While in the house, P noticed a "ripple" in the floor and asked D if it was from termite damage. D answered that it was from water damage.
Termite inspection came back clean.
Shortly after the close, P noticed crumbling wood and other signs of termite damage.
D knew of prior infestation and termite issues. Inspector claimed he should have been told about previous issues.
P sued D to rescind the contract.
Procedural History:
Lower court granted summary judgment for D.
AZ Court of Appeals reversed, found for P, new trial.
Issues:
Must a seller of property advise the buyer of material facts within his knowledge pertaining to the value of the property?
Holding/Rule:
A seller of a property must advise the buyer of material facts within his knowledge pertaining to the value of the property.
Reasoning:
The doctrine of caveat emptor has waned in its influence recently.
The modern view is that a vendor has an affirmative duty to disclose material facts where… (Second Restatement §161)
Disclosure is necessary to prevent a pervious assertion from being a misrepresentation or from being fraudulent or material
Disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
Disclosure would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
The other person is entitled to know the fact because of the relationship of trust and confidence between them.
Although the law of contracts favors finality of transactions, it is unjust to strictly enforce the policy favoring finality in certain circumstances.
FL Supreme Court said the duty to disclose arises "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."
The inquiry by the buyers whether the ripple was termite damage imposed a duty upon sellers to disclose what information they knew concerning the existence of termite infestation in the residence.
