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Fiduciary Duties to Third-Parties: No Affirmative Misrepresentations

Petrillo v. Bachenberg, 139 N.J. 472 (1995)

Student Contributor: Evan Kusnitz

NJ Underlying Real Estate Transaction

Facts: A purchaser of real estate sued the seller and the seller’s attorney. The seller’s attorney had forwarded to the seller an incomplete copy of the results of percolation tests conducted by a previous owner to determine the subject property’s ability to hold a septic tank. During negotiations, the seller gave the incomplete copy of the test results to the purchaser. When the purchaser performed her own tests after the contract had been signed, she became aware of the actual quality of the land and told the seller that the contract was null and void. The seller refused to return the purchaser’s deposit. The purchaser subsequently brought suit against the seller’s attorney for, among other claims, breach of fiduciary duty.

Issue: Does an attorney who represents a seller in a real estate transaction owe any duty to the purchaser of the subject property?

Ruling: The court applied a “relaxed” privity rule, holding that an attorney for a real estate seller who makes affirmative misrepresentations by providing misleading information concerning the subject of the transaction, violates a fiduciary duty to a purchaser who will rely on the material misrepresentations to his detriment.

Lesson: A seller’s attorney has a fiduciary duty of care to the buyer and this duty exists when the attorney knows, or should know, that non-client will rely on the attorney’s affirmative misrepresentations.

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Posted in: Fiduciary Duty, New Jersey, Real Estate