be aware of the potential that his or her actions may create an
ostensible or implied agency relationship with the other principal. To act as an undisclosed agent of the other
principal, without the informed consent of both parties may subject the broker to administrative discipline, loss
or disgorgement of commission, and may subject the principals to recession of the transaction. (Business and
Professions § 10176(a) and (d) and, e.g., L. Byron Culver & Assoc. v. Jaoudi Industrial & Trading Corp. (1991)
1 Cal.App.4th 300.)

The National Association of Realtors (NAR) has provided examples of activities or conducts which a listing
broker in a sale transaction may perform without becoming the ostensible or implied agent of the buyer. Some
of the NAR examples which the listing broker can perform as the special agent of the seller include, among
others, the following:

a. Show the buyer the listed property and describe to the buyer the property’s amenities, attributes, condition
and status;

b. Present offers made by the buyer to the seller; or

c. Refer the buyer to service providers such as lenders, mortgage brokers, attorneys, inspection companies, title
companies, escrow holders or other service providers required or desired by the buyer to complete the
transaction.

While it may be possible for a real estate broker to provide any one or all of the foregoing services without
establishing an agency relationship with the buyer, as a practical matter avoiding an agency relationship with an
unrepresented buyer may be next to impossible. Real estate brokers often become the ostensible or implied
agent of the buyer as the result of statements made by and/or conduct of the broker. For example, negotiating
on behalf of or in any manner advocating the interest of the buyer when presenting the offer to the seller, or
when processing the transaction to the close of escrow, will likely result in the broker becoming the agent of the
buyer. The important point is that while disclosures create presumptions regarding the agency relationships and
the duties flowing therefrom, these presumptions may be overcome based on the actual conduct of the parties.

4. Subagency

In a typical real property transaction, it is common for the listing broker to seek the cooperation of other real
estate brokers to carry out the purpose and objective of the agency. A principal may expressly authorize his or
her broker to appoint a subagent and thereby establish a new contractual and fiduciary relationship directly
between the principal and the subagent. Under such an appointment, the subagent represents the principal in the
same manner as the listing broker. When the listing broker appoints another broker to cooperate without the
express or implied authority of the principal, the cooperating broker becomes the subagent or agent of the listing
broker and not the subagent of the principal. (Civil Code §§ 2349, 2350 and 2351).

Real property or real property secured transactions typically involve cooperation between and among more than
one broker. The legal principles which govern the field of subagency are particularly complex. This is due, at
least in part, to the different relationships which exist between the brokers and the principals to the transaction
when seeking to carry out the purposes of the agency, (e.g., find a buyer, a tenant/lessee, or a lender).

A critical element in determining the relationships between and among the parties is whether the principal has
agreed to allow the listing broker to delegate some portion of his or her authority to another (Civil Code §
2349). The typical listing agreement between the principal and the real estate broker provides that the listing
broker may cooperate and share commissions with other brokers to carry out the purpose and scope of the
agency (e.g., to find a buyer, a tenant/lessee, or a lender).

When another agent is appointed by the listing broker with the express or implied authority of the principal, the
second broker becomes the subagent of the principal. (Civil Code § 2351). On the other hand, where the listing
broker appoints another broker without the consent of the principal, the second broker becomes the agent of the
listing broker. (Civil Code § 2350).

The rule of subagency has been criticized for a number of reasons and has periodically led to ridiculous results.
For example, in one case, the cooperating broker made certain misrepresentations about the property to a
prospective buyer. Since the listing broker had express authority under the exclusive listing agreement to

engage the services of the cooperating broker, the court held that the listing and cooperating broker were jointly
acting as the agents of the seller. Therefore, the seller was held liable to the buyer for the fraudulent
misrepresentations of the cooperating broker, even though it was established that the seller did not even know of
the cooperating broker's participation in the transaction. (Johnston v. Seargeants (1957) 152 Cal.App.2d 180).
(Also, Kruse v. Miller (1956) 143 Cal.App.2d 656; Hale v. Wolfsen (1964) 276 Cal.App.2d 285; and, Easton v.
Strassburger (1984) 152 Cal. App. 3d 90).

The acts, errors and/or omissions (negligence) of a cooperating broker who is the authorized subagent of the
seller may be imputed to the seller. For example, certain negligent acts of the cooperating broker who is the
authorized subagent of the seller may be imputed to the seller and the seller may be subject to liability to third
parties under the legal theory of respondeat superior. Equally, when the cooperating broker is not the
authorized subagent of the seller, but rather the authorized agent or subagent of the listing broker, the negligent
acts of the cooperating broker may be imputed to the listing broker and the listing broker may be subject to
liability to third parties under the legal theory of respondeat superior. (Civil Code § 2338). (Alhino v. Starr
(1980) 112 Cal.App.3d 158).

Since negligent misrepresentation by an agent and fiduciary may be characterized as constructive fraud, the
principal may well be liable under the theory of respondeat superior for the fraudulent conduct of principal's
agent. Should the conduct of the agent arise out of an intentional tort or criminal act, the principal may not be
liable for such conduct, unless the principal knowingly ratifies and accepts the benefits of the conduct. (Civil
Code § 2339).

A considerable debate occurred within the industry about imposing subagency upon sellers and whether most
sellers had any idea about the potential consequences of designating the cooperating broker as a subagent of the
seller. Most commentators recognized that subagency was unwise and worked to the disadvantage of both
buyers and sellers. The difficulties of subagency in typical real estate transactions were recognized by NAR in
the early 1990's. At that time, NAR amended its Multiple Listing Rules and established what has become
known as Multiple Listing Plus.

Under these new rules, a listing broker has the option of either extending a unilateral offer of subagency to the
cooperating broker, or of merely offering to share the commission with the cooperating broker without
extending any offer of agency or subagency on behalf of the seller or the listing broker. The cooperating broker
may now elect to solely represent the buyer even though the cooperating broker is sharing in the compensation
paid by the seller.

The legislature anticipated this development when it enacted Civil Code § 2079.19 which provides that the
payment of compensation does not necessarily determine the nature of the agency relationship between the
parties. Common practice in the industry now is to avoid subagency.

5. Offer of Compensation to Cooperating Broker

While a listing broker may offer to share compensation without creating an agency relationship between the
seller and the cooperating brokers, the cooperating broker's right to compensation remains somewhat unclear
under existing law. As previously discussed in this Chapter, where the principal's authority regarding the
payment of compensation to the cooperating broker was unclear, the cooperating broker was held to have no
rights against the seller, but could only collect compensation from the listing broker. (Goodwin v. Glick (1956)
139 Cal.App.2d Supp. 936). However, where the seller's authority to pay the cooperating broker was certain,
the cooperating broker was able to secure payment directly from the seller. (Schmidt v. Berry (1986) 183
Cal.App.3d 1299).

6. Delegation of Duties

Agents commonly delegate certain of their duties and their responsibilities to others. For instance, a seller may
ask a real estate broker to provide an opinion of value regarding the seller's property. The broker may, in turn,
engage the services of an appraiser to assist in estimating the market value of the seller's property. Such a
delegation may not relieve the real estate broker of liability in the loan transaction. In one case, the court held
that a real estate broker has a nondelegable duty to arrive at a value conclusion on behalf of a private trust deed

investor in a loan transaction. The broker was liable for the negligence of the appraiser. (Business and
Professions Code § 10232.5(a) (2) and Barry v. Roskov (1991) 232 Cal. App. 3d 447).

There are many other examples of such delegation of duty. Unless the delegation is specifically forbidden by
the principal, the general rule is that an agent may delegate certain of the agent's powers to others. The
legislature recently amended the Business and Professions Code to allow for real estate brokers to delegate their
responsibility to estimate the market value of the security property in a loan transaction to a real estate appraiser
licensed or certified by the California Office of Real Estate Appraisers. (Business and Professions Code
10232.6).

The powers which may be delegated by the agent to others are generally limited to the following:

a. When the act is purely mechanical;

b. When it is such as the agent cannot do alone and the subagent can lawfully perform;

c. When it is the usage of the place to delegate such powers, or when the principal authorizes the delegation;
or

d. When such delegation is specially authorized by the principal. (Civil Code § 2349).

When delegating a power to another, the agent must exercise care in delegating the authority and in choosing
and appointing the delegee. Although an agent may not be authorized to assign a duty of performance to
another, the agent may nevertheless be authorized to delegate the actual performance of such duty to others, and
thereby discharge the duty through the performance of the delegee. Most agency agreements do not require the
personal performance of the original agent, although the original agent will typically remain liable for the
details delegated to and executed by others. (Barry v. Roskov (1991) 232 Cal. App. 3d 447).

The doctrine of respondeat superior remains the basis for holding a broker liable for the negligent and even the
intentional acts of salespersons or broker associates, when such conduct is reasonably foreseeable, and may
apply even where the supervising broker is not aware of the conduct (Business and Professions Code § 10159.2;
10 CCR, Chapter 6, § 2740 et seq.). (Also, Inter Mountain Mortgage, Inc. v. Sulimen (2000) 78 Cal.App.4th
1434, 93)). In addition, the DRE may impose disciplinary sanctions upon a supervising broker based on the
doctrine of respondeat superior. (California Real Estate Loans, Inc. v. Wallace (1993) 18 Cal.App.4th 1575).

7. Dual Agency

Dual agency arises where the listing broker who is the actual agent of the seller becomes the actual agent, or
ostensible or implied agent of the buyer. The real estate broker who has entered into a listing agreement with a
seller, establishes an actual agency relationship with the seller. The listing broker may also establish an actual
agency relationship with the buyer as the result of the broker accepting the responsibility to act on behalf of the
buyer to locate a property. For instance, a listing broker who meets a prospective buyer at the seller's open
house, and who later undertakes with the buyer's consent to help the buyer find a home which is other than the
listed property, has established an actual agency relationship with the buyer, notwithstanding the fact that no
written formal agreement exists between them.

Regardless of whether the transaction is a sale, a lease or a loan, a real estate broker can become the agent of all
principals to the transaction, and the broker should only so act with the knowledge and consent of all principals
to the real estate loan, real property or real property secured transaction. (Business and Professions Code §§
10176(a), (d) and §§10177.6). In fact, Business and Professions Code §§10177.6 requires a broker to provide
written disclosure to all parties when representing the buyer or seller and the broker has agreed to also arrange
the financing. The failure to disclose and obtain the consent of the principal to the dual agency may result in
disgorgement of the broker's compensation and rescission of the transaction. (Culver v. Jaoudi (1991) 1 Cal.
App. 4th 300, 304-305, citing Glenn v. Rice (1917) 174 Cal. 269, 272).

Dual agency also commonly arises when two licensees associated with the same broker undertake to represent
two or more parties to a real property or real property secured transaction. The real estate broker with whom
the two licensees are associated is the dual agent of the principals to the transaction, and the salesperson and
broker associate licensees are the agents of the real estate broker. (Civil Code § 2079.13(b)).

In any dual agency situation, the broker owes fiduciary duties to both principals to the real property or real
property secured transaction. Dual agents face a particular difficulty with the elements of fiduciary duty which
involve loyalty and confidentiality. A common example arises in connection with the negotiation of price and
terms between a seller and buyer, and the negotiation of the loan amount and terms between the lender and
borrower.

The legislature recognized this conflict when enacting § 2079.21 of the Civil Code. That section states: "A
dual agent shall not disclose to the buyer that the seller is willing to sell the property at a price less than the
listing price, without the express written consent of the seller. A dual agent shall not disclose to the seller that
the buyer is willing to pay a price greater than the offering price, without the express written consent of the
buyer." "This section does not alter in any way the duty or responsibility of a dual agent to any principal with
respect to confidential information other than price."

As previously described in this Chapter, the practical affect of Civil Code § 2079.21 is to limit the ability of a
real estate broker, acting as a dual agent, to engage in the negotiation of price and terms in a sale transaction.
The broker should present to the buyer the listed price and terms requested by the seller and ask the buyer to
make whatever offer the buyer deems appropriate. Equally, the broker should present to the seller the price and
terms set forth on the buyer's written offer to purchase. The seller should be asked to accept the offer or counter
the price and terms as the seller deems appropriate.

Should either principal require professional assistance to ascertain the price and terms to request or offer, or the
price and terms to present in the form of a counter-offer, the real estate broker who is the dual agent is not in the
position of offering that assistance. Rather, the broker who is the dual agent should recommend that the
principals seek independent advice from qualified professionals to assist the principals in determining what
price and terms are appropriate in the fact situation. The limitation placed upon the real estate broker as a dual
agent, pursuant to Civil Code § 2079.21, does not preclude the broker from providing both principals with the
same comparative market data (including a BPO prepared by the broker) upon which the principals may
independently rely.

The conflict of interest which is inherent in dual agency has been recognized by other authorities. The reasons
underlying the rules against dual agency are of ancient origin. "No man may serve two masters; for either he
will hate the one and love the other; or else he will hold to the one and despise the other..." (Gospel of
Matthew, Chapter vi: 24 quoted in Nahn-Beberer v. Schrader (Mo. App. 1936) 89 S.W. 2d 142). Although
dual agency is a common practice in California real property and real property secured transactions, a real estate
broker who represents both parties must act with extreme care. One court framed the issue as follows: "A
broker so unwise as to place himself in the anomalous position of representing adverse parties must
scrupulously observe and fulfill his duties to both". (Martin v. Hieken (Mo. App. 1960) 340 S.W. 2d 161, 165).

The problem is compounded because of the proliferation of large, multi-office brokerages, and because a dual
agency can exist unexpectedly. The failure to properly disclose a dual agency and scrupulously honor its
limitations may result in the forfeiture of any commission due the broker, and may subject the licensee involved
to discipline by the Department of Real Estate. (Business and Professions Code §§ 10176(a) and (d)). In view
of the reality that dual agency is a common practice in the industry in spite of its potential for abuse, the
California Legislature, the California Department of Real Estate, and the California Association of Realtors
have attempted to accommodate the practice while informing principals through written disclosure.

A form of dual agency which has not been specifically addressed in the disclosure statutes is where the broker
attempts to present offers on behalf of two different buyers. This can easily happen when a broker is showing
the same property to buyer 1 and buyer 2, and both buyers want the broker to write an offer on the property on
their behalf. The situation becomes even worse if buyer 1 is in contract and buyer 2 makes a back-up offer.
Buyer 1's position is almost certainly weakened and buyer 1 would have good reason to claim that the real
estate broker breached the broker's fiduciary duties and obligations by participating in the transaction on behalf
of buyer 2.

The better practice would be for the real estate broker to avoid attempting to represent two buyers on the same
property without the clear, informed and unequivocal consent of both parties. It is recommended that when
acting as an agent for more than one buyer regarding the same property, the buyers should be sophisticated, or

they should be represented by independent professionals. Some have suggested that dual agency conflicts may
be mitigated by assigning separate salespersons or broker associates within the same office to each principal to
the real property or real property secured transaction. Under these circumstances, each principal would receive
the benefit of an individual presumably concerned only about their interest. However, individually assigning
salespersons or broker associates to the principals does not alter the fact that the real estate broker by whom the
associate licensee is engaged is the dual agent of the principals to the transaction. (Civil Code § 2079.13(b)).

8. Consequences of Undisclosed Agency in Non-Residential Transactions

As previously discussed in this Chapter, Civil Code § 2079.13 et seq. requires agents selling one-to-four unit
residential properties to sign a statutory agency disclosure statement. Commercial real estate agents and agents
acting in loan transactions must also prepare and deliver to their principals agency disclosure statements. Real
estate brokers who act as agents in loan transactions or in the sale or leasing of income producing property
must, in addition to the agency disclosure statement, obtain the informed consent of the principals to the
transaction. The failure to obtain the informed consent of the principals may result in the broker forfeiting the
right to receive a commission, and the transaction may be subject to an action for recession. (Culver v. Jaoudi
(1991) 1 Cal. App. 4th 300, 305, citing Glenn v. Rice (1917) 174 Cal. 269, 272).

The court put it this way: one who acts as an undisclosed dual agent is "in a position where his duty to one
conflicts with his duty to the other, where his own interests tempt him to be unfaithful to both principals, a
position which is against sound public policy and good morals. His contract for compensation being thus
tainted, the law will not permit him to enforce it against either party. It does not matter that, in the particular
case, the agent acted fairly and honorably to both. The infirmity of his contract does not arise from his actual
conduct in the given case, but from the policy of the law, which will not allow a man to gain anything from a
relation so conducive to bad faith and double dealing." (Culver v. Jaoudi (1991) 1 Cal. App. 300, 305 citing
Glenn v. Rice (1917) 174 Cal. 269, 272).