Johnson Realty v. Bender

• Decision Date: 27 September 2001
• Docket Number: No. 00CA0869.,00CA0869.
• Parties: JOHNSON REALTY, a partnership, and Vern Johnson, individually, Plaintiffs-Appellees, v. Marjorie E. BENDER and Randall C. Bender, Defendants-Appellants.
• Court: Colorado Court of Appeals

39 P.3d 1215

JOHNSON REALTY, a partnership, and Vern Johnson, individually, Plaintiffs-Appellees, v. Marjorie E. BENDER and Randall C. Bender, Defendants-Appellants.

No. 00CA0869.

Colorado Court of Appeals, Div. V.

September 27, 2001.

Certiorari Denied February 11, 2002.

Miller & Jester, L.L.C., Tim Correll, Jay S. Jester, Denver, CO, for Plaintiffs-Appellees.

Edward L. Zorn, Fort Morgan, CO, for Defendants-Appellants.

Opinion by Judge VOGT.

In this action seeking indemnification for defense costs in a prior case, defendants, Marjorie E. Bender and Randall C. Bender, appeal the trial court judgment in favor of plaintiffs, Johnson Realty and Vern Johnson (collectively, Johnson). We affirm in part, reverse in part, and remand.

The Benders entered into a series of listing agreements with Johnson for the sale of their ranch. After the last agreement expired in September 1993, Johnson, with the Benders' permission, showed the ranch to the eventual buyers and negotiated the sale of the ranch to them.

The buyers later sued the Benders and Johnson for misrepresentation, negligence, and unjust enrichment, claiming that a brochure they had received from Johnson in November 1993 misrepresented the crop yields on the property. After a bench trial, at which the Benders and Johnson were represented by separate counsel, judgment was entered in favor of the defendants.

Johnson then filed this action seeking indemnity for attorney fees and costs he incurred in defending against the buyers' claims. The trial court granted summary judgment in favor of Johnson. It rejected Johnson's contention that he was entitled to indemnification under a clause in the listing agreement, but concluded that he had a right to indemnification under common law agency principles. The court also determined that Johnson's failure to give timely notice to the Benders of the claim for indemnification did not bar that claim. Pursuant to the parties' stipulation, judgment was entered for Johnson in the amount of $45,000, plus interest and costs.

I.

The Benders first contend that the trial court erred in determining that an agency relationship existed between them and Johnson. We disagree.

We review a summary judgment de novo, applying the same standards that govern the trial court's determination. Summary judgment is warranted only upon a clear showing that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. C.R.C.P. 56(c); Churchey v. Adolph Coors Co., 759 P.2d 1336 (Colo.1988).

Although the existence of an agency relationship is generally a question of fact, a court may decide the issue as a matter of law when, as here, the facts are undisputed. City & County of Denver v. Fey Concert Co., 960 P.2d 657 (Colo.1998).

Under common law agency principles, a real estate broker working for the seller in a real estate transaction stands in an agency relationship with the seller. Olsen v. Vail Associates Real Estate, Inc., 935 P.2d 975 (Colo.1997); see Stortroen v. Beneficial Finance Co., 736 P.2d 391 (Colo.1987)

. An agency relationship between the seller and the broker may exist even where there is no written listing agreement in place, if the parties agreed to enter into a relation to which the law attaches the legal consequences of agency. Cole v. Jennings, 847 P.2d 200 (Colo.App.1992).

In 1993, the General Assembly enacted legislation, effective January 1, 1994, that modified certain common law principles applicable to brokerage relationships. Among other things, a broker who assists parties in a real estate transaction without a written agreement is deemed under these statutes to be a transaction-broker, not an agent of either party. See §§ 12-61-802(6), 12-61-803(2), 12-61-807(1), C.R.S.2001.

Here, the record amply supports the trial court's finding that, after expiration of the last listing agreement, there was still an agency relationship between the Benders and Johnson for purposes of selling the ranch. The Benders had employed Johnson for the specific purpose of selling their ranch, were aware that Johnson was showing the property and negotiating with the buyers after the written agreement had expired, and in fact informed the buyers that they were to discuss any questions they had with Johnson.

The Benders do not dispute the facts relied upon by the trial court to support its agency finding, but argue that, because the sale was not concluded until after the January 1, 1994, effective date of the new brokerage legislation, and there was no written listing agreement at that time, Johnson necessarily had to be deemed a transaction-broker and not their agent. We are not persuaded.

The lawsuit for which Johnson sought indemnification of defense costs arose out of his production and distribution of a brochure that allegedly misrepresented the crop yields on the property. There is no contention that his production and distribution of the brochure was unauthorized. The buyers alleged in their complaint that they had received the brochure from Johnson in November 1993. Thus, regardless of whether the act giving rise to the lawsuit was the preparation of the brochure or, as the trial court found, the presentation of it to the buyers, it took place before January 1, 1994. Therefore, even if Johnson would have been deemed a transaction-broker after that date under the new brokerage statutes, he was acting as the Benders' agent when he prepared the brochure and gave it to the buyers.

II.

The Benders next contend that, even assuming there was an agency relationship that could give rise to an indemnification obligation at common law, Johnson is barred from seeking indemnification because he did not timely notify them of his indemnity claim and give them an opportunity to participate in or assume his defense. We conclude that a remand is required to address this contention.

As an initial matter, we reject Johnson's contention that he gave the Benders timely notice of his claim by telling them at the outset of the relationship that they would be liable for his actions. Johnson's deposition testimony, appended to the parties' summary judgment briefs, supports the trial court's finding to the contrary. In his deposition, Johnson admitted that he did not notify the Benders at any time before the conclusion of the buyers' lawsuit that he expected indemnification. He further admitted that he did not ask the Benders to provide him with a defense, did not give them an opportunity to approve his counsel or his counsel's hourly rates, and did not consult with them before rejecting the buyers' settlement offer.

A.

As the trial court recognized, a common law duty to indemnify may arise based on a pre-existing legal relationship. See Ringsby Truck Lines, Inc. v. Bradfield, 193 Colo. 151, 563 P.2d 939 (1977)

; Naiman v. Warren A. Flickinger & Associates, Ltd., 43 Colo.App. 279, 605 P.2d 63 (1979).

Where the relationship is that of principal and agent, the general rule is that an agent is entitled to indemnification from the principal for losses incurred in performance of the agency that, because of the parties' relationship, should fairly be borne by the principal. See Restatement (Second) of Agency § 438(2)(b) (1958); see also, e.g., Southern Farm Bureau Casualty Ins. Co. v. Gooding, 263 Ark. 435, 565 S.W.2d 421 (1978); Fidelity Mortgage Trustee Service, Inc. v. Ridgegate East Homeowners Ass'n, 27 Cal.App.4th 503, 32 Cal.Rptr.2d 521 (1994).

In particular, an agent is generally entitled to reimbursement of expenses incurred in successfully defending a lawsuit brought by third persons because of the agent's authorized conduct on behalf of the principal. Such expenses may include attorney fees and costs incurred in the underlying action. See Restatement (Second) of Agency, supra, §§ 438 cmt. a, 439(d); Basmajian v. Christie, Manson & Woods International, Inc., 629 F.Supp. 995 (S.D.N.Y.1986); Southern Farm Bureau Casualty Ins. Co. v. Gooding, supra; Fidelity Mortgage Trustee Service, Inc. v. Ridgegate East Homeowners Ass'n, supra.

Contrary to the Benders' contention, Johnson's potential right to indemnification does not turn on whether he was acting as an independent contractor rather than as their employee. The Restatement comments on which the Benders rely refer to the inapplicability of the indemnification requirements to "non-agent" independent contractors. Here, as noted, Johnson was acting as the Benders' agent when he dealt with the buyers. See Stortroen v. Beneficial Finance Co., supra.

B.

The common law right of an agent to indemnification for defense costs is subject to two qualifications that are implicated in this case.

1.

First, an agent seeking such indemnification has a duty to give the principal timely notice and an opportunity to provide the agent with a defense.

If the principal refuses to defend, the agent will be entitled to recover reasonable expenses incurred in defending or compromising the third-party claim. See Southern Farm Bureau Casualty Ins. Co. v. Gooding, supra; Mutual Life Ins. Co. v. Estate of Wesson, 517 So.2d 521 (Miss.1987)

; Valloric v. Dravo Corp., 178 W.Va. 14, 357 S.E.2d 207 (1987); Restatement (Second) of Agency, supra, § 438 cmts. d, e. However, this rule is "predicated on the fact that the [principal] has originally been notified of the underlying action, has been requested to assume the defense, and has refused to do so." Valloric v. Dravo Corp., supra, 357 S.E.2d at 215.

The courts have taken varying positions on the effect of an agent's failure to request a defense. See Sun Indemnity Co. v. Landis, 119 Colo. 191, 194-95, 201 P.2d 602, 604 (1948)(noting in dictum that there "seem to be divergent views as to [the] right of recovery of attorney fees incurred by indemnitee in defense of the claim indemnified against where indemnitor was not requested to and did not defend in behalf of indemnitee or where it did defend but the indemnitee...