Summary
discussing an agent's fiduciary duty to the principal under Ohio law
Summary of this case from In re Cornerstone Products, Inc.Opinion
No. 78-774
Decided May 9, 1979.
Principal and agent — Agent's failure to disclose all material information — Liability for resulting damages — Exemplary damages not recoverable, when.
APPEAL from the Court of Appeals for Columbiana County.
This cause arises from the judgment of the Court of Appeals which affirmed a jury verdict for appellees, Mr. and Mrs. Cletus T. Miles, against appellant, the Perpetual Savings Loan Company, in the sum of $2,500 for compensatory damages and $25,000 in exemplary damages.
It was alleged in appellees' complaint that appellant concealed the existence of termites located within property purchased by appellees, that appellant did not disclose the presence of the termites to appellees, and that its failure to do so constituted deceit aggravated by wanton or reckless disregard for appellees' rights. Alternatively, it was averred that appellant was negligent in its failure to disclose material information to appellees pertinent to the transaction.
On July 12, 1975, appellees executed a contract wherein they offered to purchase a certain property and dwelling for $25,000. Upon acceptance of this offer by the vendor, appellees, on July 16, 1975, met with J. Frederick Russell, the president of appellant, for the purpose of initiating a mortgage loan in the amount of $17,000. During the course of the discussions relating to the loan, appellees inquired about a termite inspection for the property and were thereafter advised by Russell that it was appellant's policy to require the inspection, and that these matters were customarily handled by appellant. On September 4, 1975, a termite inspection company was engaged by appellant and was directed to inspect the property.
On September 5, 1975, appellees met with Russell to execute the requisite documents to secure the mortgage loan and to render an $8,000 down payment. The down payment was to be subsequently disbursed with the purchase-mortgage proceeds after settlement of the transaction. One of the documents prepared by Russell and executed by appellees was a real estate Disclosure/Settlement Statement (Section 2601 et seq., Title 12. U.S. Code), which indicated to appellees that a termite inspection had been performed on the vendor's property at a cost of $15. Copies of this document were issued to the vendor and to appellees, with appellant retaining a copy for its records.
Also on September 5, 1975, apparently after appellees had met with Russell to execute the loan, appellant was informed that the inspection had shown the property to be infested with termites and that treatment would cost $460. Russell discussed these developments with the vendor and her real estate agent, but did not reveal the information to appellees. At no time did anyone tell appellees that termites had been located in the property they were acquiring.
On September 8, 1975, appellant recorded the vendor's deed and appellees' mortgage. Thereafter, on September 11, 1975, the settlement proceeds were distributed among participants in the transaction and, on October 7, 1975, appellees obtained possession of the property. Within a few days thereafter, the termite damage was discovered, and the cost of repairing it was eventually estimated to be $5,962.50.
During the trial below, Russell testified that he had prepared and issued the Disclosure/Settlement Statement to appellees, indicating that a $15 termite inspection had been performed, before he obtained the report from the inspectors. Thereafter, when he became cognizant of the termite infestation, he deleted the $15 charge from the settlement statement copies subsequently issued to the vendor and retained by appellant, to reflect the $460 expenditure for the termite extermination process. The copy provided appellees was not so changed.
The Court of Appeals, in a split decision on the issue of exemplary damages, affirmed the judgment of the trial court, and the cause is now before us pursuant to allowance of a motion to certify the record.
Aronson, Fineman Davis Co., L.P.A., and Mr. Bernard Fineman, for appellees.
Mr. Ronald E. Alexander, for appellant.
Appellant argues in its first proposition of law that the statutory obligation of a savings and loan to appraise property prior to approving a loan secured by the property (R.C. 1151.292[G] does not impose a duty to disclose to the borrower information concerning the property gleaned from the appraisal. We need not, and do not, reach that question upon the instant record.
One who acts as an agent for another becomes a fiduciary with respect to matters within the scope of the agency relation. Connelly v. Balkwill (1954), 160 Ohio St. 430, 116 N.E.2d 701; Cahill v. Antonelli (R.I. 1978), 390 A.2d 936; 3 American Jurisprudence 2d 580, Agency, Section 199. An agent owes his principal a duty to disclose all material information which the agent learns concerning the subject matter of the agency relation and about which the principal is not apprised. See Smith v. Patterson (1877), 33 Ohio St. 70, 75; Spritz v. Brockton Sav. Bank (1940), 305 Mass. 170, 25 N.E.2d 155; McKeehan v. Wittels (Mo.App. 1974), 508 S.W.2d 277; 3 Corpus Juris Secundum 35, Agency, Section 272; 3 American Jurisprudence 2d 581, Agency, Section 200. Furthermore, where a principal suffers loss through his agent's failure to function in accordance with his duty, the agent becomes liable to the principal for the resulting damages. Bank v. Bank (1892), 49 Ohio St. 351, 30 N.E. 958; 3 Corpus Juris Secundum 80, Agency, Section 297; 1 Mechem on Agency (2 Ed.) 904, Section 1223.
Because of the facts at bar, we conclude that appellant, through its president, Russell, assumed the role of appellees' agent for the purpose of securing the termite inspection. From that relationship arose a duty to inform them of the results of the inspection, and the breach of that duty resulted in the damages found by the jury to have been sustained by appellees. See N G Constr., Inc. v. Lindley (1978), 56 Ohio St.2d 415, 384 N.E.2d 704; True v. Hi-Plains Elevator Machinery, Inc. (Wyo. 1978), 577 P.2d 991; 1 Restatement of Agency 2d 8, Section 1, Comment on Subsection (1).
During the course of the trial, Russell stated that appellant was acting as agent for appellees in the settlement of this transaction. The record shows also that when appellees questioned Russell with regard to obtaining a termite inspection of the property, they were told that it was customary for appellant to handle such matters and that appellant would do so in this instance. In reliance that the inspection would be conducted and the results made available to them, no separate inspection was initiated by appellees.
Appellant alternately contends that a termite inspection initiated by a savings and loan institution is not intended for the benefit of the mortgagor, but is procured solely for the protection of depositors, and no duty exists to disclose the results. As heretofore stated, we do not decide this issue because the operative facts of this cause demonstrate that the instant termite inspection was also conducted for appellees' benefit. Therefore, appellant was duty bound to disclose the material facts relating to the termite infestation before recording the deed and distributing the purchase money proceeds.
Appellant urges further that a recovery of exemplary damages in an action based upon the fraudulent sale of property is permissible only where the operative fraud is aggravated, as where the perpetrator's actions are malicious, gross or wanton. Thus, appellant argues that the trial court erred in submitting the question of exemplary damages to the jury because no evidence was adduced which established that appellant's actions were motivated by actual malice. We agree. See Logsdon v. Graham Ford Co. (1978), 54 Ohio St.2d 336, 376 N.E.2d 1333; Columbus Finance, Inc., v. Howard (1975), 42 Ohio St.2d 178, 327 N.E.2d 654; Johnson v. Stackhouse Oldsmobile (1971), 27 Ohio St.2d 140, 271 N.E.2d 782; Davis v. Tunison (1959), 168 Ohio St. 471, 155 N.E.2d 904; Saberton v. Greenwald (1946), 146 Ohio St. 414, 66 N.E.2d 224.
Acknowledging the closeness of the issue under the instant facts, we conclude that the record does not present a jury question of the existence of actual malice, or evidence from which reasonable minds could find that appellant acted in a malicious, wanton, or reckless manner. See Logsdon v. Graham Ford Co., supra.
The judgment of the Court of Appeals with respect to the award of compensatory damages is affirmed, and with respect to the award of exemplary damages is reversed.
Judgment affirmed in part and reversed in part.
CELEBREZZE, C.J., HERBERT, W. BROWN, P. BROWN, SWEENEY, LOCHER and HOLMES, JJ., concur.