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US: Back to Basics: Privity

 Ward v. National Savings Bank, 100 U.S. 195 (1880)

US: Underlying mortgage and title transaction.

Student Contributor: Ally Shuster

Facts: Bank loans  money to a borrower who owned a parcel of land and proposed to use it as collateral for the loan. He retains a lawyer to furnish a title report for the bank to rely upon in granting the loan and taking back a mortgage. The Lawyer, who had been hired by the borrower  had no contact with the bank but dealt through a mortgage broker.  The Lawyer provided  a certificate of title stating that the land was “good, and the property is unencumbered.” Before the closing, however, the borrower  transferred the lot in fee through a properly recorded conveyance. The borrower defaulted and because the lot was transferred out his name, a foreclosure action would fail. The bank instituted this n action against Mr. Ward, who, admittedly was not its lawyer.

Issue:  Even though there was no privity between the Bank and the Lawyer who furnished the title report, could the Bank prevail?

Ruling: In those days–1880, using contract law, the majority found no duty owed because there was no privity between the bank and the borrower’s lawyers.

Lesson:  While times and the law have surely  changed since the Ward case, privity of contract is still an important defense in many states. Today, however, tort concepts such as duty, reliance and other exceptions to the privity rule abound. This case is posted here  purely for historical and educational purposes.  

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Posted in: Commercial, Federal, Privity, Real Estate