| ICSC Legal Database - Cases | Monday, February 22, 1999 05:01 PM |
| Citation: |
| Baldasarre v. Butler, 625 A.2d 458 (N.J.1993).Boyd & Mahoney v. Chevron U.S.A., 614 A.2d 1191 (Pa.Super. |
| Issue: |
| (1) Whether fraudulent conduct of an attorney who represents both the vendor and the purchaser in a complex |
| real estate transaction can be imputed to the purchaser on the basis of the principal-agent relationship. (2) |
| Whether a vendor can be held liable to a purchaser for tortious interference with the purchaser's prospective |
| economic advantage from an assignment contract where the vendor refuses to dismiss a rescission claim on |
| the original contract between the vendor and the purchaser. |
| Facts: |
| Butler, defendant/attorney, and his law firm represented Baldasarre and Neumann ("Baldasarre"), |
| plaintiffs/vendors/clients who sought to sell a tract of undeveloped land that they inherited. In early 1987, Butler |
| informed Baldasarre that his client, DiFrancesco, defendant/purchaser, had offered to purchase the land, with |
| the conditions that DiFrancesco be granted the right to assign the contract without notification and the right to |
| waive the subdivision contingency. Butler conveyed the offer to Baldasarre. After Butler had disclosed and |
| explained the potential conflict of interest that might arise from his dual representation, both DiFrancesco and |
| Baldasarre signed the "conflict of interest" letter, consenting to Butler's representation of both parties in the |
| transaction. The final agreement provided a purchase price of $1,980,000 and was subject to DiFrancesco's |
| obtaining preliminary major |
| subdivision approval within six months, with a 90 day extension. In April 1987, DiFrancesco entered into an |
| agreement with Messano to sell the land at $3,600,000, contingent upon DiFrancesco's closing with plaintiffs |
| and his obtaining preliminary major subdivision approval within 18 months. It also included a "Confidentiality" |
| clause, prohibiting Messano from entering the property and listing or advertising the property for sale during the |
| term of the agreement. Butler failed to disclose the Messano agreement to Baldasarre on various occasions |
| during 1987, despite the opportunities to do so. Baldasarre finally learned of the Messano agreement and sued |
| Butler, his law firm, and DiFrancesco, alleging legal and equitable fraud and seeking rescission of the |
| DiFrancesco agreement and compensatory and punitive damages. DiFrancesco counterclaimed, charging |
| tortious interference with his prospective economic advantage from the Messano contract on account of |
| Baldasarre's refusal to dismiss the rescission claim currently pending in the trial court, which rendered |
| DiFrancesco unable to convey marketable title to Messano. DiFrancesco sought specific performance and |
| compensatory and punitive damages. The trial court found in favor of Butler and DiFrancesco on all counts and |
| awarded DiFrancesco compensatory damages on his |
| tortious interference claim. The Appellate Division reversed, finding Butler had committed legal and equitable |
| fraud and holding DiFrancesco vicariously liable for Butler's fraud because of the principal-agent relationship. The |
| Appellate Division also rejected DiFrancesco's tortious interference claim. The present appeal ensued. Prior to |
| oral argument, Baldasarre and Butler and his law firm settled the issues between them. The only issues |
| remaining before the Supreme Court were Baldasarre's fraud claim against DiFrancesco and DiFrancesco's |
| tortious claim against Baldasarre. |
| Holding: |
| Reversed in part and affirmed in part. (1) Butler was the dual agent of two principals, Baldasarre and |
| DiFrancesco, each principal-agent relationship giving rise to its own set of duties. DiFrancesco cannot be held |
| vicariously liable for not disclosing the existence of the Messano contract when he himself had no duty under |
| the Baldasarre contract to disclose it. Butler's duties to Baldasarre were not part of the DiFrancesco-Butler |
| principal-agent relationship and thus Butler's breach of those duties is not attributable to DiFrancesco. |
| Moreover, Butler was an independent contractor (as opposed to an employee) in his representation of |
| DiFrancesco and Baldasarre. Where |
| DiFrancesco had not participated in or authorized fraudulent conduct by Butler, DiFrancesco cannot be held |
| liable for Butler's fraudulent conduct. Finally, given the disastrous consequences of Butler's dual representation, |
| a new bright-line rule prohibiting dual representation is necessary in commercial real estate transactions. |
| Henceforth, an attorney may not represent both the vendor and the purchaser in a complex commercial real |
| estate transaction even if both give their informed consent. (2) In the absence of a clear statement by the trial |
| court that requires Baldasarre to dismiss the rescission claim, Baldasarre's refusal to do so cannot be |
| construed as an intentional, unjustified, and unexcused interference with DiFrancesco's opportunities under the |
| Messano contract. This is |
| especially so because Baldasarre's claim was not frivolous. Baldasarre could have believed in good faith that |
| their claim for rescission was meritorious and could have refused to dismiss it on that sound basis. As a result, |
| a finding of malice, the requisite element in DiFrancesco's tortious interference claim, based on Baldasarre's |
| refusal to dismiss the rescission claim is unwarranted. |
| 00141 - Legal Update - Winter 1992 |
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