In Adams v. Kerr, the Missouri Court of Appeals addressed the duty of loyalty owed by an agent to its principal. The court held that where, at the time of execution of a sales contract, a seller is not informed that his broker also represents the purchaser, the broker has breached his duty of undivided loyalty.
On March 4, 1980, the Kerrs (sellers) listed property with Red Carpet (broker). McCann, as agent, and Birner, as broker, obtained the listing for Red Carpet. On March 23, 1980, Adams (buyer) submitted an offer for the property. Adams and Erhardt, through their partnership, A & E Associates, bought, sold, and managed real estate. Unknown to the Kerrs at the time, Brethold, a Red Carpet salesperson, had represented A & E for several years. Adams submitted the offer to Brethold, who gave it to McCann, who forwarded it to the Kerrs, and the Kerrs accepted it.
The contract required the buyer to provide a satisfactory credit report within 10 days. On March 29, 1980, Adams submitted a net worth analysis of A & E. Later, the Kerrs were told Red Carpet managed property for A & E. The Kerrs asked for, but did not receive, a certified credit report. On April 9, 1980, Mr. Kerr and his son, Leland, told Birner they decided not to go through with the transaction. The Kerrs received a letter, dated April 10, 1980, threatening suit by Red Carpet and A & E.
On April 18, 1980, the Kerrs attended the closing. The grantees listed on the warranty deed were Adams and his wife, and Erhardt and his wife. Leland requested a credit report. Brethold responded "Well, you don't need one," and threatened suit. The Kerrs refused to close, and Adams sued them for specific performance. Red Carpet sued the Kerrs for the sales commission. The Kerrs sued Red Carpet for breach of fiduciary duty. The trial court held that Red Carpet did not breach its fiduciary duty. The trial court also held that the failure to provide a credit report voided the contract and barred specific performance and payment of the commission. All parties appealed.
The Missouri Court of Appeals found that unless otherwise understood and provided, a broker is the agent of the seller who lists the property, and therefore, "the broker owes the seller its undivided loyalty, and is required to exercise the utmost fidelity and good faith." The court added that "an agent cannot serve the opposing party without the knowledge and consent of his principal." Although the court found that Red Carpet told Mrs. Kerr that it managed property for Adams and A & E, this was not until after the Kerrs had signed the contract. Thus, the Kerrs were not informed of the dual agency situation before signing. The court found that, in effect, Red Carpet ordered the Kerrs to close without the benefit of the credit report, or be sued. Red Carpet's attorney sent a letter threatening suit to one principal when the other principal had not complied with the contract. Thus, Red Carpet clearly breached its duty of undivided loyalty to the Kerrs.
The Missouri Court of Appeals stated that a broker must not do anything which makes the transaction more difficult or burdensome for the principal or which endangers the transaction. The court added that "it is the broker's duty to keep the principal fully informed, to make full disclosure of all facts, and to exercise reasonable care and diligence in the performance of his duty." The court held that Red Carpet's conduct constituted a breach of this duty.
Adams v. Kerr, 655 S.W.2d 49 (Mo. Ct. App. 1983).