Daily Development for Tuesday, October 13, 2009
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

VENDOR/PURCHASER; MISREPRESENTATION; DISCLAIMERS: Broker and Seller may be liable for affirmative misrepresentations as to size of house notwithstanding disclaimers contained in sale agreement that state that there are no warranties by Broker as to size and that Seller or Buyer will hold Broker harmless with respect to defects, and notwithstanding acknowledgment at closing that Buyer had either inspected or waived inspection. 

Bowman v. Presley, 212 P.3d 1210 (Okla., 2009)

Buyers alleged that they shopped for a house larger than their own, and that broker and seller each represented to them that the house that seller was offering was 2800 square feet.  In fact, a post closing appraisal received by buyers indicated that the house was 2100 square feet.  Buyers alleged that Sellers and Broker knew that the house was smaller than they told Buyers, and that Buyers had computed the value of the house, and the price that they would offer, based upon a value “per square foot.” 

Defendants moved for summary judgment, first, on the grounds that the Buyers got what they bargained for, as the appraised value of the house equaled what they paid for it.  Court responded that the Buyer’s claimed that they had computed a “price per square foot,” and expected something other than they got.  In light of the “warring appraisals,” the court concluded that the Buyers’ claim survived summary judgment on this score.

Defendants then argued that  the fact of the size of the house was within Buyers’ competence to ascertain and that the size was in fact the size listed in the multiple listing service and on the appraiser’s records. 

Apparently there is some Oklahoma authority that when there is a representation of “opinion” made by a Seller or Seller’s representative, Buyer has the duty under the doctrine of “caveat emptor” to make reasonable investigation.  But the court concluded that such authority has no application where the alleged misrepresentation was as to a matter of fact, even though the buyer still could have checked the facts himself.  The buyer is entitled to rely upon the representation.

Defendants also pointed to language in the contract absolving Broker, at least from liability: 

“h) * * * Buyer is purchasing the Property based on Buyer's own inspection, unless waived, and NO WARRANTIES are expressed or implied by [Broker and licensees] that shall be deemed to survive the Closing in reference to the condition of the Property * * *.

15. DISCLAIMER AND INDEMNIFICATION: It is expressly understood by Seller and Buyer that [Broker and licensees]do not warrant the present or future value, size by square footage, condition, structure, or structure systems of the Property or any building, nor do they hold themselves out to be experts in quality, design and construction. Seller and Buyer shall hold [Broker and licensees] harmless in the event of losses, claims or demands by or against Seller or Buyer.* * * “

Buyer also executed documents at closing providing waivers relating to inspections:

“1. Inspection. Buyer has either inspected the Property in accordance with the Contract or by acceptance of the Deed to the Property. Buyer waives Buyer's right to inspect. In either event, the Property is accepted in its present condition.

3. Waiver and Release. Buyer hereby waives all claims to repair, replace, or remedy any defects in the Property and does hereby forever release and discharge the Seller, the "Listing Broker"), the "Selling Broker", their respective affiliated licensees, employees, representatives from all claims, demands, charges, losses, and liability whatsoever arising out of the contract and from the purchase of the Property.***

Broker, incidentally, was listed as both the listing Broker and the Selling Broker and also was selling Broker’s daughter’s house.  

The court ruled that public policy required that these waivers be ignored when the charge is one of fraud or intentional misrepresentation:

“A whisper of fraud can topple the pillars of even the most impregnable contract, for to base a contract upon fraud is to build it upon sand . . . “Fraud vitiates everything it touches, and a contract obtained thereby is voidable.  And evidence is always admissible to show that contracts have been fraudulently obtained. . . . the public policy fostering the certainty and stability of contracts gives way to the public policy against fraud.”

As to the argument that the appraiser’s office and multiple listing service also erred as to the size of the house, the court simply responded that in this action for fraud, where the Defendants were charged with knowing the true facts and misrepresenting them, the fact that the same wrong information appeared elsewhere was of no consequence, at least on a motion for summary judgment.

Comment: This is a simple fraud case, and the most important language, to the editor, is the court’s refusal to honor the waivers contained in the contract, even where they stated expressly that the waiver was given as to any representations as to size.   This would contradict some commercial contract cases in other jurisdictions, but the editor believes the conclusion is correct when the language appears in form documents introduced, undoubtedly, to the Buyer as “routine.”  The Editor is especially incensed when waivers and disclaimers favoring the Broker appear in form sale contracts prepared by the broker for use of the Buyer and Seller in documenting their agreement of sale.  Brokers have an ethical responsibility, in the editor’s view, to provide documents that simply are consistent with the best interests of the parties to the sale and not to sneak in language that serves the interest of only the broker, not a party to the contract, or to the closing.

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