Parmely v. Hildebrand, 21630.

• Decision Date: 27 June 2001
• Docket Number: No. 21630.,21630.
• Citation: 2001 SD 83,630 N.W.2d 509
• Parties: Lonny C. PARMELY and Jeanny E. Parmely, Plaintiffs and Appellants, v. Tom HILDEBRAND and Glenda Hildebrand, Defendants and Appellees.
• Court: South Dakota Supreme Court

630 N.W.2d 509

2001 SD 83

Lonny C. PARMELY and Jeanny E. Parmely, Plaintiffs and Appellants, v. Tom HILDEBRAND and Glenda Hildebrand, Defendants and Appellees.

No. 21630.

Supreme Court of South Dakota.

Argued April 26, 2001.

Decided June 27, 2001.

Courtney R. Clayborne of Johnson, Eiesland, Huffman & Clayborne, Rapid City, SD, Attorneys for plaintiffs and appellants.

Gregory J. Erlandson, Rodney W. Schlauger of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, SD, Attorneys for defendants and appellees.

GILBERTSON, Justice.

[¶ 1.] Lonny and Jeanny Parmely (Parmelys) purchased a house and adjoining real estate from Tom and Glenda Hildebrand (Hildebrands). Prior to the sale, Hildebrands completed a property disclosure statement as required by SDCL 43-4-38, which disclosed various problems with the property. Parmelys later sued Hildebrands claiming inadequate disclosure of defects to the house. The trial court found for Hildebrands and we affirm.

FACTS AND PROCEDURE

[¶ 2.] In 1988, Tom Hildebrand built a house for himself and his family on 42 acres of land near Sturgis, South Dakota. Although Tom was a concrete contractor, this was the first house he had constructed. Because he had no experience at soil excavation, Tom hired a third party to excavate the basement. He did not consult an engineer or an architect regarding the construction of the house.

[¶ 3.] Shortly after moving into the house, Hildebrands began noticing structural problems. A particularly wet spring in 1989 caused the soil to heave. Once the house settled, the interior walls and floors cracked. An engineer informed them that the problems resulted from the expansive soil¹ on which the house was built. The engineer advised Hildebrands to allow the soil to dry for two years before repairing the damage. In the spring of 1991, Hildebrands removed all the interior walls and floors. Although not specifically recommended by the engineer, they also excavated 4-6 inches of soil from under the house and replaced it with gravel. In addition, extensive landscaping was performed around the house in an attempt to remedy the problems caused by the expansive soil. Despite these efforts, cracks reappeared on the interior walls.

[¶ 4.] In early 1994, Hildebrands purchased another acreage and attempted to sell their current house. They completed sellers' property disclosure statements on February 11, 1994 and July 23, 1994.² On both statements, they disclosed structural problems with the house. Specifically, they noted cracked walls and floors, previous roof leakage, and the existence of expansive soil on the property. An addendum, drafted with the help of Hildebrand's lawyer,³ was attached to the statements to explain the problems they had experienced with the house. It provided:

We moved into this house on November 22, 1988. We did not have it completed due to the weather. The area incomplete on the outside of the structure was missing rain gutter[s] and downspouts and part of the foundation was not backfilled.

In the Spring of 1989, we had rain lasting for 9 days that totaled 7 or 8 inches. All of this moisture coming off the roof with no rain gutter[s] caused the backside of the house to settle. We had drain tile already installed and, because of that, all the water was evenly distributed. The only cracking on the back wall is on the garage. This is a hairline crack which has not moved since it happened.

When the house settled, the inside floors stayed in place, which caused the interior walls to crack. We had an engineer from the School of Mines come and explain to us exactly what had happened and what to do about it. He explained the area all around us is known to have shale and gumbo for soil. We had a soil test done to confirm this. The engineer advised us to wait two years and let the soil completely dry out before trying to fix it.

In the Spring of 1991, we moved into the upstairs and removed all of the interior walls and floors and replaced them. Since that time, we have had some sheetrock cracking in the kitchen/living room area, master bedroom area and other bedroom. These have all been repaired. The kitchen floor had a crack, which is normal for the size of the floor. We filled the crack and replaced the 14 tile[s] it affected. On the outside of the house, we have poured patios and sidewalks in the front and back to prevent water from getting close to the foundation of the house.

In the fall of 1994, Parmelys purchased the house and the 42 acres surrounding it for $175,000.⁴ Parmelys received the disclosure statements and the addendum before the sale.

[¶ 5.] In February 1995, Parmelys began experiencing problems similar to those suffered by Hildebrands, including roof leakage, cracks on the walls and floors, windows and doors that did not close properly, and swelling of the floor. Parmelys sued Hildebrands for allegedly failing to disclose known defects as required by SDCL 43-4-44, fraudulent concealment, negligent construction and breach of warranty. The circuit court granted summary judgment in favor of Hildebrands on all claims. This Court reversed that decision as to the claims for inadequate disclosure and fraudulent concealment. Parmely v. Hildebrand, 1999 SD 157, 603 N.W.2d 713. On remand, the parties submitted the action to the circuit court on pleadings, exhibits, and depositions. This was essentially the same record the trial court had before it at the time of the motion for summary judgment. The trial court found that Parmelys had failed to establish by a preponderance of the evidence that Hildebrands had not adequately disclosed the known defects in the property and had fraudulently concealed those defects. Parmelys have appealed from that judgment.

ISSUE PRESENTED

Whether Parmelys established Hildebrands' noncompliance with the standards of SDCL chapter 43-4 in disclosing the condition of the home as it existed at the time of the sale.

STANDARD OF REVIEW

[¶ 6.] This case was presented to the trial court through prepared written statements of facts, exhibits, and depositions. In such a situation, we would have previously reviewed a trial court's findings of fact de novo. See State Div. of Ins. v. Norwest Corp., 1998 SD 61, ¶ 11, 581 N.W.2d 158, 160. However, last year the legislature amended SDCL 15-6-52(a), which now requires all findings of fact, "whether based on oral or documentary evidence" to be reviewed under the clearly erroneous standard. SL 2000, ch. 91, § 1. Therefore, the trial court's findings of fact will not be set aside unless "we are left with a definite and firm conviction that a mistake has been made." Arnold Murray Constr., LLC v. Hicks, 2001 SD 7, ¶ 6, 621 N.W.2d 171, 174. A trial court's conclusions of law are reviewed de novo. Id. Statutory disclosure statements essentially create a contract between the parties to a land sale. Therefore, the statements are reviewed de novo and we apply the customary rules associated with the construction and interpretation of a contract. Mahan v. Avera St. Luke's, 2001 SD 9, ¶ 15, 621 N.W.2d 150, 154.

ANALYSIS AND DECISION

[¶ 7.] While Parmelys have alleged both inadequate disclosure and fraudulent concealment, this matter is essentially based on the statutory disclosure laws found in SDCL chapter 43-4.⁵ Therefore, we will restrict our analysis to whether Hildebrands fulfilled their obligations under those statutes.

[¶ 8.] A seller of residential property is required to complete a copy of the statutory disclosure statement. SDCL 43-4-38. If the disclosure statement is filled out completely, truthfully, and in good faith, the seller will not be liable for defects in the property. Id. §§ 43-4-40, 43-4-41. However, when defects are negligently or intentionally concealed, the seller will be liable for the damages suffered by the buyer. Id. § 43-4-42.

[¶ 9.] We first interpreted the mandatory disclosure statutes in Engelhart v. Kramer, 1997 SD 124, 570 N.W.2d 550. Initially, we noted that a disclosure statement does not create a warranty by the seller to the buyer as to the condition of the property. Id. ¶ 10, 570 N.W.2d at 552 (quoting SDCL 43-4-44). We also emphasized that sellers are not strictly liable under those statutes. Id. ¶ 18, 570 N.W.2d at 554. A negligent or intentional failure to disclose known defects is required before liability attaches. Id. We concluded that:

the doctrine of caveat emptor has been abandoned in favor of full and complete disclosure of defects of which the seller is aware. We are not inferring, as Kramer suggests, that a seller must possess the expertise of a structural engineer to pass good faith muster. Nor are we suggesting that a seller will be liable for defects of which she is unaware.

Id. ¶ 20 (emphasis added). Since Engelhart, we have stated that merely putting a buyer on notice of defects is not sufficient, known defects must be revealed truthfully and in good faith. Parmely, 1999 SD 157, ¶ 9, 603 N.W.2d at 716.

[¶ 10.] Parmelys claim that Hildebrands did not disclose all the defects of which they were aware. They allege Hildebrands knew the repairs to the house did not cure the expansive soil problem, but yet Hildebrands represented in the addendum that the repairs had cured the predicament. As support for their assertion, Parmelys point to Tom's deposition, where he testified that he knew the expansive soil still existed under his house and that the potential for problems existed, even after the renovations to the house. Parmelys allege that statement conflicts with the assertion in the addendum that the problems had been repaired.

[¶ 11.] Sellers of residential real property must disclose all known defects on the property. Engelhart, 1997 SD 124, ¶ 20, 570 N.W.2d at 554. Pursuant to this duty, Hildebrands completed two statutory disclosure statements. On both disclosure statements, Hildebrands noted that expansive soil was an "existing hazardous condition" (emphasis added). Hildebrands also disclosed cracked walls...