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Timestamp: 2019-04-18 23:32:39+00:00

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KEENAN REAL ESTATE, INC., MURVAL L. HEJNY, and LOUISE HEJNY, Appellees.
Opinion filed June 3, 1994.
Michael S. Holland, of Russell, argued the cause and was on the brief for appellants.
Martin J. Keenan, of Keenan and Boeckman, P.A., of Great Bend, argued the cause and was on the brief for appellees Marval L. and Louise Hejny.
Gregory G. Schultz, of Turner and Boisseau, Chartered, of Overland Park, argued the cause, and Lisa J. Lewis and Brian C. Wright, of the same firm, of Great Bend, were on the briefs for appellee Keenan Real Estate.
The Mahlers (buyers) sued the Hejnys (sellers) and their agent, Keenan Real Estate, Inc., alleging that the Hejnys breached their residential sales contract and that all defendants made negligent and fraudulent misrepresentations and failed to disclose material facts about the septic system and water wells. The district court granted partial summary judgment in favor of the Hejnys on the counts of fraudulent misrepresentation and fraudulent concealment. It entered summary judgment in favor of Keenan Real Estate on all causes of action against it — misrepresentation, fraudulent misrepresentation, and fraudulent concealment. The district court granted the Mahlers’ request for certification pursuant to K.S.A. 1993 Supp. 60-254(b) and stayed proceedings while this appeal is pending. The Court of Appeals affirmed. We granted the Mahlers’ petition for review.
The Mahlers bought from the Hejnys a house and 160 acres in Barton County, Kansas. When the Mahlers looked at the property, Donna and LaVonne Urban and their four children lived in the house. Donna Urban is the Hejnys’ daughter. The Hejnys live about 3.5 miles from the property which was bought by the Mahlers.
Charles Tammen, a Keenan Real Estate agent, showed the Hejnys’ property to the Mahlers. The Mahlers asked him if there were any water problems in the area. According to Mrs. Mahler, Tammen said “none.” According to Mr. Mahler, Tammen’s response was that he knew of none.
During the first visit, Tammen pointed out a pipe which had water running out of it onto the ground and stated that the water was from the shower, sink, and dishwasher. According to Mr. Mahler, Tammen explained that the water was piped away from the house to keep it from going to the septic tank and that the practice was common in the area. LaVonne Urban testified that approximately five years before the sale, he installed the overflow pipe in order to move excess water away from the laterals.
After the first visit, the Mahlers expressed general concern about the water on the property and asked Tammen if the property was on rural water. Tammen told them it was on well water rather than rural water. Tammen told the Mahlers that if they had questions he would find out the answers for them. Mr. Mahler asked him to find out if there was any shortage of water or if there was any bad water in the area. Tammen asked Donna Urban if the water was all right and if there were any water problems on the property, to which she responded that, as far as she knew, the water was all right and there were no problems. Tammen later reported to the Mahlers that he knew of no water problems in the area.
After moving into the house, Mr. Mahler began experiencing problems with diarrhea. The Mahlers had their water tested, and the chemical analysis revealed that “[s]ulfate levels, while not above the 250 ppm maximum recommended, could cause a laxative effect in persons not used to drinking high sulfate water.” It was also reported that sodium levels were above what is recommended for people on low sodium diets, that chloride levels were above what is recommended for drinking water, and that the elevated nitrate levels made the untreated water unfit for drinking.
Also after the Mahlers moved into the house, Keenan Real Estate, at the urging of the Mahlers, had the septic system inspected. The inspector reported that “sewer water” was being discharged out of the above-ground pipe.
The Mahlers initiated this action by filing a four-count petition. The district court described the counts of the petition as follows: “Plaintiffs assert four causes of action. The first is against defendants Hejny for breach of contract. The second cause of action is against defendant Keenan alleging misrepresentation. The third cause of action is apparently against both defendants alleging fraud. The fourth [is] for rescission.” It appears that the second cause of action, for misrepresentation, is also against the Hejnys. The paragraph naming the Hejnys is incorporated into Count 2, and paragraph 13 of Count 2 refers to “defendants.” The allegation in Count 4 is that the contract was invalid because the misrepresentations and concealments prevented the parties to the contract from reaching a meeting of the minds. Count 4 seems to have been treated as praying for the remedy of rescission rather than as stating a separate cause of action. For the purpose of summary judgment it was ignored.
(1) The Mahlers failed to produce any evidence that Tammen knew that any of his statements were false.
(2) There is no evidence that any of Tammen’s statements were made with reckless disregard for the truth.
(4) The Mahlers failed to produce any evidence that the Hejnys knew of problems with the water and septic system.
The district court, in its original memorandum decision, noted that the Mahlers argued that Tammen, a real estate agent, could be held liable for false statements which he did not know were false.
Keenan Real Estate filed a motion requesting the district court to reconsider that portion of its decision which allowed “the plaintiffs to proceed against [Keenan] on the claim of negligent misrepresentation.” In the district court’s second memorandum decision, the district court confirms that it “struck plaintiffs’ cause of action based upon fraud but allowed the cause of action based upon negligent misrepresentation to remain.” The district court granted the motion to reconsider and entered summary judgment in favor of Keenan Real Estate and against the Mahlers on their claim of negligent misrepresentation.
The Court of Appeals answered both questions in the negative. In their petition for review, the Mahlers stated two issues, but they appear to be alternative wordings of the same issue — the first issue considered by the Court of Appeals. They did not file a supplementary brief in this court. Keenan Real Estate did, and its discussion is confined to the first issue considered by the Court of Appeals.
The Mahlers’ claim against Keenan is for negligent misrepresentation. The district court ruled that a claim for negligent misrepresentation is not recognized in Kansas. Although the Court of Appeals framed the issue to include both negligent and innocent misrepresentation, only negligent misrepresentation is involved in the present case. Thus, we consider if a cause of action for negligent misrepresentation against a real estate agent is recognized in this state. We do so in the context of the district court’s finding no such action exists in Kansas and granting summary judgment to the defendant real estate agency.
“Summary judgment is proper where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
“The burden on the party seeking summary judgment is a strict one. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. On appeal we apply the same rule, and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied.” Barbara Oil Co. v. Kansas Gas Supply Corp., 250 Kan. 438, Syl. ¶¶ 1, 2, 827 P.2d 24 (1992).
“The party opposing summary judgment has the affirmative duty to come forward with facts to support its claim, although it is not required to prove its case.” Hammig v. Ford, 246 Kan. 70, 72, 785 P.2d 977 (1990).
The Brunetts sued the real estate agent who had assured them that there were no problems with the basement of the house they bought. The basement leaked. The district court judge instructed the jury on fraud, but refused to instruct on a separate cause of action under KREBSLA. This court affirmed, stating that “[t]he district court correctly determined that the Act, as amended, did not create a separate cause of action.” 248 Kan. at 643. The significance of the amendment is that the Brunetts relied on Johnson v. Geer Realty Estate Co., 239 Kan. 324, 720 P.2d 660 (1986), for authority that KREBSLA “may be the basis of suits brought against real estate brokers.” 248 Kan. at 641. In Johnson, the agent’s liability for negligent misrepresentation was based upon his violating what is now K.S.A. 1993 Supp. 58-3062(a)(34), a provision of KREBSLA: “No licensee, whether acting as an agent or a principal, shall … [f]ail to disclose, or ascertain and disclose, to any person with whom the licensee is dealing, any material information which relates to the property with which the licensee is dealing and which such licensee knew or should have known.” After Johnson, the legislature amended the Act. See L. 1986, ch. 209, § 19. The post-Johnson amendment states: “Nothing in this act shall be construed to grant any person a private right of action for damages or to eliminate any right of action pursuant to other statutes or at common law.” See K.S.A. 1993 Supp. 58-3034(b). This court concluded that “[t]hough the Act, as amended, may no longer be the basis for a private cause of action for negligent or fraudulent misrepresentation, the legislature’s amendment of the Act did not eliminate any right of action pursuant to other statutes or at common law.” 248 Kan. at 642-43.
“In this state, false statements of fact, made by a seller to induce a sale and relied on by the buyer, are actionable, without regard to whether or not the seller knew the statements to be false, or acted recklessly in making them, or intended to deceive. (Wickham v. Grant, 28 Kan. 517; Morrow v. Bonebrake, 84 Kan. 724, 115 Pac. 585; Westerman v. Corder, 86 Kan. 239, 119 Pac 868; Maffet v. Schaar, 89 Kan. 403, 131 Pac. 589; Akins v. Holmes, 89 Kan. 812, 820, 133 Pac. 849.)” 105 Kan. at 26.
“(See, also, Westerman v. Corder, 86 Kan. 239, 119 Pac. 868; Maffet v. Schaar, 89 Kan. 403, 131 Pac. 589; Akins v. Holmes, 89 Kan. 812, 133 Pac. 849.)” 106 Kan. at 427-28.
In Dodd, the principal issue on appeal was the propriety of rescission under the circumstances, but this court also had the opportunity to consider the seller’s contention that he should not be held liable because when he made the statements, he believed them to be true. Quoting the rule from Bice v. Nelson, this court rejected the seller’s contention. With regard to the rule, the court noted that it “was observed and strictly followed in the case of Pellette v. Mann, 116 Kan. 16, 225 Pac. 1067.” 137 Kan. at 606.
None of these cases specifically involves a real estate agent’s statements, but the statements in Bice and Becker were made by agents. Thus, principles of agency law applied. In Becker, the agent arranged the purchase of water rights, which often determine the use and value of real property in this state. Among the cases cited as authorities in Bice, Becker, and Dodd there are several which involve real property and/or agents. Akins v. Holmes, 89 Kan. 812, 133 Pac. 849 (1913), involved rescission of a contract for the purchase of real property, and false representations were made by an agent to induce the purchase. Because the same statements were made by the principal, however, liability was based on his statements rather than on the agent’s. In Westerman v. Corder, 86 Kan. 239, 119 Pac. 868 (1912), and Maffet v. Schaar, 89 Kan. 403, 131 Pac. 589 (1913), false representations were made by the sellers to induce the purchase of real property.
Topinka did involve statements made by an agent. Topinka was an action to set aside a release of the insurer’s liability under a hail insurance policy. Topinka alleged that the insurance company’s adjusting agent secured his signature on the release by making false statements. The adjuster convinced Topinka that most of his crop loss was due to a disease rather than to hail. This court concluded that it was unnecessary for Topinka to prove that the adjuster knew his statements were false.
“Whether made in good faith, or with fraudulent intent, or merely through over-anxiety to make a good settlement for his insurance company, the fact remains that the adjuster did make the representations with the intention and for the purpose of inducing plaintiff to make a settlement favorable to the insurance company and to part with all right to further recovery under his policy of insurance. Where the insurance adjuster’s false representations resulted in damage to the assured, the latter’s pain of loss is not eased by the appellant’s averments that the adjuster believed his statements to assured were true at the time they were made.” 167 Kan. at 185.
There was, however, no allegation of negligent misrepresentation in Nordstrom. The only allegation against any defendant was fraudulent misrepresentation. The rules stated in Nordstrom from which the Court of Appeals drew the impression that this state’s courts would not hold a real estate agent liable for negligent misrepresentation were stated without regard to any question about negligent or innocent misrepresentation. Syllabus ¶ 6, which is drawn from the court’s discussion of the sellers’ liability, states: “Actionable fraud includes an untrue statement of fact, known to be untrue by the party making it, made with the intent to deceive or recklessly made with disregard for the truth, where another party justifiably relies on the statement and acts to his injury.” Syllabus ¶ 2 states: “If an agent makes false representations on behalf of his principal honestly believing them to be true, the mental element of fraud is lacking and he is not guilty of fraud and not liable for such, although his principal may have known that such representations were false.” 227 Kan. 59.
In addition to being devoid of any consideration of the legal question whether negligent misrepresentation is actionable, Nordstrom is not controlling of the present case because it is distinguishable on the facts. There is one critical respect in which the Court of Appeals was mistaken about the comparison of the facts of Nordstrom and those of the present case. The Court of Appeals believed that “Tammen’s information came from the Urbans,” the daughter and son-in-law of the sellers, the Hejnys. Seemingly based on the relationship between the Urbans and the sellers and the Urbans’ long-term occupancy of the property, the Court of Appeals concluded that this case was indistinguishable from Nordstrom where the real estate agent’s information came from the seller. With respect to Tammen’s statement that water from the pipe was from the shower, sink, and dishwasher, however, the record does not support the conclusion that the misinformation came from the Urbans. Unlike the agent in Nordstrom, therefore, Tammen cannot be absolved of liability on the ground that the misinformation was provided to him by the sellers or occupants and he believed it to be true.
“(1) 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.
We find § 552 to be a fair statement of law and persuasive authority, and we adopt the Restatement (Second) of Torts § 552. We hold that a cause of action for negligent misrepresentation as defined in § 552 is recognized in the state of Kansas.
`Real estate brokers and their agents hold themselves out to the public as having specialized knowledge with regard to housing, housing conditions and related matters. The public is entitled to and does rely on the expertise of real estate brokers in the purchase and sale of its homes. Therefore there is a duty on the part of real estate brokers to be accurate and knowledgeable concerning the product they are in the business of selling — that is, homes and other types of real estate. Courts have held in many cases that purchasers are entitled to rely on real estate brokers’ statements.’ Lyons v. Christ Episcopal Church, 71 Ill. App.3d 257, 27 Ill. Dec. 559, 389 N.E.2d 623, 628 (1979) (dissenting opinion).
“We find this reasoning persuasive. Parties to real estate transactions frequently do not deal on equal terms. Real estate brokers are licensed professionals, possessing superior knowledge of the realty they sell and the real estate market generally. Prospective purchasers recognize this expertise and tend to rely on a broker’s representations. Just as purchasers are entitled to rely on an owner’s representations, Cousineau v. Walker, 613 P.2d 608 (Alaska 1980), purchasers should be entitled to rely on the broker’s representations. Any other rule would permit brokers to use misleading statements in selling the property, yet remain immune from liability by simply remaining ignorant of the property’s true characteristics. Accordingly, we hold that a purchaser who relies on a material misrepresentation, even though innocently made, has a cause of action against the broker originating or communicating the misrepresentation. See Restatement (Second) of Torts § 552(C)(1) .
Although the Alaska Supreme Court was speaking to innocent misrepresentation, the same policy favors liability for negligent misrepresentation, and we find it is very persuasive. We know of no valid reason to treat real estate agents differently than other agents and exempt them from liability under § 552. The district court and the Court of Appeals erred in holding that Kansas does not recognize a cause of action for negligent misrepresentation by a real estate agent who induces a buyer to purchase real estate.
In the present case, the Mahlers relied on Tammen’s statement that the water being discharged from the pipe was from the shower, sink, and dishwasher and that there were no water problems — or he knew of no water problems — in the area. The former statement corresponds fairly closely to that stated in Restatement § 552, negligent misrepresentation. In his business and in a transaction in which it may be assumed he realized a commission, Tammen supplied false information for the Mahlers’ guidance. The Mahlers alleged that they were justified in relying on the information and that Tammen failed to exercise reasonable care in obtaining it.
In the phrase of the Restatement, the question is whether the agent failed “to exercise reasonable care or competence in obtaining or communicating the information.” Restatement (Second) of Torts § 552(1). This is the inquiry to be made in the present case as to Tammen’s conduct. Nothing in the record has been pinpointed as indicating any source for Tammen’s statement other than his own assumption about the sources of the water from the pipe. If, for the sake of argument, his assumption is said to be based on general statements of the Urbans about the absence of problems with water, he made some radical changes and leaps. He converted statements which barely transcend opinions into particularized information which had the earmarks of fact, and the specific information does not necessarily follow from the general statements.
The Court of Appeals confined its consideration to the question whether Kansas courts previously have recognized a buyer’s cause of action against a real estate agent for negligent misrepresentation. Neither the post-Johnson amendment to K.S.A. 58-3034 nor this court’s decision in Brunett requires that the field of inquiry be that restricted. Brunett construes the statutory provision and holds that although KREBSLA is not the basis for a private cause of action, its amendment after Johnson was reported did not extinguish any pre-KREBSLA rights. Before codification in 1980 of rules governing real estate brokers and salespersons, general agency principles applied to the endeavors of that occupation. See, e.g., Akins v. Holmes, 89 Kan. at 820. As we have seen, there are pre-KREBSLA cases in which false statements by agents are actionable irrespective of the agent’s knowledge. See, e.g., Topinka, 167 Kan. 181. The cause of action is not precluded by K.S.A. 1993 Supp. 58-3034(b), nor is it precluded by Brunett.
The question of the Hejnys’ liability for Tammen’s statement that the water being discharged from the pipe came from the shower, sink, and dishwasher remains. There is no evidence linking the Hejnys to this statement as sources for the information, as ratifiers, or in any other way. On this ground alone, they are absolved of liability for negligent misrepresentation. Even if they had been the source of the misinformation, Johnson stands for the proposition that the entry of summary judgment in their favor would be proper. In that case, the sellers mistakenly advised the real estate agent that their house was served by a sewer system. This court concluded that the agent, experienced in such matters, should have known that the property was on a septic system but that the people who had lived in the house for several years had no reason to have known. 239 Kan. at 329. The court stated that “[u]nder the facts of this case, the nonliability of the sellers does not absolve the broker of liability.” 239 Kan. at 332. Thus, under the rationale of Johnson, the liabilities of the agent and the sellers are separate and independent. Even though the legislature overruled the statutorily based cause of action permitted by Johnson, this would not appear to have affected the court’s reasoning with respect to independent liability.
In response to their inquiries, Tammen told the Mahlers, according to Mrs. Mahler, that there were no water problems in the area and, according to Mr. Mahler, that he knew of no water problems in the area. Tammen asked Donna Urban if the water was all right and if there were any water problems on the property. Donna Urban told him that the water was all right to her knowledge and that there were no problems. Without identifying his source, Tammen passed along what he had been told.
These statements which came from Donna Urban are like the statements of the agent in Nordstrom. In that case, the court absolved the agent of liability on the ground that the misinformation had been provided by the sellers and the agent believed it to be true. As noted in the earlier discussion of Nordstrom, there was no claim of negligent misrepresentation in that case and the court did not consider whether his belief in the truth of the statements was reasonable. In the present case, no consideration was given to whether Tammen believed Donna Urban’s statements or whether belief was reasonable.
Also, no consideration was given to the question whether the Hejnys could be held liable in these circumstances. There is no allegation that Donna Urban occupied the position of an agent to the Hejnys, and there is no evidence that the Hejnys were involved at any level in providing the information. Thus, any claim against the Hejnys for negligent misrepresentation based on these statements could not withstand the motion for summary judgment.
Once it had decided not to recognize a cause of action for negligent misrepresentation by a real estate agent, the Court of Appeals briefly considered the Mahlers’ claims of fraudulent misrepresentation and fraudulent concealment against Tammen and the Hejnys. The Court of Appeals concluded that the Mahlers had failed to establish the element of knowledge for both causes of action. For this reason, the Court of Appeals affirmed the district court’s entry of summary judgment against the Mahlers and in favor of the defendants.
The Court of Appeals framed the question as being whether evidence of “active or constructive fraud by the Hejnys or Keenan” was sufficient. With regard to “active fraud,” the Court of Appeals cited Goff, 1 Kan. App.2d at 78; with regard to “constructive fraud,” it cited Sippy, 4 Kan. App.2d at 516. The essential elements of “active” fraud set out in Goff match those stated by this court in Syl. ¶ 6 of Nordstrom, including the declarant’s knowledge of the falsity of the statement. As might be suspected by the Court of Appeals’ pairing of “active” and “constructive” fraud, it was using the former to mean supplying false information and the latter to mean failing to supply material information; that is, fraudulent concealment.
For the foregoing reasons, we hold the entry of summary judgment in favor of Keenan Real Estate, Inc., is affirmed on the Mahlers’ claim of fraudulent misrepresentation and reversed on the Mahlers’ claim of negligent misrepresentation. The entry of summary judgment in favor of the Hejnys on the Mahlers’ claims of fraudulent misrepresentation, concealment, and misrepresentation is affirmed.

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