Court Opinion

ID: 9614357
Source: CourtListenerOpinion
Date Created: 2023-08-22 04:24:41.418998+00
Date Added: 2024-06-11T18:03:35.452309
License: Public Domain

LEHMAN, Justice.
This case concerns the effect of a nondisclosure of sediment in a well system by the seller of realty under an “as is” contract. The district court concluded that the sellers’ failure to disclose was negligent and amounted to a misrepresentation.
We reverse.
The sellers raise eight issues:
1. Did the Trial Court err in finding the contract void ab initio?
2. Did the Trial Court err in finding a fraudulent inducement?
3. Did the Trial Court err in failing to find that the purchasers had waived their right to claim there were misrepresentations which induced them to purchase the property?
4. Did the Trial Court err in failing to find that the purchasers were estopped to assert a misrepresentation, which misrepresentation was in contravention of the terms of purchasers’ offer which was then accepted by the sellers?
5. Did the Trial Court err in finding a ' negligent misrepresentation?
6. Did the Trial Court err in failing to consider contributory negligence after finding that there had been a negligent misrepresentation?
7. Did the Trial Court err in awarding damages which included new replacements for the Culligan water treatment system, the reverse osmosis system and the water heater which were all operable?
8.Did the Trial Court err in failing to award the sellers attorney’s fees for purchasers’ breach of contract in bringing this lawsuit?
The purchasers state three issues:
1. What is the standard for reviewing the sufficiency of the evidence when the [sellers] argue that the District Court erred in its factual findings or in failing to find for the [sellers] in support of their positions?
2. Do the Trial Court’s findings of fact and all other relevant evidence in this case support the conclusions of law made by the Court with regard to fraud in the inducement of the subject real estate contract by negligent misrepresentation and non-disclosure of material facts concerning the water supply?
3. When a ruling is made that there was fraud in the inducement which precedes the affirmance of a real estate contract, can the subsequently made terms of the contract itself be of any relevance or otherwise constitute a defense for the perpetrator of the fraud?

FACTS

In June of 1990, Scott and Deborah Patrick (the Patricks) became interested in purchasing a home owned by Douglas and Loretta Richey (the Richeys) in Lander, Wyoming. A well supplied the home with water. Since the water was hard, the home was equipped with a Culligan water treatment unit. Mrs. Patrick looked at the home on June 21, and they made an offer on June 22. Three days later that offer was accepted by the Richeys.
Unbeknownst to the Patricks, the Richeys had experienced problems with black sediment coming through the well system. Twice the sediment had oozed out of the outside spigots when they were left on for long periods of time. Once the Richeys’ renter had black sediment come into the bathtub, apparently because she had failed to maintain the Culligan unit. After each inci*800dent, the sediment problem went away after the Culligan man cleaned the treatment unit and replaced its filters.
Prior to making their offer on the house, the Patricks asked the real estate agent how the water was; and the agent told them that it was hard.1 The Patricks did not ask the real estate agent or attempt to contact the Richeys prior to closing on the house about the well, the Culligan system or ask if there had been any problems with sediment.
The contract signed by the Patricks contained the following provisions:
IX. CONDITION OF THE PROPERTY.
A. Seller represents that upon execution of this Contract:
1. There are no known violations of applicable city, county and/or state subdivision, zoning, building and/or public health codes, ordinances, laws, rules and regulations and any recorded covenants in force and effect as of that date except: none known
2. Property Condition Statement, (cheek a. or b.)
******
xx b. A Property Condition Statement is not available. 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.
3. Seller agrees to permit all electrical, mechanical, structural and/or environmental inspections of the property by Purchaser or third persons acting on behalf of Pin-chaser, at reasonable times and upon that notice required by Section X, Paragraph 1, below. Any such inspections shall be without expense to Seller unless otherwise agreed in writing.
B. Purchaser acknowledges and agrees that, upon execution of this Contract:
1.Purchaser 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; and
2. Purchaser has been advised by Seller’s agents of the opportunity to seek legal, financial, construction, environmental and/or home inspection professional services regarding this purchase.
3. Purchaser has received a copy of and hereby approves all covenants of record.
X. INSPECTIONS.
1. Purchasers may obtain, at Purchaser’s option and expense and upon the notice required herein, electrical, mechanical, structural and/or environmental inspections of the property. Purchaser or Purchaser’s agents or inspectors shall not have access to the property for such inspections unless and until Purchaser has provided written notice to Broker of the type(s) of inspections, name(s) of inspectors and the date upon which such inspection(s) shall be performed. Purchaser must provide such notice on or before the 9th day of July, 1990, or it shall be deemed that the Purchaser approves and accepts the conditions of the property and waives any defects thereof.
2. If Purchaser does have any inspection performed, Purchaser agrees to provide a copy of any written report of such inspection to Broker and to pay for any damage to the property caused by such inspection. Purchaser shall provide any written objections to the condition of the property on or before the 16th day of July, 1990. If no written objections are received by Broker within such period it shall be deemed that Purchaser approves and accepts the condition of the property and waives any defects thereof.
3. If written notice of any objection to the condition of the property, signed by Purchaser, is delivered to Broker within such period and if Seller and Purchaser have not executed a written agreement *801which satisfies and resolves such objection(s) on or before the 23rd day of July, 1990, this contract shall be void and the earnest money deposit shall be returned to Purchaser.
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.
(Underlined type in original.) The Patricks admitted that they did not, or attempt to, do any inspections of any kind on the property.
After closing, the Patricks discovered black sediment in the water when they attempted to clean the carpet. An inspection of the Culligan unit disclosed that it was clogged with the sediment. The Patricks contacted a plumber who replaced the Culli-gan unit with one made by Kinetico. It took several more months before the plumber was finally able to solve the problem, and in the interim the Patricks had to have water brought to the house. The Patricks encountered another problem with the sediment shortly before trial whicjh took six weeks to correct.
The Patricks brought this action raising claims of breach of contract, fraud, deceit, misrepresentation and nondisclosure. The district court found for the Patricks and awarded damages for costs incurred in fixing the sediment problem. The court also found that the Patricks were “fraudulently induced” into entering the contract and declared the contract void ab initio. The Rich-eys appeal.

DISCUSSION

The resolution of this case depends upon a determination of which of several interrelated but distinct torts should be the basis of reviewing the lower court’s judgment since that judgment does not articulate the theory upon which it was found the Patricks should recover. The Patricks raised claims based on fraud, misrepresentation and nondisclosure. Thus our first task is to attempt to discern from the judgment which theory was the basis of the Patricks’ judgment.
The district court found the following:
2. The [Richeys] 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 [Patricks] 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.
4. The facts omitted by the [Richeys] regarding the true nature of the water system were negligent.
* ‘ ⅜ * * ⅜ *
9. The [Patricks] were fraudulently induced into entering into the aforesaid contract with the [Richeys], and, therefore, this action is in tort and not in contract and the contract is void ab initio and of no force and effect.
In reality there are only two main categories of torts involved here: misrepresentation and nondisclosure, either of which can be negligent or fraudulent in nature. See Restatement,- Second, Torts (1977) §§ 525 (fraudulent misrepresentation or deceit); 550 (fraudulent concealment); 551 (nondisclosure); 552 (negligent misrepresentation).2
The district court found that the information omitted was negligent but concluded that the Patricks were “fraudulently induced” into the contract. Despite the use of that language by the district court, there was no fraud in this ease. Fraud requires a *802finding that a party made a representation with the intent to induce action by another. Garner v. Hickman, 709 P.2d 407, 410 (Wyo. 1985); Restatement, Second, Torts §§ 525 & 550. The specific finding that the omission was negligent automatically precludes a finding of the scienter required for fraud since, by definition, negligence is not intentional. Kobos by and through Kobos v. Everts, 768 P.2d 534, 538 (Wyo.1989) (“Intent is not a factor of negligence since negligence precludes intended conduct.”). After a careful review of the record, we are satisfied that there is no evidence to support any finding of fraud on the part of the Richeys.
On appeal, both parties have assumed that the district court decided the case on a theory of negligent misrepresentation. In order for there to have been a negligent misrepresentation, the plaintiff must show that
[o]ne 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.
Restatement, Second, Torts, § 552(1) (emphasis supplied); Duffy v. Brown, 708 P.2d 433, 437 (Wyo.1985).- The Richeys did not supply false information to the Patricks. In fact, the Richeys did not supply any information to the Patricks. A nondisclosure of information cannot support a claim for misrepresentation; since nothing has been represented, an essential element of the claim is missing. Burman v. Richmond Homes Ltd., 821 P.2d 913, 919 (Colo.App.1991).
The crux of the Patricks’ complaint is that the Richeys should have informed them of prior sediment problems with the well, i.e., the Richeys owed the Patricks a duty to disclose, and their nondisclosure breached that duty resulting in damages. The appropriate claim in this case is one for nondisclosure:
Liability for Nondisclosure
(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 represented 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. .
(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,
(a) matters known to him that the other is entitled to know because of a fiduciary or other similar relation of trust and confidence between them; and
(b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading; and
(c) subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so; and
(d) the falsity of a representation not made with the expectation that it would be acted upon, if he subsequently learns that the other is about to act in reliance upon it in a transaction with him; and
(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 objective circumstances, would reasonably expect a disclosure of those facts.
Restatement, Second, Torts § 551. We have never had a previous opportunity to determine whether § 551 can be the basis of a cause of action in this state. Since we conclude that even if we accepted the Restatement the Patricks’ claim would fail, we do not need to make that determination today. However, we do note that a majority of *803jurisdictions have either accepted § 551 of the Restatement or cited it with approval.3
The question of whether in a contract for sale an “as is” clause protects a seller from claims of negligent nondisclosure has never before been addressed by this court, though courts in two other jurisdictions have done so. In Kaye v. Buehrle, 8 Ohio App.3d 381, 457 N.E.2d 373, 375-76 (1983), the Ohio appellate court concluded that an “as is” contract, coupled with a right to inspect clause, placed the risk of a leaky basement on the buyer. The rationale for that result can be found in Comment j to § 551 of the Restatement, Second, Torts:
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.
Kaye, 457 N.E.2d at 376. This rule, of course, only applies to negligent nondisclosure. In the case of an actual misrepresentation or fraud, then an “as is” clause will not relieve the seller of liability. Id.; see also Mackintosh v. Jack Matthews & Co., 109 Nev. 628, 855 P.2d 549, 552-53 (1993); Stemple v. Dobson, 184 W.Va. 317, 400 S.E.2d 561, 566-67 (1990). A Wisconsin court reached the same result as the court in Kaye noting that:
[W]hile the “as is” clause is not a complete bar to these causes of action, its effect is to put the burden upon a buyer to determine the condition of the property purchased. [Omernik v. Bushman, 151 Wis.2d 299, 444 N.W.2d 409 (1989).] This shifting of the burden, with nothing more [ie., misrepresentations or fraud], protects a seller and his or her agent from claims premised upon nondisclosure. See, e.g., Kaye v. Buehrle, 8 Ohio App.3d 381 [383], 457 N.E.2d 373 (1983).
Grube v. Daun, 173 Wis.2d 30, 496 N.W.2d 106, 117 (1992). Furthermore, two other courts, in dicta, have concurred with the reasoning expressed by the Ohio and Wisconsin courts: Raynor v. United States, 604 F.Supp. 205, 209 (1984) (absent allegation of fraud or misrepresentation of the condition of a house sold “as is,” caveat emptor applies); Wilhite v. Mays, 239 Ga. 31, 235 S.E.2d 532, 533 (1977) (court expressed “apprehension” about an appellate court’s rule that passive concealment was an exception to the rule of caveat emptor and rejected rule concluding that the nondisclosure under the facts of the case constituted fraud).
It has been suggested by some authorities that the Ohio rule is a minority one. 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). However, an examination of the cases cited therein demonstrates that, in fact, the only courts that have directly addressed the issue in *804regard to negligent nondisclosure reach the same result as that reached by the court in Kaye. See also Grube. A review of the cases cited by the annotation which are supposedly to the contrary discloses that each involved fraud or misrepresentation, not negligent nondisclosure. See for example, Wilson v. Century 21 Great Western Realty, 15 Cal.App.4th 298, j.,8 Cal.Rptr.2d 779 (1998) (fraud); Rayner k Wise Realty Co., 504 So.2d 1361 (Fla.App.1987) (misrepresentation and fraudulent nondisclosure); Ferguson v. Cussins, 713 S.W.2d 5 (Ky.App.1986) (fraudulent inducement);! Sheehy v. Lipton Industries, Inc., 24 Mass.App. 188, 507 N.E.2d 781 (1987) (misrepresentations); V.S.H. Realty, Inc. v. Texaco, Inc., 757 F.2d 411 (1st Cir. 1985) (misrepresentation); Gopher Oil Co., Inc. v. Union Oil Co., 955 F.2d 519 (8th Cir.1992) (fraud); Wagner v. Cutler, 232 Mont. 332, 757 P.2d 779 (1988) (misrepresentations); Holmes v. Couturier, 452 N.W.2d 135 (S.D.1990) (fraud in the inception); Stemple v. Dobson, 184 W.Va. 317, 400 S.E.2d 561 (1990) (fraud).
We find the Ohio cases to be persuasive and, in concurrence with every other jurisdiction which has addressed this issue, hold that absent an allegation of fraud, an “as is” clause bars a claim for nondisclosure.
In this case, the burden of discovering defects in the property was placed upon the Patricks. The contract stated that the “Purchaser accepts the property in its entirety in ‘as is, where is’ condition without any implied or express warranty by Seller or Agent.” The contract also provided for inspections by experts hired by the Patricks, of which they failed to take advantage. The Patricks also failed to look at the water system, ask about the condition of the well, or even turn on a faucet. The Patricks were provided an opportunity to obtain information on the house; and in their rush to purchase, they simply failed to do so. Since the burden of discovery was placed on the Patricks under the contract, they are barred from seeking relief based on negligent nondisclosure.

CONCLUSION

A contract to sell realty, which contains an “as is” clause, bars any claims for nondisclosure absent the existence of fraud or misrepresentations. There being no evidence of fraud on the part of the Richeys, the decision of the district court is hereby reversed.
THOMAS and MACY, JJ., each filed separate dissenting opinions.

. There is no dispute about the veracity of that reply. Also, at trial Mrs. Patrick stated that when she asked the question she was, in fact, inquiring about the hardness of the water.

. The distinctions are important. Unlike negligence, fraud must be pled with particularity and proved by clear and convincing evidence. W.R.C.P. 9(b); Duffy v. Brown, 708 P.2d 433, 437 (Wyo.1985).

. See Matthews v. Kincaid, 746 P.2d 470, 471-72 (Alaska 1987); Frazier v. Southwest Sav. & Loan Ass'n, 134 Ariz. 12, 653 P.2d 362, 367-68 (1982); Burman v. Richmond Homes Ltd., 821 P.2d 913, 918 (Colo.App.1991); Wedig v. Brinster, 1 Conn. App. 123, 469 A.2d 783, 788 (1983); Molokoa Village Dev. Co., Ltd. v. Kauai Elec. Co., Ltd., 60 Haw. 582, 593 P.2d 375, 381 (1979); Tusch Enterprises v. Coffin, 113 Idaho 37, 740 P.2d 1022, 1026-28 (1987); Peoples Bank & Trust Co. v. Lala, 392 N.W.2d 179, 187-88 (Iowa App. 1986); Finch v. Hughes Aircraft Co., 57 Md.App. 190, 469 A.2d 867, 888 (1984), cert. denied 300 Md. 88, 475 A.2d 1200 (1984); Underwood v. Risman, 414 Mass. 96, 605 N.E.2d 832, 836 (1993); U.S. Fidelity & Guaranty Co. v. Black, 412 Mich. 99, 313 N.W.2d 77, 89 (Mich.1981); Vikse v. Flaby, 316 N.W.2d 276, 283 (Minn.1982); Kitchen Krafters v. Eastside Bank, 242 Mont. 155, 789 P.2d 567, 573 (1990); Bank of Valley v. Mattson, 215 Neb. 596, 339 N.W.2d 923, 927 (1983); Strawn v. Canuso, 271 N.J.Super. 88, 638 A.2d 141, 149 (1994); R.A. Peck, Inc. v. Liberty Fed. Sav. Bank, 108 N.M. 84, 88, 766 P.2d 928, 932 (1988); Dewey v. Lutz, 462 N.W.2d 435, 440 (N.D.1990); Kaye v. Buehrle, 8 Ohio App.3d 381, 457 N.E.2d 373, 375-76 (1983); Slaybaugh v. Newman, 330 Pa.Super. 216, 479 A.2d 517, 521 (1984); Maybee v. Jacobs Motor Co., Inc., 519 N.W.2d 341, 344 (S.D.1994); Patton v. McHone, 822 S.W.2d 608, 614-16 (Tenn.App.1991); Castillo v. Neely’s TBA Dealer Supply, Inc., 776 S.W.2d 290, 295 (Tx.App.1989); First Sec. Bank v. Banberry Dev. Corp., 786 P.2d 1326, 1330-31 (Utah 1990); Pearson v. Simmonds Precision Products, Inc., 624 A.2d 1134, 1135-36 (Vt.1993); Ware v. Scott, 220 Va. 317, 257 S.E.2d 855, 858 (1979); Haberman v. Pub. Power Supply Sys., 109 Wash.2d 107, 744 P.2d 1032, 1070 (1987), appeal dismissed 488 U.S. 805, 109 S.Ct. 35, 102 L.Ed.2d 15 (1988); Ollerman v. O’Rourke Co., Inc., 94 Wis.2d 17, 288 N.W.2d 95, 100 (1980).