Mann v. Adams Realty Co., Inc.

• Decision Date: 22 July 1977
• Docket Number: No. 75-3239,75-3239
• Parties: William E. MANN et al., Plaintiffs-Appellants, v. ADAMS REALTY COMPANY, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 288

556 F.2d 288

William E. MANN et al., Plaintiffs-Appellants, v. ADAMS REALTY COMPANY, INC., et al., Defendants-Appellees.

No. 75-3239.

United States Court of Appeals Fifth Circuit.

July 22, 1977.

Champ Lyons, Jr., Richard F. Allen, Montgomery, Ala., for plaintiffs-appellants.

Sydney B. Smith, Phenix City, Ala., for Adams Realty Co. & Charles Adams.

Paul J. Miller, Jr., Phenix City, Ala., for Fred L. Brinkley.

Appeal from the United States District Court for the Middle District of Alabama.

Before GOLDBERG and HILL, Circuit Judges, and KERR, ^* District Judge.

JAMES C. HILL, Circuit Judge:

Appellee Adams Realty Co., Inc. ("Adams Realty") purchased certain undeveloped lots, including the lot over which this dispute arose (lot L-8), located in Lee County, Alabama, from Kalldallen, Inc. in June, 1972. The appellees sold lot L-8 to an intermediary who in turn sold the property to appellants. After the sale, the Lee County Health Department revoked its prior approval of lot L-8 for septic tank use.

Appellants brought this action, complaining that the appellees had failed to inform them that proper soil tests, which were necessary to establish the suitability of the soil on lot L-8 for septic tank usage, had not been performed. Their complaint charged the appellees with intentional misrepresentation, negligent misrepresentation and breach of implied warranty. ¹ On April 2, 1975, appellees filed a motion to dismiss under Rule 12(b) (6), F.R.Civ.P. In addition, appellees Fred Brinkley and Charles Adams filed alternative motions for summary judgment.

After one deposition had been taken, but before any further discovery, the district court on June 5, 1975, entered a memorandum opinion and order granting appellees' motion to dismiss. The court, however, declined to enter summary judgment, observing that "the motion therefor was not accompanied by proper affidavits or other supporting evidence that could be considered by the Court to determine whether or not there is a genuine issue as to any material fact in this case." Appellants thereafter filed a motion to reconsider, a motion to amend their complaint and an affidavit in support of the motion to reconsider. On June 25, 1975, the district court denied appellants' motions to amend their complaint and for reconsideration, and, on July 15, 1975, appellants filed a notice of appeal in this court.

I. The Facts.

After Adams Realty purchased lot L-8, the president of the company, Charles H. Adams, hired one Fred Brinkley to perform certain tests on the property to determine the suitability of the soil for septic tank usage. Based on the tests he performed, Brinkley prepared a report and a topographic map showing that lot L-8 was suitable for septic tank usage. On October 10, 1972, a sanitation officer for the Lee County Health Department, James L. Maness, inspected the land owned by Adams and issued his report giving approval to lot L-8 for the installation of a septic tank system. Although his report, which was based not on further tests but entirely on Brinkley's report and his own personal observation, contained no reservations or restrictions upon the use or sale of lot L-8, Maness advised defendants Adams Realty and Charles H. Adams to secure another engineering report based on proper soil tests.

On November 9, 1972, pursuant to usual procedures, the Maness report was approved by the Alabama Department of Public Health. In May, 1973, the appellees conveyed the undeveloped lot L-8 to an intermediary, Dennard, who in turn conveyed the lot to appellant William E. Mann, Jr. ² Although the report of Maness was exhibited to appellant prior to his acquiring title to lot L-8, Mann was not advised of Maness' advice that the appellees should secure another report based on proper soil tests.

On August 10, 1973, the Lee County Health Department revoked its prior approval of lot L-8 for septic tank usage. Mann was advised of this revocation in the latter part of September, 1973. After learning of this revocation and being told by Maness, that he, Maness, would not change his stance on the matter, Mann nonetheless began construction of a septic tank system on lot L-8. Although construction of the system was completed in late September, 1973, Mann did not have further tests performed on the soil until some 12 months later. Mann also built a house on the lot for Dennard, who refused to accept it when the suitability of the lot for septic tank usage became a problem.

II. Analysis of Arguments on Appeal.

The question raised by both of appellants' misrepresentation claims is whether the appellants were informed that no proper soil tests had been made on the lot and, if so, when the appellants became aware of such information. The record shows that the Maness report, made available to the appellants as indicated above, contained a notation indicating as follows:

Due to lack of information from Engr's (engineer's) report . . . no soil test holes found (none made) we cannot approve the low lots until wet weather test (sic) are made which are blocks S10, S8, S7, S6, S5, S4 Lot L-7 and Lot 0-2 (.) All other lots in this second edition seem to be O K (A. 10).

Appellant Mann contends that he did not consider the above statement, including the "none made" notation, to have any bearing on lot L-8 since that lot was not one of the lots that had been disapproved. Moreover, Mann contends that he informed Adams of his intention to construct a house for Dennard on the lot and that Adams represented that the lot was suitable for such construction. In Mann's affidavit in support of his motion to reconsider, he claims to have made the following statement to Adams: "Charles, you know if the septic system will not work I would not buy the lot because I could not get permanent financing for my purchase." According to the affidavit, Adams responded, "Everything is fine." ³

Mann contends that Adams told him work had been done on the lots, that lot L-8 had been approved and that no further work remained to be done on lot L-8 with respect to septic tank usage. Mann contends further that he relied on Adams' representations and agreed to purchase the lot without making inquiry as to the meaning of the "none made" notation appearing in the Maness report. As a result, Mann took title to lot L-8 under an agreement to construct a home for Dennard with title to be conveyed back to Dennard upon completion of construction. Mann also contends that when he heard of the revocation of the permit by the County, he contacted Maness and was told that the revocation occurred because some builders had begun construction on lots which had not been approved and that Mann, not considering himself one of those guilty parties, assumed that the revocation had to do with lots other than L-8. ⁴

The district court focused on two separate allegations raised by appellants in support of their claim of knowing and intentional misrepresentation: (1) the concealment by appellees that no test boring holes had been made; and (2) the concealment by appellees of Maness' verbal advice that the defendants should secure additional tests. As to the first allegation, the district court held that the statute of limitations had run because the appellants had been informed that no soil test holes were made before they purchased the lot. The court noted that, before Mann took title to lot L-8 on May 24, 1973, Charles Adams showed him a copy of the Maness report indicating that no test holes had been made. Since this occurred well before a year prior to the commencement of this action, the court granted appellees' motion to dismiss under Rule 12(b) (6).

The court also dismissed the second allegation of knowing and intentional misrepresentation on the ground that the court believed a mere concealment or nondisclosure of a fact was insufficient to constitute an actionable fraud in Alabama. Furthermore, the court held that even if a valid claim had been stated, it would also be barred by the statute of limitations. The court held that the plaintiffs were forewarned of the fraud shortly after August 10, 1973, on which date the Lee County Health Department revoked its initial approval of lot L-8 for septic tank use. This notice, the district court held, required the appellants to discover any more specific facts which they contended constituted a fraud against them. Since the appellants' complaint failed to allege that they had made any effort to discover such facts, the district court concluded that the claim was barred. Moreover, the court denied appellants' motions to amend the complaint and to reconsider, even though the latter motion was accompanied by an affidavit indicating that appellant Mann had attempted to determine the cause of the revocation.

The court also indicated that neither of the claims remained viable under another Alabama statute of limitations pertaining to persons who design, plan, supervise or construct improvements on real property, ⁵ since the subject matter of this suit is the suitability of the soil for septic tank use and not a claim pertaining to an improvement on the real estate.

The appellants take issue with all of the above conclusions of the district court. First, the appellants contend that the "none made" notation on the Maness report was inadequate to put them on notice that no test holes had been made on lot L-8. The notation, they suggest, might indicate to a reasonable man that only Maness himself had not made any test holes or that the notation did not apply to lot L-8 in any way since that lot was not specifically mentioned. In response to this argument, the appellees contend that the information contained in the report is a sufficient statement of facts to provoke inquiry in the mind of a reasonable, prudent person. The appellees contend further that appellants received notice of their potential claim against appellees no later than the time when Mann, in the latter part of September,...