Opinion
No. 25346-5-III.
May 31, 2007.
Appeal from a judgment of the Superior Court for Grant County, No. 03-2-01042-8, John M. Antosz, J., entered June 1, 2006.
Home buyers allege that the sellers misrepresented the age of the residence. The sellers represented that all of the improvements to the real property were originally done in the 1980s. The buyers later discovered that the home was rebuilt in the 1980s after a fire destroyed the previous structure, which was built in the 1960s. The buyers also assert that the condition of items in the home and other personal property that they purchased from the sellers was misrepresented. On appeal of summary dismissal of their claims of fraud and negligent misrepresentation, the home buyers claim that they presented issues of material fact to survive summary judgment. We agree and reverse.
FACTS
On January 1, 1985, a fire destroyed Bette and Laurence McAtee's home. The original structure was built in 1969. The McAtees rebuilt the home in the spring of 1985. In the spring of 2001, the McAtees listed their home for sale. On a seller's disclosure statement required by RCW 64.06.020, they set forth 1985 as the year of "original construction." Clerk's Papers (CP) at 32. The McAtees did not disclose any defects in the structure, systems, or fixtures.
The exact inquiry and response was:
"Do you know the age of the house? Yes No Don't know
"If yes, year of original construction: 1985 Dompier Construction." CP at 32.
Charles and Sharon Laibl purchased the home, which included a pool and a garage with guest quarters, on August 29, 2002 for $265,000. They also bought several items of personal property from the McAtees. They received and accepted the McAtees' disclosures.
Prior to closing, the Laibls had the home inspected. The inspection report indicated that the home was approximately 40 years old. The couples met to discuss the report. When Mrs. Laibl asked about the age of the home, Mrs. McAtee said that the report was in error, and that "everything had been done in 1985." CP at 205.
The Laibls began to suspect that the home and improvements were older than were represented after they moved in and had problems with the pool. The repairman told them that the pool was 40 years old and could not be restored to good working order. They also learned from a repairman that the outside air conditioning unit was 40 years old. They found defects in the plumbing, appliances, floors, riding lawnmower, speaker equipment, fireplace, humidifier, and spa pump. The spa repairman told the Laibls that the spa pump was not new and the McAtees knew that it was not new. The Laibls spent $20,000 to repair or replace the misrepresented items.
After spending $60,000 in improvements, the Laibls listed the home on the market in May 2003. It sold in September 2004 for $260,000, which is $5,000 less than the price the Laibls paid to the McAtees, despite the improvements.
On August 8, 2003, the Laibls brought an action for fraud and misrepresentation. The court granted the McAtees' motion for summary dismissal on June 1, 2006.
DISCUSSION
In analyzing orders on summary judgment, our courts have traditionally noted that a moving party under CR 56 bears the initial burden of demonstrating an absence of any genuine issue of material fact and an entitlement to judgment as a matter of law. Schaaf v. Highfield, 127 Wn.2d 17, 21, 896 P.2d 665 (1995) (citing Young v. Key Pharms., Inc., 112 Wn.2d 216, 225, 770 P.2d 182 (1989)). The nonmoving party must thereafter set forth specific facts evidencing a genuine issue of material fact for trial. Id. We consider the evidence and reasonable inferences therefrom in a light most favorable to the nonmoving party. Id. The court will not resolve factual issues, but rather must determine if a genuine issue as to any material fact exists. Balise v. Underwood, 62 Wn.2d 195, 199, 381 P.2d 966 (1963). The legal issues on summary judgment are reviewed de novo. Schaaf, 127 Wn.2d at 21 (citing Mountain Park Homeowners Ass'n v. Tydings, 125 Wn.2d 337, 341, 883 P.2d 1383 (1994)).
Fraud
To survive summary judgment dismissal of their fraud claim, the Laibls had to make a prima facie showing on each of nine elements: (1) that the McAtees made a representation of an existing fact, (2) it was material, (3) it was false, (4) the McAtees knew that it was false, (5) the McAtees intended that the Laibls should act on it, (6) the Laibls were ignorant of its falsity, (7) the Laibls relied on the truth of the representation, (8) the Laibls had a right to rely on the representation, and (9) the Laibls suffered damages as a result. Farrell v. Score, 67 Wn.2d 957, 958-59, 411 P.2d 146 (1966). We address only the elements the McAtees dispute.
Representations. The legislature has required that sellers of real property complete a seller's disclosure statement in a specific format for the purpose of informing buyers of "certain matters relating to the property which are known to the seller." Svendsen v. Stock, 143 Wn.2d 546, 550, 23 P.3d 455 (2001) (citing RCW 64.06.020). One of the matters the seller is required to disclose is the date of "original construction." Former RCW 64.06.020(1) (1996) ("I. SELLER'S DISCLOSURES" at subsection C of section "4. STRUCTURAL"). Here, the McAtees disclosed the date of original construction as 1985. Mrs. McAtee also told Mrs. Laibl that "everything had been done in 1985." CP at 205.
Upon receipt of the seller's disclosures, the buyer must acknowledge receipt of the disclosures in writing and is informed of the obligation "to pay diligent attention to any material defects which are known to Buyer or can be known to Buyer by utilizing diligent attention and observation." CP at 34. See former RCW 64.06.020(1) ("II. BUYER'S ACKNOWLEDGMENT" at sections A, C). The Laibls acknowledged, accepted, and received the disclosures provided by the McAtees. They also signed a provision that waived their right to revoke their offer based on the disclosures. Although not meant to be a warranty, the seller's disclosure form informs the buyer that the disclosures are based on the seller's actual knowledge at the time it is completed. Former RCW 64.06.020.
The seller is also required to identify and explain any known defects in the pools, chimneys, fireplaces or wood stoves, hot tubs, plumbing, appliances, and heating and cooling systems. Former RCW 64.06.020(1) ("I. SELLER'S DISCLOSURES" at subsection E of section "4. STRUCTURAL"; section "5. SYSTEMS AND FIXTURES"). Other oral representations were made by the McAtees to the Laibls concerning the excellent working condition of these items.
A jury could find that the McAtees represented that the improvements were originally constructed in 1985 and the other items were in excellent working condition.
Falsity. The McAtees assert that the disclosure was not false; the existing structure was built in 1985. But that is not the disclosure that the McAtees made. They represented that they had actual knowledge that the original construction was in 1985. And despite their claim that the disclosure was not false, in their responsive brief the McAtees paradoxically refer on numerous occasions to 1969 as the year of original construction.
The existing structure is not all that the McAtees represented as being originally built in 1985. The disclosure statement expressly applies to the condition of the entire property it identifies by the address and legal description. Former RCW 64.06.020(1).
Of note, the disclosure form also requires the seller to identify "any conversions, additions or remodeling." CP at 32. See former RCW 64.06.020(1) ("I. SELLER'S DISCLOSURES" at subsection B of section "4. STRUCTURAL"). If the answer is "yes," the seller must explain them on attachments. CP at 31 (section I, seller's requirement to explain asterisked items); 32 (section 4.B, an asterisked item). See former RCW 64.06.020(1) ("I. SELLER'S DISCLOSURES" and at subsection B of section "4. STRUCTURAL"). The McAtees represented that there were no such conversions, additions, or remodeling.
Mrs. Laibl also stated in her affidavit that the pool, fireplaces, hot tub, plumbing, appliances, and heating and cooling systems needed repair or replacement, contrary to the McAtees' claims that they were in good shape. A jury could find that the McAtees' representations were false.
Materiality. A fact is material if a reasonable person would attach importance to the existence of the representation in connection with his decision to enter into the transaction. Martin v. Miller, 24 Wn. App. 306, 309, 600 P.2d 698 (1979) (citing Restatement (Second) of Torts § 538, at 80 (1977)). The McAtees claim that the age of the house was not material because the existing structure was built in 1985. Again, that is not all that the McAtees represented.
In her affidavit, Mrs. Laibl stated that resale value was important to them and that the age of a home affects resale value. A jury could find that reasonable home buyers would consider that in the purchase of real property and improvements, the difference between 17 years old and 33 years old is material. Certainly, a jury could also find that the condition of the personal property items was material.
Justifiable reliance. The McAtees argue that the Laibls' reliance on the representation of the construction year was not reasonable and that given the Laibls' obligation to inspect the premises before purchase, they could not rely on the McAtees' conflicting oral representations. The issue of whether reliance was justifiable is usually a question of fact for the jury, but when reasonable minds could reach but one conclusion, summary judgment is appropriate. Schaaf, 127 Wn.2d at 30.
Taking the evidence in the light most favorable to the Laibls, Mrs. McAtee told Mrs. Laibl that an error was responsible for the inspector's remark that the house was around 40 years old. Mrs. McAtee also told her that "everything had been done in 1985." CP at 205.
Generally, in an intentional misrepresentation case, when there is a positive, distinct, and definite representation, the representee has no duty to investigate the truth of the representation. Rummer v. Throop, 38 Wn.2d 624, 633, 231 P.2d 313 (1951). The right to rely also "involves the question of [the buyer's] diligence in ascertaining the facts for himself. . . . [and] his exercise of care and judgment in acting upon representations which run counter to knowledge within his possession or reach." Id. See also Restatement, supra, § 541A cmt. a (a representee has the right to rely unless "its falsity is obvious to his senses (see § 541), or he has reason to know of facts which then make his reliance unreasonable. (See § 540)."). The fact that the Laibls were confronted with conflicting information that caused them to doubt the truth of the matter did not necessarily require them to seek any other source than the McAtees to find an answer. Rummer, 38 Wn.2d at 633-34. As the McAtees correctly point out, the Laibls could have checked the tax rolls or obtained a title report to find out the truth. In Rummer, the court recognized that the buyer could have checked the deed at the county auditor's office, which made specific reference to the fact at issue. Id. at 634. But the buyer went to the seller for the facts. The court in Rummer held that the buyer "may have been foolishly credulous in doing this, but that would not deprive him of the right to rely." Id.
The extent to which a party must verify the truth of a representation depends on the circumstances of the case. Skagit State Bank v. Rasmussen, 109 Wn.2d 377, 384, 745 P.2d 37 (1987). Therefore, whether the party's reliance was reasonable under these circumstances is for the jury. Lawyers Title Ins. Corp. v. Baik, 147 Wn.2d 536, 551-54, 55 P.3d 619 (2002).
Damages. The McAtees claim that because the price the Laibls paid was fair, the Laibls were not damaged by the McAtees' representations. The Laibls presented evidence that they took a $5,000 loss on the home sale even after putting $60,000 into the property. This evidence is sufficient to send the case to a jury.
Negligent Misrepresentation
The Restatement's definition of negligent misrepresentation adopted by our Supreme Court provides:
"`One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.'"
Lawyers Title Ins. Corp., 147 Wn.2d at 545 (quoting ESCA Corp. v. KPMG Peat Marwick, 135 Wn.2d 820, 826, 959 P.2d 651 (1998) (quoting Restatement, supra, § 552(1)). "Thus, to prevail on a claim of negligent misrepresentation, a plaintiff must prove by clear, cogent, and convincing evidence that he or she justifiably relied on the information that the defendant negligently supplied." Id. (citing ESCA Corp., 135 Wn.2d at 826).
Here the Laibls must prove, by clear, cogent, and convincing evidence, that: (1) the McAtees supplied false information to another in a business transaction, (2) the McAtees knew or should have known that they supplied the information to guide the Laibls in a business transaction, (3) the McAtees were negligent in communicating the information, (4) the Laibls justifiably relied on the information, and (5) the information proximately caused the Laibls' damages. Lawyers Title Ins. Corp., 147 Wn.2d at 545.
The McAtees dispute only the third and fourth elements — negligence and justifiable reliance.
Negligence. The Laibls must show that the McAtees failed to exercise reasonable care in communicating the information concerning the house and personal property. The McAtees assert that there was no negligent disclosure regarding the age of the home because the structure was rebuilt in 1985.
Because the McAtees did not disclose either the true original construction date or that there were conversions, additions, or remodeling to the home, the facts are sufficient to take the case to a jury.
Justifiable reliance. Justifiable reliance in an intentional misrepresentation claim is different from that in a negligent misrepresentation claim. In a negligent misrepresentation case, justifiable reliance means the absence of contributory negligence. Condor Enters., Inc. v. Boise Cascade Corp., 71 Wn. App. 48, 52, 856 P.2d 713 (1993); see also Restatement, supra, § 552A ("The recipient of a negligent misrepresentation is barred from recovery for pecuniary loss suffered in reliance upon it if he is negligent in so relying."). In other words, to prevail, the Laibls cannot be negligent in their reliance.
A person asserting negligent misrepresentation "is held to the standard of care, knowledge, intelligence and judgment of a reasonable man." Restatement, supra, § 552A cmt. a. Whether a party justifiably relied upon a negligent misrepresentation is generally an issue of fact for the jury. ESCA Corp., 135 Wn.2d at 828. Once confronted with the inspection report, Mrs. Laibl asked Mrs. McAtee if the date of construction was correct. She replied that " everything had been done in 1985." CP at 205 (emphasis added). Whether any further investigation was reasonable is a question for a jury.
CONCLUSION
Because a trier of fact could believe the Laibls and not the McAtees and find the elements of fraud and negligent misrepresentation from the evidence, the trial court erred in dismissing the claims as a matter of law. We reverse.
A majority of the panel has determined that this opinion will not be printed in the Washington Appellate Reports but it will be filed for public record pursuant to RCW 2.06.040.
WE CONCUR: Kulik, J. Brown, J.