James E. Wilmans, Jr. v. Guilford M. Dudley and Retha J. Dudley

Annotate this Case
ca00-013

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

JOHN B. ROBBINS, CHIEF JUDGE

DIVISION IV

JAMES E. WILMANS, JR.

APPELLANT

V.

GUILFORD M. DUDLEY and RETHA J. DUDLEY

APPELLEES

CA 00-13

NOVEMBER 8, 2000

APPEAL FROM THE JACKSON

COUNTY CHANCERY COURT

[NO. E-99-87]

HONORABLE THOMAS L.

HILLBURN, CHANCERY JUDGE

AFFIRMED IN PART;

REVERSED IN PART

James Wilmans brings this appeal from the Jackson County Chancery Court's order granting rescission of a real estate transaction to appellees Dr. Guilford Dudley and Retha Dudley. We affirm the chancellor's decision to grant rescission but reverse his award of attorney's fees to appellees.

In 1994, appellant and his wife built and moved into a new house that had exterior walls made of a type of synthetic stucco. In 1996, they separated. Appellant moved out, but Mrs. Wilmans continued to live in the house until the fall of 1998. Appellant never lived there again and, as part of their divorce decree, was responsible for selling the house. Appellees walked through the house several times before making an offer on it; they did not

have the house professionally inspected. In February 1999, appellees signed an agreement to purchase the house. The purchase agreement contained a merger clause and provided that

appellees accepted the house "as is." Appellant also provided appellees with a seller's disclosure form. Soon after appellees moved into the house, they became aware that it leaked when it rained. Appellees later learned that appellant had previously filed and released a claim with the manufacturer of the synthetic stucco, although he had not revealed this fact in his disclosure form.

Appellees sued appellant for rescission of the transaction on the basis of fraudulent misrepresentation. They alleged that appellant had made false and misleading statements in his responses to the following items on his disclosure form:

20. Has there ever been a problem with the roof, such as defective shingles, damaged shingles, leaking or otherwise? Yes.

23. Have you ever filed or made an insurance claim, warranty claim, or other claim concerning the Property? No.

32. Are you aware of any events at the subject Property which, if known to a potential buyer, could adversely affect in a material manner the value or desirability of the Property? No.

Appellant's explanation for his "yes" response to number 20 was "repaired 1997."

Mary Bratcher, appellant's real estate agent, testified at trial that another prospective buyer had pointed out a dried ring on the dining room floor that looked as if it had been caused by a water leak. She said that she had called appellant and asked him if the house still leaked and that he had said that he did not know but would ask Lannie Looney, the builder, to look at it. She said that, two or three days later, appellant told her that Mr. Looney had been to the house, had tested the surface of that area of the roof with water, and had found no signs of any leaks. She said that, when she had asked him about the spot on the floor, he replied that it could have been mop water. Ms. Bratcher said that appellees alsoraised questions about whether the house leaked after they saw what appeared to be water damage on the floor. She testified that, when appellees were deciding whether to make an offer, they wanted to know with certainty whether the house leaked. She said that, when she asked appellant about this, he refused to guarantee that the house did not leak. She stated that he said that he would not guarantee anything because he had already lost over $100,000 on the house and that the sale was "as is."

Lannie Looney testified that he had never built a house with synthetic stucco before and that a leak had developed in the dining area before the house was finished. He stated that he and the roofer had removed and replaced the concrete and added a new rubber roof over this area but that the area leaked again after they moved in. He testified that he had been unable to find the source of the leak and that the roofer had insisted that the roof was not the problem. He said that he had been called back to look at the spot in the dining room about four times and that water had leaked around the outside of the front door on another occasion. He said that he had done some more caulking and sealing around the balconies, parapet walls, windows, and doors. He also stated that he was sure that he had not been called to the house to inspect for leaks between November 1998 and February 1999. Mr. Looney further admitted that, before appellees bought the house, Dr. Dudley had called him to ask if there had ever been a leak in the master bedroom and that he had replied that he had not heard of one. He explained that he had not informed Dr. Dudley about the other leaks because he had not asked about any others.

Steve Bonds, who purchased the company that had sold the synthetic stucco, testified that appellant had made numerous complaints about the leaks and the stucco. He stated thatthere had been problems with rust spots that the manufacturer of the stucco had attempted to fix and that there had also been a delamination problem for which the manufacturer had not accepted responsibility. Mr. Bonds stated that appellant had also asked for help in finding the leaks. He said that he had written a memorandum to his file indicating that the original contractor could not find the leaks causing damage inside the house and that a lawsuit was probable. Appellees introduced into evidence a December 1997 letter from appellant to the dealer that sold the synthetic stucco in which he stated: "I have signed this Release- somewhat reluctantly, but I feel it is necessary to get the work done. I hope that if any more rust spots appear, Sto [the manufacturer] will do the right thing-as they have admitted that the original product applied to this house was flawed."

Dr. Dudley testified that leaks appeared within a few weeks after appellees moved in. First, he said, it leaked in their daughter's bathroom downstairs and it then leaked in the dining room; he stated that it also leaked inside and outside the front door. Also, he stated, there was wet carpet in the upstairs bedrooms over the dining area. He said that, before appellees made their offer, he had asked Ms. Bratcher if the house had any history of leaking and that she had replied that she would ask appellant. He stated that, when she had reported back to appellees, she had said that there were no leaks. He also said that appellant's response to number 20 on the disclosure form had caused him to call appellant and ask him if there were any problems with the house and whether the roof leaked. According to Dr. Dudley, appellant had responded that some repairmen had walked on the roof and broken some tile shingles and that he would give appellees some shingles to replace them; he said that appellant had also told him that there were no leaks. Dr. Dudley stated that he had alsocalled Mr. Looney, who had said nothing to put him on notice that there was a problem. He said that he would not have tendered an offer to appellant if he had known about the house's history of leaking. He stated that, even though appellant had refused to guarantee against leaks, he had no reason to think that the house leaked in light of the disclosure form provided by appellant.

John Worthey, an inspector for the construction industry who specializes in synthetic stucco applications, testified that he had inspected the house and found significant deficiencies in its original design that were the direct cause of many of the problems. He said that he found numerous breaches of the stucco's outer surface, which is called the lamina, and that it was cracked open everywhere. Calling it a complete failure of the system in certain areas, he stated that these cracks permitted moisture to enter the house in numerous locations. He testified that it would cost over $30,000 to repair the house.

Appellant testified that he had believed that the early leaks in the house had been fixed and that he had believed that the rust stains had been the synthetic stucco's only flaw. Pamela Wilmans, appellant's ex-wife, testified that she had thought that the leak in the dining room had been fixed but that, before she moved out, she had told appellant that the leak on the porch around the door was getting worse.

Stating that he could not believe that appellant did not know that the house still leaked when he sold it to appellees, the chancellor granted rescission of the transaction to appellees and awarded them $2,000 in attorney's fees.

Rescission

Appellant argues that appellees failed to prove that he made fraudulent misrepresentations about the house. Generally, a sale of property "as is" relieves the vendor from liability for defects in that condition. See O'Mara v. Dykema, 328 Ark. 310, 942 S.W.2d 854 (1997); Bankston v. McKenzie, 287 Ark. 350, 698 S.W.2d 799 (1985); 77 Am. Jur. 2d Vendor and Purchaser § 327 (1997). Unless the defects are patent, however, an "as is" clause does not bar an action by the vendee against the vendor based on claims of fraud or misrepresentation. Id. "Fraud and misrepresentation in the sale of real estate render the contract voidable at the option of the injured party.... A single material misstatement knowingly made by the vendor and relied on by the purchaser warrants relief." 92 C.J.S. Vendor and Purchaser § 49 (2000). In O'Mara v. Dykema, supra, the supreme court affirmed the trial court's grant of summary judgment to the vendors because the purchasers failed to demonstrate a genuine issue of material fact that the vendors had known that the synthetic stucco on the exterior walls of the house they had sold was defective or that they had falsely represented that it was not defective.

In order to prove that fraudulent misrepresentations were made, it must be shown by the party seeking rescission that the person making the representations knew them to be false or else, not knowing, asserted them to be true; that it was the first party's intent to have the other party rely on them to his injury; and that the representations were relied on. Strout Realty, Inc. v. Burghoff, 19 Ark. App. 176, 718 S.W.2d 469 (1986). Accord Croley v. Baker, 237 Ark. 136, 371 S.W.2d 830 (1963). When the plaintiff is attempting to overturn a solemn written instrument by proof that alters the written terms of the contract, he mustprove the fraudulent misrepresentations by clear and convincing evidence, otherwise the fraud need only be proved by a preponderance of the evidence. Strout Realty, Inc. v. Burghoff, supra. Clear and convincing evidence is that degree of proof which produces in the fact-finder a firm conviction as to the allegation sought to be established; it is not necessary that the evidence be undisputed to be clear and convincing, so long as it imparts a clear conviction to the mind of the fact-finder. Id.

Appellant argues that the contract's "as is" and merger clauses require reversal. We disagree. A merger clause in a contract, which extinguishes all prior and contemporaneous negotiations, understandings, and verbal agreements, is simply an affirmation of the parol evidence rule. Farmers Coop. Ass'n v. Garrison, 248 Ark. 948, 454 S.W.2d 644 (1970). Parol evidence, however, is admissible to show fraudulent inducement to contract. See Sellers v. West-Ark. Constr. Co., 283 Ark. 341, 676 S.W.2d 726 (1984). A merger clause will not prevent a party from showing that he or she was fraudulently induced to enter the contract. 92 C.J.S. Vendor and Purchaser § 49 (2000).

It is also of no consequence that appellees did not have a professional inspection done. It is settled law that a purchaser may give credit to statements made by a seller who has peculiar knowledge of the subject matter, because the person who is the recipient of a fraudulent misrepresentation of fact in a business transaction is justified in relying on its truth, even though he might have determined its falsity if he had made an investigation. Id. Accord Clay v. Brand, 236 Ark. 236, 365 S.W.2d 256 (1963); Held v. Mansur, 181 Ark. 876, 28 S.W.2d 704 (1930). Appellees were justified in relying on appellant's statements about the condition of the house.

Appellant asserts that, at worst, he committed "passive nondisclosure," which some courts have held is not actionable in the presence of an "as is" clause. We disagree. Appellees presented more than sufficient evidence of fraudulent misrepresentations by appellant. Appellant's statements to Dr. Dudley and Ms. Bratcher, as well as his answers on the disclosure form, cannot be characterized as passive nondisclosure. Thus, that issue has no relevance here. Although appellant testified that he had believed that the leaks had been fixed, the chancellor made it clear that he did not believe appellant. Where the evidence is in conflict, whether fraud or misrepresentation occurred is a question of fact. 92 C.J.S. Vendor and Purchaser § 96 (2000). We will not reverse the chancellor's findings of fact unless they are clearly erroneous or clearly against the preponderance of the evidence. Strout Realty, Inc. v. Burghoff, supra. We defer to the superior position of the chancellor in determinations of credibility. Argo v. Buck, 59 Ark. App. 182, 954 S.W.2d 949 (1997). We hold that the chancellor's findings are not clearly erroneous and soundly support his decision to order rescission.

Attorney's Fees

Appellant further argues that the chancellor erred in awarding attorney's fees to appellees. We agree. Arkansas Code Annotated section 16-22-308 (Repl. 1999) provides that a court may make an award of reasonable attorney's fees to the prevailing party "[i]n any civil action to recover ... for breach of contract...." Rescission of a contract, however, is based upon disaffirmance of the contract, while an action to recover for breach of warranty requires the contract's affirmance. Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637(1980). Upon rescission, each party to a contract is entitled to consider the agreement to be of no force and effect. 77 Am. Jur. 2d Vendor and Purchaser § 541 (1997).

Here, the chancellor based his decision to grant rescission on appellant's fraudulent misrepresentations. Section 16-22-308 does not allow attorney's fees in tort actions. Stein v. Lukas, 308 Ark. 74, 823 S.W.2d 832 (1992). In Barnhart v. City of Fayetteville, 335 Ark. 57, 60, 977 S.W.2d 225, 226 (1998), the supreme court affirmed the trial court's denial on remand of appellant's request for additional attorney's fees, stating:

The trial court rejected Barnhart's request for the additional attorney's fees, finding that our decision in Barnhart I established that the contract between the governmental entities was void and amounted to a rescission. As a result, the trial court held that, because there was no contract to be breached, the attorney's fees statute § 16-22-308 did not apply. The trial court further stated that Barnhart's mere contention that her action "concerned a contract" did not make it an action on a contract or a breach of contract action entitling her to additional fees. We believe the trial court was correct.

See also Friends of Children, Inc. v. Marcus, 46 Ark. App. 57, 876 S.W.2d 603 (1994) (holding that attorney's fees could not be awarded in an action seeking restitution after the parties had effectively rescinded the transaction by agreement). In light of these cases, we believe that the chancellor erred in awarding attorney's fees to appellees.

Affirmed in part; reversed in part.

Bird and Neal, JJ., agree.

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.