Section 10 Cases in Which Buyers Prevail

• Library: Consumer Law and Practice 2010

The sellers are well-advised to take seriously their obligation to truthfully complete the disclosure statements that are made a part of almost all home sale contracts, as the cases discussed below show. In addition to Colgan v. Washington Realty Co., 879 S.W.2d 686 (Mo. App. E.D. 1994), discussed in § 3.9 above, the buyers prevailed in the following cases.

In Groothand v. Schlueter, 949 S.W.2d 923 (Mo. App. W.D. 1997), the sellers sued for specific performance of a sale contract and, after selling the home to a third party, amended the petition to claim damages. The buyers defended on the ground that the sellers had fraudulently failed to disclose defects in the home. The sellers had sued the prior owners of the home for fraudulently misrepresenting the condition of the home. The buyers learned of the prior lawsuit when counsel for the prior sellers, who had done legal work for the buyers in the past, contacted them and told them that he had represented the prior owners in the prior suit and provided them with a copy of the seller's deposition from the prior case. Apparently, the defects in the home were serious - there was a massive crack that ran the entire length of the house, causing a gap to open in the roof, and there were major cracks in the walls. In the transaction at issue, the sellers had disclosed to the buyers that there had been a structural problem that they stated they had fixed and denied any settling problems or repairs to the roof. Upon learning of the prior suit before closing, the buyers gave notice that they were rescinding the contract and would not close.

The court held that buyers were within their rights:

A party who is fraudulently induced to enter a contract may either (1) affirm the contract and sue at law for damages, or (2) disaffirm the contract and sue in equity for rescission. . . . Under the first option - affirming the contract and suing at law for damages - a party is suing in tort for fraudulent misrepresentation, and must establish [the elements of fraud, stating the elements].

When a party instead chooses the second option . . . - to disaffirm the contract and sue in equity for rescission - there are fewer elements to prove.

Id. at 927. The court stated that a party to a contract can rescind based on either intentional or innocent misrepresentation - and when rescission is sought on the basis of misrepresentation, "[t]here is no requirement that the party prove the speaker's knowledge of the falsity or intent to cheat or defraud." Id.

The final issue in Groothand was whether the defects were "patent" - such that the buyers had no right to rely on the seller's misrepresentations - or "latent" and whether the buyers' independent investigation of the house negated their right to rely on the sellers' misrepresentations. Examining the record, the court found that the defects were latent and not patent. In addition, the...