• November 14, 2013

Scarecrow Wizard of Oz PointingAdem Ali owned a piece of property in downtown Minneapolis that he tried to sell several times to Aba Hashim, who leased a part of the property and who operated a bakery there.  The Ali/Hashim deals never went through.

In one of these deals, Ali and Hashim devised a plan whereby the property would pass through a broker, Taylor. The sale only made it half-way, however, to Taylor but not to Hashim.

Nevertheless, after that, Ali continued his efforts to sell the property (through an agent) notwithstanding that he had already transferred his interest to Taylor. And Taylor transferred his interest to Green Room Health LLC (he owed a debt to the owner of that entity). And Green Room Health LLC sold it interest in the property to Elliot Park Enterprises.

At issue in the case was whether Elliot Park Enterprises was a good faith purchaser or whether its lawyer’s knowledge of Hashim’s adverse claims should have been imputed to Elliot Park Enterprises thereby throwing Elliot Park’s ownership interest into doubt.

There was a four-day trial.  Reviewing the trial court’s decision in favor of Elliot Park, the Minnesota Court of Appeals reasoned:

[T]here is a well-established exception to the general rule that the knowledge of an agent is to be imputed to the principal, in situations where the conduct and dealings of the agent are such as to raise a clear presumption that he will not communicate to the principal the facts in controversy, as where the agent acting nominally as such is in reality acting in his own business or for his own personal interest and adversely to the principal, or is acting fraudulently against the interests of the principal, or for any other reason has a motive or interest in concealing the facts from his principal.

In this case, it turns out that Elliot Park’s lawyer was apparently simultaneously representing another party, seller Green Room, with adverse interests, in the very same transaction and, based on the lawyer’s divided (and, in fact, antagonistic) loyalties, it would not be fair to impute his knowledge to Elliot Park.

The Minnesota Court of Appeals decision is unpublished and, therefore, without precedential value.  The case nevertheless highlights some useful practice pointers in what NOT to do when undertaking, advising, or assisting in real property transactions.

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