Daily Development for Monday, January 14, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri
dirt@umkc.edu

CLOSINGS; DUTIES OF CLOSING AGENT; DISCLOSURE: A lawyer closing a purchase and loan transaction has no duty to buyer to disclose information known to lawyer concerning defects in title unless buyer has retained lawyer as a title insurer or agent or court concludes that purchaser, in addition to lender, can be regarded as a client of lawyer.

Davis v. Montenery, 2007-Ohio-6221, 2007 Westlaw 4145989 (11/15/07)

Davis contracted to buy land agricultural land that had a barn. There was an issue about access across a neighbor's land to provide convenient access the barn and 21 acres around it, which otherwise were separate from the main parcel that Davis was buying.    Sellers, many years before, had transferred the neighboring property and reserved a recorded easement to get to the barn. But soon after reserving this easement, sellers had agreed by separate instrument to relinquish their easement and replace it with a personal license terminating on sellers' deaths. .

Davis asked whether the existing road from to the barn, across the neighboring property, would be available to him. The real estate agent inquired of the surviving seller, who told him of the easement deed, and the agent actually went to the land records office and got a copy of the deed and presented it to buyer.

Subsequently, Davis agreed to buy the property and sought a mortgage loan from Bank, which retained lawyer Thomas to do the title work. Thomas found both deeds and apparently so informed Bank. Thomas later testified on deposition that his job was to be surethe title was clear. Thomas didn't inform Davis of the easement problem.

At deposition, Davis indicated that Thomas had represented or worked with Davis on a number of prior real estate deals and that he asked the bank to retain Davis to do the title work on this deal. Clearly there were meetings prior to closing between Thomas and Davis and Davis even claimed that, at closing, Thomas had informed him that the easement was good, even though in fact it expired upon transfer to Thomas. In addition, Thomas' title notes identified Davis as the client, although Thomas stressed that this meant the bank's client, not Thomas.'

The trial court found that Thomas did not represent Davis, was paid by the bank to do the bank's title work, and granted summary judgment to Thomas.

On appeal, the Ohio Court of Appeals reversed, finding sufficient evidence to overcome summary judgment that Thomas in fact represented both Davis and the Bank in this transaction. [Never a good idea, grumps the editor.]

But Davis also argued that Thomas had a duty of care to disclose accurate information to parties relying upon Thomas' work in the context of a business transaction even if such parties were not Davis' legal clients.           = ;            =

The court noted that established (1910) Ohio precedent stood for the notion that a title abstractor's duty is only to the person that employed him. It admitted that at least one prior appellate panel had questioned the appropriateness of this rule in the modern context. It noted that the Ohio Supreme Court had thrown out theprivity rule in connection with claims against an accountant for professional malpractice where a plaintiff's reliance on the professional performance is foreseeable.   The court here acknowledged that Davis' reliance on Thomas' work in this casemay have been both foreseeable and reasonable, but that the Ohio Supreme Court had not overruled its abstractor liability requirement for privity, and the fact that it had done so in the context of an accountancy case was no basis to ignore established precedent here.

Ironically, Davis' claim against both the seller and the real estate agent were dismissed because Davis stated categorically that he did not rely on their statements that there was an easement but insteadI sent to Mark Thomas on that. Turns out to have been the wrong place to go, at least unless and until the Ohio Supreme Court takes another look at this issue.

Comment 1: It appears that the court is only willing to entertain plaintiff Davis' claim if he can show that Thomas functioned as his lawyer. It seems to the editor that the existing record suggests other basis for liability here. Davis claimed that he went to Thomas specifically to find out about the easement and that at closing, after Thomas had identified the easement release document, rendering the first easement document void, Thomas still told Davis that the easement was good.

How can it be that a practicing lawyer has no duty to disclose honestly and fully information asked him by any party involved in a transaction of which the lawyer is a part? Certainly absence of privity is no defense against outright fraud.

Comment 2: Beyond the question of fraud, the editor also is inclined to the view that where a professional utters an opinion in the context of a business transaction with full knowledge that others in the transaction are relying upon that opinion, the professional ought to be liable if the opinion is negligently prepared or rendered. Particularly in modern real estate transactions, many professionals are called upon to provide critical information with full knowledge that they are the only source of this information. The transaction wouldn't go ahead without their information, and the party retaining them clearly expects that others in the transaction will rely upon this lawyer's work.    The editor's view, obviously, extends beyond abstractors.

The editor understands the Pandora's Box argument here. Clearly there must be some rationale control on who can rely upon what a professional does. Third parties unrelated to the transaction perhaps ought to be excluded, as should parties who in fact are not relying on the professional's work in connection with their decisions related to the transaction. But there has to be an area of responsibility within the transaction that goes beyond issues of privity.

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