Opinion ID: 2103132
Heading Depth: 1
Heading Rank: 2

Heading: laib is liable to hauxes for failure to escrow funds to cover a creditor's disputed claim

Text: The trial court held that Hauxes' deposit of the purchase money with Laib created a fiduciary relationship and Laib's failure to escrow part of the purchase money to cover creditors' disputed claims breached that fiduciary duty. Under SDCL 57A-6-106 it is the duty of the transferee to apply the money paid in consideration of the transfer to the debts of the transferor which are shown on the list furnished by the transferor or are filed in response to the creditor's notice. SDCL 57A-6-106(1). The trial court found that Hauxes failed to comply with the statutory requirements of the bulk sales laws and therefore were liable to Lucille. The trial court found and the record substantiates that there was no express or written agreement whereby Laib was to comply with SDCL 57A-6-106. However, the trial court concluded that the deposit of the purchase money with Laib created a fiduciary relationship whereby the proceeds were to be applied pursuant to law. Laib argues that there is no statute which imposes on the transferor's agent (or anyone other than the transferee) the duty imposed upon the transferee. Laib further argues that there is no evidence to support a relationship between Laib and Hauxes which would impose upon Laib the duty to comply with SDCL 57A-6-106. The trial court imposed liability on Laib on the basis of a fiduciary relationship between Laib and Hauxes. [2] Laib is liable to Hauxes as their agent. The bulk sales statutes set the standard for the performance of the duties of the transferee in a bulk sale. These statutes prescribe the duties of the principal, Hauxes. Although Laib was the agent of Tisdall, the transferor, for the purposes of arranging an agreement on the terms of the transaction, he became an agent of the transferees when he requested and was given the authority to handle the bulk sale transaction. Agency is the representation of one called the principal by another called the agent in dealing with third persons. Southard v. Hansen, 376 N.W.2d 56, 58 (S.D.1985). SDCL 59-1-1. The notice to creditors instructed creditors to submit their claims to Laib. Hauxes testified that even though they knew notices were to be sent to Tisdall's creditors, they never received or were aware of any specific claims filed. The factual elements required to create an agency relationship are [t]he manifestation by the principal that the agent shall act for him, the agent's acceptance of the undertaking, and the understanding of the parties that the principal is to be in control of the undertaking. Southard, supra, citing Kasselder v. Kapperman, 316 N.W. 2d 628, 630 (S.D.1982). The facts in this case substantiate agency. Hauxes accepted Laib's offer to handle the bulk sale. Laib's actions in sending out notices to creditors, receiving the claims, and taking charge of the purchase money demonstrate his agent status. The parties understood that the principal (Hauxes) was to control the undertaking. Laib testified that he was directed, on advice of counsel, to distribute the money according to the instructions of Hauxes. Hauxes understood that Laib would distribute the money according to the applicable statutory requirements. Laib believed Hauxes wanted him to transfer all proceeds to Tisdall other than amounts for undisputed claims. He attempted to relieve himself from his obligations to his principal by the document which he says was drafted and signed on June 28th. Laib and Seiler testified that this document was drafted with the intent of relieving Laib of liability for the nonpayment of Lucille's claim. Hauxes claimed it meant Laib was to pay Tisdall only the net proceeds. The trial court found that this document was ambiguous. It was ambiguous under these circumstances, in light of the testimony of the parties and the fact that the two parties to the document viewed its effect differently. The trial court further found that because of this ambiguity the document should be construed against the preparer, Laib. Therefore, it was ineffective in its attempt to relieve Laib from his obligations to his principal.