Ollerman v. O'Rourke Co.

Supreme Court of Wisconsin · 1980 · Torts

TortsMisrepresentationReal estate nondisclosureIntentional misrepresentationintentional misrepresentationnondisclosuresilence as misrepresentationreal estate seller

Facts

The buyer alleged that he purchased a vacant residential lot from the seller, a corporation engaged in developing and selling real estate, to build a house. During excavation, an uncapped underground well was discovered and released water, causing added water-control, redesign, and construction expenses. The buyer alleged he was inexperienced and unfamiliar with the area, that the well was hidden from view, and that he would not have bought the lot or would have paid less had he known of the well. He further alleged the seller knew of the well and intentionally failed to disclose it to induce the sale.

Issue

Does an amended complaint state a claim for intentional misrepresentation when it alleges that a subdivider-vendor of a residential lot failed to disclose a hidden underground well to a non-commercial purchaser? Relatedly, were the buyer's allegations of damage sufficient to survive a motion to dismiss?

Rule

Silence is not actionable as intentional misrepresentation unless the seller has a duty to disclose. A subdivider-vendor of a residential lot has a duty to a non-commercial purchaser to disclose facts known to the vendor, material to the transaction, and not readily discernible to the purchaser. A fact is known if the vendor has actual knowledge or acts in reckless disregard of its existence; a fact is material if a reasonable purchaser would attach importance to it, or if the vendor knows or has reason to know that this purchaser would regard it as important.

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

Lakeview Development Group subdivides land outside Madison, Wisconsin, and sells individual residential lots to the public. Nina Patel, a first-time homebuyer with no construction experience, buys one lot to build a house; months later excavation reveals a buried concrete cistern that Lakeview knew about and that could not be seen from the surface.

If Nina sues for intentional misrepresentation based solely on Lakeview's silence, which is the strongest argument that her complaint states a claim?

Explanation. The majority adopted a narrow duty: a subdivider-vendor of a residential lot must disclose facts known to it, material to the transaction, and not readily discernible to a non-commercial purchaser. When such a duty exists, nondisclosure is treated as the equivalent of a representation that the fact does not exist. The rule is not a general duty applicable to every land sale or every defect.