Ramos v. Holmberg
| Decision Date | 26 February 1976 |
| Docket Number | Docket No. 22880 |
| Citation | 241 N.W.2d 253,67 Mich.App. 470 |
| Parties | Philip RAMOS and Julia Ramos, Plaintiffs-Appellants, v. C. E. HOLMBERG et al., Defendants, and Jack M. Ranck and Helga A. Ranck, Defendants-Appellees. 67 Mich.App. 470, 241 N.W.2d 253 |
| Court | Court of Appeal of Michigan — District of US |
[67 MICHAPP 472] David W. Sinclair, Detroit, for plaintiffs-appellants.
Clifford H. Weiler, Lansing, for Rancks.
Russel A. Lawler, Lansing, for Holmberg/Flury.
Clinton Canady, III, Lansing, for Saylors.
Before McGREGOR, P.J., and D. E. HOLBROOK, Jr. and KELLY, JJ.
The Ramoses purchased a used house in Stockbridge from the Saylors in July, 1973. Four years earlier the Saylors had purchased the property from the Rancks on a land contract. All the negotiations that the Ramoses conducted about the 'purchase' of the house were with the Saylors and Holmberg, a real estate agent with whom the Saylors listed the house. The Rancks only entered the transaction as vendors of the Saylors' land contract. Their consent to an assignment of the land contract to the Ramoses [67 MICHAPP 473] was necessary to relieve the Saylors of liability on the contract.
The day that the Ramoses moved into the house the ceilings in the kitchen, the dining area and two bedrooms fell in. Subsequent investigation revealed that the ceilings were damaged when the old furnace in the house had blown up two to three years previously. In an effort to cover the damage, ceiling tile had been stapled to the old ceiling. In their deposition, the Saylors stated that the Rancks knew of this condition.
Shortly after moving in the Ramoses were forced to evacuate their newly purchased house because of the stench from the discharge of sewage into the basement. Investigation disclosed that the building's sewage emptied through a drain pipe to a nearby creek rather than to the village sanitary sewer system. 1 The person who sold the property to the Rancks testified in a deposition that he told the Rancks that he had installed the pipes to the creek. However, all notices concerning the hookup from the village were sent to the Saylors, not the Rancks. 2
Subsequently the Ramoses filed suit against all the defendants. They alleged that the defendants had breached an implied warranty of habitability and that they had been defrauded and deceived by the failure to disclose the defects. The Rancks filed a motion for summary judgment under GCR 1963, 117.2(1), stating that they owed no duty to disclose any information to the plaintiffs. The trial court [67 MICHAPP 474] granted the Rancks' motion for summary judgment and the plaintiffs have appealed as of right.
The first question we must confront is whether a land contract vendor owes a duty to disclose material defects in the property being sold by the land contract vendee. This Court has refused to impose a similar duty on mortgagees. Jeminson v. Montgomery Real Estate & Co., 47 Mich.App. 731, 210 N.W.2d 10 (1973), Lv. granted, 390 Mich. 788 (1973). However, the case for holding a land contract vendor liable is stronger. In the case of a mortgage, the mortgagee only receives a lien on the property. Furthermore, in many cases there is private or governmental insurance to pay off the debt if the mortgagor is unable to. Thus the mortgagee is not inclined to view the property as his only source of protection in case of default. Jeminson v. Montgomery Real Estate & Co., supra at 738--739, 210 N.W.2d 10. On the other hand, with a land contract the vendor retains legal title to the premises. The vendor has only the property as security so there is a greater likelihood that he will take an interest in how the vendee maintains the property. Cf. Sokolowski v. Peoples Savings & Loan Association of Battle Creek, 23 Mich.App. 609, 614, 179 N.W.2d 197 (1970).
Even though the land contract vendor has a greater interest in the property in sales by the vendee than a mortgagee does, like the mortgagee the land contract vendor is not a necessary party to a sale of the vendee's interest. It is possible for the original vendee and the new purchaser to enter into a new land contract and leave the initial contract in force or that the new purchaser will pay cash and eliminate the contract. In such a [67 MICHAPP 475] situation, to hold the land contract vendor liable for defects in the property would render him an insurer without giving him any reasonable opportunity to prevent the loss. Jeminson v. Montgomery Real Estate & Co., supra, 47 Mich.App. at 739--740, 210 N.W.2d 10. Mortgage Associates, Inc. v. Monona Shores, Inc., 47 Wis.2d 171, 177 N.W.2d 340, 350 (1970).
Similarly, the fact that the original land contract vendor enters the transaction should not give rise to automatic liability. In many cases, the only act that is required for the land contract vendor to perform is consent to the assignment of the contract, thereby relieving the selling vendee of further liability under the land contract. To perform this act it is not necessary for the land contract vendor to know of the condition of the premises. In such a situation, his basic concern is with the financial acceptability of the new purchaser since his consent to the assignment operates as a novation as to the vendee's liability. Chicago Boulevard Land Co. v. Nutten, 268 Mich. 541, 256 N.W. 541 (1934). Furthermore, it is often the case that the land contract vendor does not have the opportunity to know of defects in the premises since he has parted with control over the premises some time previous.
However, if the original land contract vendor does know of the defective conditions a different situation arises. When he has actual knowledge of the defective conditions the land contract vendor may be held responsible. He can gain this knowledge in various ways, such as from observations he has made while in control of the premises or from discussions with the vendee or through observations made while visiting the vendee.
Before the land contract vendor should be held liable though, he must have an obligation to disclose[67 MICHAPP 476] the information that he has. If he takes an active part in the negotiations leading up to the basic transaction this obligation will arise. In such a case the land contract vendor is acting in more than a financial capacity. See Connor v. Great Western Savings & Loan Ass'n, 69 Cal.2d 850, 73 Cal.Rptr. 369, 447 P.2d 609, 39 A.L.R.3d 224 (1968). It will also arise if the purchaser directly inquires of the original vendor as to the condition of the premises. If the land contract vendor does not truthfully answer such an inquiry to the best of his knowledge, then he has aided and abetted a fraud on the purchaser. Sweet v. Shreve, 262 Mich. 432, 433, 247 N.W. 711 (1933); Hubar v. Hartman Finance Corp., 256 Mich. 602, 604, 240 N.W. 77 (1932).
Plaintiffs also claim that used homes should be covered by an implied warranty of habitability. In this state new homes are covered by an implied warranty of habitability. Weeks v. Slavik Builders, Inc., 24 Mich.App. 621, 180 N.W.2d 503 (1970), Aff'd, 384 Mich. 257, 181 N.W.2d 271 (1970). The doctrine of implied warranty has been applied to used goods. Kaufman v. Katz,356 Mich. 354, 365--367, 97 N.W.2d 56 (1959).
While it may seem logical to apply the implied warranty concept to used housing, we need not decide this issue in this case. An implied warranty runs from a seller to those in privity with them. Cf. M.C.L.A. § 440.2318; M.S.A. § 19.2318. However, privity of contract is not required in Michigan. Bahlman v. Hudson Motor Car Co., 290 Mich. 683, 694, 288 N.W. 309 (1939); Schultz v. Tecumseh Products, 310 F.2d 426, 429 (CA 6, 1962). But in this case the [67 MICHAPP 477] Rancks are not the sellers. To hold the Rancks liable would flout the principle behind the theory of implied warranties: namely, to encourage parties to eliminate dangers. While the Saylors lived in the house the Rancks had no opportunity to eliminate dangerous conditions.
Having established that the Rancks owed the Ramoses a legal duty to disclose defects that they knew of if they took an active part in the negotiations or if they falsely answered questions put to them by the Ramoses concerning the conditions of the premises, we now turn to the final question. Was the summary judgment properly granted under GCR 1963, 117.2(1)? In determining if summary judgment was properly granted we look only at the pleadings. We also consider as true every well pleaded allegation contained in the plaintiffs' complaint. Bielski v. Wolverine Insurance Co., 379 Mich. 280, 283, 150 N.W.2d 788 (1967); Blurton v. Bloomfield Hills Board of Education, 60 Mich.App. 741, 742, 231 N.W.2d 535 (1975).
In reviewing plaintiffs' complaint we find allegations that the Rancks knew of the defects in both the sewer system and the ceiling. We also find there are allegations that the Rancks took part in the transaction to some formal minimum degree. However, we fail to find any allegation that the Ramoses questioned the Rancks at all about the condition of the house or that the Rancks assumed an active part in the general negotiations about the purchase of the house. Since the plaintiffs have failed to...
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