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Hubbard Family Trust, et al. v. TNT Land Holdings, et al. Case Study Part II

Previously I discussed this case and decision issued  by the Ohio Fourth Appellate District upholding a jury’s award of a quarter million dollar verdict against the seller for fraudulent misrepresentation of a property’s defects to a buyer.  Here we will look at several other parts of the Court’s decision dealing with corporate formalities and broker/agent liability.

Corporate Formalities.

You will recall that the property in question was owned by TNT with its sole member Marie Hoover.  The jury awarded judgment against both the seller TNT, and its sole member Marie Hoover personally, which Hoover appealed.  Hoover’s position was that she should not be subject to personal liability because the property was owned by a limited liability company and the Hubbard had not sued to pierce the corporate veil (seeking to impose personal liability upon a member personally for the bad acts of the entity).  The Court ruled that Hoover was personally liable because she engaged in fraudulent conduct personally and because she failed to sign the purchase contract as a corporate officer of TNT.

The Court looked at how Hover signed the purchase contract, in her own name and her failure to note any official capacity or position in which she was signing the contract.  The Court referenced case law that provides when an agent signs a loan by affixing their own signature without adding the name of the principal for whom the agent is acting, the agent becomes personally bound by the instrument.  The Court furthered that a person who executes an agreement in a way that indicates personal liability is personally liable, regardless of intention.  Applying to the facts of this case, the Court noted that every signature throughout the entire contract and addenda were signed by Hoover personally in her individual capacity.  Consequently, the Court found that Hoover was personally liable to Hubbard for the damages the jury awarded.

Lessons Learned.

When signing on behalf of an entity it is important to make sure the signature is truly on behalf of the entity and not yours personally.  First list the entity’s name, next your name after the word “by” and end with the capacity in which you’re signing.  For example, if I’m signing on behalf of Company, LLC, it would look like this:

Company, LLC by Kristin E. Rosan, President

The foregoing would bind Company, LLC only and not me personally.  Alternatively, if I sign a document in my own name, without any reference to Company, LLC, I likely incur personal liability for the obligations rather than the entity.

Breach of Fiduciary Duties.

The plaintiffs also sued their real estate agent Realtec and Shanks, who were dual agents in the transaction, for breach of their fiduciary duties including those of good faith and loyalty.  The Court ruled that the doctrine of caveat emptor, or buyer beware, is inapplicable to real estate agents when they fail to disclose material facts which were known or should have been known.  The Court also held that the fact that the property was sold “as/is” didn’t preclude the plaintiff’s cause of action against the agents.  In finding there to be substantial evidence to support a verdict against Realtec and Shanks,  the Court noted that Shanks wrote the contingency addendum for the previously failed transaction and failed to fully disclose the defects listed therein to Hubbard and further allowed Hubbard to sign an “as/is” addendum to the purchase contract.  The Court found Realtec/Shanks’ defense that the items in the previous contingency addendum were not “facts” to be “unavailing.”  The court opined that even if Shanks did not have support for the issues raised in the addendum and wasn’t sure whether the prior buyers even used a qualified home inspection, she was still had a duty to disclose the defects to future purchasers.   Last the Court found that even the vague information Shanks shared with Hubbard, which amounted to telling him the house needed repairs, did not fulfill her fiduciary duty to disclose all material facts.

Even though the jury at trial found Realtec/Shanks liable, they did not award the plaintiff any damages.  Finding that the jury’s verdict awarding no damages to be inconsistent with its finding of liability, the Court remanded the case back to the trial court on the issue of damages.

Lessons Learned.

Information concerning a property defect is not confidential and is material to the transaction.  Unlike sellers, agents cannot avail themselves of the defenses of caveat emptor or benefit from the existence of an “as/is” clause.  Even if an agent is unsure of the accuracy of the information concerning the defects, the agent still has a duty to disclose the same to any purchasers.  Otherwise, the agent may be liable to the buyer for damages associated with the non-disclosure.

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