Opinion ID: 2196394
Heading Depth: 1
Heading Rank: 9

Heading: Effect of As Is and Disclaimer Clauses

Text: In so arguing, Citicorp acknowledges that under our law, a principal may be liable for the fraudulent actions of its agent, Corman v. Musselman, 232 Neb. 159, 439 N.W.2d 781 (1989), but urges that we adopt the position of New York's highest court in Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 157 N.E.2d 597, 184 N.Y.S.2d 599 (1959). Therein, the New York Court of Appeals held that a purchaser had no cause of action against a seller for false representation when the contract for the purchase of a lease contained disclaimer, as is, and merger clauses as follows: The Purchaser has examined the premises agreed to be sold and is familiar with the physical condition thereof. The Seller has not made and does not make any representations as to the physical condition, rents, leases, expenses, operation or any other matter or thing affecting or related to the aforesaid premises, except as herein specifically set forth, and the Purchaser hereby expressly acknowledges that no such representations have been made, and the Purchaser further acknowledges that it has inspected the premises and agrees to take the premises `as is'    It is understood and agreed that all understandings and agreements heretofore had between the parties hereto are merged in this contract, which alone fully and completely expresses their agreement, and that the same is entered into after full investigation, neither party relying upon any statement or representation, not embodied in this contract.... (Emphasis in original.) Danann Realty Corp., 5 N.Y.2d at 320, 157 N.E.2d at 598, 184 N.Y.S.2d at 601. The Danann Realty Corp. purchaser nonetheless claimed that he had been induced to enter into a contract for the purchase of a lease by the sellers' false oral representations regarding the building's operating expenses. The purchaser sought to affirm the contract and recover damages for fraud. The Danann Realty Corp. majority concluded that the specific disclaimer clause, in conjunction with the merger clause, declared that the parties did not rely on representations not embodied in the contract and thus prevented the purchaser from adducing parol evidence to establish otherwise, thereby destroying the purchaser's allegations of reliance. However, on several occasions we have addressed whether a disclaimer clause within a contract will bar a purchaser's fraud-based claim. In Schuster v. North American Hotel Co., 106 Neb. 672, 184 N.W. 136 (1921), reh'g denied 106 Neb. 679, 684, 186 N.W. 87, 89, we wrote: It is quite generally held that a provision in a contract, to the effect that the agent cannot bind the company by any representations, statements or agreements, will not relieve the principal from responsibility for the fraudulent representations, as to the subject-matter of the contract, made by the agent, since such representations are within the scope of the agent's actual or ostensible authority. Although Schuster concerned the sale of stock, we applied the same principle to the sale of real estate. In Menking v. Larson, 112 Neb. 479, 199 N.W. 823 (1924), we held that a disclaimer clause in a contract for the purchase of real estate does not relieve the vendor or his agent from responsibility for the fraudulent representations made by the vendor's agent concerning the subject matter of the contract. In Menking, the disclaimer clause was similar to the provision in the agreement now before us. There, the purchaser stated and agreed that `he has made personal inspection of the property covered by the within contract, and is buying it solely on his own investigations, and not on any representations made by any one else as to any material matter affecting said property, or his purchase thereof.' Id. at 484, 199 N.W. at 825. Considering whether such a provision barred the purchaser from maintaining any action for fraud or deceit, we reiterated: A provision in such a contract, to the effect that the agent cannot bind the company by any representations, statements or agreements, will not relieve the principal from responsibility for the fraudulent representations, made by its agents, concerning the subject-matter of the contract... for a sales agent has ostensible authority to make representations as to the subject-matter of the sale, and his fraud, committed within the limits of such authority, will fix responsibility upon his principal. Id. More recently, in Flakus v. Schug, 213 Neb. 491, 494-95, 329 N.W.2d 859, 863 (1983), overruled on other grounds, Nielsen v. Adams, 223 Neb. 262, 388 N.W.2d 840 (1986), we emphasized: It is true that in discussing the elements of fraud we said a disclaimer clause is relevant in determining whether a claimant relied on a false representation disclaimed in the clause. We also said, however, that the disclaimer is ineffective to preclude the trier of fact from considering whether fraud induced formation of the bargain. We have also concluded that an as is clause does not necessarily bar a purchaser's fraud-based claim, writing in Wolford v. Freeman, 150 Neb. 537, 547, 35 N.W.2d 98, 103 (1948), that `[a] provision that the buyer takes the article in the condition in which it is, or in other words, as is, does not prevent fraudulent representations relied on by the buyer from constituting fraud....' Claiming fraud, the Wolford plaintiff sought to rescind a contract for the purchase of a house, which recited that he had `been advised as to settling of structure and is buying same as is.' 150 Neb. at 546, 35 N.W.2d at 101. He asserted that the vendor's agent represented that the cracks in the foundation of the house had been repaired and that the damage had been corrected, so that the purchaser should have no fear of further cracking. After the purchaser took possession, the cracks in the foundation became progressively worse and eventually appeared in the outer walls and the foundation. The purchaser learned that the house had been built on filled ground, in violation of the city building code, and asserted the vendor knew the house had been built on filled ground, rendering the foundation faulty, yet had concealed those facts. We determined that the purchaser was entitled to prevail unless the vendor was relieved by the as is clause. We then reasoned that while the clause disclosed the purchaser's knowledge of the cracking, it did not disclose or suggest the cause of that condition. We accordingly ruled that the clause did not bind the purchaser to buying a house with the undisclosed or concealed condition which caused the visible cracking. Thus, a clause that an article is taken in the condition in which it is, or in other words, as is, is relevant in determining whether a claimant relied on a false representation concerning the condition of the article, but is not controlling. In like fashion here, Gibb agreed to purchase a house with visible termite damage, which Citicorp's agent misrepresented as being the extent of the termite destruction. Like the purchaser in Wolford, Gibb was aware of the repair to the visible damage to the structure, but, according to his allegations, was unaware of the extent of the damage. Thus, just as the disclaimer does not necessarily prevent Gibb from stating causes of action for fraudulent misrepresentation or fraudulent concealment, neither does the as is clause, nor do the two clauses together prevent him from doing so. Under these circumstances, the question as to whether Gibb acted reasonably is one of fact.