New Case Strikes Down Release Provision in Rescission Form 51

This post is not legal advice. For legal advice, consult an attorney, not a blog.

Yesterday, Division I of the Washington State Court of Appeals (which handles appeals from King Co. north to Canada on the west side of the Cascades) handed down a decision that addresses the terms of the standard NWMLS Form 51 Rescission. This form is routinely used by agents to formally and definitively rescind one contract before a client enters into another. The Form, drafted by attorneys on behalf of the NWMLS, includes this rather self-serving provision:

RELEASE. The parties agree that the Agreement between them and all other agreements or undertakings between them in respect to the Property are hereby rescinded; and each releases the other and all real estate firms and brokers involved with this sale from any and all present or future liability thereunder and/or in connection with said sale, other than as set forth hereinafter, provided, that nothing herein shall be construed to terminate any existing agency relationships or agreements unless otherwise agreed in writing.

(Emphasis added.) There is no reason to include the release of the real estate firms and brokers involved in the transaction from any liability, other than of course to protect the real estate firms and brokers.

In the case of Hanks v. Grace and RE/MAX, the agent represented both the buyer and the seller. Notwithstanding the instructions from the seller to not present an offer contingent on the sale of the buyer’s home, the agent presented such an offer (albeit one without the correct addendum, the Form 22B, which specifically renders the contract so contingent; instead, buyer simply submitted an offer subject to a 22A Financing Contingency with the “contingent on sale of buyer’s home” box checked). Not realizing that the offer was contingent on the sale of the buyer’s home, seller accepted the offer. This happened in March of 2008.

Three months later, buyers having not sold their house — did I mention this was all happening in the spring of 2008? — the agent decided for reasons known only by the agent to buy the home himself. So they needed to formally rescind the prior PSA, and naturally the agent selected the Form 51 for this purpose.

Needless to say, the agent couldn’t complete the purchase either. Seller eventually sold the home two years later for $158k less than the amount of the original offer. When seller realized that the agent had attempted to get over on her by concealing the contingent nature of the original offer, seller retained counsel. Further investigation revealed a second interested buyer who expressed an interest in making a full price, non-contingent offer at the same time as the original buyers. But the listing agent never so informed the seller.

Following a jury trial on buyer’s claim of negligence against the agent, the agent was found liable and the seller was awarded $195.5k in economic losses and another $170.5k in non-economic (i.e. pain and suffering) damages.

Before the case got to trial, attorney for seller convinced the trial court that the release provision of the Form 51 was void and unenforceable as a violation of public policy. Otherwise, by having seller sign the rescission necessary for a new contract, the agent would have shielded himself from all liability to the seller arising out of his negligent representation. In a nutshell, the law should not — and now does not — tolerate an agent shielding himself unfairly in this fashion. It is not consistent with good public policy.

And the Court of Appeals agreed. It found that the release violates public policy, in part given the role of real estate agents in the purchase and sale of property.

Given this decision, any future attempt by a real estate agent to avail themselves of this shield from liability is likely to be unsuccessful. It remains to be seen if the NWMLS will simply revise the document to elimate the objectionable term. Certainly doing so is consistent with the role agents are supposed to fill and which they regularly hold themselves out as fulfilling, the protection of their client. That protection should not be sacrificed for the self-interest of the broker. Its simply not good public policy.

One thought on “New Case Strikes Down Release Provision in Rescission Form 51

  1. I’m not an attorney, but I say in many conversation that you don’t get to keep what you obtain through fraud. This was certainly an attempt to defraud the client, by misrepresentation?

    It doesn’t make any difference, you presented enough conflict of interest for the contract to be voided, in my opinion, so I don’t agree with your conclusion.

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