Gibb v. Citicorp Mortgage, Inc.

Nebraska Supreme Court · Contracts

ContractsFraudNegligent MisrepresentationBreach of ContractAs-Is ClausesDisclaimer ClausesAgencyfraudulent misrepresentation

Facts

According to the petition, Citicorp acquired a house through foreclosure after the prior owner abandoned it because of extensive termite infestation and damage. Citicorp's selling agent had been informed by a termite service that the property appeared extensively damaged and should be assessed by a qualified building inspector, but Citicorp instead treated the termites and shored up only visible damage. Before the sale, the agent showed Gibb one damaged area and stated it was the only termite-damaged area and that all necessary repairs and treatments had been made, while Citicorp allegedly knew additional nonvisible damage existed and concealed it. The purchase agreement stated the sale was based on Gibb's own inspection, disclaimed representations and warranties, sold the property strictly as is, and required a wood-destroying-insect inspection at Gibb's expense, which Gibb alleged Citicorp failed to obtain.

Issue

Whether Gibb's petition stated causes of action for fraudulent misrepresentation, fraudulent concealment, negligent misrepresentation, and breach of contract despite the purchase agreement's disclaimer and as-is clauses. Also, whether Citicorp could avoid liability at the pleading stage by arguing its agent lacked authority or that Gibb had equal access to the relevant information.

Rule

To plead fraudulent misrepresentation, a plaintiff must allege a false representation known to be false or made recklessly, intended to induce reliance, with reasonable reliance and resulting damage. To plead fraudulent concealment, a plaintiff must allege concealment of a material fact known to the defendant, not within the plaintiff's reasonably diligent attention, observation, and judgment, made with intent to mislead, with reasonable deception and resulting damage. Nebraska specifically adopts Restatement (Second) of Torts § 552 for negligent misrepresentation: one who, in the course of business or in a transaction with a pecuniary interest, supplies false information for the guidance of others is liable for pecuniary loss caused by justifiable reliance if the person fails to exercise reasonable care or competence in obtaining or communicating the information. A disclaimer or as-is clause is relevant but not controlling on reliance and does not necessarily bar fraud-based claims, and a principal may be liable for an agent's representations within apparent authority.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Omaha, Nebraska, Lena Ortiz agreed to buy a duplex from Prairie Lantern Properties through its sales agent, Derek Vaughn. The written contract stated that Lena was relying on her own inspection, disclaimed representations about condition, and sold the duplex strictly "as is." Before closing, Derek told Lena that a visible ceiling stain came from an old leak that had been fully repaired, even though Prairie Lantern had an internal maintenance memo describing ongoing hidden rot above several rooms.

If Lena sues for fraudulent misrepresentation and Prairie Lantern demurs on the ground that the disclaimer and as-is provisions defeat reliance as a matter of law, how should the court rule?

Explanation. The majority held that a disclaimer and an as-is clause do not necessarily preclude fraudulent misrepresentation claims. They are relevant to whether reliance was reasonable, but not controlling as a matter of law where the plaintiff alleges specific false statements about the subject matter of the sale, reliance, and damage. On demurrer, those well-pleaded facts are taken as true. (Derived from Gibb v. Citicorp Mortgage, Inc. (n.d.).)