Court Opinion

ID: 9714295
Source: CourtListenerOpinion
Date Created: 2023-08-26 05:34:59.955301+00
Date Added: 2024-06-11T18:23:25.099580
License: Public Domain

BAKER, Chief Judge,
dissenting.
I respectfully dissent from the majority’s interpretation of the Buy/Sell Agreement and from the ultimate disposition of this matter. Initially, I quarrel with the application of the rule by which we construe an ambiguity in contract language against the drafting party. Op. p. 214. Here, the contracting parties were two large, sophisticated businesses that regularly entered into agreements that are similar to the one at issue herein. Under these circumstances, I believe that there should not be an automatic presumption against the drafting party, inasmuch as both parties are on equal footing with respect to the content, negotiation, and application of the agreement.
Moreover, I find a well-established, long-standing rule to be instructive: “Public policy holds that he who is best able to avoid a loss should bear it.” Provident Bank v. Tri-County Southside Asphalt, Inc., 804 N.E.2d 161, 165 (Ind.Ct.App.2004). This rule is rooted in common sense and its application fosters laudable business efficiency. We have had occasion in the past to expound upon this rule and its history:
The famous case of Phelps v. McQuade, 220 N.Y. 232, 115 N.E. 441 (1917), was the genesis of Uniform Commercial Code section 2-403. In Phelps, Gwynne falsely represented himself to a jewel vendor and obtained jewelry on credit from Phelps. Gwynne then sold the jewelry to McQuade. Phelps filed a claim for replevin of the jewelry, arguing that under common law title did not pass to McQuade. The Phelps court, however, noted that it was the “intention of the person having title to the goods and delivering them to another” that determined whether good title then passed to a purchaser for value. Id. at 442. Thus, the Phelps court held that Phelps had to bear the economic loss due to Gwynne’s false representation because Phelps had dealt directly with Gwynne.
The Uniform Commercial Code drafters incorporated the sound policy behind the result in Phelps. The drafters noted that U.C.C. section 2-403 was “predicated on the policy that where a transferor has voluntarily delivered the goods to a purchaser, he, the transferor, ought to run the risk of the purchaser’s fraud as against innocent third parties.” U.C.C. § 2-403, comment 4 (2002). The policy is just[,] inasmuch as he who deals directly with a person is in the best position to prevent a financial injury. See M & K Corp. v. Farmers State Bank, 496 N.E.2d 111, 112 (Ind.Ct.App.1986) (holding that the “employer is normally in a better position to prevent such forgeries by reasonable care in the selection or supervision of his employees”).
Id. Here, Metro was the party that dealt with the debtor and was closest to the appraiser and the flawed appraisal. Un*216der these circumstances, it is apparent that Metro was best able to avoid this loss and that, consequently, Metro should have to bear it.
Moreover, the Buy/Sell Agreement and the Manual establish that the parties intended that Metro bear the risk of loss. In the Buy/Sell Agreement, Metro “warrant[ed], represent[ed] and eovenant[ed]” to Trustcorp that “[t]he note and mortgage are good, valid and enforceable instruments, free of defect or objection,” that the loan meets all of Trustcorp’s requirements, and that Metro “has made diligent inquiry into all material facts and circumstances in the making of the loan....” Appellant’s App. p. 46-49. Moreover, “it is the intention of [Metro] and [Trustcorp] that [Trustcorp] be entitled to rely on [Metro’s] representations and warranties....” Id.
And the Manual explicitly requires that it is Metro’s responsibility “[t]o only originate, process, or close those loans under this agreement which qualify for either FHA/VA, Federal National Mortgage Association ... or other investors....” Id. at 56-57. Further, Metro “is responsible for determining the acceptability of the appraiser .... ” Id. Because common sense dictates and the parties clearly intended that Metro should bear the risk of loss stemming from a fraudulent or faulty appraisal, I would reverse the judgment of the trial court and direct it to enter judgment in favor of Trustcorp.