Hubbard Family Trust, et al. v. TNT Land Holdings, et al. Case Study Part I

I recently had occasion to read a decision issued  by the Ohio Fourth Appellate District concerning seller and agent liability to a buyer for property defects.  The narrative of the facts reads like a typical residential transaction but the end result was more than a quarter million dollar judgment against the seller and yet undetermined damages against the brokerage/agent.  The case is captioned the Hubbard Family Trust, et al. v. TNT Land Holdings, et al. and was decided in February of 2014. The Court’s holding illustrates the importance of disclosure of property defects and the residential property disclosure form.  Tomorrow’s post will discuss issues raised in this case relating to adherence to corporate formalities and broker/agent liability.

The Parties.

TNT Land Holdings or “TNT” was the seller of the property and Marie Hoover was the principal of TNT and former owner of the property.  Both TNT and Hoover were named defendants .  TNT and Hoover were represented in the transaction by Realtec Real Estate and Angela Shanks, who also were named defendants.  The plaintiff buyer was the Hubbard Family Trust or “Hubbard”.

The History.

In March 2007, Realtec/Shanks listed the subject property and subsequently entered into a purchase agreement with a couple referred to as the Marions.  During inspections, the Marions discovered defects which Shanks reduced to writing and proposed their repair as an addendum to the purchase agreement.  Among the defects the Marions requested be repaired were condensation on turret windows, settling of doors and spiral staircase pad and settling in corner of master bedroom.  TNT/Hoover rejected the addendum and the purchase contract terminated.

Subsequently, Hoover repainted the exterior of the property, installed retaining walls at the rear slope of the property, installed new turret windows, replaced the concrete pad behind the turret room and replaced the garage floor.

Hubbard Transaction.

When Hubbard first viewed the property the repair work was still ongoing.  Hubbard toured the property multiple times with Shanks, an architect and members of his family.  Hubbard entered into an “as/is” purchase contract to buy the property but did not avail himself of the inspection contingency.  Hubbard was represented by Realtec/Shanks as dual agents.  The transaction closed and a Hubbard relative began living in the property.

The Lawsuit.

Less than a year after closing, the Hubbard’s relative noticed the deck shifted, sidewalk cracked and a large crack appeared in the yard.  Hubbard’s engineer advised that the land was settling toward a lake.  Hubbard’s engineer opined that Hoover’s repairs were designed to conceal the structural defects and filed suit.  The jury award Hubbard a judgment against TNT and Hoover of $284,357.86 in compensatory damages, punitive damages and attorney’s fees.

The Appeal.

On appeal, TNT/Hoover argued that the “as/is” clause in the contract shields them from liability for non-disclosure.  The Court ruled that the clause does not shield a seller from liability if the seller positively misrepresents or conceals defects.  In evaluating whether there was evidence that TNT/Hoover positively misrepresented or concealed defects, the Court looked at how Hoover completed the Residential Property Disclosure Form or “RPDF”.    The Court ruled that a variance between the seller’s representations and the truth may be the basis for a fraud claim. Another way, the “as/is” clause is inapplicable if the RPDF contains misrepresentations.

On the RPDF, Hoover represented she had no actual knowledge of any movement, shifting, deterioration, material cracks/settling, grading, erosion or other material problems with the property.  In considering evidence produced at trial from Hubbard’s expert, the Marions’ remedy request and the Hoover repairs, the Court found that the defects were not discoverable by a reasonable inspection (or they were latent defects) and Hoover’s representation on the RPDF were fraudulent.  The Court went on to indicate that Hoover even failed to provide Hubbard with the list of defects discovered in the failed transaction with the Marions, which if provided would likely have prompted Hubbard to inspect the house further.

Lesson Learned.

The case illustrates the importance of fully and completely disclosing the true and accurate condition of the property to any buyer.  This includes disclosing prior negative inspection results, even if the seller has repaired the defects.  It also includes the requirement of fully disclosing on the RPDF all information that is within the seller’s actual knowledge.  Although Hubbard did observe repair work being completed at the property, he was denied information regarding the full scope of the work or the fact that the work resulted in concealment of the true property defects.

Stay tuned.

Next post will discuss the Court’s dealing with corporate formality issues and broker/agent liability.