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Wardley Corporation v. Welsh: Utah Court Holds Broker is a Finder

In Wardley Corporation v. Welsh, the Utah Court of Appeals found that the real estate broker did not have an agency relationship with the seller, and instead, was acting as a finder. This unusual case involved Grant Welsh, a developer (interestingly, he also was a licensed real estate broker and a real estate training class instructor). Randy Young, a real estate salesperson affiliated with Wardley Corporation, a real estate brokerage (together referred to as the “Broker”), inquired whether Welsh wanted to sell any property. Welsh said that while he wanted to sell a particular parcel, he did not want to list it for sale. Instead, he indicated the amount he needed to net per acre and said that he would pay the Broker a commission for sending him the buyer.

The Broker introduced Welsh to Leon Peterson, and they entered into a purchase agreement in connection with the parcel. Welsh specifically included language in the purchase agreement to the effect that the Broker had no agency relationship with him, but that he would pay him $500 per acre at the closing. The Broker received the commission in connection with the first set of lots sold to Peterson. Welsh and Peterson then had a disagreement. When the Broker became involved in the negotiations, Welsh sent him a letter stating, “I would like to remind you that you do not represent me in any way whatsoever, nor do you maintain any kind of an agency relationship with me, whatsoever.”

The conflict was resolved, but Welsh refused to pay a commission when he sold the rest of the lots to Peterson. The Broker sued for the commission described in the purchase agreement, as well as for attorney fees, basing the later claim on the fact that the purchase agreement stated that, in actions arising from the agreement, the prevailing party is entitled to attorney fees. Welsh responded that he did not owe the Broker a commission because the Broker, as his purported agent, had breached fiduciary duties to him by not disclosing to Welsh the agency relationship with him, or a dual agency relationship with Welsh and Peterson, as required by Utah law. He also asserted that the Broker's claim for a commission was derived from a “net listing,” which is illegal in Utah.

The trial court granted partial summary judgment for the Broker. It found that he did not have an agency relationship with Welsh, and therefore, he did not owe him fiduciary duties or disclosure duties. The only issue at trial was whether there had been a net listing. Since the property had not been listed, the court determined that an illegal net listing could not have existed, and it awarded the Broker the commission.

On appeal, the Court of Appeals of Utah upheld the decision that there was not an agency relationship between the Broker and Welsh. The court went through basic agency law principles and emphasized that “an agency relationship can arise only at the will and by the act of the principal.” Welsh presented no facts showing that he consented to, or created an agency relationship with the Broker. Moreover, he clearly stated twice in writing that the Broker was not his agent. Since the court determined that there had not been an agency relationship, it therefore found that the Broker had not owed Welsh fiduciary or disclosure duties, so could not have breached those duties.

Footnotes to the decision refer to an argument made by Welsh that since the Broker’s involvement in the transaction fell within the definition of “real estate sales agent” under the Utah statute, then the Broker must have been acting as his agent. The court stated that Welsh was confusing the definition of a real estate sales agent with the specific relationship that governs a particular agency relationship. While the Broker’s act of finding a buyer fit within the statutory definition of a real estate sales agent, the court said that did not automatically make the Broker Welsh’s agent, especially since Welsh did not want the Broker to be his agent. It stated, “The statute plainly does not operate to force an agency relationship on an alleged principal.” The court also dismissed Welsh’s argument that Utah law does not permit licensees to act as mere finders.

The court also affirmed the decision that there had not been an illegal net listing. As far as the Broker’s claim for attorney fees, the court examined the purchase agreement as a whole. It determined that only the seller and the buyer could enforce the attorney fee provision against each other, and accordingly, ruled that the Broker was not entitled to attorney fees.

Wardley Corporation v. Welsh, 962 P.2d 86 (Utah Ct. App. 1998).