Daily Development for Monday, March 19, 2001

Note that there is a second note on the same case, dealing with brokers' liability, following the first note.

VENDOR/PURCHASER: MISREPRESENTATION; POST CONTRACT MISREPRESENTATIONS: Misrepresentations about settling problems in house basement made after a binding contract to purchase house was made could not have been relied upon by purchasers and cannot support a cause of action for fraudulent misrepresentation. In the absence of fraud, once the contract merges with the deed, the terms of the deed govern the responsibilities and rights of the parties.

Richardson v. Hardin, 5 P.3d 793 (Wyo. 2000).

Warning: For the reasons set forth in the comments, this case may not be worth as much as first appears, but because it is useful to sellers and brokers fighting off misrepresentation claims, the editor reports it.

The Hardins bought their home from the builder in 1981. Shortly after moving in, one of the basement walls buckled, which the builder repaired. The Hardins put in wood paneling over the basement walls in

1984. Ten years later, the Hardins listed their house for sale. Lisa Richardson saw the house twice and made an offer on the house on behalf of herself and her husband, which the Hardins accepted. The contract stated that the buyers were accepting the house "as is" and that they were buying the house without any reliance upon any representations of the sellers.

The Richardsons knew they had a right to inspect the property and to cancel the contract if they were dissatisfied with the inspection results.

The Richardsons did not have the house inspected.

After the Hardins accepted the offer, Mrs. Richardson asked Mrs. Hardin if she had experienced any problems with the house. Mrs. Hardin said no. After moving in, the Richardsons found foundation defects. An engineer hired by the Richardsons stated that the house was built on expansive soils, that the expansive soils would destroy the foundation, and that eventually the house would collapse. The Richardsons sued the Hardins and their broker for fraudulent misrepresentation. The district court granted the Hardins' motion for summary judgment.

On appeal, the Supreme Court of Wyoming affirmed the judgment of the district court. The Supreme Court held that the Richardsons failed to show any reliance since the alleged misrepresentations were made after the Richardsons had made the offer and the Hardins accepted it.

Therefore, the contract merged with the deed and the terms of the deed governed the rights and responsibilities of the parties.

Comment 1: What makes this case weak is the fact that the court noted that, on appeal, the buyers had raised for the first time the fact that the alleged fraudulent misrepresentations occurred prior to the time had run for buyers to conduct inspections and to withdraw from the contract on the basis of those inspections. Although it would seem that there was an issue of fact as to whether the misrepresentations had led buyers to fail to inspect and to let the withdrawal period run, the court declined to consider this argument because it had first been raised on appeal.

To the editor, this argument fairly leapt from the page as he was reading the first part of the case, and likely would be raised in any parallel cases.

Consequently, the real authority here would appear to be relevant only to alleged fraudulent misrepresentations made after the contractual period for inspection and withdrawal had expired.

Comment 2: As to fraud occurring during the period between expiration of withdrawal period and closing, the court in essence says that this fraud is not actionable because of the lack of reliance.

Although the court talks about merger destroying the contract at closing, in the editor's view this doctrine has virtually nothing to do with the case. The court had already concluded that the contract gave the buyers no rights.

But the buyers' counsel on appeal, stabbing at shadows wherever they appeared, argued that there should be no merger because there was a "collateral agreement." The court, again, refused to consider this argument because it was raised first on appeal. But even if the argument had not been so dismissed, it is difficult to know exactly what "collateral agreement" existed.

Comment 3: Note that this is a case alleging actual fraud. Although the story told by the sellers may provide a defense to that allegation, certainly the existence of fraudulent intent would have been an issue of fact surviving summary judgment. For the summary judgment here to be correct, we have to conclude that even with actual fraud occurring prior to closing, the buyers have no remedy against either the sellers or their broker.

The editor, candidly, finds such a result hard to stomach. Although the buyers technically were bound to close, they might have taken a very different course of action had the sellers responded truthfully to their inquiries about the condition of the house and the buyers had then discovered the faulty foundation.For instance, buyers would have had a duty to inform their lender, who almost certainly would have refused to fund the loan, which may have triggered the "subject to financing"

clause. Again, assuming that the sellers and their broker committed fraud, the editor would have expected the court to find a remedy.

Comment 4: The bottom line, at least in Wyoming, seems to be that buyers should insist that they receive the property condition disclosure before entering into the contract. Buyer's brokers and lawyers who fail to demand the disclosure in a timely fashion are likely to be liable themselves for malpractice if the buyer later suffers a loss.

BROKERS; DUTY TO DISCLOSE; FRAUD: Misrepresentations about settling problems in house basement made after a binding contract to purchase house was made could not have been relied upon by purchasers and cannot support a cause of action for fraudulent misrepresentation. Richardson v. Hardin, 5 P.3d 793 (Wyo. 2000), discussed under the heading: "Vendor/Purchaser: Misrepresentation; Post Contract Misrepresentations."

The allegations concerning the broker's fraud were not as clear as those involving the sellers. The broker had lived next door during the entire period of seller's ownership and was aware of the difficulties that they had experienced with the foundation. Apparently he transmitted a property report that stated that there were no such problems and was present when one of the sellers stated categorically that there were no problems with the house. Whether such actions amount to affirmative fraud on the part of the broker are problematic, even if the case had been permitted to proceed against the sellers. But, since the court found no reliance in any event, the court never reached the more difficult issues concerning the broker separately.

See, e.g.: Van Camp v. Bradford, 623 N.E.2d. 731 (Ohio Com. Pl. 1993) Broker who stands quietly next to seller when seller makes actionable misrepresentation to buyer is not liable for misrepresentation even when broker is fully aware of all relevant facts.

Compare: Salhutdin v. Valley of California, Inc., 29 Cal. Rptr. 2d 463 (Cal. Ct. App. 1994). Notwithstanding seller's representations and absence of basis to mistrust those representations, if Buyer's broker passes on these representations, broker has fiduciary duty to confirm that property meets client's standards or to disclose that no such investigation has been made. (Probably reversed by California statute.)

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