Bearden wanted to sell a rental house she owned. She listed the property with real estate agent Gritton, who worked for Wardley Corporation, a real estate brokerage firm. Gritton told Bearden that he would buy the house. She agreed. The contract called for him to pay Bearden $400 a month followed by a balloon payment at the end of five years. Bearden would keep title to the property until the balloon payment was made.

Unknown to Bearden, when Gritton gave her multiple documents to sign, one was a deed that transferred title to Gritton. He had the signature improperly notarized and recorded the deed. When he did not keep up on his payments to Bearden, she hired a lawyer. He discovered that Gritton had fraudulently obtained the deed, that he had borrowed money against the property, and that the property was in foreclosure. Bearden paid $60,000 to keep the property from being lost.

She sued Gritton and Wardley for breach of contract, fraud, and breach of fiduciary duty. The jury awarded Bearden $75,000 in compensatory damages, $25,000 in punitive damages, $50,000 in attorney fees, plus costs and interest. Because the judgment was against both Gritton and Wardley, Wardley was stuck with paying the judgment. It appealed.

Case Decision Thorne, Judge

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Wardley argues that the trial court erred ... because Bearden did not introduce evidence regarding Wardley's duty to Bearden or the resulting breach. Bearden introduced into evidence a listing contract drafted by Wardley and signed by Gritton, individually and as Wardley's agent. The listing Contract provided:

Wardley Better Homes and Gardens and the Agent agree to act as agent for the seller and will work diligently to locate a Buyer for the Property. As the Seller's agent, they will act consistent with their fiduciary duties to the Seller of loyalty, full disclosure, confidentiality, and reasonable care.

Bearden also introduced evidence that it was Wardley's policy to have management or a supervisor review the documents in its transition files and that Wardley had an internal policy that prohibited agents from purchasing properties that an agent listed. From this evidence, the jury could have found that Wardley owed Bearden the fiduciary duties of "loyalty, full disclosure, confidentiality, and reasonable care."

... Bearden introduced evidence that (1) Gritton was employed by Wardley, (2) Wardley was aware that Gritton had executed a listing agreement and a real estate purchase agreement with Bearden wherein Gritton acted as buyer and seller's agent and the purchaser of the property, (3) Wardley never questioned Gritton about violating its internal policy against an agent purchasing property listed by that agent, (4) Wardley never asked Gritton to stop representing Bearden, and (5) Wardley never informed Bearden of Gritton's violations of the internal policy. This evidence is sufficient for the jury to find that Wardley breached its duty of care to Bearden....

Affirmed.

Questions for Analysis

The appeals court affirmed that the principal was liable for damages incurred by fraud of one of its agents. Because there was no evidence that Wardley participated in Gritton's fraud, why should it be liable?

Suppose Gritton had told Wardley he wanted to buy the property he had listed. What should Wardley have done?