Opinion ID: 1755829
Heading Depth: 2
Heading Rank: 3

Heading: Chase had a Duty to Disclose the EPA's Investigation.

Text: In nondisclosure cases, a party's silence amounts to a representation where the law imposes a duty to speak. Andes, 853 S.W.2d at 943. Whether or not a duty to disclose exists . . . must be determined on the facts of the particular case. Ringstreet Northcrest, Inc. v. Bisanz, 890 S.W.2d 713, 720 (Mo.App. W.D.1995). A duty to speak arises where one party has superior knowledge or information that is not reasonably available to the other. Andes, 853 S.W.2d at 943. Silence can be an act of fraud where matters are not what they appear to be and the true state of affairs is not discoverable by ordinary diligence. Bayne v. Jenkins, 593 S.W.2d 519, 529 (Mo. banc 1980). Similarly, a jury is empowered to find that the buyer has a right to rely on the seller to disclose where the undisclosed material information would not be discoverable through ordinary diligence. See Groothand v. Schlueter, 949 S.W.2d 923, 930 (Mo.App. W.D.1997) (buyer may rely on seller where the facts are peculiarly within the knowledge of seller and the truth is difficult for the buyer to ascertain). Thus, in a case of fraudulent nondisclosure such as Hess alleges here, the analysis of proof of a duty to disclose and of the right to rely collapses into a combined inquiry as to whether Chase had knowledge of undisclosed material information that Hess would not have discovered through ordinary diligence. Hess presented evidence that Chase learned that the EPA was investigating the property before Chase completed its foreclosure of the mortgage and that Chase informed the property appraiser that the EPA was scheduled to inspect the site and it was possible that remediation requirements would be imposed. These facts provided a basis for the jury to find that Chase had superior knowledge of the EPA investigation of the property. Even with superior knowledge, a duty to disclose will be imposed only if the material facts would not be discovered through the exercise of ordinary diligence. See Bayne, 593 S.W.2d at 529. Chase asserts that a reasonable inspection of the property by Hess would have disclosed the presence of the paint cans near the old barn foundation. This ignores the fact that what type of investigation was reasonable is by its nature normally a factual inquiry and, thus, a jury question. In any event, Chase's argument misapprehends the factual basis of Hess' fraudulent non-disclosure claim. It is the EPA investigation into hazardous waste dumping on the property that is the material fact that Hess asserts Chase had a duty to disclose, not the presence (or absence) of paint cans. Hess presented evidence that two potential buyers who did discover the paint cans each still made an offer to purchase the property. Both testified that the presence of paint cans did not give them notice that the EPA was investigating and that, had they known of its investigation, they would not have made offers for the property. From this evidence, the jury could have found that even had Hess further inspected the property and discovered the paint cans, this would not have put him on notice that the EPA had an ongoing investigation into hazardous waste dumping on the property. Similarly, Hess presented evidence that further precautionary steps to test the groundwater and soil for environmental contamination were well beyond the scope of ordinary diligence in a real estate transaction such as this and that, even had Hess undertaken further tests, he would not have learned of the EPA's ongoing investigation. Since the jury could find that Chase knew of the EPA's investigation and that Hess could not reasonably have discovered it, Chase had a duty to disclose this fact. Droz v. Trump, 965 S.W.2d 436 (Mo. App. W.D.1998), is directly on point. In Droz, a prospective buyer of real estate knew that the property had been a landfill but not that the Missouri Department of Natural Resources was investigating contamination on the property and considering whether to place it on Missouri's registry of hazardous waste disposal sites. Id. at 439. Droz found the failure to disclose the investigation was sufficient to support a claim for fraudulent misrepresentation. Id. at 443-44. Similarly here, Chase failed to disclose the EPA investigation to Hess. Chase asserts that in spite of the evidence of its knowledge and Hess' inability to discover the EPA investigation, a duty to disclose should not be imposed because the contract specified that Chase was making no representations, guaranties, or warranties, either written or implied, regarding the property and that the property is being sold in AS-IS condition with no express or implied representations or warranties by the seller or its agents. [3] It claims that through these provisions, it bargained for the right to remain silent and no duty to speak ever arose. What Chase misapprehends is that Hess alleges fraud in the inducement to contract, not fraud in the terms of the contract. Missouri law . . . holds that a party may not, by disclaimer or otherwise, contractually exclude liability for fraud in inducing that contract. Lollar v. A.O. Smith Harvestore Prods., Inc., 795 S.W.2d 441, 448 (Mo.App. W.D.1990). Each of the individuals who made an offer to purchase this property did so without knowledge that it was under EPA investigation. They all testified that, had they known, they would not have made an offer to purchase this property and would not, therefore, have bargained for Chase's silence. Chase's duty to speak arose from its superior knowledge prior to the execution of this contract. The presence of a clause disclaiming warranties in a contract does not negate a pre-contractual duty to speak. See Artilla Cove Resort, Inc. v. Hartley, 72 S.W.3d 291, 299 (Mo.App. S.D. 2002) (holding that real estate contract specifying the seller was making no representations regarding the condition of the property did not relieve defendants of the duty to disclose known material facts that were not . . . within the fair and reasonable reach of the [buyers]); see also Wagner v. Uffman, 885 S.W.2d 783, 786 (Mo. App. E.D.1994) (A party may not contractually exclude oneself from fraud through the use of general disclaimers.). Moreover, the fact that the contract required the seller to complete a form disclosing the condition of the property  a form Chase did not fill out  demonstrates that a duty to disclose is not inconsistent with the presence of disclaimers. Indeed, while there was evidence that an as  is provision has the twin effects of preventing the buyer from requiring the seller to make or to pay for necessary repairs to the property and of excluding implied warranties (of title, of habitability, etc.), real estate agents testified that even where the sale contract specifies the seller makes no warranties and the property is sold as-is, a seller would be expected to disclose the EPA's involvement. [4] Finally, the Chase employee responsible for overseeing the sale also testified that, notwithstanding the as-is clause in the purchase contract, anything factual that we know as a certainty should be disclosed. It would be illegal not to disclose that. The following exchange from her testimony further clarifies the issue: Q: So if you had known that the EPA had investigated the property, you would have made sure that that information was disclosed to Mr. Hess? A: Yeah. Yet, the record contains evidence that this very person was specifically informed about the EPA investigation. She had a conversation with Chase's foreclosure counsel regarding the EPA investigation and later received a letter confirming that Chase would be handling the EPA matters directly. She also commissioned the appraisal, which included an acknowledgment that the EPA was scheduled to inspect the site. While the jury could have believed her denials that she had actually read these documents, that was an issue of fact. The jury had sufficient evidence from which to conclude that Chase had knowledge of the EPA investigation and that such knowledge gave rise to a duty to disclose, a duty the jury could and did find was breached. [5]