Daily Development for Monday, August 12. 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

VENDOR/PURCHASER; MISREPRESENTATION; NON-DISCLOSURE; CONSUMER PROTECTION. A seller of a home is liable for violation of the Illinois Consumer Fraud Act for stating that he had not received any notice of plumbing code violations when he had received verbal notice of such a violation.

Kleczek v. Jorgensen, 767 N.E. 2d 913 (Ill. App. 2002).

In July 1994, Sellers purchased land in Pike County, Illinois, which they subdivided into nine lots and called "Deer Run Estates." Sellers had been in the business of building new homes under the name Jorgensen homes. They advertised the lots by putting up a for sale sign. Sellers began construction of one home which they intended to make their primary residence, and Sellers installed the plumbing personally.

On May 7, 1996, two plumbing inspectors inspected the plumbing and informed Sellers of some plumbing defects. The inspectors told Sellers that if they were building the house for sale, a licensed plumber would have to install the rest of the plumbing. On May 15, 1996, Buyer visited Deer Run Estates and asked Seller if the house was for sale. Seller indicated that it was and showed Buyer a "spec sheet" for the property which provided for a one year workmanship guaranty.

On May 22, 1996, Seller and Buyer executed a purchase and sale contract, in which the Seller represented that, prior to the execution of the contract, Seller had not received notice issued by any government authority of any dwelling code violation on the premises. On June 27, 1996, Seller received a detailed letter from the Illinois Department of Public Health regarding repairs that must be made to the premises, which Seller did not disclose to Buyer.

Seller hired a licensed plumber to install the rest of the plumbing and fix the defects. The closing occurred on July 26, 1996 for a purchase price of $182,300. Over the next several months, Buyers experienced plumbing problems, including minor and major leaks and a sewage odor. Seller made some repairs under the warranty, but refused to make any further repairs in February 1997. In April 1997, the Buyers had the plumbing inspected, and the inspector told Buyers of the previous inspection. The inspector found several additional defects, and Buyers hired a plumber to make repairs. In July 1997, Buyers sued Seller for breach of the implied warranty of habitability, violation of the Consumer Fraud Act, common law fraud, and breach of express warranty. Buyers requested rescission of the contract to purchase the home, attorney's fees and costs, and punitive damages.

The trial court entered partial judgment in favor of Buyers on the breach of the implied warranty of habitability, Consumer Fraud Act, and common law fraud claims. The trial court denied punitive damages and prejudgment interest and awarded attorney's fees and costs. After judgment, Buyers were offered $135,000 to purchase the home, and Buyers requested the court to modify its judgment to allow the sale and award the difference as damages. The trial court allowed the request to sell the house but denied the award of the difference between the judgment and the purchase price and held that Buyers would have to amend their complaint and prove damages in order for the court to award such damages.

Buyers sold the house, appealed, and Sellers cross-appealed.

The Illinois Court of Appeals held, first, that the Consumer Fraud Act does apply to the sale at issue. Sellers were not licensed real estate professionals and therefore did not fall within the exemption at 815 ILCS 505/10b(4). The court also held that this was not the sale of a single-family residence under the exception set forth in cases such as Carrera v. Smith, 305 Ill. App. 3d 1079 (1999) because Sellers were in the business of buying and selling houses, were developing the subdivision, provided a "spec sheet" and instantly made their home available for sale.

The court held, second, that the defendants had violated the Consumer Fraud Act. While Seller's representation as to no notices of violation of law may have been factually accurate, it was misleading and was the proximate cause of Buyer's damages.

The court reversed the trial court, however, with respect to the breach of the one year warranty, holding that it was not misleading but rather a straightforward breach of contract. The court further held that the trial court did not abuse its discretion in awarding attorneys' fees, except with respect to the fees attributable to prosecution of the one year warranty claim, and accordingly remanded for the court to determine the appropriate amount of attorneys' fees. The court further held that the trial court did not abuse its discretion in denying punitive damages or prejudgment interest.

The court finally held that the trial court did not abuse its discretion in refusing the modify the judgment unless the plaintiffs amended their complaint and proved their damages at a new hearing because the trial court was protecting defendants against prejudice from surprise.

Comment: The possibility of obtaining attorney's fees and punitive damages under a Consumer Fraud statute definitely tilts the playing field in these seller/buyer disputes. Note that in this case the Sellers did hire a licensed plumber as instructed and in fact attempted to correct the problems identified by the inspectors. Apparently the problems triggering the buyer's greatest concerns were problems other than those identified by the inspectors.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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