Obde v. Schlemeyer

Supreme Court of Washington · 1960 · Contracts

ContractsFraudulent concealmentVendor disclosure dutiesDamagesfraudulent concealmentnondisclosurelatent defectstermite infestation

Facts

The Schlemeyers discovered substantial termite infestation shortly after purchasing the apartment house in April 1954 and hired a pest-control specialist, Senske. Senske advised that complete treatment required additional work in the basement apartment area and regular inspections for a year, but Schlemeyer declined the added expense, and Senske gave no assurance or guarantee of success. When the Schlemeyers sold the property to the Obdes in November 1954, there was no easily apparent surface evidence of termite damage, and the Obdes were not told of the infestation. After taking possession, the Obdes discovered termites, later learned that the sellers had known of the condition, and sued for damages rather than rescission.

Issue

Does a seller of real property have a duty to disclose to an arm's-length purchaser a known latent termite infestation that is not discoverable by reasonable inspection, even when the purchaser asks no questions? If so, may the purchaser recover damages for fraudulent concealment despite continuing payments for a time and later defaulting on an assumed contract?

Rule

Where a seller knows of a concealed defect in real property that is serious or dangerous, unknown to the purchaser, and not discoverable by a careful reasonable inspection, the seller has a duty to disclose it before sale; failure to do so is fraudulent concealment. In an action for damages for fraud, affirmance of the contract or the buyer's later default does not bar recovery, and damages are measured by the difference between the property's actual value and the value it would have had absent the concealed condition.

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

In Tacoma, Nora Kim sold a three-unit wood-frame rental house to Daniel Ruiz in an arm's-length sale. Six months earlier, Nora had learned from a pest specialist that beetles were actively destroying concealed support beams behind finished walls, that the condition could threaten structural stability, and that no surface signs would be visible after patching; she said nothing, and Daniel's ordinary pre-purchase walkthrough revealed nothing unusual.

If Daniel sues Nora for fraudulent concealment after discovering the infestation, which is the best result?

Explanation. The majority held that an arm's-length vendor of real property has a duty to disclose a known concealed defect that is serious or dangerous and not discoverable by careful reasonable inspection. Silence under those circumstances amounts to fraudulent concealment, even if the purchaser asked no questions. (Derived from Obde v. Schlemeyer (n.d.).)