Mackintosh v. Jack Matthews and Co.

• Decision Date: 08 July 1993
• Docket Number: No. 21807,21807
• Citation: 109 Nev. 628,855 P.2d 549
• Parties: Richard MACKINTOSH and Lynn Mackintosh, Appellants, v. JACK MATTHEWS AND COMPANY, Pat Hansen, California Federal Savings and Loan Association, dba California Federal Savings, Nevada Division and Preston R. Clark, Respondents.
• Court: Nevada Supreme Court

Page 549

855 P.2d 549

109 Nev. 628

Richard MACKINTOSH and Lynn Mackintosh, Appellants, v. JACK MATTHEWS AND COMPANY, Pat Hansen, California Federal Savings and Loan Association, dba California Federal Savings, Nevada Division and Preston R. Clark, Respondents.

No. 21807.

Supreme Court of Nevada.

July 8, 1993.

Peter H. Cuttitta, Reno, for appellants.

Jones, Jones, Close & Brown and Richard F. Holley, Reno, for respondents Jack Matthews and Pat Hansen.

Clark & Dickey, Reno, for respondents California Federal Sav. and Loan Ass'n and Preston R. Clark.

OPINION

ROSE, Chief Justice:

Summary judgment was granted in favor of California Federal Savings and Loan Association, dba California Federal Savings, Nevada Division (California Federal), the seller, its real estate broker, Jack Matthews and Company (Matthews), and their employees, because real property had been sold in an "as is" condition and there had been no affirmative false representation made by California Federal concerning the property. We conclude that there was no material false representation made by California Federal and that appellants Richard and Lynn Mackintosh (the Mackintoshes) had a duty to inquire further about the cause of the water problem once they noticed evidence of water in the basement. Given these facts, the summary judgment entered would have been appropriate were it not for the additional facts that California Federal was also financing the Mackintoshes' home as well as being the seller of it. These facts may establish a special relationship between the buyers and seller that would give rise to a duty of full disclosure by California Federal. Such facts are sufficient to preclude the granting of summary judgment in this case.

FACTS

California Federal obtained a home in Carson City, Nevada, as a result of a foreclosure. Before listing the property for sale, California Federal employed Waynco, Inc. to clean and paint the house. Waynco, Inc. hired Mark Kirk (Kirk) to perform the repairs and the clean-up work.

According to Kirk's affidavit, there was water on the floor of the basement when he began work on the property. Kirk met with respondent Preston Clark (Clark), who works for California Federal. They discussed the water problem and agreed that ground water seepage had caused the basement to flood. When Clark asked Kirk how to prevent ground water from seeping into the basement, Kirk explained that they could remove the dirt from around the exterior of the basement and tar seal the exterior of the walls. Kirk further explained that this solution would be temporary and that, because the water table was at a high level, the basement would continue to flood. According to Kirk, Clark originally asked him to install a "french drain," ¹ but later instructed him to forego the installation because a buyer was interested in the property.

Kirk had the electricity in the basement turned off and began work. In his deposition, Kirk stated that after he pumped out the water, he noticed obvious leakage lines on the walls of the basement. His affidavit stated that he also observed what he thought was a crack in the main beam supporting the roof. He concluded that this crack was the result of the settling of the foundation. Kirk further stated that he showed the cracked beam to Clark. When Kirk asked if he should repair the beam, however, Clark instructed him not to bother.

California Federal listed the property for sale "as is" through Matthews. In September of 1986, the Mackintoshes became interested in the property. They contacted Matthews, who put them in touch with its real estate agent, Pat Hansen (Hansen), who showed the Mackintoshes the property. ²

The Mackintoshes also visited the property on their own. On one of the visits, they entered the basement. Because the electricity was turned off, they used a flashlight or a match to view the area. They noticed a hole in the ceiling. Through the hole, they saw a water pipe which appeared to have been recently repaired. They also noticed "indications of the prior presence of water around the floor of the basement." Kirk's affidavit states that although he met with the Mackintoshes before they purchased the property, Clark had instructed him not to mention the water problems. The Mackintoshes made no inquiries about indications of water in the basement to Hansen, Kirk, or anyone else.

The Mackintoshes agreed to purchase the property "as is" for $122,400.00, using a home loan from California Federal. On October 13, 1986, the property was inspected for wood-destroying pests. The inspector's report mentioned that areas of both the interior and the exterior of the house were damaged from excessive moisture. Specifically, the report stated that "[i]nterior walls in basement area are damaged and sheet rock is moldy from excessive moisture." The Mackintoshes reviewed and signed this report on October 29, 1986. A loan from California Federal to the Mackintoshes was made, and it was evidenced by a promissory note and secured by a trust deed against the property.

Escrow closed on October 31, 1986. According to the Mackintoshes, Kirk was working on their property on this day, and he told them about the water seepage problem. The Mackintoshes maintain that additional structural problems have become apparent to them since buying the house. On October 26, 1989, they filed a complaint against Matthews, Hansen, California Federal, and Clark, alleging misrepresentation and breach of the implied covenant of good faith and fair dealing, and requesting rescission of the contract and damages. The respondents ultimately filed a motion for summary judgment, arguing that the Mackintoshes had notice of the water problem and accepted the property "as is." The district court granted summary judgment to all respondents.

DISCUSSION

Standard of Review

Summary judgment is appropriate only when no genuine issues of material fact exist and one party is entitled to judgment as a matter of law. NRCP 56(c); Morrow v. Barger, 103 Nev. 247, 737 P.2d 1153 (1987). In an appeal from summary judgment, all allegations of fact offered by the appellants should be presumed to be true. Charles v. Lemons & Associates, 104 Nev. 388, 390, 760 P.2d 118, 119 (1988).

False Representation

The Mackintoshes argue that California Federal misrepresented the source of the water problem by leaving a copper water pipe, apparently recently repaired, visible through an open hole in the basement ceiling. The Mackintoshes contend that California Federal's acts constitute implicit misrepresentation, rendering a visual inspection of the basement misleading. California Federal counters that the sales contract specified that the sale was "as is," and that no affirmative acts were taken or statements made to mislead or defraud the Mackintoshes.

Most states do not permit an "as is" clause to shield a seller who has fraudulently misrepresented the condition of property or who has intentionally concealed known defects. See Wolford v. Freeman, 150 Neb. 537, 35 N.W.2d 98 (1948); 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 (1992). The rationale of these authorities is obvious. A person who makes affirmative false representations to consummate a sale should not be able to shield himself from liability by hiding behind the "as is" contractual language in a sales contract.

California Federal made no express false representations. Leaving the basement with some evidence of water in the proximity of a newly repaired water pipe may have led the Mackintoshes to an incorrect conclusion, but it was not an affirmative statement or act by California Federal; and it cannot be said that California Federal left the basement after the pipe repair in such a condition as to intentionally mislead the buyers. Therefore, absent affirmative material false representations, no action will lie in the Mackintoshes' favor based on false representation.

This conclusion is consistent with Epperson v. Roloff, 102 Nev. 206, 719 P.2d 799 (1986), in which we held that an action for fraud will not arise from nondisclosure in a sale not involving an "as is" clause unless the seller alone has knowledge of material facts that are not available to the buyer. Many other states have adopted similar rules where the seller has "special knowledge" of a defect in the real property being sold, but the buyer is unaware of it and the defect is not readily observable. In Wilhite v. Mays, 140 Ga.App. 816, 232 S.E.2d 141 (1976), the seller passively concealed the fact that the septic tank overflowed in the front yard during rainy weather and was not susceptible to repair. The court stated its decision in favor of the buyer as follows:

Therefore, in cases of passive concealment by the seller of defective realty, we find there to be an exception to the rule of caveat emptor, which exception is applicable to the instant case. That exception places upon the seller a duty to disclose in situations where he or she has special knowledge not apparent to the buyer and is aware that the buyer is acting under a misapprehension as to facts which would be important to the buyer and would probably affect its decision.

Id. 232 S.E.2d at 143. The Supreme Court of Georgia affirmed the result, but stressed that, under the facts of the case, the seller's action amounted to fraud under Georgia law, and therefore the buyer's claims were actionable. Wilhite v. Mays, 239 Ga. 31, 235 S.E.2d 532 (1977).

Nondisclosure of Adverse Information by Seller

Nondisclosure by the seller of adverse information concerning real property generally will not provide the basis for an action by the buyer to rescind or for damages when property is sold "as is." However, a number of courts have modified this "caveat emptor" rule by imposing a duty on the seller to disclose adverse...