Daily Development for Friday, October 26, 2001

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

ABSTRACTORS; ABSTRACTORS' LIABILITY; PRIVITY: Privity rule protects abstractor's hired by buyers from negligence claim by sellers held liable for undiscovered defects.

Valentine v. Willard & Assoc. Title Search Services, 2001 WL 733414 (Ohio App. 7/21/01)

Buyer's attorney retained abstractor to examine title. Abstractor did not identify in its report the existence of a reservation of gas, oil and minteral rights, and buyers subsequently paid $50,000 to clear that reservation.

Instead of suing abstractor, buyers sued sellers, apparently on the warranty in the deed. Buyers won a judgment of $50,000. Sellers paid the judgment and then sued the abstractor for negligence.

The appeals court here affirmed a judgment in the negligence case for the abstractor, adhering to the traditional rule of privity of contract establishes a limit on possible plaintiff's for an abstractor's negligence performance of its title examination duties.

The privity rule in this context appears to be well settled in Ohio. The court noted that a number of recent cases have adhered to it since it was first declared in 1910. It concluded that the established contrary rule was a sufficient response to seller's argument that the trade practice was well established that all parties to a closing rely upon an single abstractor's skill.

Comment 1: The editor included this case in part as a response to Kim v. Yakima County Title Co. 2001 WL 1095731 (Wash.9/20/01), the DIRT DD for 9/26/01, where the Washington Supreme Court concluded that a judgment lienholder was entitled to rely upon a title insurer to discover the existence of its judgment lien and see to it that the lien was paid.

Although the editor disagrees with Kim, however, the editor is less comfortable with the result here. It certainly is true that both buyer and seller rely upon a title abstractor, including a title company, to search the records and disclose significant title defects, which the parties then can resolve or negotiate about. There is an established tort principle that a party performing a specialized expert service in a business transaction is liable for negligence to those who would foreseeably rely upon its expertise. Does that principle apply here?

Comment 2: Even where a title company should not be held liable for inadequate title commitments, isn't there still an argument that a "pure" abstractor has a broader duty. The title company arguably is required only to disclose those items as to which it elects not to insure. An abstractor is expected to give a complete and accurate report, so that a reviewing attorney can reach a determination as to where any given encumbrance ought to interfere with the closing.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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