KENNETH MANDELL v. STEPHEN HALE, INDIVIDUALLY; STEPHEN HALE, EXECUTOR OF THE ESTATE OF MARTHA W. HALE, DECEASED
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RENDERED:
October 12, 2001; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2001-CA-000480-MR
KENNETH MANDELL
APPELLANT
APPEAL FROM WASHINGTON CIRCUIT COURT
HONORABLE ALLAN R. BERTRAM, JUDGE
ACTION NO. 96-CI-00065
v.
STEPHEN HALE, INDIVIDUALLY;
STEPHEN HALE, EXECUTOR OF THE
ESTATE OF MARTHA W. HALE, DECEASED
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
GUIDUGLI, MILLER, AND SCHRODER, JUDGES.
MILLER, JUDGE:
Kenneth Mandell appeals from a February 9, 2001,
summary judgment of the Washington Circuit Court.
We reverse and
remand.
In the spring of 1991, Mandell and his then wife,
Rebecca Parth Mandell, (Parth) contacted appellee Stephen Hale
(Hale) to engage him as a real estate agent to locate farm
property in Washington County.
Hale was a duly licensed real
estate agent and insurance broker.
He showed Mandell and Parth
several properties he had listed, among which was a property
called “Glenmar.”
Glenmar consisted of a home, roughly 19 acres,
and various outbuildings.
Martha Hale (Martha).
It was then owned by Hale's mother,
Hale was also acting as selling agent for
Martha.
Hale allegedly made several misrepresentations about
Glenmar.
Hale represented that Glenmar operated as a profitable
eight room bed and breakfast, grossing between $20,000.00 to
$30,000.00 per year, had eight working fireplaces, complete
central heat and air, had been restored by his father, and that
the property was not subject to frequent flooding.
On July 18, 1991, Mandell, Parth, Hale, and Martha met
at Glenmar for the purpose of signing an agreement for the
sale/purchase of Glenmar.
At this time, Mandell claims that Hale
represented that he and Martha had just completely overhauled the
water cistern, that the house was fully compliant with the
building code, and that Hale would re-roof the original house,
including the mud room and sitting room.
mother would sell Glenmar for $225,000.00.
Hale then indicated his
Hale's offer was made
contingent on Mandell and Parth making a non-refundable deposit
of $50,000.00.
Parth maintained she told Hale at this meeting
that she and Mandell would not purchase Glenmar on an “as-is”
basis and Hale agreed.
Based upon Hale's alleged
misrepresentations, Mandell and Parth agreed to purchase Glenmar
for $225,000.00.
Hale drew up a form real estate contract.
A
list of antiques in the house to be included in the sale was
incorporated by reference.
Mandell and Parth signed the
contract, and gave Hale the $50,000.00 non-refundable deposit.
After Mandell and Parth signed the contract, Hale took it to his
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office without giving Mandell and Parth a copy.
Hale gave Parth a copy of the contract.
Later that day,
Parth put the contract
in her purse without looking at it.
Prior to closing, but after tendering the nonrefundable deposit, Mandell and Parth asserted they had some
difficulty with Hale.
Hale allegedly refused a request by
Mandell and Parth to inspect the property.
Hale allegedly
provided a list of personalty removed from the house, in
contravention of the contract.
When Mandell and Parth expressed
anger at the removal of the items, Hale allegedly reminded them
of their non-refundable $50,000.00 deposit.
Also prior to
closing, Hale showed Mandell and Parth a termite inspection
indicating the house was free of termites.
The purchase of Glenmar closed August 15, 1991.
Subsequent to the closing, Mandell and Parth contended they
discovered the antiques that were to be sold with the property
either gone or rearranged.
Because the original list of antiques
was compiled room by room, Mandell and Parth were unable to
determine exactly what had been taken.
Mandell and Parth also
began to discover the extent of the alleged misrepresentations
made by Hale.
The cistern was completely clogged with mud, and was
unusable.
Hale's part-time employees allegedly advised Mandell
and Parth they were instructed to put bowl rings in each toilet,
and four or five gallons of chlorine bleach in the cistern prior
to visits by Mandell and Parth in order to mask the cistern
problems.
The water heater was filled with mud.
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The water pipes
had been laid in concrete, and could only be cleaned after jack
hammering through the concrete.
Glenmar had only 100 amps of
electricity, making it impossible to use more than one major
electrical appliance at a time.
Mandell claims the house had
live wires protruding from the walls, some of which had been
repaired with Band-Aids.
On one occasion, flames allegedly shot
out of the wall when Mandell tried to turn on a light.
had also suffered severe termite damage.
Glenmar
It was further alleged
that serious cracks in the floors had been covered by rugs, and
cracks in the walls covered by furniture.
The baseboard heating
system apparently burned the wooden baseboards.
none of the eight fireplaces worked.
heating and air conditioning.
Mandell asserts
Five of the rooms lacked
Glenmar allegedly flooded some ten
times in the first year, even during normal rains.
Though Hale
put a new roof on the house as per the contract, he allegedly did
so over rotting timbers, and without flashing.
the roof collapsed.
Two years later,
It is also alleged that Glenmar owed the
Kentucky Revenue Cabinet back taxes in the sum of nearly
$6,500.00 of which Mandell and Parth paid around $2,600.00.
When Parth telephoned Hale to inform him of the
problems with the property, Hale allegedly denied responsibility,
and asserted that, according to the contract, the property had
been sold “as-is”, no warranty, no guarantees.
Mandell and Parth
allege the contract had been materially altered by Hale's having
added the “as-is”, no warranty, no guarantees language to the
contract after they signed it.
Additionally, they allege he
changed the word “include” to “exclude” on the contract regarding
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the list of personalty that was to have been conveyed with the
real property.
On July 17, 1996, Mandell filed this action against
Hale and Martha in Washington Circuit Court.
On February 9,
2001, the circuit court granted summary judgment in favor of Hale
and Martha.
This appeal followed.
The sole issue before us is whether the circuit court
erred in granting summary judgment in favor of Hale and Martha.
Summary judgment is appropriate only where there exists no
material issue of fact and movant is entitled to judgment as a
matter of law.
Steelvest, Inc. v. Scansteel Service Center,
Inc., Ky., 807 S.W.2d 476 (1991).
In his complaint, Mandell alleged fraud, fraudulent
inducement, breach of contract, breach of warranty, breach of
fiduciary duty, breach of covenant of good faith and fair
dealing.
Mandell's allegations were also made against Martha as
having had knowledge of the circumstances surrounding the
transaction.
See Kirby v. Frith, Ky., 311 S.W.2d 799 (1958).
Concerning Mandell's allegation of fraud, the circuit
court opined that Mandell was not entitled to “rely upon [Hale's
and Martha's] representation of the future profitability of the
property.”
Fraud is a present material misrepresentation, known
to be false or made recklessly, inducing action in reliance of
another, thereby causing injury.
United Parcel Service v.
Rickert, Ky., 996 S.W.2d 464 (1999).
We agree with the circuit
court that one may not allege fraud on another's
misrepresentation of future events.
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See Campbell County v.
Braun, Ky., 174 S.W.2d 1 (1943).
We, however, observe that fraud
may lie to the extent that Hale represented Glenmar's past
profitability as a bed and breakfast.
Mandell claims Hale
represented that in prior years the bed and breakfast had grossed
between $20,000.00 and $30,000.00 per year.
Viewing these facts
most favorably to Mandell, we believe there is a material issue
of fact as to whether Hale misrepresented the past profitability
of Glenmar as a bed and breakfast, thus precluding summary
judgment upon the issue of fraud.
Concerning Mandell's allegation of fraudulent
inducement, the circuit court wrote:
[Mandell] admitted sufficient knowledge of
the transaction and the sufficient
opportunity to gain additional knowledge as
to establish the absence of fraudulent
inducement . . . .(Emphasis added).
Fraudulent inducement occurs where one party to a contract knows
that the other relies on him to disclose all material facts
thereto, but fails to so disclose, thereby causing the other
party injury.
See Faulkner Drilling Company, Inc. v. Gross, Ky.
App., 943 S.W.2d 634 (1997).
Mandell alleges numerous instances
of latent defects.
Viewing the facts most favorably to Mandell, we
believe there exists a material issue of fact as to whether
Glenmar had latent defects, thus precluding summary judgment upon
the issue of fraudulent inducement.
The circuit court dismissed Mandell's claims of breach
of contract and breach of warranty, asserting Mandell waived both
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by reading and signing the contract.
Presumably, the circuit
court relied upon language in the contract, which reads;
The parties to this contract have read its
entire contents and acknowledge receipt of a
copy. It is agreed that all terms and
conditions pertinent hereto are included in
this writing, and no verbal agreements or
understandings of any kind shall be binding
upon the parties. The BUYER has examined the
property purchased, is thoroughly acquainted
with its condition, and accepts it as such.
(Emphasis added).
It is well established that one cannot contract against his own
fraud.
Thus, if a seller of real property intentionally fails to
disclose to buyers known latent defects in the property which are
unknown to the buyers, and buyers were thus induced to purchase
the property, a clause such as that above quoted will not relieve
the sellers of fraud.
918 (1956).
See Bryant v. Troutman, Ky., 287 S.W.2d
Considering Mandell's sundry allegations of latent
defects, and construing those allegations most favorably to him,
we are of the opinion that summary judgment on the issue of
breach of contract and warranty was inappropriate.
The circuit court found that Mandell ratified the
altered contract by signing it and proceeding with the
transaction after he became aware of the alteration.
Fraud inducing a contract may be waived by
affirmance that is equivalent to ratification
of the contract by the party who claimed to
have been deceived into entering into it.
That ratification may be shown by his acts
after he acquired full knowledge of the real
facts and had shown a clear intent to affirm
the contract despite the fraud, . . . .
(Emphasis added).
Hampton v. Suter, Ky., 330 S.W.2d 402, 406 (1959).
Mandell
asserts he complained about the transaction, but was reminded by
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Hale of the non-refundable $50,000.00 deposit.
We believe this
also raises a question as to whether Mandell “clearly intended”
to ratify the contract.
Viewing the facts most favorably to
Mandell, we believe there exists a material issue of fact as to
whether Mandell clearly intended to ratify the contract, thus
precluding summary judgment on the issue of contract
ratification.
Presumably addressing Mandell's claims of breach of
fiduciary duty and covenant of good faith and fair dealing, the
circuit court wrote:
[Mandell's] failure to allege or demonstrate
the existence of any form of consideration is
fatal to his claim of breach of duty.
Fiduciary relationship exists when a party is “under a duty to
act for or give advice for the benefit of another upon matters
within the scope of the relation.”
S.W.2d 248, 251 (1963).
Lappas v. Barker, Ky., 375
A real estate broker, by virtue of the
contract with his principal, owes the principal a duty of good
faith and fair dealing.
See Crabtree v. Board of Trustees of
Immanuel Baptist Church, Ky., 512 S.W.2d 311 (1974).
It is undisputed that the contract between Hale and
Mandell included the following language: “1.
Through you as
agent [we will give] the sum of Two Hundred Twenty-Five Thousand
Dollars . . . .”
It is likewise undisputed Mandell hired Hale as
a real estate agent.
Thus, we believe, as a matter of law, Hale
and Martha owed Mandell a fiduciary duty, the only question being
whether that duty was breached.
We are baffled by the circuit
court's conclusion that the existence of fiduciary duty is
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contingent upon consideration.
We observe, however, even if
consideration were necessary, Hale stood to receive a 5%
commission on the sale of the property at closing.
Additionally,
Mandell had also given Hale a non-refundable deposit of
$50,000.00.
Thus, we believe summary judgment on the issues of
breach of fiduciary duty and covenant of good faith and fair
dealing was inappropriate.
For the foregoing reasons, the February 9, 2001,
summary judgment of the Washington Circuit Court is reversed and
the cause remanded for proceedings consistent with this opinion.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE, STEPHEN
HALE:
Kent Masterson Brown
Lexington, Kentucky
Daniel Carroll Kelly
Springfield, Kentucky
BRIEF FOR APPELLEE, MARTHA
HALE:
Dan Kelly
Springfield, Kentucky
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