Daily Development for
Monday, February 15, 1999

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

VENDOR/PURCHASER; MISREPRESENTATION: Cause of action for tortious nondisclosure of material defect requires that undisclosed fact materially affects actual value of property, and proving only that undisclosed fact would have influenced buyer’s decision is not enough, but if nondisclosure is fraudulent, it may be actionable even if value not at stake, and rescission may lie where value not affected but misrepresentation was intentional.

Billian v. Mobil Corporation, 710 So.2d 984 (Fla.App. 4 Dist. 1998).

Buyers brought an action against developers of condominium unit for nondisclosure of certain defects in the premises. After a jury verdict for defendants, the buyers appealed on the grounds that the jury instructions were inappropriate. Although the appeals court affirmed the critical aspect of the instructions that were the subject of the appeal, it went further and delineated a separate potential cause of action that might have arisen under these facts and suggested that rescission might be appropriate based upon that cause of action. Then the court remanded for further proceedings.

Buyers contended that certain aspects of the property, had they been disclosed, would have affected their willingness to complete the contrqact for the sedt price. They further alleged that defendant developers knew of these aspects and did not disclose them. The trial court instructed the jury that damages were available only if the character of the undisclosed facts were such that they would have affected the market value of the property - not just buyer’s subjective determination to buy. The appellate court affirmed this instruction, pointing out that Florida authority had adopted this somewhat restrictive notion of what is “material” in a simple nondisclosure case in order to be fair to sellers who make relatively “innocent” nondisclosures. As the court points out, in such cases “the forgetful or unsophisticated seller is just as liable as the knowing dissembler.”

On the other hand, the court pointed out, if the seller had fraudulent intent in withholding information, there is a different tort - fraudulent nonconcealment, and the standards of materialiaty are broader. In this context, to be material, the misrepresentation need only to have influenced the buyer’s decision, even if it did not go to the objectively determined market value of the premises.

The trial court had given an instruction that required the jury to find the narrower standard of materiality, but also required the jury to find that the misrepresentation was intentional. The court on appeal concluded that such an instruction combined and confused two separate causes of action. The plaintiff’s damages claim had been based upon misrepresentation, but not fraud. Therefore, no instruction regarding the defendant’s intention was appropriate. The court reversed the verdict for defendant and remanded.

On remand, the court also noted that the trial court should not have viewed itself as bound by the jury verdict in reaching its conclusions as to rescission. It pointed out that in the area of equitable relief, a jury’s findings are only advisory, and the court may weigh the record following the proof to determine whether an equitable remedy should lie. The appeals court stated here that rescission is available when there has been an intentional withholding of information that would have been of interest to the buyer even when the withheld information would have no impact on price. Thus, even if the jury found for defendant on the materiality issue measured by the narrower standard, if the court finds that indeed the seller did withold information deliberately, it can apply the broader standard and grant rescission.

Comment 1: Although the editor usually is critical of niceties in tort standards that lead to a “distinction without a difference” when everything passes on to the jury, the editor believes that the distinction drawn here is a meaningful one that a jury can grasp.

The question remains whether it is appropriate to protect nondisclosing sellers with this tighter standard. The editor thinks that it is appropriate. If the misrepresentation is such that it does not objectively affect market value, then it is quite possible that the seller might not deem it significant enough to disclose. When the seller deliberately withholds information that it knows is significant to the buyer, however, this should be actionable independent of any question of market value.

Comment 2: Further, the editor agrees that rescission ought to be available when the misrepresentation was made deliberately, even though it doesn’t affect value. The buyer still is stuck with property it doesn’t want, and this is because of deliberate sharp dealing by the seller. The equities favor the buyer.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1 - 6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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