Helmar v. Harsche, 296 N.J. Super. 194 (App. Div. 1996)
NJ: Underlying real estate transaction
Student Contributor: Michael H. Park
Facts: Plaintiff purchased a triplex rental property from broker partly based upon broker’s representation that the building was up to code and did not require any licenses in order to rent the premises. The broker told plaintiff to retain an attorney to review the contract and to handle the closing. The plaintiff then retained an attorney, who failed to check that the building was in compliance with all laws and regulations. Subsequently, the property was inspected and found to be in violation of twenty-one different codes. Plaintiff filed a complaint against broker alleging, fraud, consumer fraud, and negligence. Before a motion judge and again at trial, the broker sought to name attorney as a third-party defendant, contending that his malpractice was the superseding intervening cause of the plaintiff’s damages. However, the broker’s motion was dismissed and judgment was entered for plaintiff. The broker appeals the dismissal of its motion.
Issue: Was the motion to join the attorney as a third-party defendant properly dismissed?
Ruling: In reversing the decision by the Superior Court, Law Division, the Appellate division held that the broker should have been allowed to join attorney as a third party defendant for the following reasons:
1) In Stewart v. Sbarro, 142 N.J.Super. 581 (App.Div.), certif. denied, 72 N.J. 459 (1976), the court held:
“[When] an attorney undertakes a duty to one other than his client, he may be liable for damages caused by a breach of that duty to a person intended to be benefited by his performance.”
2) The broker presented expert testimony that established that once hired, it was the attorney’s duty to make sure the property was in compliance with the regulations. The expert opined that the attorney owed a fiduciary duty to the broker. Therefore, had the attorney done his job, there was a possibility that all the violations would have been revealed prior to closing.
Lesson: In cases where an attorney is called upon to handle a transaction between his client and a third party, a fiduciary duty may be owed to the third party. This duty demands that the attorney not only diligently pursue his client’s interests, but also the interests of the third party in successfully completing the transaction. If this duty is breached, the attorney can be held liable for any damages arising from his negligence.