Clagett v. Dacy

• Decision Date: 16 October 1980
• Docket Number: No. 139,139
• Citation: 47 Md.App. 23,420 A.2d 1285
• Parties: H. Manning CLAGETT et al. v. Edward A. DACY et al.
• Court: Court of Special Appeals of Maryland

Page 23

47 Md.App. 23

420 A.2d 1285

H. Manning CLAGETT et al. v. Edward A. DACY et al.

No. 139.

Court of Special Appeals of Maryland.

Oct. 16, 1980.

Thomas B. Yewell, Upper Marlboro, for appellants.

Joseph M. Roulhac, Baltimore, with whom were Ronald G. Dawson and Smith, Somerville & Case, Baltimore, on the brief, for appellees.

Argued before MELVIN, WILNER and COUCH, JJ.

WILNER, Judge.

Appellants were the high bidders at a foreclosure sale, but because the attorneys conducting the sale failed to follow the proper procedures, the sale was set aside. This occurred twice. Ultimately, the debtor discharged the loan, thus "redeeming" his land, and appellants lost the opportunity to acquire the property and make a profit on its resale. They sued the attorneys in the Circuit Court for Prince George's County to recover their loss, alleging that the attorneys in question owed them, as bidders, a duty to use care and diligence and to conduct the sale "properly and carefully." By sustaining the attorneys' demurrer without leave to amend, the court concluded that no such duty existed-at least not one from which an action for damages will arise; and, by affirming that order, we shall indicate our concurrence with the court's conclusion.

Appellants aver in their Declaration that (1) appellees, as attorneys, advertised two properties for foreclosure sale; (2) appellants attended the sale, made the high bid, and gave appellees a $5,000 deposit; (3) exceptions were filed by the record owner, who complained that proper notice of foreclosure had not been given as required by the Maryland Rules; (4) before the exceptions were ruled upon, appellees had the properties readvertised and conducted a second sale; (5) once again, appellants attended the sale, offered the high bid, and gave appellees a $5,000 deposit; (6) again, exceptions were filed, this time because one of the properties was "mis-addressed" and because appellees failed to notify counsel for the record owner of the date of the sale and the pay-off balance necessary to avoid foreclosure; (7) the court sustained the exceptions and declined to ratify the sale; and (8) thereafter, the record owner "redeemed" the properties from foreclosure.

Upon these allegations which, for purposes of demurrer, are assumed to be true, appellants claimed that appellees had "an obligation ... running to the plaintiffs, as prospective bidders, to see that the sale was properly and carefully conducted ..." and that appellants, as bidders had a right to rely on appellees "having exercised due care and diligence" in following the requisite procedures and conducting the sale properly. More pointedly, they averred that

"inasmuch as attorney's fees for the defendants herein were to be paid from the proceeds of sale of the property, and since plaintiffs were to be the source of the proceeds of the sale of the property ... the defendants occupied an attorney-client relationship with the plaintiffs to the extent the plaintiffs were entitled to rely on the diligence, expertise and due care of the defendants in offering the property for sale ...."

It would seem from these averments that appellants were attempting to set forth alternative standings to bring this action, one based upon a duty of care and diligence flowing to them in a general sense as "successful" bidders and the other based upon the same duty owed to them as implied clients.

The traditional rule, in Maryland and elsewhere, is that an attorney's duty of diligence and care flows only to his direct client/employer, and that, whether in an action of contract or tort, only that client/employer can recover against him for a breach of that duty. The Court of Appeals adopted that view in Wlodarek v. Thrift, 178 Md. 453, 13 A.2d 774 (1940), an action for breach of contract, and in Kendall v. Rogers, 181 Md. 606, 31 A.2d 312 (1943), an action based on negligence.

In Wlodarek, the attorney had been employed to do a land title examination by a contract purchaser. He reported good title, and, in reliance thereon, settlement was concluded. Ultimately, the land devolved to others; and, when it appeared that the attorney's opinion was incorrect and a title defect surfaced, the question arose as to who could recover. The Court concluded (178 Md. at 468, 13 A.2d at 781):

"It seems generally accepted that the liability of the defendants as attorneys to examine and pass upon a title to land is founded in contract and not on tort, and, therefore, does not, as a general rule, extend beyond the person by whom they were so employed. So, when the party with whom the contract is made is the purchaser, and he causes the title to the land, after paying the purchase money, to be conveyed by the vendor to his nominee, the subsequent loss and injury sustained by such nominee and his successors in the title, by reason of any defect in or absence of title, may not be recovered of the attorneys by such third parties as damages."

Kendall also arose out of a title problem. Kendall sold a farm to MacCubbin, later taking back a mortgage on it. The conveyance was by special warranty deed. When MacCubbin attempted to sell the property, a title defect was discovered, the defect arising from something that had occurred before Kendall owned the property. Under the Maryland special warranty, Kendall had no liability to MacCubbin; however, Rogers, an attorney employed by MacCubbin to clear up the problem, told Kendall, erroneously, that it was his responsibility to make the title good. Relying on that advice, Kendall expended some $3,200 to cure the defect, and then, upon discovering the truth as to his liability, sued Rogers to recover the expenditure, claiming negligence.

Adopting the tripartite test stated in Maryland Casualty Co. v. Price, 231 F. 397 (4th Cir., 1916), the Court said that "(i)n a suit against an attorney for negligence, the plaintiff must prove three things in order to recover: (1) The attorney's employment; (2) his neglect of a reasonable duty; and (3) that such negligence resulted in and was the proximate cause of loss to the client." 181 Md. at 611-12, 31 A.2d at 315. An attorney, said the Court, "is liable for his negligence in certifying to a title to his immediate employer only, and not to the latter's assigns or any third person, between whom and the attorney there is no privity." Id. at 613, 31 A.2d at 315. Against this standard of strict privity, the Court concluded that, on the facts set forth above, there was no attorney-client relationship between Kendall and Rogers, and thus no cause of action.

The Court tacitly maintained its position regarding the need for direct privity in Reamer v. Kessler, 233 Md. 311, 196 A.2d 896 (1964). That case has little or no precedential value in the context here because (1) liability vel non of the attorney was conceded and therefore was not directly in issue, except in terms of the measure of damages, and (2) he had in fact been employed by the parties plaintiff (see 233 Md. at 315, 196 A.2d 896). The significance of the case was the reliance by the Court on that second factor-employment by the plaintiffs-to distinguish Wlodarek and Kendall, thus implying the continued vitality of those cases and the doctrine enunciated in them.

The only departure from the direct privity requirement on the part of the Court of Appeals came in Prescott v. Coppage, 266 Md. 562, 296 A.2d 150 (1972), a unique case. The dispute there was between the receiver of a defunct deposit insurance company (Coppage) and the receiver of a defunct savings and loan association (Medley) that owed the insurance company certain monies. The insurance company receiver, Coppage, among other things, sued Prescott, a court-appointed special counsel to Medley, contending that due to his erroneous advice, Medley had improperly paid sums from his receivership estate to the association's depositors rather than to Coppage, who enjoyed a higher priority status. Prescott defended the action against him on a number of grounds, among which was lack of privity.

The Court of Appeals, reversing a defendant's judgment, concluded that Coppage had standing, as a third party beneficiary, to recover. Its reasoning was essentially as follows: all creditors of the defunct association (including Coppage) were third party beneficiaries of the receivership, and thus of Medley's activities as receiver; Prescott's court-imposed duty as special counsel was to "aid (Medley) in the performance of his duties as receiver"; thus, the creditors were also specific third party beneficiaries of Prescott's discharge of that duty and could sue to recover losses if it was discharged improperly.

Although the case has a most unusual...