The return of the Pink Panther or Johnson v. Davis, redux.

• Author: Parker, Whilden S.
• Position: Caveat emptor in residential real estate transactions - Florida

You may be old enough to recall the Pink Panther movie scene when Peter Sellers, as Inspector Clouseau, prompted by his observation of a large dog lying on the lobby floor, prudently inquired of the innkeeper prior to entering the lobby, "Does your dog bite?" The innkeeper's laconic response was "no!" Whereupon the hapless detective entered confidently only to be set upon and soundly bitten by the aforementioned dog. After extricating his body parts from the canine jaws, the inspector confronted the innkeeper with, "I thought you said your dog did not bite," to which the innkeeper replied with indifference, "That isn't my dog."

Whether that scene illustrates the old rule of caveat emptor is certainly open for a difference of opinion.

In 1985, the Florida Supreme Court announced a new rule of law to replace the venerable rule of caveat emptor, at least with regard to residential real estate transactions. Johnson v. Davis, 480 So. 2d 625 (Fla. 1985), was, indeed, one of those decisions unarguably entitled to be included in the list of those anointed as "landmark." While the court's relevant holding is succinct and pithy, some recitation of the facts would appear to be helpful before applying the new rule.

It seems that Mr. and Mrs. Davis had offered to buy the three-year-old house that Mr. and Mrs. Johnson had offered for sale, and the agreed price was $310,000. After the contract signing but before the closing, the Johnsons had made statements apparently intended to reassure the Davises with regard to evidence of possible roof damage. Specifically, the Davises had inquired about some plaster damage around a window frame and some stains on the ceiling in a couple of rooms. Mr. Johnson had advised Mr. Davis that the window had had a "minor problem that had long since been corrected," and that the ceiling stains were wallpaper glue. The Johnsons had also affirmatively advised that there were "no problems with the roof." The contract contained a provision, which the court described as "crucial," by which the buyer could, prior to closing, inspect the roof and repair damage at the seller's expense.

Subsequently, while the sale had not been completed, the buyers had paid all of their deposit and the sellers had vacated the premises. Several days later, in the wake of heavy rainfall, the Davises discovered significant roof leaks which they were advised could be alleviated only by the installation of a new roof at a cost of $15,000.

The Davises, without making demands under the "roof inspection clause," sued the Johnsons for rescission of the contract and return of their deposits, alleging breach of contract, fraud, and misrepresentation. The court, citing its prior decision in Besett v. Basnett, 359 So. 2d 995 (Fla. 1980), agreed that there had indeed been a misrepresentation that amounted to fraud and ordered the return of the deposit money, but refused to grant rescission. The court stated, 480 So. 2d at 628:

[T]he Davises' reliance on the truth of the Johnsons' representation was justified and is supported by this Court's decision in Besett v. Basnett, 389 So. 2d 995, where we held "that a recipient may rely on the truth of a representation, even though its falsity could have been ascertained had he made an investigation, unless he knows the representation to be false or its falsity is obvious to him."

However, although unnecessary to its decision in favor of the Davises, the court also created an entirely new cause of action when it stated:

[W]e hold that where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.

480 So. 2d at 629.

Even though the Davises had made a case for fraud, neither they nor subsequent buyers of residential property would henceforth be required to prove the elements of fraud in order to obtain relief. They need only prove that the sellers knew of and failed to disclose that there had been material problems with the roof There is no requirement to prove that the nondisclosure is either fraudulent or negligent, Billian v. Mobil Corporation, 710 So. 2d 984 (4th DCA 1998). In that case the Fourth District held that

[o]ther than requiring that the seller of a home have knowledge of facts materially affecting the value of the property at the time the contract is formed, Johnson does not specify any state of mind element with regard to the act of non-disclosure for the cause of action it identifies.... If the facts of a case give rise to a duty to disclose under Johnson, the seller's state of mind motivating the failure to disclose is immaterial; the forgetful or unsophisticated seller is just as liable as the knowing dissembler.

Id. at 988.

Caveat emptor go hence and never again mislead unwary buyers by standing silent in front of latent defects (and perhaps dogs that bite).

The new cause of action (now referred to by practitioners as a "Johnson...