Engels v. Ranger Bar, Inc.

• Decision Date: 05 January 2000
• Docket Number: No. 20926.,20926.
• Citation: 604 N.W.2d 241,2000 SD 1
• Parties: Tim ENGELS, Plaintiff and Appellee, v. RANGER BAR, INC., Defendant and Appellant.
• Court: South Dakota Supreme Court

604 N.W.2d 241

2000 SD 1

Tim ENGELS, Plaintiff and Appellee, v. RANGER BAR, INC., Defendant and Appellant.

No. 20926.

Supreme Court of South Dakota.

Considered by Briefs November 29, 1999.

Decided January 5, 2000.

David R. Strait of Austin, Hinderaker, Hopper, Strait & Bratland, Watertown, South Dakota, Attorneys for plaintiff and appellee.

Gregory J. Stoltenburg of Gunderson, Evenson & Boyd, Clear Lake, South Dakota, Attorneys for defendant and appellant.

SABERS, Justice.

[¶ 1.] The trial court found Ranger Bar, Inc. (Ranger) made fraudulent representations to Tim Engels which induced Engels to buy the Harbor Bar from Ranger. Compensatory and punitive damages were awarded to Engels and Ranger appeals. We affirm.

FACTS

[¶ 2.] In 1980, Calvin Rhody and John Homan purchased the Harbor Bar in Watertown, South Dakota. While the building was built in the early 1900s, the Harbor Bar has existed since the 1940's. Rhody and Homan ran the bar as a limited partnership and decided to incorporate in June of 1982 under the name Ranger Bar, Inc.

[¶ 3.] In 1993, Ranger sold the bar to Bill and George Holmes on a contract for deed - $100,000 down and $300,000 on contract. Holmes experienced financial problems and, in July of 1995, asked Ranger to release them from the contract for deed. Ranger agreed and took the bar back.

[¶ 4.] Ranger listed the property with a realtor for over a year before deciding to sell it at a public auction on July 27, 1997. Engels became interested in purchasing the property in June of 1997. He testified that Rhody agreed to finance the sale through a contract for deed only if Engels purchased before the auction. Rhody disagreed and testified that a contract for deed was an option even if the property were sold at the auction. The auction bill, prepared by Haan-Kline, the auctioneer, is not in the record.

[¶ 5.] Engels was in the bar several times inquiring about the property and inspecting the business. He testified that, on one occasion, he asked Rhody about the roof and Rhody told him that the roof had been repaired except around the skylight, which would be repaired after the sale. On a different occasion, Engels offered Rhody $25,000 less than his asking price because Engels heard that the roof leaked. Rhody assured him that they had spent all kinds of money on the roof and it had been repaired except for a leak around the skylight. Engels further testified that he tried to get on the roof one day to inspect it, but Rhody had the key to access the roof and he was not available. Engels visually inspected the interior of the bar and stated he could not see any signs of water damage within the interior walls - the sheetrock was new and the walls and ceiling were recently painted. He also observed that he could not see any daylight through the roof. Engels did not have any knowledge of the drain on the roof or the pooling of water on the roof when the drain became obstructed with ice.

[¶ 6.] Engels also questioned the realtor about the condition of the roof on two different occasions. The realtor relayed what Rhody had told him: "the roof had been repaired except [that] it leaked [around] one of the skylights, and he'd fix that."

[¶ 7.] On July 25, 1997, Engels signed a Purchase Agreement to purchase the Harbor Bar from Ranger. It stated: "Buyer has inspected this property and agrees to purchase it in its as is condition." On August 4, 1997, the parties entered into a contract for deed. The "as is" provision was incorporated therein. Engels agreed to pay $300,000 for the property with $100,000 down and $1,672.90 per month until September 4, 2007 when a balloon payment of $139,550.52 was due. The contract for deed also included the following clause:

REPRESENTATIONS

It is agreed and understood by and between the parties hereto that this agreement is based upon the purchasers personal inspection and investigation of the property involved and the ledgers and books of the Sellers and not upon any representations or warranties of the Seller other than set out herein.

Engels took possession of the bar on August 4, 1997.

[¶ 8.] During the fall of 1997, Engels noticed water leaking through the roof. By late January 1998, the roof severely leaked. Engels and his employees had to place twelve to twenty garbage cans and buckets around the bar to catch the water. The garbage cans and buckets needed to be dumped periodically. Sheetrock on the ceiling leaked and cracked. Ceiling tiles had to be replaced. Engels finally hired Utne Construction to replace the roof and drainage system, which was completed on February 5, 1998, at a cost of $33,777.61.

[¶ 9.] Rhody later admitted that he had, on occasion, placed several buckets around the bar to catch the water leaking through the roof. He explained that the roof was flat and there was a six-inch drain hole where the water runs off the roof.¹ In the winter, the ice obstructed the drain hole creating a pool that saturated the roof in certain areas. This was not an unexpected event to Rhody. In 1986, he repaired the roof and had a black elastomeric coating (alumination) applied in 1990, 1992, 1993, 1995, 1996 and March of 1997.² He stated that if he had problems with the roof, he'd "just go put another coating on and seal them [the leaks] up." He further stated:

You know, there was no doubt it [the roof] was a pain in the winter. In the summer most of the time if we got it coated good we had no problem, but if you had a bad winter where it would melt early and then it wouldn't run off that drain. It's that simple.

Rhody acknowledged that Engels asked him whether the roof leaked and Rhody testified: "I told him I just got done coating it. There was still a leak in the skylight and that I would coat that and stop it from leaking." The contractor, Utne, testified at trial that the application of elastomeric was as effective as painting over rust; it did not remedy the problem.

[¶ 10.] The trial court found that Ranger represented that the roof had been fixed except for a leak in the skylight. It stated: "[t]he representations on the condition of the roof by [Ranger] were not true, not warranted by the information known only to [Ranger] and a suppression of the actual truth." Thus, Engels was awarded damages for fraud under SDCL 53-4-5 and for deceit under SDCL 20-10-1. The court awarded him $33,776.61 in compensatory damages, $3,720.16 in prejudgment interest and $10,000 in punitive damages. Ranger raises three issues.

[¶ 11.] 1. WHETHER THE TRIAL COURT WAS CLEARLY ERRONEOUS IN FINDING THAT THE REPRESENTATIONS WERE INTENDED TO INDUCE ENGELS TO BUY THE PROPERTY.

[¶ 12.] Ranger points out that the conversation with Engels about the roof lasted about one minute. It argues that Engels could not have altered his decision to buy this property based on this one-minute conversation. It further argues that Engels had some duty to inspect the property himself and that Rhody offered to show Engels the receipts of the repairs, but Engels declined to see them. Ranger also claims that the provisions of the contract for deed provide that there are no agreements other than the ones within the contract and that bars this action.

[¶ 13.] Engels responds that he did inspect the property and he saw no signs of water damage. The sheetrock was new and the walls were recently painted. When Rhody offered to show him the receipts of the "repairs," Engels accepted the offer, but the receipts had been left at Rhody's house. He further argues that the condition of the roof had to be concealed or else Ranger would not have received the full $300,000 from him. Furthermore, Engels argues Ranger knew of the severe problems since 1990 when it started using alumination; in fact, Ranger put alumination on the roof right before the sale to give it a clean, shiny appearance even though it knew that alumination did not remedy the leaks. Finally, Engels relies on Holmes v. Couturier, 452 N.W.2d 135 (S.D.1990) for his argument that the contract provisions do not shield Ranger from liability on the theory of fraud and reliance.

[¶ 14.] Our standard of review is well established:

Our standard of review of the trial court's findings of fact is under a clearly erroneous standard. Jasper v. Smith, 540 N.W.2d 399, 401 (S.D.1995); Muhlenkort v. Union County Land Trust, 530 N.W.2d 658, 660 (S.D.1995). The trial court's findings will not be disturbed unless the court is `firmly and definitely convinced a mistake has been made.' Jasper, 540 N.W.2d at 401. Conclusions of law, on the other hand, are reviewed under a de novo standard, giving no deference to the trial court's conclusions of law. Id.

Wood v. SD Cement Plant, 1999 SD 8, ¶ 9, 588 N.W.2d 227, 229

(quoting City of Colton v. Schwebach, 1997 SD 4, ¶ 8, 557 N.W.2d 769, 771).

[¶ 15.] Ranger argues that this suit is controlled by the provisions of the purchase agreement and the contract for deed which state that this property was sold "as is." We agree with Engels that "as is" provisions do not shield Ranger from liability for fraudulent representations. In Holmes, we stated: "[a] provision in a contract that the buyer takes the property as is does not confer on the seller a general immunity from liability for fraud." Holmes, 452 N.W.2d at 137 (citing Lingsch v. Savage, 213 Cal.App.2d 729, 29 Cal.Rptr. 201 (1963); see also Massler v. Smit, 279 A.D. 941, 943, 111 N.Y.S.2d 264, 266 (1952)

(stating: "[f]raud will vitiate any contract, regardless of the fact that the contract contains a provision to the effect that ... the party who claims the fraud entered into the contract with knowledge of the condition of the subject matter of the contract and agrees to accept the same `as is.'"); Wolford v. Freeman, 150 Neb. 537, 547, 35 N.W.2d 98, 103 (1948) (noting that "[a] contract provision that the buyer takes the property as is does not prevent fraudulent representations from invalidating the contract.")). Thus, Ranger is not allowed to use the...