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Smith v. Sullivan: Parties' Conduct May Extend the Duration of an Agency Contract

In Smith v. Sullivan, the Supreme Court of Mississippi addressed the issues of implied agency and undisclosed dual agency. The court found that an expired agency contract may be extended by a broker's actions and the principal's acquiescense, and that where implied agency exists, the agent owes all requisite fiduciary duties.

The Sullivans (sellers) owned 220 acres of undeveloped land, most of which was held as security for a loan on which they were delinquent. To avoid an impending foreclosure, the Sullivans wished to sell some of the land, yet retain the mineral rights. In March 1978, the Sullivans executed a listing agreement with Smith, a broker, who was given a three-month exclusive right to sell 112 1/2 acres of the land. On the expiration date of the listing agreement, Smith had not found a purchaser.

In August 1978, Smith produced Brown, a prospective purchaser. When the Sullivans inquired about Brown's financial background, Smith responded that Brown was a man with real estate development experience. In fact, Brown was a female acquaintance of Smith enlisted to purchase the Sullivans' property with a loan co-signed by Smith. This arrangement would enable Smith's petroleum company to develop any oil deposits. Under these false pretenses, the Sullivans authorized Smith to negotiate with Brown, who offered to purchase 120 acres of land, plus all mineral rights for $54,000. Foreclosure was impending, and Smith persuaded the Sullivans to agree to those terms. Subsequently, Brown was granted a two-month option to purchase.

Prior to Brown's exercise of the option, the Sullivans were approached by a third party interested in leasing the mineral rights for the entire 220 acres. The proposal would have netted the Sullivans an extra $5,200. The Sullivans wished to speak with Brown regarding the offer, but Smith refused to arrange a meeting or to provide Brown's phone number. When the Sullivans eventually learned Brown's true identity, they refused to honor the option contract. Brown then sued the Sullivans for specific performance. Smith also sued the Sullivans for the sales commission. The Sullivans filed a complaint against Smith with the state real estate commission, which revoked Smith's real estate license. The revocation was affirmed by the Circuit Court of Hinds County and Smith appealed to the Supreme Court of Mississippi.

The court found that a broker holds a fiduciary relationship with his principal, including all the attendant duties. The court also found that if the agency relationship is conferred for a certain period of time, it expires upon the completion of that period. The court added that under Mississippi law, a contract which has expired may be extended by a broker's actions and the principal's acquiescence. The court observed that Smith viewed himself as the Sullivans' agent after the expiration of the listing since he charged them a commission and filed suit on those grounds. Additionally, conversations between Smith and the Sullivans indicated that an implied or oral contract still existed. Therefore, the court held that Smith was the broker/agent for the Sullivans throughout the time period and owed them the duties attendant with fiduciary status.

The court also held that an agent must not put himself in a position antagonistic to the principal's interest by fraud or by representing others with interests adverse to his principal's interests. The supreme court affirmed the revocation of Smith's license on the basis that he acted as an undisclosed dual agent and that he had dealt unfairly with the Sullivans.

Smith v. Sullivan, 419 So. 2d 184 (Miss. 1982).