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Duffy v. Setchell: Contract Negotiated by Undisclosed Dual Agent Is Voidable; Specific Performance Will Not Be Awarded

In Duffy v. Setchell, the Appellate Court of Illinois addressed the issues of undisclosed dual agency and specific performance. The court held that a contract negotiated by a dual agent is voidable by a principal who did not have notice of the dual agency, and that the other principal will be denied specific performance.

Setchell (seller) executed a listing agreement with Duffy (broker) for an exclusive right to sell Setchell's farm. White sought to acquire the farm. White contacted a broker, Brown, to inquire about the property, and authorized Brown to offer $800 per acre. After several visits with Setchell, Brown negotiated a sale for slightly less than $800 per acre. It was not until after Setchell signed the sales contract and a listing agreement requiring him to pay Brown a commission, that Brown disclosed that White was the buyer. Upon learning of the sales contract between Setchell and White, Duffy demanded a commission from Setchell. Rather than pay both commissions, Setchell refused to complete the sale to White. Duffy sued Setchell for the sales commission. White sued Setchell for specific performance. Setchell sued Brown alleging that Brown acted as an undisclosed dual agent, that there was no valid contract, and that no commission was due to either broker. The trial court granted a commission to Duffy, denied a commission to Brown, and ordered specific performance for White. Setchell and Brown appealed.

The Court found that when a buyer requests a broker's assistance in obtaining a particular piece of property, the broker may be held to be the buyer's agent for that transaction, even if the broker is paid nothing by the buyer and it is expected that he will receive a fee from the seller. The court then held that because White authorized Brown to offer $800 per acre, and because Brown negotiated with Setchell according to those terms, that Brown was White's agent.

The Court also addressed dual agency. The court found that if a buyer's broker becomes the seller's agent as well, the duties he will owe the two parties will be conflicting, and he will not be able to act for both without the knowledge and consent of both of them. When Duffy and Setchell executed the listing agreement, Duffy became Setchell's agent. The court held that upon execution of the listing agreement between Brown and Setchell, Brown also became Setchell's agent. The fact that Brown did not disclose to Setchell his role as White's agent, created an undisclosed dual agency situation. The court added that a contract negotiated by a dual agent is voidable by a principal who did not have knowledge of the dual agency, and it makes no difference that the principal was not in fact injured, that the agent intended no wrong, or that the other party acted in good faith. The court held that because Setchell did not have knowledge of the dual agency, the contract was voidable, and legally he was entitled to rescind it. Additionally, because the contract was voidable and actually rescinded, the court denied commissions to Duffy and Brown, and denied specific performance to White.

Duffy v. Setchell, 38 Ill. App. 3d 146, 347 N.E.2d 218 (1976).