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Burke v. Sea Point Realtors

400 N.J. Super. 398, 947 A.2d 686 (App. Div. 2008)

CONTRACTS; FRAUD; FIDUCIARIES — Where a fiduciary obtains court approval to sell properties based upon a representation that the preferred buyer was the most qualified, unsuccessful bidders, though having no right to notice of the court proceeding, may still have a cause of action for fraud against the fiduciary.

A property owner, who had become ill and unable to manage his affairs, had a guardian appointed for him. The guardian was a long time friend of his and was the person who had brought the action for a declaration that the property owner was incapacitated and in need of guardianship. The guardian gained approval from a probate court to sell the owner’s property to two buyers. His request encountered no opposition. The guardian testified before the probate court that the buyers’ offer was the second highest but was preferable because the buyer offered to pay cash in full while the highest bidder’s offer was contingent on a mortgage approval.

After finding out about the probate court’s approval, three bidders, who had previously attempted to acquire the property, sued the guardian claiming that, as part of a fraudulent scheme, the guardian discouraged them from purchasing the property and then sold it to the buyers at a lower price. The bidders asserted that the guardian did not disclose the fact that the buyers were the principals of the same realty company he retained to market the property, that he discouraged prospective buyers from purchasing the property by suggesting that the property had numerous problems, and that he failed to give notice of the probate proceedings. The lower court dismissed the bidders’ claims on summary judgment, finding that the bidders never had a contractual relationship with the guardian and holding that they had no standing in the probate proceedings.

On an appeal brought by the bidders, the Appellate Division noted that the buyers were, in fact, the principals of the same realty company that marketed the property. It also noted that a probate court needs to be convinced that the sale of an incapacitated landowner’s property was in the landowner’s interest in order to approve the sale. The Court further found that the approved buyers had a hidden advantage because the total amount expended by them was less than the amount they purportedly offered after the commission paid to their realty company was subtracted from the amount they paid. The amount paid by the buyers, less the commission, was also less than the second highest bid made on the property owner’s property. Thus, the Court found that the probate court would have considered the matter differently had it been aware of the self-dealing relationship between the buyers and their realty company and that the guardian was aware of that relationship.

The Court considered the argument by the guardian and the buyers that they were under no obligation to give notice to the unsuccessful bidders of the probate proceedings since the bidders had no standing. On that basis, it found that lower court’s dismissal of the bidders’ claims for breach of contract was appropriate. The Court, however, pointed out that this argument did not shield the guardian and the buyers from claims that they fraudulently concealed the relationship between the buyers and their realty company from the probate court and that they fraudulently discouraged all prospective buyers from purchasing the property. It also found out that, prior to discovery, the bidders would not have had access to conclusive information regarding their claims but that a demonstration before the lower court of the relationship between the bidders and their realty company would have been sufficient to warrant further examination and for the lower court to deny dismissal. Thus, the Court affirmed the dismissal of the bidders’ breach of contract claims but reversed and remanded the bidders’ claims of fraud for further proceedings.

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