Bauer v. Giannis

• Decision Date: 16 August 2005
• Docket Number: No. 2-04-1155.,2-04-1155.
• Citation: 834 N.E.2d 952
• Parties: Marshall BAUER, Plaintiff-Appellee, v. Nick GIANNIS and Donna Giannis, Defendants-Appellants.
• Court: Illinois Supreme Court

834 N.E.2d 952

Marshall BAUER, Plaintiff-Appellee, v. Nick GIANNIS and Donna Giannis, Defendants-Appellants.

No. 2-04-1155.

Appellate Court of Illinois, Second District.

August 16, 2005.

COPYRIGHT MATERIAL OMITTED

Alyssa M. Campbell, C. Barry Montgomery, Williams, Montgomery & John, Ltd., Chicago, for Donna Giannis, Nick Giannis.

Richard A. Del Giudice, Earl E. Parkas, Gozdecki & Del Giudice, Chicago, for Marshall Bauer.

John G. O'Brien, Law Offices of John G. O'Brien, Ltd., Arlington Heights, for Amicus Curiae Illinois Real Estate Lawyers Assn.

Justice CALLUM delivered the opinion of the court:

I. INTRODUCTION

Plaintiff, Marshall Bauer, purchased a home from defendants, Nick Giannis and Donna Giannis. Four years later, the basement flooded after a heavy rain. Alleging that defendants concealed that the basement had flooded once before the sale, plaintiff sued defendants for fraud. The trial court denied defendants' motion for summary judgment and, finding that an "as is" clause contained in the real estate sale contract was unenforceable, granted plaintiff partial summary judgment.

Thereafter, the trial court certified three questions for interlocutory appeal pursuant to Supreme Court Rule 308 (155 Ill.2d R. 308):(1) whether the legal effect of the "as is" clause is different if the clause is viewed as a disclaimer as opposed to an exculpatory clause; (2) whether the "as is" clause is unenforceable and therefore not a defense to the fraud claims; and (3) if the clause is unenforceable, whether it is nevertheless admissible as evidence on the issues of fraudulent intent and reliance. We answer "no" to the first question. As a result, on the remaining questions, we hold that the "as is" clause is not a defense to the fraud claims and that the clause is not admissible on the issue of reliance.

II. BACKGROUND

Plaintiff's complaint alleged that defendants listed their home in Bannockburn for sale during the summer of 1997. On September 7, 1997, plaintiff agreed to purchase the home for $1.7 million. On the residential real property disclosure report that defendants prepared pursuant to section 35 of the Residential Real Property Disclosure Act (Act) (765 ILCS 77/35 (West 1996)), defendants knowingly misrepresented that they were not aware of flooding or recurring leakage problems in the crawlspace or basement. Also, defendants concealed that, in May 1996, the home had flooded and sustained damage that required significant renovation.

In October 2001, plaintiff's basement flooded. One of the two basement rooms filled with water to the ceiling, and the second room filled almost to the ceiling. It was not until after the 2001 flood that plaintiff learned of the 1996 flood and the resulting damage and renovation.

As a result of the flood, plaintiff incurred substantial damages and had to take remedial measures that included hiring engineers, erecting berms, creating drainage pits, and installing drainage pipes, ejector pumps, and generators. The complaint asserted causes of action sounding in fraudulent misrepresentation and fraudulent concealment.

The parties engaged in extensive discovery. We recite only those facts necessary to understand the issues on appeal. Defendants first placed their home on the market in October 1994. On May 17, 1996, severe rainfall caused groundwater to fill a below-grade window well, stairway, and patio. The water shattered basement windows and entered the basement on the northwest side of the home. A basement bedroom and a basement office filled to the ceiling. The flood caused $425,000 in damage to the home and personal property. The flood and its effect on specific homes in Bannockburn, including that of defendants, was discussed during a village board meeting and in the May 24, 1996, village administrator report.

Defendants took the home off of the market so they could repair the damage. They rebuilt the two basement rooms that filled with water, cleaned the crawl space and east side basement, refinished the floors of rooms above ground level, installed a new exterior sump pump, and replaced the interior sump pumps.

Defendants hired Daniel Creaney, a civil engineer, to assist them with their flood-control efforts. On May 28, 1996, Creaney recommended concentrating on the areas around the house from which storm water entered the basement, namely, the window well and the exterior stairwell. Creaney's proposal stated:

"Please keep in mind that there may be several factors that may have contributed to the flooding in your basement. We will address the items mentioned above and the items we may find during our investigation. The grading plan, when implemented, will help alleviate the basement flooding, but we cannot guarantee that the basement will not flood again."

Creaney recommended, among other things, constructing a berm. Defendants hired Cal Nelson, a landscaper, to construct the berm around the northwest side of the home to divert ground water away from the lower level patio. Defendants asserted that the May 1996 incident was the only time the home flooded during the eight years they owned it.

Defendants placed the home back on the market. In September 1997, the home was listed at $2,775,000 and was appraised at $2.3 million.

During his deposition, plaintiff testified that defendants never informed him before the sale that the home had flooded in 1996. Defendant Nick Giannis testified that he told plaintiff about the flood and pointed out the newly constructed berm. Defendant Donna Giannis executed the disclosure report that the Act mandates. She answered "no" to the following statement: "I am aware of flooding or recurring leakage problems in the crawlspace or basement." The report makes two references to a potential "as is" sale. Located near the top of the form is the following statement: "This report does not limit the parties['] right to contract for the sale of residential real property in `as is' condition." Located near the bottom of the form is the following statement: "Prospective buyer is aware that the parties may choose to negotiate an agreement for the sale of the property subject to any or all material defects disclosed in this report (`as is')."

On September 5, 1997, the parties executed a rider to the real estate sale contract. The purpose of the rider was to add an "as is" clause that provided:

"Purchaser acknowledges and represents that Purchaser and his representatives have personally examined the Property and Personal Property on at least six occasions and [have] had the Property professionally inspected. Purchaser is fully aware of the condition of the Property and accepts the Property in its `As Is' and `[Where] Is' condition, without any warranty or representation on the part of the Seller and Purchaser is fully satisfied with the condition of the Property."

During his deposition, Nick explained that he prompted his attorney to draft the rider for protection because he "had bad vibes." He testified that plaintiff knew about the flooding and that plaintiff's wife did not want to buy the home. Defendants' attorney, Ron Rosenblum, explained that he prepared the rider because he was frustrated over the number of times plaintiff inspected the home, and he wanted to clarify that defendants were not making any representations or warranties regarding the home.

On October 13, 2001, the home flooded due to heavy rain. The water entered through the garage, flowed into the crawlspace, and eventually flooded the basement office and bedroom with as much as eight feet of water.

Relying on the "as is" clause, defendants moved for summary judgment. The trial court found that the issue of reasonable reliance presented a fact question and therefore denied defendants' motion.

Plaintiff moved for a partial summary judgment declaring that the "as is" clause is against public policy and therefore unenforceable. The trial court granted plaintiff's motion. Defendants moved for reconsideration or alternatively for certification pursuant to Supreme Court Rule 308. The trial court denied the motion for reconsideration but certified the following three questions for appeal:

"(i) Whether, given the facts of the case, there is a difference in the legal effect of paragraph A-2 of the Real Estate Sale Contract Rider (herein `Paragraph A-2') if it is viewed as an exculpatory clause or as a disclaimer clause;

(ii) Whether Paragraph A-2 is against public policy, unenforceable and void in the fraud case; and

(iii) Whether Paragraph A-2 is admissible evidence on the issues of fraudulent intent and reliance."

This court granted defendants' petition for leave to appeal.

III. DISCUSSION

A. Interlocutory Appeals Under Supreme Court Rule 308

Supreme Court Rule 308(a) provides in pertinent part:

"When the trial court, in making an interlocutory order not otherwise appealable, finds that the order involves a question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, the court shall so state in writing, identifying the question of law involved. * * * The Appellate Court may thereupon in its discretion allow an appeal from the order." 155 Ill.2d R. 308(a).

The requirements of Rule 308 largely have been satisfied here. Although the first certified question begins with the qualifier, "given the facts of this case," the first two certified questions are purely questions of law, i.e., whether the "as is" clause is enforceable. The third question is, if the clause is not enforceable, whether it nevertheless may be considered as probative evidence on intent and reliance. As we discuss further below, this is an evidentiary question that we are partly able to answer as a matter of law. The answers to the first two questions and to part of the third question will not "depend on the resolution of a host of factual predicates." Dowd & Dowd, Ltd....