Loghry v. Capel

Supreme Court of Iowa · 1965 · Contracts

ContractsFraudNondisclosureReal Estate Salesfraudnondisclosureconcealmentlatent defect

Facts

Defendant purchased and developed Lot 4, built a duplex on it in 1958, rented it for about a year and seven months, and sold it to plaintiffs in 1960 through a broker without meeting them at the time of sale. Cracking in the basement and walls was later discovered, and testing and repair testimony supported findings that the duplex had been built on deep defective fill and that the fill caused the damage. Defendant admitted he knew there was some fill on the lot, had extensive construction experience, built on adjacent lots at the same time, and paid one-half of the soil testing bill after the problem surfaced. Plaintiffs testified they did not think the property was on filled ground and would not have bought it had they known.

Issue

Whether a seller who knows of a latent soil defect affecting real estate has a duty to disclose that defect to the purchaser, and whether the evidence was sufficient to support the jury's findings of fraudulent nondisclosure, including knowledge, intent, reliance, and causation.

Rule

One who sells real estate knowing of a soil defect, patent to the seller and latent to the purchaser, is required to disclose the defect. Fraud may consist of concealment of a material fact, and when a seller knows of the defect and fails to disclose it, scienter and intent to deceive may be inferred or presumed from the nondisclosure and its natural consequences.

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

In Des Moines, Owen Mercer built a small triplex on a lot he had recently purchased during development of a new subdivision. Before selling it to Leah and Nina Park, Owen knew the building sat over deep uncompacted fill from prior grading work, but the lawn surface looked ordinary and the buyers saw nothing unusual during two walk-throughs.

If the buyers later suffer major structural cracking traceable to the fill, which is the strongest argument that Owen committed actionable fraud by silence?

Explanation. The majority adopted the rule that one who sells real estate knowing of a soil defect, patent to the seller and latent to the purchaser, is required to disclose it. Because such a defect materially affects the structure, concealment by silence may constitute fraud even without a fiduciary relationship, specific inquiry, or separate affirmative misstatement. (Derived from Loghry v. Capel (n.d.).)