### FILED February 23, 19

99 Cecil Crowson, Jr. Appellate C ourt Clerk IN THE COURT OF AP PEALS OF TENNESSEE AT KNOXVILLE

THOMAS M. GAGE and wife, ) JUDY A. GAGE, ) ) Plaintiffs/Appellants, ) Union Chancery No. 2323 ) v. ) ) ROBERT C. SEAMAN and wife, ) Appeal No. 03A01-9711-CH-00503 RUBY M. SEAMAN, et al., ) ) Defendants/App

ellees. )

)

APPEAL FROM THE CHANCERY COURT OF UNION COUNTY

AT MAYNARDVILLE, TENNE SSEE

THE HONORABLE BIL LY JOE WHITE, CHANCELLOR

For the Defendants/Appellees For the Defendant/Appellee Robert and Ruby Seaman : Knoxville Realtors, I nc. d/b/a Knoxville Re

alty : D. Scott Hurley Bill W. Petty Knoxville, Tennessee Knoxville, Tennessee For the Plaintiff

s/Appellants : Stephen J. Lusk Knoxville, Tennessee

AFFIRMED IN P ART, REVERSED IN PART, AND REM

ANDED

HOLL Y KIR BY LI LLA RD, J.

CONCURS: W. FRANK CRAWFORD, P. J., W.S. DAVI D R. FAR

MER, J.OPINION

This is an action for breach of contract and fraudulent misrepresentation arising out of the saleof a house. The purchasers filed suit against the sellers an d the real estat e company, seeking compensatory

damages. After a bench trial, the trial court entered a $12,000 judgment against the defendant sellers, and ordered

the m to pay $8000

of the plaintiffs’ attorney’ s fees. The claim s against the real estate company were dismissed. Plaintiffs appealed. We affirm in part, reverse in part, and remand. In 1983, Robert and Ruby Seaman (“the Seamans”) hired a contrac

tor to construct a home

on property

they owned. The Seamans decided to sell the home in 1991, and they enlisted the help of real estate agent Linda Bell (“Bell”), an employee of Knoxville Realty. T

he plaintiffs,

Thomas and Judy Gage (“the Gages”) , noticed the home i n an advertisement and contacted agent Bell about the pro perty. Afte

r visiting the prope

rty, the Gages de

cided to purchas

e the home. The pur

chase closedon March17, 1992, and the Ga ges moved into

the home on Memorial Day weekend 1992. The Gages did not have the home inspected prior to the purchase. Approximately

twenty days after the Gages moved in, they noticed that sewage was backing up inside the house. A plumber remedied the situation. Approximately six months later, the Gages noticed raw sewage seeping out from under rocks in t h e back yard. They contacted the Union County Health Department. The Tennessee Department of Environment and Conservation visited the premises on January 25, 1993, and determined that there was no drain field to the sewer system and that the home

was not fit to be used as residential property. The Gages applied for a new septic system permit, but the state denied the permit. Eventually, the home was de cl ared uninhabitable, and the Gages were forced to vacate the premises by order of the Tennessee Department of Environment and Conservation. The Gages then filed this suit against the Seamans, Knoxville Realty, Jac k Teague , the appraiser, Title Professiona ls, and Curtis Mortgage Company. All parties except the Seamans and Kn oxvilleRea lty were dismissed prior to trial. The

claims against the

Seamans and Knoxv

ille Realty alleged breach of contract and fraudulent misrepresentation. The Gages assert tha

t Knoxville Realty is vicariou

sly liable becaus

e of and through th

e acts of its employ

ee, Linda Bell. Bell testified at trial

that the Seamans,

an older couple, told her that there were no problems withthe house and that they were selling the house because of personal health reasons. Bell noted that the Seamans signed a Realty Disclosure Statement, which listed n o defects or problems that2

would affect the value of the property. Bell testified that the property

was in immaculate

condition and that she smelled no odors in or around the home. She stated that she had no reason to know that there were any problemswith the septic system, and that all known problems were disclosed to the Gages. She denied telling the Gages that there would be an inspection by the Veter an’ s Administration or that

she would “take care of

them” during the closing procedures. She stated that

no one had her get information from the Health Department on the septic system. Bell asserted that, in the abse

nce of such a request, it is not s tandard proced

ure for a real e

state agent to obta

in information from the Health Department. Mrs. Seaman testified at trial that she was not aware of any problems put ting in the septic tank, nor was she aware of any problems with the commodes backing up. She acknowledged one occasion on which the roof leaked. She stated that she never smelled sewage either inside or outside of the home. She admitt

ed that she and he

r husband had file

d a lawsuit against the builder for unfinished work, faulty deck construction, and for installing a septic tank that wa s smaller than thei

r specifications,

among other claims. The suit was settled out of cour t. In addition, Mrs. Seaman testified that Mr. Seaman fi led a Better Busine

ss Complaint against the builder because he installed the wrong size septic tank. Mr. Seaman did not testify, apparently due to his health. At tri al, the builder te

stified that, durin

g construction, a r

epresentative f

rom the Unio

n County Health Department came to the lot and indicated that

a septic system could not be approved for the site and that if

a residence were built on the lot, the septic tank would need to be attached to the adjoining lot’ s septic tank, which was also owned by the Seamans. As a result, a septic tank permit was never obtained. The builder testified that he did not believe that Mr. Seaman was present when the Health Depar

tment represe

ntati ve came to the property, but that he later discussed the situation with Mr. Seaman. He asserted t hat the decision not to hook up the septic system to the adjoining lot’s septic tank was jointly

made by himself and Mr. Seaman. On cross examination, the builder could not recall Mr. Seaman explicitly instructing him not to join the septic tank with the tank next door, but insisted that the decision not to was a joint decis

ion. The builder a

lso testified that three contract

ors came to inspec

t the lot for purpos

es of installing the

septictank. Two of

them indicatedthat they could not put in the septic tank, suggesting that the Seamans either connect the tank to the adjoining lot’s tank or sell the lot due to the difficulty of ins talling a septic tank in the rocky terrain.3

Conflicting expert testimony w as presented at t

rial as to whether Bell should have realized that the home had a defec tive septic tank sy

stem. James A. Wor

thington, a Certifi

ed Resi dential Appraiser and real estate

broker who testified for the Gages, stated that the rocky terrain on which the house was situated should have alerted a real estate agent to the possibility that a septic system

co uldnot be properly installed. However, Knoxville Realty proffered the testimony of Barne y Thompson, Executive Vice President of the Knoxville Association of Realtors, who test

ified as to the standard of car

e for realtors in

the Union County ar

ea community. He s

tated that a

real estate agent has no duty t o invest

igate beyond obtaining a statement by the sellers that there are no problemswith the house. He indicated, however, that if the agent is aware of a problem, he or she must c onfront the sell

er about it. Mr. Thompson stated that if he viewed a house having a steep, rocky backyard such as the yard of the Seamans’ former residence, and surrounded by homes built on similar terrain, he would take the seller’s word that they had a septic

tank and had experienced no problems. At trial, Mrs. Gage testified on the issue of the Gages’ damages, utilizing an itemized list of expenses. Overall, the Gages spent $8143.98 on repairs and improvements. Mrs. Gage testified that they spent $1528 on furniture storageand for the apartment that they moved into after being forced to v acate the re sidence. This included $350 for “[h]igher utility bills due to single pane and extensive amount of windows and cable hook up.” Mrs. Gage stated that they sp ent $605 on the house they leased after they moved from the apartme

nt, including money u

sed for additiona

l fans, fencing the backyard, curtains, blinds, paint, and cable hook up. Mrs. Gage included $ 400 for a refrigerator

they gave away s

ince the residen

ce came with

one, as well as $1800 for money theygave to their son when he moved out of the apartme nt they rented. Th

e Gages claimed

$5894.50 in moving expenses, including $150 for trips to the Veterans Administration to negotiate closing documents, $3354.50 in closing costs, $270 for a moving van, $120 for phone and utility hookup, and $2000 in rental pa

yments the Gages ma

de at their prior home for the two months the Seamans occupied the residence prior to closing. The Gages asserted that their credit had been damaged by the foreclosure but placed no monetary value on the damag e to their credit. Their homeowner’s insurance policy reimbursed them $1800. Taki ng this in to account, the total damages for improvements,

repairs , moving expenses, closing costs, and miscellaneous expenses the Gages soughtwere $16,571.48.

In addition, the Ga

ges requested da

mages of $4190.41 f

or their equity4

interest in the resid

ence based on an amortization schedule provided at trial considering fourteen payments. At trial, Mrs. Gage stated that by the ti me of trial they had paid $13,000 in attorney’s fees. The trial court found that the Seamans, i

n building the house, knew that the septic system was illegally installed

and failed to disc

lose that fact: Butthe fault

simply lays with the Seamans. This system was put in. They put i t in with knowledge there was no Health Department certificate for it, that it was a n illegal system, an

d that they could never get a permit to repair it. And it was covered up and it was not divulge d in this Disclosure St atement. Gentlem

en, that’s simply fraudulent misrepresentation. The trial court awarded damages of $12,000 against the Seamans, without detailing how this figure

was calculated. The trial court noted that the Gages had presented no proof that Knoxville Realty, through its agent Linda Bell, had knowledge of the problem with

the septic system at the time of the sale, and dismissed the Gages’ claims against it. In addition, the trial court ordered the Seamans to pay the Gages $8000 in attorney’s fees. In response, both parties filed post-trial motions. The Seamans filed a motion to reconsider

or alter and amend judgment. Thei r motion cla imed that the trial court incorrectly relied on the testimony of the Gages’ expert in finding that the Seamans kn ew of problems

with the septic tank. They also contested the award of attorn ey’s fees. The Gages filed a motion to reconsider or rehear. In the Gages’ motion, they conten ded that the $12,00

0 award did not ade

quately compensate them, and reques ted that the trial c ourt increase th

e award. The tri

al court overrul

ed both motions to reconsider. The Gages then appealed to this Court. On appea l, the Gages argu e that the trial co

urt erred in dismis sing their claim ag ainst Knoxville Realty. The Gages also asser t that the damages

awarded did not a

dequately compe

nsate them and sought additional damages or, in the alternative, an itemized explanation of

the $12,000 damages award. The Gag es contend furthe

r that the trial co

urt erred in

declining to award punitive damages or, in the alternative, treble damages under the Tennessee Consumer Protection Act. Because this case was hea

rd in a bench tria

l, we review the t

rial court’s d

ecisi on de novo , witha presumption of correctness in the trial court’s findings of fact. No presumption of c orrectness attaches to the trial court’s conclusions of law. See Carvell v. Bottoms , 900 S.W.2d 23, 26 (Tenn. 1995); Tenn. R. App. P. 13(d).5

On appeal, the Gages first contend that the trial cour

t erred in dismissing the claim a

gainst Defendant

Knoxville Realty. The Gages argue that Linda Bell, the employee and agent of Knoxville Realtors, knew or should hav e known about the s

eptic problems on the property because the physical condition of the land should have alerted her to that potential problem. They maintain that Bell acted

as an intermediary between the sellers and the buyers, that they relied upon her as a realtor, and that consequently

she was under an affirmative duty to make the buy

ers aware of a

ll potential proble

ms with the property. In response, Knoxville Realty notes the Disclosure Statement signed by the Seamans at the time the property

was listed by Knoxville Realty. The Disclosure Statement declared that there were

no defects in the property which wo uld materia lly affect the value or desirability of the property. Knoxville Realty maintains that a realtor may rely on the representations of the seller when evaluating the condition of a potential real estate listing. The Gag es subm itted no proof that Bell had actual knowled ge of a problem at the time of the sale, and Knoxville Realty argues that the Seamans’ knowledge about the problem cannot be imputed to Bell. The trial court notedth at the Gages presented no proof that Knoxville Realty, or its agent Bell, had actual knowledge of any defect relating to the property. It found that neith er Knoxville Realty nor Linda Bell, in

her capacity as sales agent, bre ached a duty or r

esponsibility to the G

ages, and dismissed the Gages’ claims against Knoxville Realty. It is undisputed that Tennessee requires real estate age nts and brokers to d

isclose known fac

ts about t he property that could materially affect the sale of the property. See Wyner v. Athens Utilities Bd. , 821 S.W.2d 597, 598-99 (Tenn. App. 1991) (“A fiduciary relationship aside, a realtor has a duty to deal honestly with both buyer a nd sell er.”); Hughey v. Rainwater Pa rtners , 661 S.W.2d 690, 691 (Tenn. App. 1983) (“Where a broker acts as an intermediary between a seller and

a purchaser, the

broker is under a

duty to deal fairly

and honestly with bo

th parties.”); see also Tenn. Code Ann. §§ 62-13-402 to -40 3 (1997) (eff ective Jan. 1, 1996). Linda Bell signed an agency disclosure statem ent that pla ced on her a duty “

to disclose all fac

ts known to the agen

t materially affecting the value or

desirability of property that are not known to, or within the diligent attention and observation of, the parties.” Without question, Bell had a duty to disclose to

the Gages known material defects in the property. However, the Gages presented no proof that

Bell had actual kn

owledge of the pr

oblems with6

the septic system. When the Seamans listed their property with Knoxville Realty, they signed the Disclosure Statement, asserting that there were no defects in

the property whic

h would materially affect the value or desir

ability of the prop

erty. Bell testifie

d that she took the Se

amans at their

word, and did no further inve

stigation of potenti

al problems with the

property. There

fore, the proof i

s undisputed that Bell had no actual knowledge of the problem. The Gages argue, however, that Bell should have anticipated septic system prob

lems due to the hilly nature of the lot and the rocky outcroppings present behind the home. In effect, theyargue that Bell had constructive knowledge of the problems with

the septic system. Both parties presented expert testimony on whether Bell, from seeing the premis

es, should have kno

wn of a problem wit

h the septic system. The trial court found that a reasonabl

e real estate a

gent would not nece

ssarily have known from

looking at the property that the site was not suitable for a septic system. Noting that there was no proof that Bell had actual knowledge, the trial court dismissed the claims against Knoxville Realty. Withoutreaching the issue of whether Knoxville Realty could be liable based on what Bell should have known fro m seeing the prope rty, we find that th

e evidence does

not preponderat

e against the trial court’s factual finding that a reasonable real estate agent would not have known of

a problem simply

from seeing the site. Since it is undisputed that Bell had no actual knowledge of the problem, the trial

court appropria

tely dismissed the c

laims against

Knoxville Realty. The trial court is affirmed on this issue. The trial court found that the Seamans had actual knowledge of the defective nature of the septicsystem at the time the property was sold to the Gag es, and that they nevertheless signed a disclosure statement asserting that the house was free from defects. “

‘As a general r

ule, a party

may be held liable for damages caused by his failure to disclose material facts to the same extent that a party may be liable for damages caused by fraudulent or negligent misrepresentation.’ ” Gray v. Boyle Inv. Co. , 803 S.W.2d 678, 683 (Tenn. App. 1990) (quoting Macon County Livesto ck Market, Inc. v. Kentucky State Bank, Inc. , 724 S.W.2d 343, 349 (Tenn. App. 1986)). The trial court

awarded the Gages a total of $12,000 in compensatory damages and $8,000 in attorney’s fee

s. The order did no

t indicate h ow the trial court arrived at these amounts. On appeal, the Gages argue that the damage award is not in accord with the proof in the rec ord, and request that this Co

urt remand the ca

se for a reassessment of damages or for an itemization of the7

$12,000 award. The award of attorney’s fees was not appealed. In response, the Seamans arg ue that the Gages failed to meet their burden of proving damages with a reasonable degree of certainty. They contend that some of the requested damages

ar e speculative and c

onsequential in na

ture, such as high

er utility bills incur

red because of

sin gl e pane windows in the apartment they moved into. The complaint in this cause alleges fra ud and requests th at the deed of tru

st and warranty deed be declared null

and void. It also seeks the return of the purchase money to either the Gages or to their mortgage company, as well as compensatory and punitive damages. In Tennessee, it

has been held tha

t: [a]n individual induced by fraud to enter into a contract may elect between two remedies. He may treat the contract as voidable

and sue for the equitable remedy of rescission or he may treat thecontract as existing and sue for damages at law under the theory of dec

eit in the ordinary case. The former is a contract action, while the latter is grounded in tort. Justice v. Anderson County , 955 S.W.2d 613, 616 (Tenn. App. 1997) (citing Vance v. Schulder , 547 S.W.2d 927, 931 (Tenn. 1977)). The plaintiffs in this case sought both contractual remedies and compensatory and punitive damages. Although rescission may have been available u nder the facts of this case, see Atkins v. Kirkpatrick , 823 S.W.2d 547, 552 ( Tenn. App. 1991),

the trial court ch

ose to award compens

atory damages an

d did not order res

cission of the cont

ract. The Restatement (Second) of Torts sets forth the proper measure of damages for fraudulent misrepresentation: (1) The recipient of a fraudulent misrepresentation is entitled to recover as damages in an action of deceit against the maker the pecuniary loss to him of which the misrepresentation is a

legal cause, including (a) the difference between the value of what he has received in a transaction and its purchase price or other value given for it; and (b) pecunia

ry loss su ff

ered otherwise as a consequence of the recipient's reliance upon the misrepresentation. Boling v. Tennessee State Bank , 890 S.W.2d 32, 35 (Tenn. 1994) (quoting Restatement (Second) of Torts § 549 (1977)). Therefore, in a case of fraud, the measure of da

mages is to compens

ate the injured party for actual damages by attempting to place that party in the same position that he or she would have been in

had the fraud not occurred. See Harrogate Corp. v. Systems Sales Corp. , 915 S.W.2d 812, 817 (Tenn. App. 1995). In this case, as to the difference in value, the Gages contract

ed to pay $105,000, but of course had not yet paid the full amount. The Gages’ p ayment s began on April 1, 1 992, with monthly8

paymentsof $1,016.34. Thes e payments continu

ed until the Gages

moved out of the home

in May 1993, for a total of $14,228.76. At trial the Gages requested the accumulated principal, or equity, in the house of $4190.41. Clearly the Gages would be entitled to this amount, since it is undisputed that the house is uninhabitable and the site may be used only for a purpose that does not involve occupancy, such as storage. Under the Restatement, the Gages are also entitled to

“pecuniary loss suffered otherwise as

a consequence of the recipient's reliance u pon the misrepresentation.” Boling , 890 S.W.2d at 35 (citing Restatement (Sec

ond) of Torts § 549 (1977)). Mrs. Gage testified at trial about the extensive improvements

she and her husband made to the home before they discovered the problems with the septicsystem, expenses related to the closing, expenses related to the move into and out of the house, expenses at their present

house, and various additional expenses. The total of these expenses was $16,571.48. The Seamans produced no evidence that these payments were not made, but question whether many of them are appropriate damages. From the amount of the award for compensatory damages, $12,000, we can surmise that the trial court included some, but not all of the pecuniary losses claimed by the Gages. However, the order conta ined no explanation of how the trial judge arrived at this amount. For many of the expenses claimed by the Gages, there was no supporting documentation, such as checks or receipts, only Mrs. Gage’s testimony. Consequently, the resolution of which expenses may proper ly b e awarded as damages must

involve issues of credibility. The trial judge w ho has the opportun

ity to observe the witnesses in their manner and demeanor while testifying is in a far better position than

an appellate court to decide issues related to credibility. See McCaleb v. Saturn Corp. , 910 S.W.2d 412, 415 (Tenn. 1995); Whitaker v. Whitaker , 957 S.W.2d 834, 837 (Tenn. App. 1997). From the record in this case, we cannot determine the expenses upon which the trial court’s aw ard of compensatory damage was based, and thereforecannot appropri ately review the

award of damage

s. Consequently, we must remand the cause to the trial court for an

itemization of the pecuniary losses awarded to the Gages, in addition to the award of $4,190.41 for the loss of their equity in the home. On remand, the trial court may reassess the damages in addition to setting forth the items of pecuniary loss on which the award is based. The Gages also argue that th e trial court shou

ld have awarded

punitive damages i

n this case because of its finding that the Seamans made a fraudulent misrepresentation. The decision to award1 The Act provides: If the court finds that the use or employment of the unfair or deceptive act or practice was a willful or knowing violation of this part, the court may award three (3) times the actual damages sustained . . . . Tenn. Code Ann. § 109(3) (1995). 9 punitive damages is within th e disc retion of the fact-finder. See Hodges v. S.C. Toof & Co. , 833 S.W.2d 896, 901-02 (Tenn. 1992). “An appellate court will not reverse a discretionary judgment of the trial court unless it affirmatively appears that such discretion has been explicitly abused to great injustice and injury of the party complaining.” Douglas v. Estate of Robertson , 876 S.W.2d 95, 97 (Tenn. 1994). The party claiming an abuse of the trial court’s discretion has the burden of showing such abuse. See Ballard v. Herzke , 924 S.W.2d 652, 659 (Tenn. 1996); Rache ls v. Stee le , 633 S.W.2d 473, 475 (Tenn. App. 1981). Punitive damages are "restrict[ed] . . . to cases involving only the most egregious of wrongs." Hodges , 833 S.W.2d at 901. In Tennessee, a court may "award punitive d

amages only if it fi

nds a defendant has acted either (1) intentionally, (2) fraudulently, (3) maliciously, or (4) recklessly." Id. Such actions must be shown by clear and convincing evidence. See id. In this case, the tria

l court made no fin

ding that the Seama

ns’ conduct was e

gregious a s required under Hodges to sustain an award of punitive damages. “We cannot extr apolate the trial court's findings regarding the defendants' inte ntional misrepresentations into the requisite finding of egregious conduct contemplated by Hodges .” Murvin v. Cofer , 968 S.W.2d 304, 311-12 (Tenn. App. 1997). We cannot conclude that the trial court abused its discretion in failing to award punitive damages in this case. The decision of the trial court on this issue is affirmed. In the alternative, the Gages argue that the trial court erred

in not awarding treble damages under the Tennessee Consumer Protection Act. See Tenn. Code Ann. § 47-18-109(3) (1995). 1 The Tennessee Consumer Protection Act does not apply to those persons not in the business of selling property as owners or brokers. See Ganzevoort v. Russell , 949 S.W.2d 293, 298 (Tenn. 1997); see also Murvin , 968 S.W.2d at 308 -09. The Ganzevoort court reasoned that “[t]wo of the stated purpo ses of the Act are to maintain ‘ethical standards of dealing between persons engaged in business and the consuming public,’ and ‘to protect consumers and

legitimate business enterprises from those who engage

in unfair or deceptive ac ts or practices in the conduct of any trade or10

commerce .’ ” Ganzevoort , 949 S.W.2d at 298 (quoti ng Tenn. Co de Ann. §§ 47-18-102(2) & (4) (1995) (emphasis added)). The record indicates that the Seamans built the house at issue f

or their

own use and decided l

ater to sell i

t due to their advancing age and declining health. They were clearly not in the business of selling homes as a trade or commerce. The only party in the bus

iness of selling real estate was Knoxville Realty. As noted above, we affirm the dismissal of all c

laims against Knoxville Realty. Therefore, under these circumstances, the provi sions of the Tennessee Consumer Protection Act are inapplicable. The trial court’s decision on this issue is affirmed. In sum, the trial cour

t’s dismissal of cla

ims against

Knoxville Realty is affirmed. The trial court’s decision not to award treble damages under the Tennessee Consumer Protectio n Act or punitive damages is

also affirmed. We hold that the award of compensatory da

mages may proper

ly include the $4,190.41 in equity the Gages had in the home, and remand the cause to the trial court for an itemization of the pec uniary lo sses on which the remainder of the $12,000 award is based. On remand, the trial court may, in its discretion, reassess and modify the award of damages. The judgmentof the trial court is affirmed in par

t, reversed in pa

rt, and remanded for further proceedings,

as set f orth above. Costs are assessed equally against the Appellants and the Appellees, for which execution may issue if necessary.

HOLLY KIRBY LILLARD, J. CONCUR:

W. FRANK CRAW

FORD, P. J., W.

S.

DAVID R. FARMER, J.