Opinion ID: 2037858
Heading Depth: 1
Heading Rank: 3

Heading: Duty of a Broker

Text: As we stated at the outset, this case turns on the question of the duty owed to a buyer by the seller's broker. In its holding in Edwards II, 591 N.E.2d at 621, the Court of Appeals concluded that there was sufficient evidence to support the trial court's original determination that Taylor had a duty to satisfy the outstanding First Federal mortgage at the time of the execution of the real estate contract. [2] In setting aside the judgment for Edwards Realtors against the McAdams, the court pointed to the free and clear title language in both the Purchase Agreement and Exclusive Right to Sell agreement, as well as Davis' title opinion that the First Federal lien mortgage lien should be satisfied and released of record upon payment at closing. Id. at 622. This conclusion is contrary to law and thus merits reversal. Lawyers Title Ins. Corp. v. Pokraka (1992), Ind., 595 N.E.2d 244. The question of what duty a real estate broker owes a buyer when the broker is working on behalf of the seller has not heretofore come before this Court. As in any tort case, the determination of duty is a question of law. Wilson v. Haimbaugh (1985), Ind. App., 482 N.E.2d 486. The answer here is found in the law of agency. The American Law Institute recognizes brokers as a species of agent. See Restatement (Second) of Agency § 1 com. e, at 11 (1958). See also 12 Am.Jur.2d Brokers § 3 (every broker is in a sense an agent). Unless otherwise agreed, an agent is subject to a duty to his principal to act solely for the benefit of his principal. Potts v. Review Bd. of Indiana Employment Sec. Div. (1985), Ind. App., 475 N.E.2d 708. We are unaware of any authority for the proposition that a seller's agent owes a buyer a duty to act in the buyer's best interest. In Wilson, a case involving similar facts, the Court of Appeals held for the broker on the question of duty. 482 N.E.2d at 487. Like the instant case, Wilson involved the sale of property by a seller who moved to Florida and disappointed buyers who were left liable for liens which remained on the property. Gary Wilson owned certain real property in Indianapolis. When he left Indiana to relocate in Florida, Gary asked Pat Wilson to contact John Haimbaugh and to act in Gary's behalf to sell the property. Both Pat and Haimbaugh were aware of two liens which the bank held against the property, but neither was aware of a lien held by Gary's ex-wife pursuant to a divorce decree. Haimbaugh eventually purchased the property. Id. at 486-87. Prior to closing, Pat presented Haimbaugh with a title commitment which had been prepared for a previous prospective purchaser. Id. at 487. That title commitment did not reflect the ex-wife's lien, and Pat, unaware of that lien, stated that since the commitment had been prepared, no other transactions had occurred. Id. Haimbaugh purchased the real estate prior to procuring title insurance. He subsequently found that the bank mortgages were in default, so he paid them off. Haimbaugh then was forced to defend an action brought by the ex-wife. He brought a claim of negligence against Pat, contending that as the seller's agent Pat had a duty to furnish title insurance or a certified continuation of abstract. Id. Haimbaugh argued that he was damaged as a result of Pat's failure to perform an obligation to her principal, Gary, the seller. Id. The Court of Appeals rejected Haimbaugh's claim. Wrote Judge Hoffman: Before a defendant can be held liable for negligence, it first must be shown that the defendant owes a duty to the plaintiff. In the absence of a duty, there can be no breach of a duty and no negligence or liability based upon the breach of duty. [Citation omitted]... . Haimbaugh has not shown, nor has this Court been able to find, any authority for the proposition that a vendor's agent owes a duty to procure or furnish title insurance or a certified continuation of abstract to the purchaser. Rather, Haimbaugh maintains that he should recover because of the agent's negligence in performing the duty she owes to her principal. However, an agent who negligently fails to perform duties owed to her principal is not thereby liable to a person whose economic interests are thereby harmed. Restatement (Second) of Agency § 357 (1958). 482 N.E.2d at 487. Therefore, the Court of Appeals reversed the trial court's judgment in favor of Haimbaugh on his claim against Pat. While Wilson v. Haimbaugh is not precisely on point, its teaching is nonetheless applicable to the instant case. Taylor did not owe a fiduciary duty to the McAdams. His duty was to the Parnells. Absent a duty, there can be no breach and no negligence or liability based upon the breach of duty. Id. In holding Taylor to such a duty, the Court of Appeals in Edwards II rejected Edwards Realtors' defense that the Purchase Agreement incorporated by reference Paragraph 13 of the land sale contract signed at closing, which allowed sellers to maintain a mortgage on the property. See 591 N.E.2d at 621-22. We agree with Judge Sullivan's concurring opinion in Edwards II when he said that [t]he parties ... contemplated that the existing mortgage might be `maintained' on the premises so long as it never exceeded the amount due on the contract owing from the McAdamses. 591 N.E.2d at 624 (Sullivan, J., concurring). Where we depart from Judge Sullivan, however, is in fixing responsibility for the McAdams loss. There is no question but that the McAdams were wronged. The real wrong was perpetrated by the Parnells, however, not by their agents. In a rather poignant exchange at trial, Mrs. McAdams was asked if she or her husband ever took steps to see that their contract payments to the Parnells were being applied to the Parnells' mortgage. She replied, No, I guess that's where my trust was too great. (Record at 439). Mr. and Mrs. McAdams trusted the Parnells to keep their end of the bargain, but they signed a contract which left them exposed if the Parnells absconded. If Taylor had advised the McAdams during the closing to step back and consult with counsel before signing such a contract, the resulting harm might have been avoided. Because Taylor was the sellers' agent, however, the law does not hold him financially accountable for failing to do so. We affirm the trial court. DeBRULER, DICKSON and KRAHULIK, JJ., concur. GIVAN, J., dissents without separate opinion.