Daily Development for Monday, February 14, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

We have two reports here of the same case, involving two distinct issues. The three judge court split three ways - almost everyone found something to disagree about.

VENDOR/PURCHASER; MISREPRESENTATION; “AS IS” CLAUSE:” Where fraudulent withholding of information by seller may have led buyer to purchase property without investigation of certain conditions, buyer’s right to claim damages for such fraud survives an “as is” clause.

Savage v. Doyle, 2004 Westlaw 2964634 (12/16/04)

Seller entered into a contract for deed with Buyer.  The contract contained an “as is” clause that read as follows:

“Buyer has examined the property to Buyer’s complete satisfaction and knows its condition.  In purchaseing the property, Buyer relies on Buyer’s examination and judgment, not on the representation of any other person as to the value, condition, size, age, use or any other matter.  Buyer acknowledges that in selling the property Seller makes no warrantied [sic] other than title.  This contract is the entire and only agreement between Buyer and Seller , and it incorporates all other written, verbal, express, and implied agreements made between any party or any agent of any party to this contract in connection with this transaction.  If any provisions in this contract conflict with any provisions in any other instrument, those in this contract shall control.”

Prior to sale, Buyer noticed the remains of some plywood sheets in the garage and indicated what that signified.  According to Seller,  Seller told Buyer that he and his son had done some roof repairs  but that they did not believe that there was any leakage any more.  Buyer, however, claimed that Seller had said nothing about any roof repairs.

Later, in examining damage to the property caused by a leaking water heater, Buyer discovered conditions behind the walls that indicated substantial water damage in the past.  Buyer claimed that Seller had fraudulently withheld information concerning such water damage, even when Seller had a duty to disclose such information because of Buyer’s questions about the plywood..  Buyer claimed that Seller’s non-disclosure of roof repairs constituted fraud that led Buyer to accept the premises “as is” when he otherwise would have inspected for water damage.  The trial court granted summary judgment to Seller, and Buyer appealed.

In an interesting split vote, the three judges on the panel each wrote a separate opinion that divided the court on each of the issues.  On this issue, one of the judges concluded that even if Buyer could show that  Seller had repaired the roof, and had withheld information about that repair, this would  not demonstrate that Seller deliberately misled the Buyer as to water damages.  In this judge’s view, to show fraud, the Buyer would have to show knowledge of the damage itself or of conditions substantially certain to cause the damage.  Buyer did not allege this.

Two other judges disagreed and took the view that if the Buyer could show that Seller had withheld information about the roof repair, the trier of fact could conclude that this showed an intent to withhold known evidence of possible water damage, and that Buyer would have been influenced not to investigate further..

Comment: What makes the case interesting is its discussion of what is necessary to overcome an “as is” clause in Texas.  In such a clause, the buyer agrees that it is relying upon its own inspections, and consequently simply showing fraud does not demonstrate that the claimant relied upon the fraud.  The claimant must demonstrate that it would not have entered into the “as is” agreement, stipulating that it was relying upon its own inspection, but for the fraud.  This was the test, as the court indicated.  That’s of some interest.

Did the court follow the test?  The editor thinks that it did.  The Seller argued that withholding information of the roof repairs would not have affected the Buyer’s inspection.  But.  No home inspection can look at everything.  Buyers buying with an “as is” clause are going to take some risks.   Information about prior repairs may have led the Buyer to focus its inspection efforts on the area that might have been affected by the leakage.  Otherwise, the Buyer, with limited resources, may elect to use them in other ways.

VENDOR/PURCHASER; CONTRACTS FOR DEED; RELEASE OF CLAIMS: A buyer’s release of a contract for deed back to a seller, done in connection with the retransfer of the property to a third party related to Buyer in exchange for cash, is not a release of claims that the buyer may have against the seller as a consequence of the seller’s failure to perform promises dealing with maintaining insurance coverage for injury to the property.

 Savage v. Doyle, 2004 Westlaw 2964634 (12/16/04)

In the contract for deed, the seller agreed to provide insurance coverage.  Buyer discovered damage caused by a leaking water heater, and asked seller to make an insurance claim.  Seller failed to do so in a timely manner and, in the end, the claim was denied as too late.

In the course of the events described above, buyer was also arranging a somewhat complicated refinancing of the acquisition of the property.  Seller quitclaimed back his interest in the property to Seller, and released the contract.  Seller simultaneously deed the property to another party, who was related to Buyer.  (There is some doubt as to whether this other party was actually married to Buyer at the time, but she was apparently living in the property with him.)  The transfer back to Seller and the release occurred after Seller got information from Buyer about the need to make an insurance claim but before the parties discovered that Seller had not timely filed the claim.

When Buyer sued Seller for breach of the contractual duty to follow through on the insurance. Seller defended on the grounds that the release of the contract exemplified by the quitclaim deed back to the Seller constituted a release of all claims against the Seller based upon the contract.

The trial court agreed and granted summary judgment for Seller.  On appeal: Held: Reversed.

The appeals court concluded that there was no clear release of contract claims in this transaction, in light of all the facts and circumstances.  Consequently summary judgment was inappropriate.  The court noted that the simply termination of the obligations to buy and sale do not cancel all other obligations where, as here, the buyer continues to have an interest in the property in another form and may be injured by the seller’s earlier breach of the contract.

Comment: What the editor likes about this part of this case is the utter failure of the court to mention the word “merger.”  Of course, it would be a kind of backwards merger, and “upstream’ transfer of deed rather than “downstream.”  But merger happy courts might have used the term anyway.  The question is not whether any arcane common law concept results in cancellation of rights - the question is whether there is reason to believe that the parties expressly or implicitly released claims based upon preexisting but undiscovered contract breaches.  Square shooting here in Texas.

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