Tort/Negligence –  Real Property Sale – Water Damage – Fraud

The plaintiff-buyers’ forecast of evidence indicated that the defendant-seller knew about moisture-intrusion damage to their house, paid a painter to paint over the damage, and failed to reveal the damage to plaintiffs; moreover, there was evidence that the seller’s real estate agent also knew about the water damage. Given plaintiffs’ evidentiary forecast, the trial court erred in granting summary judgment for these defendants as to plaintiffs’ fraud claims.

We affirm summary judgment for defendants as to plaintiffs’ causes of action alleging (1) negligence against plaintiffs’ agents; (2) negligent misrepresentation against plaintiffs’ agents and the defendant-seller’s agents; (3) unfair and/or deceptive trade practices, against the seller, defendant Bell (a 50-percent owner of the seller), and the seller’s agents; (4) breach of contract, against Bell; (5) breach of the implied covenant of good faith and fair dealing, against the seller and Bell; and (6) personal liability, against Bell. We reverse summary judgment for defendants as to plaintiffs’ causes of action alleging (1) negligence against the seller’s agents; (2) negligent misrepresentation against the seller and Bell; (3) breach of fiduciary duty against plaintiffs’ agents; (4) fraud and fraud in the inducement against the seller, Bell, and the seller’s agents; and (5) fraud by concealment, against the seller, Bell, and the seller’s agents, all of which we remand for further proceedings.

Plaintiffs agreed to buy a house on Oak Island from the defendant-seller. In the seller’s Disclosure Statement, the seller’s owners, Bell and defendant Durham, disclaimed knowledge of water damage to the house. Plaintiffs’ real estate agents, defendants Rudd-Gaglie and Goodman, recommended a home inspector, who found no evidence of water damage.

Plaintiffs bought the house and subsequently found significant water damage.

Seller’s Agents

The seller was represented in the sale by defendants Re/Max Community Brokers and Robert Carroll (seller’s agents).

Because a seller’s agent only has a duty to disclose material facts that are known to him, we reject plaintiffs’ theory that the seller’s agents were negligent in failing to discover defects and to disclose “ascertainable material facts.”

In addition, the seller’s agents owed plaintiffs no duty to ensure that the house was in any particular condition at the time of closing, so they were not liable with respect to the quality of any repair work.

The seller’s agents were not negligent by merely passing along the seller’s Disclosure Statement to plaintiffs, where the Disclosure Statement only set forth representations regarding the seller’s (and its representatives’) actual knowledge.

However, the seller’s agents did not tell plaintiffs about the previous water-intrusion issues or the circumstances surrounding a painter’s purported repairs. The painter told the seller’s agents that he “may have found” a leak at a residence and “hope[s]” that he repaired it. Under these circumstances, the question of the materiality of these facts must be answered by a jury.

Plaintiffs’ Agents

Because plaintiffs agreed to limit the scope of their agents’ duties within a valid contract, plaintiffs’ negligence and negligent misrepresentation claims against their agents are barred by the economic-loss rule.

Rudd-Gaglie and Goodman were not parties to the Exclusive Buyer Agency Agreement between plaintiffs and the defendant Rudd Agency and therefore lacked privity of contract with plaintiffs. However, where Rudd-Gaglie and Goodman’s purported negligence in discovering and disclosing the purported defects to the house to plaintiffs was clearly related to the essence of the Rudd Agency’s contract with plaintiffs to represent them in their efforts to purchase the house, and the harm plaintiffs allegedly suffered was that they did not get the benefit of their bargain with the Rudd Agency, plaintiffs may not avoid the application of the economic-loss rule to its claims against Rudd- Gaglie and Goodman in their individual capacities.

Negligent Misrepresentation

The record tends to show that the seller and Bell (1) were aware of significant water-intrusion issues; (2) did not hire anyone besides a painter to repair those issues; and (3) thereafter represented to plaintiffs that they were not aware of any water-intrusion issues at the house before closing on the sale thereof. Although the seller and Bell argue that the painter “fully repaired” the water-intrusion issues, the record raises a genuine issue of material fact regarding whether hiring a painter to repair the water-intrusion issues was reasonable.

The evidence demonstrates a genuine issue of material fact as to whether the inspector’s inspection amounted to the exercise of reasonable diligence, particularly because defendants’ alleged efforts to conceal the water-intrusion issues might have caused plaintiffs to forego moisture testing and more reasonably rely upon the Disclosure Statement where plaintiffs otherwise might not have.

Summary judgment for the seller and Bell was not appropriate on plaintiffs’ negligent-misrepresentation claim.

Breach of Fiduciary Duty

Although plaintiffs’ agents attempted to limit their duties to plaintiffs via contract, a real-estate agent is required to make a full and truthful disclosure to the principal of all facts known to him, or discoverable with reasonable diligence and likely to affect the principal.

Plaintiffs focus on two acts that allegedly breached the fiduciary duty owed to them: (1) their agents’ failure to request and obtain the property manager’s maintenance records for the house, which allegedly demonstrate a history of moisture intrusion and other defects to the house and (2) plaintiffs’ agents’ hiring of Jeff Williams to inspect the house, because Williams did not perform a moisture test, which plaintiffs allege was “usual and customary.”

Whether a moisture test is “usual and customary” for a home inspection is not clear to us from any authorities cited by the parties, and we are therefore unable to conclude that Williams’ failure to conduct such a test was unobjectionable.

Plaintiffs had the right to rely upon their agents’ investigation and were not required to conduct their own. Therefore, we are unable to say whether, as a matter of law, plaintiffs’ agents performed in keeping with the applicable standard of care when they failed to request the maintenance records and hired Williams to inspect the house.

Accordingly, there exist genuine issues of material fact as to whether plaintiffs’ agents breached their fiduciary duties to plaintiffs.

Breach of Contract

Plaintiffs have cited no authority for the proposition that a false representation in a disclosure statement constitutes a breach of a real estate sales contract.

Fraud

The record reflects a genuine issue of material fact regarding whether the seller and Bell were aware of unrepaired water- intrusion issues at the house at the time the seller furnished the Disclosure Statement to plaintiffs representing that the seller (through Bell and Durham) was unaware of such issues. The question of whether a painter’s purported repair of a leak eliminated Bell and Durham’s knowledge regarding the water- intrusion issues is appropriate for a jury to decide as a matter of fact.

Non-disclosure of Water Intrusion and Repairs

Because the seller, Bell, and the seller’s agents dispute neither (1) that they were aware of the previous water-intrusion issues at the house and the circumstances surrounding the painter’s purported repair work nor (2) that they did not disclose those facts to plaintiffs, the question is whether these four defendants had a duty to disclose those facts. These are questions for a jury to decide. 

Affirmed in part, reversed in part.

Dissent

(Arrowood, J.)  I dissent from that portion of the majority’s opinion that reverses summary judgement with respect to any claim against either plaintiffs’ or the seller’s real estate agents.

Plaintiffs’ real estate agents reasonably relied on Williams’ assessment of the house. 

As for the seller’s real estate agent, the evidence shows Carroll was told that the leak was repaired and he did not see any signs of water intrusion thereafter. 

Cummings v. Carroll (Lawyers Weekly No. 011-055-20, 56 pp.) (Allegra Collins, J.) (John Arrowood, J., concurring in part & dissenting in part) Appealed from Brunswick County Superior Court (Alma Hinton, J.) Christopher Chleborowicz and Elijah Huston for plaintiffs; Ryal Tayloe, Alex Dale, Clay Allen Collier, Stuart Stroud and Kimberly Connor Benton for defendants. N.C. S. Ct.