Wolford v. Freeman

Supreme Court of Nebraska · Contracts

ContractsFraudRescissionReal Estate SalesConcealment of Material Factsfraudulent concealmentrescissionlatent defects

Facts

Defendant built and later sold a house that rested on filled earth with a faulty and insufficient foundation, while knowing facts showing the soil condition and using piling because he suspected the ground was not solid. After a prior buyer rescinded when the house settled and cracked, defendant repaired visible cracks, relisted the property, did not disclose the true soil and foundation condition to his agent or plaintiff, and plaintiff was told the cause of the settling had been corrected and that no further cracking need be feared. The purchase contract included a clause stating that purchaser had been advised as to settling of the structure and was buying it "as is." After plaintiff bought the property, new and worsening cracks appeared, test holes showed filled earth to depths of 20 to 22 feet, and plaintiff demanded rescission.

Issue

Whether plaintiffs were entitled to rescind the real-estate purchase for fraud where defendant knowingly concealed a latent, material foundation defect caused by filled ground and the contract stated that the purchaser had been advised of settling and was buying the property "as is."

Rule

A vendor commits actionable fraud, supporting rescission, by intentionally concealing or suppressing a material fact that he is in good faith bound to disclose, especially where the fact is known to the vendor, is not within the reach of the purchaser's reasonably diligent attention, observation, and judgment, and would mislead the purchaser as to the true condition of the property. A principal is liable for misrepresentations made by an agent in the transaction as if made by the principal. A contractual inspection or "as is" provision does not relieve a vendor or agent from responsibility for fraudulent representations or concealment.

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

In Lincoln, Nebraska, Dana Mercer sold a duplex to Eli Navarro. Dana knew that one side of the building rested over a buried, decomposing tree pit that caused intermittent shifting, but after patching visible drywall cracks she said nothing about the subsurface condition, which could not be discovered by ordinary walk-through inspection.

If Eli seeks rescission after major structural movement appears, what is the strongest basis for relief?

Explanation. The majority rule is that intentional concealment or suppression of a material fact the vendor is bound in good faith to disclose constitutes actionable fraud. The key points are that the fact was material, known to the seller, latent, and not within the reach of the buyer’s reasonably diligent attention, observation, and judgment. Fraud can arise through concealment, not only through express words. (Derived from Wolford v. Freeman (n.d.).)