Lane v. Oustalet

• Decision Date: 13 May 2004
• Docket Number: No. 2000-CT-01814-SCT.,2000-CT-01814-SCT.
• Citation: 873 So.2d 92
• Parties: F. Baxter LANE and Kathryn Lane v. A.J.M. OUSTALET, Jr., Alfonso Realty, Inc. and Jerry Rosetti, Esquire.
• Court: Mississippi Supreme Court

873 So.2d 92

F. Baxter LANE and Kathryn Lane v. A.J.M. OUSTALET, Jr., Alfonso Realty, Inc. and Jerry Rosetti, Esquire.

No. 2000-CT-01814-SCT.

Supreme Court of Mississippi.

May 13, 2004.

Robert H. Tyler, attorney for appellants.

James C. Simpson, Jr., Richard Salloum, Gulfport, Fredrick B. Feeny, Fred Mannino, Biloxi, W.F. Holder, II, Gulfport, attorneys for appellees.

EN BANC.

ON WRIT OF CERTIORARI

GRAVES, Justice for the Court.

¶ 1. This case, before the Court on petition of F. Baxter Lane and Kathryn Lane for writ of certiorari from the decision of the Court of Appeals, involves a real estate transaction in which the Lanes purchased a single family residence from A.J.M. Oustalet, Jr. The transaction was brokered by Alfonso Realty, Inc., through its agent, Sherry Owen, with Jerry J. Rosetti serving as closing attorney. After taking possession of the house, the Lanes discovered extensive, unrepaired termite damage and received an estimate for repairs of $35,000. They filed suit against Oustalet, Alfonso Realty, and Rosetti for breach of fiduciary duty and negligent misrepresentation. Evidence was presented indicating that Oustalet, Owen and Rossetti knew of the damage, that they knew that it was possibly quite extensive, and that they failed to pass this knowledge to the Lanes at or prior to closing.

¶ 2. At the conclusion of the Lanes' case, the Circuit Court of Harrison County granted directed verdicts for all defendants. The Lanes appealed, and the case was assigned to the Court of Appeals, which affirmed in part and reversed in part. The appellate court found that the Lanes failed to establish the breach of contract charges against the seller because he did disclose a termite problem and told Owen to "do what was necessary to have the problem corrected." Lane v. Oustalet, 850 So.2d 1143 (Miss.App.2002).

¶ 3. As to Rosetti, the Court of Appeals held that the buyers failed to meet the burden of proof with regard to his duty as closing attorney when they failed to offer expert testimony on the prevailing standards of professional care.

¶ 4. The Court of Appeals also held, however, that, as a dual agent, Alfonso Realty had a heightened fiduciary duty and that the purchasers met the burden of proving that Alfonso breached that duty, Therefore, it reversed and remanded as to that defendant.

¶ 5. Following the Court of Appeals' decision, the Lanes and Alfonso Realty filed petitions for certiorari with this Court. Alfonso Realty's petition was denied, and that of the Lanes has been granted. We affirm the Court of Appeals judgment as to Alfonso but reverse as to Oustalet and Rossetti. Accordingly, we reverse the circuit court's judgment and remand this case for a new trial as to all three defendants.

FACTS

¶ 6. In 1996, the Lanes, having made plans to move from New York to the Mississippi Gulf Coast, contacted Sherry Owen of Alfonso Realty and ultimately found Oustalet's residence that they wished to purchase. The parties agreed to have Alfonso act in a dual agency capacity and executed a sales contract.

¶ 7. Prior to signing the Contract of the Sale and Purchase of Real Estate, the buyers received the Seller's Disclosure Statement that included a notation that the home had prior termite infestation and repaired damage. The sales contract includes a provision requiring the seller to provide a termite certificate prior to or at closing, which reads pertinent part:

TERMITE CERTIFICATE AND RESPONSIBILITY OF BROKER. Seller shall, as a condition of sale, furnish Purchaser, prior to or at closing, a closing certificate from a licensed, termite company, that subject property shows no evidence of termite or other wood destroying insect infestation. If such infestation exists, seller shall furnish warranty of approved treatment and correct any structural damages caused by such infestation. If cost of said treatment is prohibitive to seller, or, if buyer deems damage unacceptable, contract shall be declared null and void and earnest moneys shall be refunded. By signing below, both Purchaser and Seller acknowledge that the Broker did not recommend any pest control company, in any way warrant the inspection or treatment made by the company, and is in no way responsible for any termite damage.

A special clause is also included in the sales contract allowing for a home inspection to be conducted within five days of the signing of the sales contract.

¶ 8. At Alfonso's request, an Orkin Pest Control technician performed the pest inspection and completed the Mississippi Official Wood Destroying Insect Report, also referred to as the closing certificate or termite inspection report, on November 6, 1996. The report indicated unrepaired termite damage and recommended that a qualified expert be consulted to determine whether the damage needed to be repaired.

¶ 9. Orkin delivered this report to the closing attorney, who then notified Owen at Alfonso Realty of the unrepaired damage, and Owen arranged for a contractor who had previously repaired termite damage to the home to examine the damage. The contractor inspected the property and reported to Owen that, in his opinion, there was no loss of structural integrity. Owen testified that she notified the seller and the attorney, but did not notify the buyers. Rather, she relied on the attorney to include a copy of the termite report in the closing documents. She further testified that by obtaining the report and the home inspection arranged prior to the closing, she was doing everything she could to fulfill her duties to both the seller and the buyers.

¶ 10. The trial court concluded as a matter of fact that the buyers did not receive the termite inspection report at closing. The closing was conducted on November 18, 1996, and Rosetti testified that he was sure that he showed the buyers a copy of the contractor's report. However, he could not say with certainty due to the large volume of closings he conducted during that week, and he apparently did not discuss it with them. He relied upon the fact that the termite inspection report was included in his closing documents and that it was his general practice to deliver it. The buyers expressly denied receiving the termite inspection report or the report of the contractor engaged by Owen.

¶ 11. The Lanes took possession of the home shortly after closing. They requested and were provided a copy of the Orkin report from Rosetti on January 20, 1997, and obtained an inspection from Terminix which revealed an area of 750 to 800 square feet of damage. The Lanes then obtained estimates from two different professional who both testified at trial that the cost of repair would be over $35,000.00.

¶ 12. The Lanes' petition presents two questions for consideration:

1. When an agent serves the dual interest of two principals, should this Court recognize an exception to the general rule of agency that notice to the agent is constructive notice to the principals?

2. When a claim of legal malpractice is based not on a violation of a standard of care, but on a violation of a standard of conduct, is expert testimony necessary?

DISCUSSION

Standard of Review

¶ 13. We have stated:

The standard of review in cases where a directed verdict has been granted is as follows: "[t]his Court conducts a de novo review of motions for directed verdict.... If the Court finds that the evidence favorable to the non-moving party and the reasonable inferences drawn therefrom present a question for the jury, the motion should not be granted." Pace v. Fin. Sec. Life of Miss., 608 So.2d 1135 (Miss.1992) (citations omitted).

Entergy Miss., Inc. v. Bolden, 854 So.2d 1051, 1054 (Miss.2003). The Court of Appeals applied this standard in this case, as shall we.

The Agency Issue

¶ 14. The buyer, the real estate agent, and the attorney each knew of the termite inspection report and of the report of the contractor engaged by Owen. Each argues that it was the responsibility of the others to inform the buyers, who deny receiving both reports. Each would have us impute to the buyers constructive knowledge of these important documents through the agency of either the real estate agent or the attorney.

¶ 15. The law of agency generally imputes knowledge and information received by an agent in conducting the business of a principal to the principal, even where that knowledge or information is not communicated by the agent to the principal. Pittman v. Home Indem. Co., 411 So.2d 87, 89 (Miss.1982) (citing Home Ins. Co. of N.Y. v. Thornhill, 165 Miss. 787, 796, 144 So. 861, 863 (1932)). See also Weathersby v. Gore, 556 F.2d 1247, 1251 (5th Cir.1977) (applying Mississippi law). This general principle is fundamental to commerce; without the ability to rely on communications through representatives most trade would halt. The Court of Appeals relied on this principle in holding that, as a matter of law, the seller here satisfied his contractual obligation to the buyers by relying on the agents to communicate with them.

¶ 16. Here, however, Alfonso Realty served two masters, the buyer and the seller. Miss.Code Ann. § 73-35-21, allows such representation by real estate professionals if the dual representation takes place with the knowledge of all parties. In addition, the trial court found that Rosetti as well as Alfonso represented both parties. The Lanes argue that there should be an exception to the rule of imputed knowledge when the agent is acting in a dual capacity for two principals. The argument is that imputing the knowledge of the agent to both principals whose interests may become adverse is unreasonable and unfair. On appeal, the Lanes further argued that the attorney breached his fiduciary duty, not only in failing to inform them of the documents, but also in his failure to ensure that the seller complied with all of his contractual obligations. This argument proceeds to conclude that it is improper to constructively impute the knowledge of the seller to...