A recent advisory from the legal department of the National Association of Realtors® (NAR) brings to our attention that agents and buyers need to be aware of a potential conflict of interest that may arise for buyers' agents.

The advisory was occasioned by a ruling rendered by the Supreme Court of the state of Montana. (Amador F. Zuazua vs. Tom and Carol Tibbles, individually and dba Coldwell Banker Gateway Realty, and Patti Stone.) Actually, the case that brought this about was in federal rather than Montana state court. Rather than rendering an appellate decision, the state Supreme Court was responding to a question posed to it by the Federal court. The question, as restated by the Montana Supreme Court, was this: "Does a buyer agent breach his obligation to a buyer under Montana State Law when a buyer agent simultaneously represents more than one buyer competing for the same property?"

Here is what had happened. The plaintiff, Amador Zuazua, signed a form on July 6, 2006, whereby Patti Stone, an agent for Coldwell Banker Gateway Realty, was designated as a buyer's agent for Zuazua.

On July 12 of that year, Stone and Louis Moritzky signed a similar form with Ms. Stone, whereby she was designated as their buyer agent. As things turned out, both parties submitted offers on the same property, 2719 Kings Point Road, Polson, Montana. The seller considered both offers, and accepted the one from Moritzky. Zuazua brought suit against the brokerage and Stone, alleging that they had failed to fulfill their duties under Montana's agency law. In particular, the suit argued that Montana's law precluded a buyer's agent from simultaneously representing more than one buyer competing for the same property.

In a divided opinion, the state Supreme Court agreed with the plaintiff. Its answer was based primarily on the finding that Montana law imposes on a buyer's agent the obligation to "act solely in the best interests of the buyer," and that such an obligation was inevitably breached "when a buyer agent simultaneously represents more than one buyer competing for the same property … ."

Agency law is not uniform from state to state, and it is certainly possible that a different conclusion might be reached in some other states. The whole question is problematic, because it is quite likely that most state agency legislation and court decisions never anticipated this kind of situation.

Indeed, the Montana opinion did not characterize this situation as dual agency. That is because Montana law specifically defines dual agency as "a broker or salesperson who, pursuant to a written listing agreement or buyer broker agreement … acts as the agent of both the buyer and seller … ." So, under Montana law, this was not dual agency, inasmuch as the seller was not represented by the buyer's agent.

Generically, though, dual agency occurs when an agent represents two parties who have competing interests. In that sense, the Zuazua case involved dual agency.

While the Montana case may be the first to yield a notable opinion, it is not the first case of its kind. Similar suits have been filed in California -- especially during the red hot market days, when there were few properties available, and the number of buyers was legion. None of the California cases, though, ever progressed to a precedent-setting level.

One twist to some of the California cases is that they did not involve the same person as agent. In California, as in many other states, the firm, or broker, is the agent, not the individual who actually interacts with the principals. Hence, similar dual agency (or, conflict of interest) suits were brought in cases where the two individual agents may have worked in different branch offices of the same company, who may not even have known each other.

The Zuazua case puts us on notice that there may be a whole new raft of issues coming forward with respect to dual agency and conflict of interest.