Mahler v. Keenan Real Estate, Inc., 68523

• Citation: 255 Kan. 593,876 P.2d 609
• Decision Date: 03 June 1994
• Docket Number: No. 68523,68523
• Parties: Gerald L. MAHLER and Margaret C. Mahler, Appellants, v. KEENAN REAL ESTATE, INC., Murval L. Hejny, and Louise Hejny, Appellees.
• Court: United States State Supreme Court of Kansas

Page 609

876 P.2d 609

255 Kan. 593

Gerald L. MAHLER and Margaret C. Mahler, Appellants, v. KEENAN REAL ESTATE, INC., Murval L. Hejny, and Louise Hejny Appellees.

No. 68523.

Supreme Court of Kansas.

June 3, 1994.

Syllabus by the Court

1. Rules relating to the entry of summary judgment are stated and applied.

2. The Restatement (Second) of Torts § 552 (1976) is adopted.

3. A purchaser who relies on a material misrepresentation or false statement, negligently made by a real estate broker to induce a sale, has a cause of action against the broker.

4. In an action by a purchaser against the sellers and their real estate broker for breach of contract, fraudulent misrepresentation, misrepresentation, and rescission, the record is examined, and it is held that the district court did not err in entering summary judgment: (1) in favor of the defendant sellers and their real estate broker on plaintiffs' claim of fraudulent misrepresentation and concealment; and (2) in favor of defendant sellers on plaintiffs' claim of misrepresentation. The district court did err in entering summary judgment in favor of defendant real estate broker on plaintiffs' claim of negligent misrepresentation.

Michael S. Holland, Russell, argued the cause and was on the brief, for appellants.

Martin J. Keenan, of Keenan and Boeckman, P.A., Great Bend, argued the cause and was on the brief, for appellees Murval L. and Louise Hejny.

Gregory G. Schultz, of Turner and Boisseau, Chartered, Overland Park, argued the cause, and Lisa J. Lewis and Brian C. Wright, of the same firm, of Great Bend, were on the briefs, for appellee Keenan Real Estate.

PER CURIAM:

The Mahlers (buyers) sued the Hejnys (sellers) and their agent, Keenan Real Estate, Inc., alleging that the Hejnys breached their residential sales contract and that all defendants made negligent and fraudulent misrepresentations and failed to disclose material facts about the septic system and water wells. The district court granted partial summary judgment in favor of the Hejnys on the counts of fraudulent misrepresentation and fraudulent concealment. It entered summary judgment in favor of Keenan Real Estate on all causes of action against it--misrepresentation, fraudulent misrepresentation, and fraudulent concealment. The district court granted the Mahlers' request for certification pursuant to K.S.A.1993 Supp. 60-254(b) and stayed proceedings while this appeal is pending. The Court of Appeals affirmed. We granted the Mahlers' petition for review.

The Mahlers bought from the Hejnys a house and 160 acres in Barton County, Kansas. When the Mahlers looked at the property, Donna and LaVonne Urban and their four children lived in the house. Donna Urban is the Hejnys' daughter. The Hejnys live about 3.5 miles from the property which was bought by the Mahlers.

Charles Tammen, a Keenan Real Estate agent, showed the Hejnys' property to the Mahlers. The Mahlers asked him if there were any water problems in the area. According to Mrs. Mahler, Tammen said "none." According to Mr. Mahler, Tammen's response was that he knew of none.

During the first visit, Tammen pointed out a pipe which had water running out of it onto the ground and stated that the water was from the shower, sink, and dishwasher. According to Mr. Mahler, Tammen explained that the water was piped away from the house to keep it from going to the septic tank and that the practice was common in the area. LaVonne Urban testified that approximately five years before the sale, he installed the overflow pipe in order to move excess water away from the laterals.

After the first visit, the Mahlers expressed general concern about the water on the property and asked Tammen if the property was on rural water. Tammen told them it was on well water rather than rural water. Tammen told the Mahlers that if they had questions he would find out the answers for them. Mr. Mahler asked him to find out if there was any shortage of water or if there was any bad water in the area. Tammen asked Donna Urban if the water was all right and if there were any water problems on the property, to which she responded that, as far as she knew, the water was all right and there were no problems. Tammen later reported to the Mahlers that he knew of no water problems in the area.

After moving into the house, Mr. Mahler began experiencing problems with diarrhea. The Mahlers had their water tested, and the chemical analysis revealed that "[s]ulfate levels, while not above the 250 ppm maximum recommended, could cause a laxative effect in persons not used to drinking high sulfate water." It was also reported that sodium levels were above what is recommended for people on low sodium diets, that chloride levels were above what is recommended for drinking water, and that the elevated nitrate levels made the untreated water unfit for drinking.

Also after the Mahlers moved into the house, Keenan Real Estate, at the urging of the Mahlers, had the septic system inspected. The inspector reported that "sewer water" was being discharged out of the above-ground pipe.

The Mahlers admit that at the time they purchased the property, Tammen had no knowledge of any problems with the quality of the water or the septic system, that there was an abandoned cesspool, and that there were abandoned wells which needed to be plugged. The Mahlers also admit that "[t]he Hejnys knew of no water problems about which to tell Mr. Tammen." The Mahlers, however, denied the Hejnys' proposed uncontroverted statement that they, "on the date of the closing, had no actual knowledge of any water, septic, sewage or plumbing problems on the property in question." In this regard the district court stated:

"An examination of the depositions that in any way relate to knowledge the Hejnys had regarding the conditions of the home fails to establish they were aware of those material facts alleged by the plaintiffs to be the basis of their fraud claim. The plaintiffs have failed to come forward with evidence showing the Hejnys knew of the defects complained of and remained silent with that knowledge."

The Mahlers initiated this action by filing a four-count petition. The district court described the counts of the petition as follows: "Plaintiffs assert four causes of action. The first is against defendants Hejny for breach of contract. The second cause of action is against defendant Keenan alleging misrepresentation. The third cause of action is apparently against both defendants alleging fraud. The fourth [is] for rescission." It appears that the second cause of action, for misrepresentation, is also against the Hejnys. The paragraph naming the Hejnys is incorporated into Count 2, and paragraph 13 of Count 2 refers to "defendants." The allegation in Count 4 is that the contract was invalid because the misrepresentations and concealments prevented the parties to the contract from reaching a meeting of the minds. Count 4 seems to have been treated as praying for the remedy of rescission rather than as stating a separate cause of action. For the purpose of summary judgment it was ignored.

Keenan Real Estate and the Hejnys filed motions for summary judgment. The district court wrote two decisions, the original and a second one following Keenan Real Estate's motion for reconsideration. The breach of contract count was not a part of the Hejnys' motion. Nonetheless, the district court included it in its original memorandum decision. The district court stated: "To avoid any misunderstandings now or in the future, the Court affirmatively finds there are genuine issues of material fact which preclude the granting of summary judgment with regard to plaintiffs' first cause of action alleging a breach of contract by the Hejnys."

In addition to denying summary judgment on the breach of contract count due to genuine issues of material fact, the district court denied summary judgment on the same ground "with regard to plaintiffs' second cause of action alleging misrepresentation of material facts by defendant Keenan." After denying summary judgment on misrepresentation, the district court granted it in favor of all defendants on fraud and " 'fraud by silence.' "

In its original memorandum decision, the district court stated:

"In the plaintiffs' petition the allegations of fraud and misrepresentation in count III appear to be directed against both [sic ] defendants. In the plaintiffs' response to defendants' motion for summary judgment the discussion regarding constructive fraud appears to be directed solely against defendant Keenan and not against defendants Hejny. Therefore the Court will not discuss the doctrine of constructive fraud as it pertains to the defendants Hejny in light of the third cause of action."

The district court gave the following reasons for granting summary judgment:

(1) The Mahlers failed to produce any evidence that Tammen knew that any of his statements were false.

(2) There is no evidence that any of Tammen's statements were made with reckless disregard for the truth.

(3) The Mahlers met with the Hejnys once or twice before closing "but never discussed anything about water, sewage, septic or plumbing aspects of the property."

(4) The Mahlers failed to produce any evidence that the Hejnys knew of problems with the water and septic system.

The district court, in its original memorandum decision, noted that the Mahlers argued that Tammen, a real estate agent, could be held liable for false statements which he did not know were false.

"The plaintiffs argue this constitutes constructive fraud and under the law of Kansas the plaintiffs are entitled to recover damages from defendant real estate agent for fraud. This is contrary to the law as stated in Nordstrom v. Miller, [227 Kan. 59, 605 P.2d 545], Goff v. American Savings Association, 1 Kan.App.2d 75 and Scantlin v. Superior Homes, Inc., 6 Kan.App.2d 144 ."

Keenan Real Estate filed a motion requesting the district court to...