In an important case involving the Real Estate Licensing Board, the North Carolina Court of Appeals has ruled that if a broker attempts to purchase property listed with him, his agency is not automatically terminated, and he remains obligated as a fiduciary to communicate any new or higher offers to his principal.
The case arose after the Licensing Board revoked the broker's license of Charles L. Gallman of Lexington, finding that he optioned property listed with him and then exercised the option after other parties offered him a higher price. Gallman appealed the revocation, contending that his option terminated his agency and allowed him to deal with the prospective purchasers as an owner rather than as a broker.
In a unanimous opinion by Judge Edward B. Clark, the Court of Appeals upheld the Board. Commenting that the real estate license law "prescribes a standard of honesty, truthfulness and integrity" for brokers, the Court first held that "the general rule is that a broker can neither purchase from, nor sell to, his principal unless the latter expressly assents thereto, or, with full knowledge of all the facts and circumstances, acquiesces in such course."
The Court then stated that "while option to purchase real estate. given by the seller to a broker employed to sell the property, is generally valid, he cannot enforce the option without making a full disclosure to his principal of any information which he has relating to other prospective sales or the value of the property."
The Court also determined that even if Gallman were not an agent for the buyers, he owed them "a duty of dealing with honesty and integrity." The decision concluded that "the licensing act should not be interpreted to require a licensee to be honest as a broker or salesman while allowing him to be dishonest as an owner,"
The Board cautions all licensees that they deal in their principal's property at their peril, and the Board will not hesitate to strictly scrutinize any such self-dealing to make sure that the agent does not take advantage of his position as a fiduciary.