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Liability of Dual Agent Upheld

Read the full decision: Hubbard Family Trust v. TNT Land Holdings, LLC

An Ohio court has considered whether a real estate professional acting as a dual agent properly informed her client about certain known conditions on the property.

Marie Hoover (“Hoover”) purchased a property with her then-husband on Lake White in Waverly, Ohio during 1994.  They made substantial improvements to the property, and Hoover eventually became the sole owner of the property following her divorce.  She transferred the property into an LLC  (“LLC”) in 2000, which she was the sole member.

In 2007, the LLC listed the property for sale with Angela Shanks (“Salesperson”) of Acceleration Enterprises, LLC DBA Realtec Real Estate (“Brokerage”).  The LLC received and accepted an offer, but an inspection conducted by the potential buyers identified a number of problems.  The potential buyers gave the Salesperson a list of the problems identified during the inspection, and the Salesperson handwrote an addendum (“Addendum”) to the purchase contract setting forth the problems, most of which involved the foundation defects and the fact that parts of the house were settling into the ground.  The LLC rejected the offer.

Following the rejection, the LLC began additional repair work on the property to address some of the problems related to the foundation raised in the prior offer.  Meanwhile, Joseph Hubbard visited the property and eventually made an offer to purchase the property through a trust (collectively, “Buyer”).  During his visit to property, the Salesperson pointed out the repairs that had been done to the property but did not discuss all of the defects that were noted in the Addendum.  The Buyer also visited the property again with an architect to further inspect the property.  On the property condition disclosure form, Hoover stated that she had no knowledge of problems with the property’s foundation.

The LLC accepted the Buyer’s offer and the Salesperson acted as a dual agent in the transaction.  The purchase agreement gave the Buyer the right to inspect the property and receive credit for any repairs that were needed, but the Buyer never conducted an inspection.  In addition, the Addendum was never shown to the Buyer.

Following the purchase, the Buyer began discovering problems on the property.  An engineer retained by the Buyer determined that the land was settling and the house was moving down the slope toward the lake.  The Buyer also believed that many of the repairs undertaken by the LLC were simply to cover up defects on the property. 

The Buyer brought a lawsuit against the LLC, Hoover, the Salesperson, and the Brokerage.  A jury returned a verdict against Hoover and the LLC for fraudulent misrepresentation, awarding the Buyer damages of $216,337.  The jury also returned a verdict against the Brokerage for breach of fiduciary duty, but did not award the Buyer any damages.  All parties appealed.

The Court of Appeals of Ohio, Fourth District, partially affirmed the trial court and sent the case back to the trial court for further proceedings.  First, the court looked at the arguments made by the LLC and Hoover.  The court rejected the LLC’s argument that the property was sold “as-is” and therefore the Buyer could not complain about the discovered defects because the jury had found that the LLC/Hoover had attempted to actively conceal the defects on the property, allowing the Buyer to recover damages.  The court also rejected the challenges to the award for fraudulent concealment because the LLC had failed to disclose the defects listed in the Addendum, which directly contradicted Hoover’s statements on the disclosure form.  The court also ruled that Hoover was personally liable for the award because she failed to follow corporate formalities and instead executed the transaction documents in her own name, not that of the LLC.  Thus, the award against Hoover and the LLC was affirmed.

Next, the court looked at whether the evidence supported the jury’s finding against the Brokerage and also whether the findings required the jury to award the Buyer damages from the Brokerage.  Because the Salesperson had written the Addendum which detailed the defects found on the property but then failed to disclose these to the Buyer even though she was acting as a dual agent, the court found that the evidence supported the jury’s findings of a breach of fiduciary duty.  The Salesperson was required to disclose all material adverse facts that she was aware of, and she did not do this.  Further, the court stated that finding a breach of fiduciary finding required the jury to award damages to the Buyer, and so the court remanded the case to the trial court for further proceedings.

Hubbard Family Trust v. TNT Land Holdings, LLC, 9 N.E.3d 411 (Ohio Ct. App. 2014).