Jensen v. Bailey
| Decision Date | 09 January 2012 |
| Docket Number | No. 2D10–939.,2D10–939. |
| Parties | Eric JENSEN and Joyce Jensen, Appellants/Cross–Appellees, v. Cynthia BAILEY, Appellee/Cross–Appellant. |
| Court | Florida District Court of Appeals |
OPINION TEXT STARTS HERE
Virginia R. Vetter, Tampa, for Appellants/Cross–Appellees.
Courtney L. Fish and Ronald W. Gregory, II, of Englander & Fischer, LLP, St. Petersburg, for Appellee/Cross–Appellant.
Eric Jensen and Joyce Jensen appeal a final judgment awarding damages against them and in favor of Cynthia Bailey on her claim for the Jensens' failure to disclose material defects in their residence to Mrs. Bailey under Johnson v. Davis, 480 So.2d 625 (Fla.1985). Because the circuit court found that the Jensens had no knowledge of the defects but improperly found the Jensens liable to Mrs. Bailey under a “should have known” standard, we reverse the final judgment.
In June 2005, the Jensens entered into a contract with Gene Bailey and Cynthia Bailey for the sale and purchase of the Jensens' residence in St. Petersburg. Before the parties signed the contract, the Jensens filled out a property disclosure statement for the Baileys' review. One of the questions on the disclosure statement asked whether the sellers were aware “of any improvements or additions to the property, whether by you or by others, that have been constructed in violation of building codes or without necessary permits?” In response to this question, the Jensens checked the “NO” box. The parties closed the sale in July 2005, and the Baileys took possession of the property.
Approximately two years later, the Baileys filed an action for damages against the Jensens. In their complaint, the Baileys alleged claims for breach of contract, nondisclosure of material defects in the residence under Johnson, and fraudulent concealment. The Jensens filed an answer denying the material allegations of the complaint and raised affirmative defenses. Mr. Bailey died while the action was pending in the circuit court, and Mrs. Bailey continued the action as the sole plaintiff.
After a bench trial that lasted two days, the circuit court entered a detailed verdict in favor of Mrs. Bailey on her nondisclosure claim under Johnson. In the verdict, the circuit court ruled, in pertinent part, as follows:
At trial two main categories of problems emerged. One was the alleged defective sanitary sewer which caused reoccurring backups into the home. The other was a trio of unpermitted changes in the home which were discovered to be not in conformity with building codes and would thus require reconstruction.
After careful consideration the court finds the evidence insufficient to support [Mrs. Bailey's] claims regarding the sewer system. On the other hand, the evidence was that ... the [Jensens] had substantial remodeling work done in their master bath, their kitchen[,] and in the bedroom by the installation of [F]rench doors. It was uncontroverted that these three jobs required proper permits. The evidence supports the conclusion that neither the [Jensens] nor those who they hired obtained the permits. Expert testimony indicated that the work was not properly done, did not conform to the codes applicable when done [,] and would require reconstruction in full conformity with newer[,] more stringent codes.
There was no evidence that the [Jensens] actually knew about the failure to obtain permits or the improper work. They[,] like perhaps many trusting people, relied upon the individuals or companies they hired to do the work legally and in a proper fashion.
These facts presented a difficult question regarding the extent to which Florida law will protect a buyer in a residential real estate transaction from material defects which are not actually known to the seller but should have been known by them. As a practical matter, homeowners have a responsibility to obtain proper permits and generally can find no protection from their failure to do so because they merely relied on someone else to do so. Since such permits are required[,] it does not seem an unreasonable conclusion that the homeowner is likewise expected to know whether the permits were actually issued and posted for the construction. These logical assumptions appear to be the foundation for the questions presented to sellers in the typical real property disclosure forms. That is, the owner is expected to know about these important matters with regard to their property because they are in a position to need to know.
The circuit court concluded
Based on the verdict, the circuit court entered a final judgment in favor of Mrs. Bailey and against the Jensens for $33,370 in damages, plus $13,787.31 in prejudgment interest. The Jensens' appeal followed, and Mrs. Bailey filed a cross-appeal.
On their direct appeal, the Jensens make several arguments. However, we need only address the Jensens' argument that the circuit court erred in finding them liable to Mrs. Bailey on her nondisclosure claim based on a “should have known” standard. On the cross-appeal, Mrs. Bailey contends that the circuit court erred in finding that the Jensens did not have actual knowledge of the asserted material defects in the residence.
This case requires us to decide whether liability under the rule in Johnson may be based on a finding of the seller's constructive knowledge of an undisclosed material defect instead of his or her actual knowledge. We conclude that to hold the seller liable under Johnson, the buyer must prove the seller's actual knowledge of an undisclosed material defect. Accordingly, on the direct appeal, we reverse the circuit court's final judgment finding the Jensens liable to Mrs. Bailey under a “should have known” standard.
On the cross-appeal, we affirm. The circuit court's finding that the Jensens did not have actual knowledge of the asserted undisclosed material defects is supported by substantial, competent evidence, and the issue raised on the cross-appeal does not warrant further discussion. We turn now to an examination of the issue raised on the Jensens' direct appeal concerning the knowledge element under Johnson.
A nondisclosure claim under Johnson has four elements: (1) the seller of a home must have knowledge of a defect in the property, (2) the defect must materially affect the value of the property, (3) the defect must be not readily observable and must be unknown to the buyer, and (4) the buyer must establish that the seller failed to disclose the defect to the buyer. 480 So.2d at 629. Here, we address the first element, the seller's knowledge of a defect in the property.
Notably, the only consideration pertinent to the seller's state of mind under Johnson is knowledge of a defect materially affecting the value of the property at the time the seller enters into the contract with the buyer. Billian v. Mobil Corp., 710 So.2d 984, 988 (Fla. 4th DCA 1998). As the Fourth District has explained:
Johnson does not specify any state of mind element with regard to the act of non-disclosure for the cause of action it identifies.... Significantly, Johnson casts the cause of action in terms of “duty,” a concept drawn from the law of negligence. If the facts of a case give rise to a duty to disclose under Johnson, the seller's state of mind motivating the failure to disclose is immaterial; the forgetful or unsophisticated seller is just as liable as the knowing dissembler.
Id. Thus the critical issue under the first element of liability under Johnson is the seller's knowledge, not his or her intent. The question raised by this case is whether anything less than actual knowledge is sufficient to satisfy the first element.
The late Chief Justice Joseph Boyd dissented in Johnson, and he raised this question in his dissent. Chief Justice Boyd expressed his fear that the majority's holding in Johnson would lead to “making the seller a guarantor of the good condition of the property” and thus “significantly burden the alienability of property.” 480 So.2d at 631 (Boyd, C.J., dissenting). He predicted that the courts would ultimately construe Johnson's requirement of actual knowledge to permit a finding of liability based on constructive knowledge:
The trend will proceed somewhat as follows. At first, the cause of action will require proof of actual knowledge of the undisclosed defect on the part of the seller. But in many cases the courts will allow it to be shown by circumstantial evidence. Then a rule of constructive knowledge will develop based on the reasoning that if the seller did not know of the defect, he should have known about it before attempting to sell the property. Thus the burden of inspection will shift from the buyer to the seller. Ultimately the courts will be in the position of imposing implied warranties and guaranties on all sellers of real property.
Id. This case proves that Chief Justice Boyd's fear about the eventual effect of the majority's holding in Johnson was not completely unjustified. Here, the circuit court found the Jensens liable to Mrs. Bailey in the absence of proof of their actual knowledge of the asserted material defects based on a “should have known” standard.
However, this court has consistently reversed judgments in favor of the buyer for nondisclosure under Johnson in the absence of proof of the seller's actual knowledge of the defect. See Brown v. Carter, 13 So.3d 111, 113–14 (Fla. 2d DCA 2009); Spitale v. Smith, 721 So.2d 341, 345 (Fla. 2d DCA 1998); Slitor v. Elias, 544 So.2d 255, 258–59 (Fla. 2d DCA 1989). In Slitor, we said:
Johnson does not convert a seller of a house into a...
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