No Contribution Where Theories of Liability Differ

5.7.10    By admin    Tags ,

John and Brenda Skipper must have felt more like John and Brenda “Flipper” after purchasing a property in Shelby County for $20,496 and then contracting to sell it for $63,000 just five months later. See Skipper v. Wells Fargo Bank, N.A., 2010 WL 1508297, 2 (Tenn. Ct. App. 2010). Although the couple invested close to $18,000 into the property in order to “flip” it, they still stood to make a cool $21,221 in profit from the sale. Unfortunately, the Skippers learned just before closing that there were two IRS tax liens totaling over $127,000 encumbering the property, which killed the sale.

The Skippers sued both the seller (alleging, among other things, breach of warranty of good title) and First American Title Insurance Company, which had issued a policy insuring the property against unmarketability. The two suits were consolidated and tried jointly. After trial but before the ruling, the Skippers settled their claim with First American for $13,000. The trial court then awarded the Skippers $21,221 in damages for lost profits. The seller moved to have the award set off by First American’s settlement amount, and the trial court denied the motion.

On appeal, the Court agreed with the Skippers that a set off was inappropriate because the settlement and the trial court award involved separate theories of liability. The universal rule, the Court held, is that the principle of contribution applies only where the equities of the parties are equal in that they share a common obligation or liability. Interestingly, the trial court’s award in this case was based on the fact that the “unreleased … liens defeated the ‘marketability’ of … title ” — presumably the same reason the Skippers sued First American (unmarketability of title). The Court of Appeals concluded, nonetheless, “that the settlement and the trial court judgment [we]re based on differing theories of liability.” As a result, the Skippers were entitled to their lost profit damages from the seller as well as their settlement payment from First American.


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