Hill v. Jones

Arizona Court of Appeals · 1986 · Contracts

725 P.2d 1115 (Ariz. Ct. App. 1986)

Updated July 26, 2026

Contractsduty to disclosefraudulent concealmentresidential real estate salesnondisclosureconcealmentmaterial factstermite damage

Facts

Buyers agreed to purchase sellers' residence, and the contract required a termite inspection report stating the property was free from evidence of termite infestation. Before closing, buyers noticed a ripple in the wood floor and asked if it could be termite damage; Mrs. Jones said it was water damage, and buyers relied in part on the expected termite report, which stated no visible evidence of infestation. After closing, buyers discovered termite damage and learned that sellers had long possessed termite guarantees, knew of prior termite treatment and unrepaired damage, had renewed the guarantees annually, and had experienced additional termite-related incidents during their ownership. Sellers did not disclose this history to buyers, the realtor, or the termite inspector.

Issue

Does a seller of residential property have a duty to disclose known termite damage or a history of termite infestation to the buyer when those facts materially affect the property's value and are not known to the buyer? Also, can an integration clause bar a fraud-based claim arising from the seller's statements or nondisclosure?

Rule

In the sale of a private residence, where the seller knows of facts materially affecting the value of the property that are not readily observable and are not known to the buyer, the seller has a duty to disclose them to the buyer. Nondisclosure of such material facts may be treated like fraud or misrepresentation, and an integration clause cannot shield a party from liability for fraud.

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

In Phoenix, Elena Park agreed to buy a private home from Martin and Dana Cole. Before closing, the Coles said nothing about a years-old sewer line collapse under the slab that they knew had caused recurring foundation movement; the patched interior cracks had been freshly painted and the condition was not readily observable during walkthroughs.

If Elena later sues after discovering the condition, which is the strongest argument that the sellers had a duty to disclose?

Explanation. The majority adopted the rule that in the sale of a private residence, a seller must disclose facts materially affecting the value of the property when those facts are not readily observable and are not known to the buyer. The rule is not that every prior repair must be disclosed, nor that all latent defects automatically permit rescission. The opinion did not limit the duty to immediately dangerous defects.