Court Opinion

ID: 9614358
Source: CourtListenerOpinion
Date Created: 2023-08-22 04:24:41.425099+00
Date Added: 2024-06-11T18:03:35.457375
License: Public Domain

THOMAS, Justice,
dissenting.
I would affirm the decision of the trial court in this case. The majority opinion quotes the Restatement (Second) op ToRts § 551 (1977), op. at 802, and states that the majority of jurisdictions have adopted that rule. I would opt to adopt that majority rule.
The adoption of the Restatement (Second) of ToRts § 551 is consistent with Wyoming precedent. In Twing v. Schott, 80 Wyo. 100, 115, 338 P.2d 839, 844 (1959), the court dealt with a response by a seller of real estate to the purchaser’s inquiry about the water, saying:
Perhaps the obligation of a party to make a full and fair disclosure if he discloses at all is also applicable to the words of defendant Schott regarding the water which was to be used on the premises. True, his statement was somewhat equivocal; and when he said that it'was “city water” he may have in a manner of speaking been giving it a proper designation since the water was originally brought through the city lines, but the fact of there having been at that time some trouble and misunderstanding about the water would seem to have placed upon him in all fairness an obligation to disclose all facts.
This case falls within the contemplation of Restatement (Second) of Tofts § 551 which provides:
(2) One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated,
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(e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other *805objective circumstances, would reasonably expect a disclosure of those facts.
That provision, if followed, leads to affirming the decision of the trial court. The comments on clause (e), following this section of the Restatement (Second) of ToRts, lend assistance in its application. Pertinent comments read:
Comment on Clause (e):
j. “Facts basic to the transaction.” The word “basic” is used in this Clause in the same sense in which it is used in Comment c under § 16 of the Restatement of Restitution. A basic fact is a fact that is assumed by the parties as a basis for the transaction itself. It is a fact that goes to the basis, or essence, of the transaction, and is an important part of the substance of what is bargained for or dealt with. Other facts may serve as important and persuasive inducements to enter into the transaction, but not go to its essence. These facts may be material, but they are not basic. If the parties expressly or impliedly place the risk as to the existence of a fact on one party or if the law places it there by custom or otherwise the other party has no duty of disclosure. ⅜ * * Illustrations:
8. A sells to B a dwelling house, without disclosing to B the fact that the house is riddled with termites. This is a fact basic to the transaction.
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Comment:
k. Nondisclosure of basic facts. The rule stated in Subsection (1) reflects the traditional ethics of bargaining between adversaries, in the absence of any special reason for the application of a different rule. When the facts are patent, or when the plaintiff has equal opportunity for obtaining information that he may be expected to utilize if he cares to do so, or when the defendant has no reason to think that the plaintiff is acting under a misapprehension, there is no obligation to give aid to a bargaining antagonist by disclosing what the defendant has himself discovered. To a considerable extent, sanctioned by the customs and mores of the community, superior information and better business acumen are legitimate advantages, which lead to no liability. The defendant may reasonably expect the plaintiff to make his own investigation, draw his own conclusions and protect himself; and if the plaintiff is indolent, inexperienced or ignorant, or his judgment is bad, or he does not have access to adequate information, the defendant is under no obligation to make good his deficiencies. This is true, in general, when it is the buyer of land or chattels who has the better information and fails to disclose it. Somewhat less frequently it may be true of the seller. (Emphasis added.)
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l.The continuing development of modern business ethics has, however, limited to some extent this privilege to take advantage of ignorance. There are situations in which the defendant not only knows that his bargaining adversary is acting under a mistake basic to the transaction, but also knows that the adversary, by reason of the relation between them, the customs of the trade or other objective circumstances, is reasonably relying upon a disclosure of the unrevealed fact if it exists. In this type of case good faith and fair dealing may require a disclosure.
It is extremely difficult to be specific as to the factors that give rise to this known, and reasonable, expectation of disclosure. In general, the cases in which the rule stated in Clause (e) has been applied have been those in which the advantage taken of the plaintiffs ignorance is so shocking to the ethical sense of the community, and is so extreme and unfair, as to amount to a form of swindling, in which the plaintiff is led by appearances into a bargain that is a trap, of whose essence and substance he is unaware. In such a case, even in a tort action for deceit, the plaintiff is entitled to be compensated for the loss that he has sustained. Thus a seller who knows that his cattle are infected with tick fever or contagious abortion is not free to unload them on the buyer and take his money, when he knows that the buyer is unaware of the fact, could not easily discover it, *806would not dream of entering into the bargain if he knew and is relying upon the seller’s good faith and common honesty to disclose any such fact if it is true.
There are indications, also, that with changing ethical attitudes in many fields of modern business, the concept of facts basic to the transaction may be expanding and the duty to use reasonable care to disclose the facts may be increasing somewhat. This Subsection is not intended to impede that development.
Illustrations:
9. A sells B a dwelling house, without disclosing the fact that drain tile under the house is so constructed that at periodic intervals water accumulates under the house. A knows that B is not aware of this fact, that he could not discover it by an ordinary inspection, and that he would not make the purchase if he knew it. A knows also that B regards him as an honest and fair man and one who would disclose any such fact if he knew it. A is subject to liability to B for his pecuniary loss in an action of deceit.
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to. Court and jury. Whether there is a duty to the other to disclose the fact in question is always a matter for the determination of the court. If there are disputed facts bearing upon the existence of the duty, as for example the- defendant’s knowledge of the fact, the other’s ignorance of it or his opportunity to ascertain it, the customs of the particular trade, or the defendant’s knowledge that the plaintiff reasonably expects him to make the disclosure, they are to be determined by the jury under appropriate instructions as to the existence of the duty.
A more complete statement of the facts and the decision of the trial court is useful in analyzing the issues in this case. The Rich-eys acquired the rural residential property involved in this case in 1984, and they lived there until 1989. In the spring of 1985, the Richeys experienced a problem with black sediment in the water supply. They dealt with that problem by having a serviceman clean the head of the water softener, rerouting the plumbing to accommodate irrigation of the lawn, and not using the well for a few days.
Again, in 1986, the Richeys encountered a serious problem with black sediment in the water system. An outside faucet was left on which caused the water system to be without pressure and the sediment to be deposited on the ground beneath that faucet. Again, a serviceman found black sediment on the heads of the water softener. The Richeys then replaced the existing water softener head with a newer model.
During the time they lived in this home, Mr. Richey diligently maintained the water system. He replenished the salt bin and a solution and changed the prefilter every month during the summer and every other month during the winter. The Richeys did not experience the problem with black sediment again while they lived in the home. They did not limit their use of water which included bathing, laundry, kitchen use, including the dish washer, and irrigation of the lawn and some trees and shrubs.
In the fall of 1989, the Richeys listed the property for sale with Hugh Jones Realty. They moved to Montana and, subsequently, rented the rural residence. At the time they listed the property for sale, the Richeys did not disclose the problems with sediment, the need to limit the use to conserve water, and the diligence and procedures required to maintain the water system.
The first renters from the Richeys lived in the residence from January through April, 1990. They experienced problems of black sediment in the toilet and bathtub on one occasion and complained about it. Mr. Rich-ey ascertained that the tenants were not performing the water system maintenance. Again, the serviceman changed the water filter which the tenant testified was coal black. After that, the serviceman was engaged to conduct monthly maintenance, which remedied the problem of black sediment for the remaining time those tenants lived there. They did complain to the Rich-eys, though, that the reverse osmosis system didn’t supply enough water for their needs. The Richeys advised the tenants that problem could not be remedied. Those tenants *807also were cautioned not to water certain plants because the water would cause the plants to die.
Even though the system was serviced by a serviceman, Mr. Richey still discovered the filter on the system needed to be changed, and all of the supplies had to be replenished after those tenants moved. A second tenant lived in the residence for two months during the summer of 1990 and did not experience any problems with the black sediment.
During the time the second tenant lived in the home, Mrs. Patrick viewed the house accompanied by a real estate agent for Pride Realty, a member of the local multiple listing service. ■ Prior to viewing the residence, Mr. and Mrs. Patrick had discussed problems with water in other rural properties and had rejected them because of those water problems. Because of their discussions about water problems in real properties, Mrs. Patrick asked the real estate agent “how the water was” before she viewed the property. The agent testified as to her interpretation of that question: “Does it have water? Is it on a cistern or a well? And if it’s on a well, how is the water? Is there enough water and is the water of a quality that you can use?” Subsequently, the showing agent called the listing agent and inquired about the water. The listing agent advised the water was hard, and the home had a reverse osmosis system. Problems with sediment were not known by the listing agent and, therefore, they were not mentioned.
The next day, the Patricks submitted an offer to the Richeys with respect to this property. The standard “Offer, Acceptance and Receipt Specific Performance Contract (Residential)” was used for this purpose. The provisions of the offer relevant to our disposition included a paragraph that a property condition statement was not available, and it specified that the “purchasers are purchasing said property upon their own judgment and inspection in its present condition, and hereby waive any defects in the condition of the property, known or unknown.” The contract provided the seller would permit inspections by the purchaser or third persons acting on behalf of the purchaser. The form also stated the purchaser acknowledged and agreed that “[pjurchaser is not relying upon any representations of the Seller or Seller’s agents or sub-agents as to any condition which Purchaser deems to be material to Purchaser’s decision to purchase this property * * The section titled “Inspection,” which related to the right of the purchasers to obtain an inspection, provided a copy of any written report would be made available to the broker and provided a right of rejection by the purchaser. Among other matters this section provided:
4. Other than written objections raised by Purchaser as set out above, or in the event no inspections are required by Purchaser, Purchaser acknowledges that he has not been denied any opportunity to inspect property and has done so to his satisfaction. Purchaser accepts the property in its entirety in “as is, where is” condition without any implied or express warranty by Seller or Agent.
After the offer was submitted, but prior to the time it was accepted, Mr. Patrick viewed the house and asked, “[h]ow is the water?” The showing agent replied at least twice, “[t]he water is very hard.” No other information was provided and, three days after the Patricks made the offer, it was accepted by the Richeys. After the sale closed, but before they moved into the property, the Patricks discovered black sediment when they drew water for the purpose of cleaning the carpets. An inspection of the water treatment unit disclosed it was clogged with the black sediment. The Patricks contacted a plumber, but he was unable to solve the problem. After several months, he did solve the problem but, during that interim, the Patricks were required to haul water to the house. The Patricks encountered another problem with the sediment shortly before the trial, and that problem required six weeks to correct.
The Patricks filed this action against the Richeys, asserting claims of breach of contract, rescission, fraud, and misrepresentation. The Patricks based their complaint on the proposition that the Richeys owed them a duty to disclose the basic facts relating to the sediment problems, and their failure to dis*808close that fact constituted a breach of the duty and caused damages to the Richeys.
The trial court found for the Patricks, and among its Findings of Fact are:
3. The defendant did not mention to the plaintiffs nor to the listing agent Hugh Jones nor to any of his agents or employees that they had experienced problems with the water system with regard to a shortage of water or a grey or black sediment which would come through the water system from time to time. Neither did the defendants explain to the plaintiffs or any of their real estate agents or employees that certain procedures and regular filter changes were necessary to prevent or regulate the grey or black substances from coming through the water system. Consequently, the plaintiffs were not informed about such problems with the water system.
4. The plaintiffs, prior to the sale, inquired of the selling agent for Pride Realty, Sally Davis, as to the condition of the water at the premises prior to entering into a contract with the defendants or making the offer to purchase the property from the defendants, and were told that the water was “adequate but hard.”
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7. On the day the plaintiffs took possession of the property * * *. Within a short period of time that day large quantities of grey and black sediment started coming through the water lines and the machine and onto the carpets.
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11. After months of research, testing, consultation, and investigation, a water system was installed by Kinetico that has, for the most part, solved the problem with some maintenance costs and time involved, at a cost of $11,422.40 to the plaintiffs.
In its Conclusions of Law, the trial court said:
1.The condition of the water system of the subject premises is a material fact to be considered by any prospective purchaser of the real property, and, the defendants should have revealed the prior problems with black sediment in the water system referred to herein, as well as the shortage of water from time to time, and the necessity of regularly changing the filters to avoid having any sediment at all come through the system.
2. The defendants failed to disclose material facts concerning the water system that they knew might justifiably induce a purchaser to enter into a contract into which he might not otherwise enter. The omission of the material facts amounts to a misrepresentation as though the defendants had actually misstated the nonexistence of the matter they failed to disclose.
3. The plaintiffs justifiably and reasonably relied upon the omitted facts concerning the true nature of the water system of the subject premises and were thereby induced into entering into the subject contract with the defendants.
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6. The defendants owed a duty to the plaintiffs to disclose all facts concerning the water system because such facts are material and are basic to the transaction for the purchase and sale of a house when a buyer is about to enter into the contract under a mistake as to the facts.
7. The customs of the real estate trade and the circumstances of this transaction, as well as the law in the State of Wyoming, dictate that the true facts concerning the quality and quantity of the water source be made known to any prospective buyer of real estate.
The approach reflected in the Judgment entered in the trial court follows precisely the Restatement (Second) of ToRts § 551(1):
One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had misrepresented the nonexistence of the matter that he has failed to disclose, if, but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question.
*809Mr. Richey, his selling agent, and a real estate broker with thirty-two years of experience all testified that the quality and quantity of the water in a residential rural property were important in selling real estate in Fremont County. I reiterate that a basic fact as one:
[T]hat is assumed by the parties as a basis for the transaction itself. It is a fact that goes to the basis, or essence, of the transaction, and is an important part of the substance of what is bargained for or dealt with.
Comment j to the Restatement (Second) of ToRts § 551(2)(e).
The trial court treated the failure of the Richeys to reveal prior problems with black sediment in the water system as well as shortage of the water from time to time and the necessity of regularly changing the filter to avoid having any sediment come through the system as a failure to disclose basic facts. The decision of the trial court is consistent with the rule of good faith that attaches to contracts for the transfer of real estate. Stockton v. Sowerwine, 690 P.2d 1202 (Wyo. 1984); Wendling v. Cundall, 568 P.2d 888 (Wyo.1977).
Agreeing that the nature of the water supply is a basic fact, the other elements of nondisclosure are clear to me. First, the Richeys were in a seller/purchaser relationship with the Patricks in a business transaction. The Richeys were aware of ongoing problems with sedimentation in 1985, 1986, and the winter of 1990, and they knew that continuous and diligent maintenance of the water system was required. They did not disclose that fact to the Patricks or the real estate broker nor any of his agents so that it could be conveyed to the Patricks. The Richeys had a duty to exercise reasonable care to disclose the existence of the sediment. Further, the Patricks reasonably could expect disclosure of those facts, especially when they inquired about the water.
General principles of agency law provide that, even if the response of the agent is innocent, the liability for its inaccuracy falls upon the seller. Had the question of the Patricks, “[h]ow is the water,” been directly addressed to the Richeys, they could not justify their failure to make a complete response. Neither can they avoid liability because the failure to make the complete response was the failure of the agent.
The majority, relying upon Ohio cases, concludes that the “as is” clause in the contract would shield the Richeys from liability for non-disclosure. The reliance by the majority upon Ohio law is significantly diminished upon analysis of Wilson v. Zender, No. 14263, 1991 WL 11602 (Ohio Ct.App.1991). While the rationale appears to refute the theory of nondisclosure, the fact remains that the plaintiffs were awarded judgment in that case for constructive fraud. The logical inference is that the Ohio court, in a case with facts like this case where specific inquiry was made, would adopt the theory of liability for non-disclosure if it were alleged. I would rule that Kaye v. Buehrle, 457 N.E.2d 373 (Ohio Ct.App.1983), if not distinguishable, was not correctly decided, since the rule adopted by the courts whose decisions are cited in Frank J. Wozniak, Annotation, Construction and Effect of Provision in Contract for Sale of Realty by which Purchaser Agrees to Take Property “as is” or in its Existing Condition, 8 A.L.R.5th 312 § 4 (1992), is clearly more fair.
A minority of jurisdictions have adopted this philosophy, but we should not. The strict common law doctrine of caveat em/ptor has lost much of its thrust which was premised upon an individualistic philosophy associated with freedom of contract.
In the present stage of the law, the decisions show a drawing away from this idea, and there can be seen an attempt by many courts to reach a just result in so far as possible, but yet maintaining the degree of certainty which the law must have. The statement may often be found that if either party to a contract of sale conceals or suppresses a material fact which he is in good faith bound to disclose then his silence is fraudulent.
W. Page Keeton, Fraud — Concealment and Non-disclosure, 15 Tex.L.Rev. 1, 31 (1936).
Other courts have ruled an “as is” provision in a contract for the sale of real estate will not serve to relieve a vendor of the *810obligation to disclose a condition which substantially affects the value or habitability of the property, was known to the vendor, but not the purchaser, and which would not be disclosed by reasonable and diligent inspection. These cases are discussed in the Annotation in 8 A.L.R.5th 312 § 4.1 It is a just rule that in circumstances like this case a negligent failure to disclose is treated the same as an affirmative misstatement made with the intention to mislead.
The trial court was not definitive as to whether it was relying upon misrepresentation or non-disclosure, but it is clear that it was treating the claim as one sounding in tort. The general rule in tort cases is that integration clauses in contracts which negate the existence of any representations not incorporated into the contract may not be invoked to escape liability for misrepresentations. Grube v. Dawn, 173 Wis.2d 30, 496 N.W.2d 106 (1992).
As a matter of public policy, disclaimers in contracts will not be honored unless the disclaimer is specific with respect to the tort disclaimed, and it is apparent that an express bargain was struck to forgo possibility of tort recovery in exchange for negotiated alternative economic damages. Grube. The waiver of tort liability by the purchaser in such a contract is permitted, but only with knowledge and if bargained for in the exchange. We have said:
The final Schutkowski factor requires us to determine whether the release agreement evidences the parties’ intent to abrogate negligence liability in clear and unambiguous language. Generally, agreements designed to exculpate parties from negligence liability are disfavored for public policy reasons, and we scrutinize such language closely. In Schutkowski we joined the majority of courts in holding that clear and unambiguous exculpatory language can eliminate negligence liability without expressly stating the word “negligence.” Schutkowski v. Carey [725 P.2d 1057 (Wyo.1986) ], supra, at 1062; * * *.
Boehm v. Cody Country Chamber of Commerce, 748 P.2d 704, 711 (Wyo.1987).
The exculpatory language, the “as is” clause, relied upon by the Richeys here is general form language found in the Offer, Acceptance and Receipt Specific Performance Contract (Residential), a standard form used in the real estate business.
The trial court in this case very perceptively adopted a recognized legal precept in awarding judgment to the Patricks. I would affirm the judgment for the reasons set forth above.

. Wilson v. Century 21 Great W. Realty, 15 Cal. App.4th 298, 18 Cal.Rptr.2d 779 (1993) (problems with the foundation); Rayner v. Wise Realty Co. of Tallahassee, 504 So.2d 1361 (Fla.Ct.App. 1987) (damage done to the home as a result of prior termite infestation); Ferguson v. Cussins, 713 S.W.2d 5 (Ky.Ct.App.1986) (badly rusted underground gasoline tanks); Sheehy v. Lipton Indus., Inc., 24 Mass.App. 188, .507 N.E.2d 781 (1987) (hazardous waste problems); V.S.H. Realty, Inc. v. Texaco, Inc., 757 F.2d 411 (1st Cir. 1985) (applying Massachusetts law to the problem of seeping oil at the east and west ends of the property); Gopher Oil Co., Inc. v. Union Oil Co. of California, 955 F.2d 519 (8th Cir.1992) (applying Minnesota law to the problem of misrepresentation by vendor that the real property was not subject to hazardous waste contamination); Wagner v. Cutler, 232 Mont. 332, 757 P.2d 779 (1988) (latent defects in the construction of a home); Dygert v. Leonard, 138 A.D.2d 793, 525 N.Y.S.2d 436 (1988) (extensive foundation repairs); Holmes v. Couturier, 452 N.W.2d 135 (S.D.1990) (defects in the septic tanks and electrical system); Stemple v. Dobson, 184 W.Va. 317, 400 S.E.2d 561 (W.Va.1990) (structural damage due to prior termite infestation); and Grube v. Daun, 173 Wis.2d 30, 496 N.W.2d 106 (1992) (gasoline contamination resulting from underground tank leak).