Barnett was orally hired by Paula to locate desirable real estate that she could use for rental property. She stated she wanted to find a four-plex that could be purchased for under $200,000 that could be rented for at least $1,000 per month per unit

Question

(which equates to $4,000 rental per month for the property). Barnett located a four-plex that could be purchased for $160,000 and was renting for $1,200 per unit. It was such a good deal that he purchased it for himself. About two months later he found a second property that was listed for $199,000 and rented for $1,000 per unit. Paula purchased the property. Afterwards, she learned that Barnett had bought the $160,000 four-plex for himself without telling her about it. Paula believes that Barnett has acted improperly. Barnett claims that he did what she asked -- he found a property for under $200,000 that rented for $1,000 per unit. He also claims that since their agreement was oral, he has a legal defense if she pursues the matter in court. Does Paula have any legal recourse against Barnett? Explain.

Answer 1

Yes. Barnett violated his fiduciary duty to Paula when he purchased the $160,000 property for himself. He was under a duty to inform Paula about the property and give her an opportunity to purchase it before buying it for himself. An agent has a duty of loyalty to his principal as well as a duty to fully disclose any information he has acquired during the agency to his principal. The agent also has a duty to follow instructions. The self-dealing on the part of Barnett violates the very spirit of the agency relationship and Paula has a legal right to collect money damages from Barnett. Since Barnett's act was intentional, Paula may also seek punitive damages in addition to compensatory damages from the disloyal agent.

Barnett may have a legal defense to the claim if the authority to act was not evidenced in writing. The equal dignities rule requires that the agent have written authority to act for the principal if the transaction is subject to the statute of frauds. It appears, however, that since Barnett was empowered to find real property, not to buy it for Paula, that a written agreement may not be necessary for Paula to prevail.