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A North Carolina court has considered whether a broker committed fraud when he failed to disclose to his client that property purchased by the client had been condemned and also that the broker was the owner of the property.
Samuel Sweet ("Broker") was the owner of Abeers Realty and Marketing, Inc. ("Brokerage"). In 2000, the Broker took Gunvantpuri Gosai ("Buyer") to a property which he stated was owned by a friend and listed at a price of $130,000. In fact, the Broker was the true owner of the property and he had paid $29,000 for the property, with the property listed under the name of a third party ("Third Party"). The property had been condemned, due to the fact that the chimney was falling away from the house. The Broker did not disclose either of these facts to the Buyer.
Eventually, the Broker helped the Buyer prepare a purchase contract for the property for a price of $130,000. The purchase contract designated the Broker as a dual agent. The Third Party signed a deed transferring the property to the Brokerage for $30,000, although no money ever changed hands in this transaction. Thereafter, the Brokerage transferred the property to the Buyer in exchange for $25,000 downpayment and an executed Note for the balance of the purchase price. Over the course of the next two years, the Buyer paid over $17,000 in interest on the Note. Upon learning about the property's condemnation and that the Broker had been the true owner of the property originally, the Buyer filed a lawsuit seeking rescission of the property's purchase as well as damages for fraud. The trial court ruled in favor of the Buyer, awarding the Buyer both rescission of the purchase contract and $117,000 in damages. The Broker appealed.
The Court of Appeals of North Carolina affirmed the trial court. The Broker first argued that he was not the agent of the Buyer. Since this was a finding of fact by the trial court, the appellate court could only overturn this determination if there was no evidence to support the finding. Here, the purchase contract stated that the Broker was a dual agent. Additionally, the Broker had previously represented the Buyer in other transactions, shown the Buyer this property, and also helped the Buyer draft the purchase contract. Based on those undisputed facts, the court found there was ample evidence to support the trial court's conclusion that the Broker was acting as the Buyer's agent.
Next, the Broker argued that the evidence did not support the trial court's ruling that he had committed fraud. In North Carolina, a broker cannot purchase from nor sell property to his/her client without first obtaining the client's consent after full disclosure of all facts are made to the client. If such a transfer occurs without meeting those requirements, fraud is presumed and does not need to be supported by direct evidence. The Broker argued that he had no duty to inform the Buyer of his ownership interest or the amount of profit he was making from the transaction. Since the court had determined that the Broker did have a duty to disclose to the Buyer his ownership in the property, the court rejected this argument and affirmed the ruling of the trial court.
The Broker also challenged the damages awarded by the trial court. The Broker argued that the Buyer should not have been able to receive both monetary damages and rescission- instead, the Buyer should have had to choose between remedies. The court stated that in awarding rescission, the court is trying to put the party back in their original position and so monetary damages may be necessary in addition to undoing the contract. The monetary damages in this case covered the $17,000 in interest paid by the Buyer as well as the $100,000 profit made by the Broker. The court stated that these were recoverable damages, as the Buyer was allowed to recover the interest payments as well as the $100,000, since the Buyer was allowed to recover any bargain that the other party took advantage of during this transaction.
Finally, the Broker argued that he was not liable for violating the state's deceptive trade practices act. The Broker argued that a real estate transaction was outside the scope of this law. The law covers all "unfair and deceptive acts or practices in or affecting commerce". While there are a few listed exceptions to the state's laws, real estate transactions are not exempted and so the court rejected this argument. The evidence supported a violation of the deceptive trade practices act, and so the court affirmed the trial court's decision.
Gosai v. Abeers Realty & Dev. Mktg., Inc., 605 S.E.2d 5 (N.C. Ct. App. 2004).