Winfred Garrison and Cynthia Garrison v. David Pickering and Mary Pickering
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DIVISION I
ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION
K AREN R. B AKER, Judge
CA06-59
October 11, 2006
WINFRED GARRISON and
CYNTHIA GARRISON
APPELLANTS
v.
DAVID PICKERING and
MARY PICKERING
APPELLEES
AN APPEAL FROM PULASKI COUNTY
CIRCUIT COURT
[No. CV-2004-13789]
HONORABLE JAMES M. MOODY,
CIRCUIT JUDGE
REVERSED and REMANDED
This case follows the entry of summary judgment to the sellers of a house in an action
brought by the purchasers for fraudulent inducement. On May 26, 2004, appellees David and
Mary Pickering sold their house in west Little Rock for $890,000 to appellants Winfred and
Cynthia Garrison. Mr. Pickering’s construction company built the house in 1991-92. Pursuant
to the contract, appellees provided appellants with a written disclosure about the property’s
condition. On behalf of appellants, Al Williams, a home inspector, performed an inspection
of the property on May 17, 2004, while Mrs. Garrison, Mr. Pickering, and appellants’ real
estate agent, Betty Coney, were present. According to appellants, Mr. Williams asked Mr.
Pickering about the foundation vents located in the brick on the back side of the house in the
area of the master bedroom, and Mr. Pickering replied that the foundation was a concrete
slab, failing to mention that there were also two crawl spaces. Appellants also claim that,
during the inspection, Mr. Pickering told Mrs. Garrison that the security system had recently
been functional and was monitored by ADT. Mr. Williams’s report listed no serious
problems with the house. Appellants obtained a letter from AAA Roofing Co., Inc., on May
25, 2004, stating that the roof appeared to be in good condition, with no visible leaks. Mr.
Pickering also provided appellants with a letter from Sam Elmore, with Specialty Services,
stating that, when his company installed the copper bay roof on the house, there was no roof
damage and that, when he checked the shingles on May 19, 2004, they were still in the same
condition. The termite inspection found no problems.
The contract contained a merger clause, and in paragraph 15(B), it provided for the
buyer’s inspection. It stated: “The buyer understands and agrees that pursuant to the terms
of Paragraph 15(B), they will be accepting this property ‘AS IS’ at closing.” It also set forth
the following buyers’ disclaimer:
26. BUYER’S DISCLAIMER OF RELIANCE: BUYER CERTIFIES BUYER HAS
PERSONALLY INSPECTED OR WILL PERSONALLY INSPECT, OR HAS HAD OR WILL
HAVE A REPRESENTATIVE INSPECT, THE PROPERTY AS FULLY AS BUYER DESIRES
AND IS NOT RELYING AND SHALL NOT HEREAFTER RELY UPON ANY WARRANTIES
REPRESENTATIONS OR STATEMENTS OF THE SELLER, LISTING AGENT FIRM, THE
SELLING AGENT FIRMS, OR ANY AGENT, INDEPENDENT CONTRACTOR OR EMPLOYEE
ASSOCIATED WITH THOSE ENTITIES, REGARDING THE AGE, SIZE
(INCLUDING
WITHOUT LIMITATION THE NUMBER OF SQUARE FEET IN IMPROVEMENTS LOCATED
ON THE PROPERTY), QUALITY, VALUE OR CONDITION OF THE PROPERTY, INCLUDING
WITHOUT LIMITATION ALL IMPROVEMENTS, ELECTRICAL OR MECHANICAL
SYSTEMS, PLUMBING OR APPLIANCES OTHER THAN THOSE SPECIFIED HEREIN
( INCLUDING ANY WRITTEN DISCLOSURERS [SIC] PROVIDED BY SELLER AND
DESCRIBED IN PARAGRAPH 16 OF THIS REAL ESTATE CONTRACT), IF ANY, WHETHER
OR NOT ANY EXISTING DEFECTS IN ANY SUCH REAL OR PERSONAL PROPERTY MAY
BE REASONABLY DISCOVERABLE BY BUYER OR A REPRESENTATIVE HIRED BY
BUYER. NEITHER LISTING AGENT FIRM NOR SELLING AGENT FIRM CAN GIVE LEGAL
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ADVICE TO BUYER OR SELLER. LISTING AGENT FIRM AND SELLING AGENT FIRM
STRONGLY URGE STATUS OF TITLE TO THE PROPERTY, PROPERTY CONDITION,
SQUARE FOOTAGE OF IMPROVEMENTS ON THE PROPERTY, QUESTIONS OF SURVEY
AND ALL REQUIREMENTS OF SELLER AND BUYER HEREUNDER SHOULD EACH BE
INDEPENDENTLY VERIFIED AND INVESTIGATED. BUYER IS HEREBY NOTIFIED THAT
& SURVEY
10 AND PARAGRAPH 15B, AND WILL BE
REQUIRED TO DO A FINAL SIGN OFF ON P AGE 3, UPON COMPLETING ALL
INSPECTIONS ON SAID ADDENDUM PRIOR TO, OR AT CLOSING.
BUYER WILL BE REQUIRED TO UTILIZE THE INSPECTION REPAIR
ADDENDUM PURSUANT TO PARAGRAPH
The “Inspection, Repair and Survey Addendum” form, signed by appellants before
closing, stated:
5. BUYERS AGREEMENT TO PROPERTY CONDITIONS: T HE BUYER
ACKNOWLEDGES THE AGENT( S) INVOLVED IN THIS TRANSACTION HAVE MADE THE
BUYER AWARE THAT HOME INSPECTORS WHO PROVIDE THAT SERVICE REGULARLY
ARE AVAILABLE AND THE BUYER COULD CHOOSE FROM THOSE HOME INSPECTORS
LISTED IN THE YELLOW PAGES, OR THOSE THE AGENTS( S) KNOW ABOUT, OR THE
BUYER COULD CONTACT A PROFESSIONAL SOCIETY OR ORGANIZATION OF HOME
INSPECTORS TO FIND A SUITABLE HOME INSPECTOR. BUYER IS NOT RELYING ON THE
AGENT( S) ADVICE OR RECOMMENDATION IN REGARDS TO CHOOSING A HOME
INSPECTOR. ALSO , BUYER UNDERSTANDS THAT THE RECEIPT OF A HOME
INSPECTION AND A SELLER PROPERTY DISCLOSURE DOES NOT RELIEVE BUYER FROM
THE RESPONSIBILITY OF PERSONALLY INSPECTING THE PROPERTY UNTIL THE
BUYER IS FULLY SATISFIED. BUYER WARRANTS, REPRESENTS AND ACKNOWLEDGES
THAT BUYER AND ALL PERSONS OR ENTITIES DESIRED BY BUYER HAVE INSPECTED
THE PROPERTY TO THE FULLEST EXTENT DESIRED BY BUYER AND FIND THE
CONDITION OF THE PROPERTY ACCEPTABLE IN ALL RESPECTS. BUYER REAFFIRMS
ALL DISCLAIMERS SET FORTH WITHIN THE REAL ESTATE CONTRACT BETWEEN
BUYER AND SELLER.
BUYER HAS HAD AN OPPORTUNITY TO INSPECT, REVIEW AND VISIT THE
PROPERTY AND TO OBTAIN A BOUNDARY SURVEY OF THE PROPERTY TO DETERMINE
THAT THE PROPERTY ACTUALLY CONVEYED IS THE PROPERTY THE BUYER
UNDERSTANDS IS BEING CONVEYED, AND BUYER IS NOT RELYING ON ANY
STATEMENT ( WRITTEN OR ORAL) OF LISTING AGENT FIRM, SELLING AGENT FIRM,
OR SELLER CONCERNING THE SIZE, DIMENSIONS, ACREAGE, AREA OR LOCATION OF
THE PROPERTY. THE FACT THAT THE BUYER COMPLETES THE PURCHASE OF THIS
PROPERTY WARRANTS THAT THE BUYER IS COMPLETELY SATISFIED WITH THE
CONDITION OF THE PROPERTY.
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After appellants moved in, a representative of ADT came to the property to activate
the security system and informed Mrs. Garrison that ADT had never had a security contract
on the property and that a heat sensor on the ceiling of the bedroom next to the family room
was not wired to the existing system. According to appellants, the heat sensor was nonfunctional and had been placed so as to cover up the location of a water leak. In the
disclosure form, however, appellees represented that there had never been any past or present
water intrusion, problems with the roof, or leaks. After appellants moved into the house, they
also discovered that portions of the house were not built on a slab foundation, as had been
represented by David Pickering; in fact, two areas were built on crawl spaces, for which no
exterior access existed. According to appellants, these crawl spaces did not comply with
applicable construction codes and were not shown on the original building plans; a final
building inspection was not performed, and a certificate of occupancy was never issued; and
appellees failed to obtain the necessary permits and inspections for the construction of an
addition to the family room at the back of the house. However, in the disclosure form,
appellees represented that all additions were done following the issuance of a permit and that
they complied with building codes. In August, appellants discovered termite damage in the
bedroom next to the family room and in the exercise room adjacent to the garage. In the
disclosure form, appellees represented that there was no infestation by termites, that there
was no “known damage” from a previous infestation, and that they were not aware of any
potential termite problems.
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Appellants asked appellees to repurchase the house, and they refused to do so.
Appellants filed this lawsuit in December 2004, alleging fraud in the inducement and
requesting rescission, actual damages, and punitive damages. They alleged that, in attempting
to repair the termite damage in the office area, it was discovered that a major water leak had
occurred in the water heater closet.
In their answer, appellees stated that Mr. Pickering’s statement to the inspector about
the foundation was a mistake and that he told Mr. Garrison that the security system, when last
used, was operational, although appellees did not use it.
Appellees moved for summary judgment on July 12, 2005, arguing that appellants had
failed to produce evidence that appellees made false statements of material fact with regard
to the condition of the property; that appellees knew at the time that any of their statements
were false; or that appellants justifiably relied on any representations made by appellees.
Appellees argued that appellants’ allegations were contrary to the express language of the
contract wherein appellants disclaimed reliance upon any representations of appellees and
agreed to accept the property “as is.” Appellees supported their motion with several
documents, including excerpts from the parties’ depositions; the contract; the disclosure
form; the termite inspection report; the inspector’s report; and the Inspection, Repair, and
Survey Addendum.
Appellants filed a first amended complaint on August 1, 2005, adding a claim for
constructive fraud. On the same date, they filed their response to the motion for summary
judgment. Their attachments included the following exhibits: the affidavits of Al Williams,
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Betty Coney, George Levart, the security system installer, and appellants; photographs of a
foundation vent, the flooring, a hot water heater closet, and the baseboards in the exercise
room; excerpts from the depositions of the parties; the disclosure form; the 1988 mineral
deed affecting Chenal Valley; and the termite-inspection report. In his affidavit, Mr. Levart
stated that, when he inspected the house’s security system, he inspected a heat sensor in the
ceiling of the “gold bedroom” and discovered the following:
5. When I began trying to inspect the heat sensor, sheetrock began crumbling
and coming down from the ceiling area adjacent to the heat sensor due to previous
damage to the sheetrock.
6. Upon closer inspection, I discovered that the heat sensor was not wired into
the existing security system. From looking at the screws on the back of the heat
sensor, I could tell that the heat sensor had never been connected to the security
system because the screws were not scarred and were in the same position as when
shipped from the manufacturer.
7. Upon discovering that the heat sensor had never been connected, I went into
the attic of the house at 14 Chenal Circle to try to locate the wires for the heat sensor.
8. Once I was up in the attic, I moved insulation that had been placed over the
location of the heat sensor and discovered that no wires existed for the heat sensor and
that the heat sensor had been placed directly where a roof leak had caused damage to
the sheetrock in the ceiling.
Appellants argued that they had produced evidence that appellees had misrepresented
the condition of the house’s foundation when Mr. Pickering told appellants’ inspector that
the house was built on a slab, when in fact, there were two areas that were built over crawl
spaces, for which no access existed; that appellees had inaccurately stated in the disclosure
form that there had not been any roof leaks when there was evidence that such leaks had
occurred and that the damage had been covered up; that appellees had misled appellants in
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stating in the disclosure form that no one else claimed ownership of the mineral rights to the
property; that appellees had failed to disclose other water leaks and water damage affecting
the windowsills, under the master bathroom’s vanity sink, and the hot water heater closet;
that appellees had concealed termite damage in the exercise room and termite mud on the
floor of the hot water heater closet; and that appellees had misrepresented the status of the
building permits for the family room addition. Appellants argued that their reliance on
appellees’ representations was reasonable in light of Mr. Pickering’s statements that he had
special knowledge of the house because he had lived there for twelve years and because his
company had served as the builder; that the contract’s “as-is” clause did not bar an action by
the vendee against the vendor on claims of fraud or misrepresentation; and that the contract’s
merger clause would not prevent appellants from showing that they were fraudulently
induced to enter into the contract.
A hearing was held on the motion for summary judgment on September 6, 2005. On
September 13, 2005, appellees filed a supplemental motion for summary judgment on the
constructive-fraud claim.
The circuit court granted summary judgment to appellees on their fraud and
constructive-fraud claims, finding that appellants did not, as a matter of law, justifiably rely
on any representations made by appellees. This appeal followed.
Sum aryjudgm shouldbe grantedonlyw it is clear that thereare nodisputedissues of m
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ppellants contend that they presented evidence sufficient to raise questions of fact as to w
hether appellees com itted fraud
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andconstructivefraudand, therefore, thecircuit court erredingrantingsum aryjudgm toappellees. The elements of fraud
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are: (1) a false representation of a material fact; (2) knowledge that the representation is false
or that there is insufficient evidence upon which to make the representation; (3) intent to
induce action or inaction in reliance upon the representation; (4) justifiable reliance on the
representation; (5) damage suffered as a result of the reliance. Joplin v. Joplin, 88 Ark. App.
190, 196 S.W.3d 496 (2004).
To rescind a contract based on fraud, it is not necessary that actual fraud exist; a
person may commit fraud even in the absence of an intention to deceive. This is constructive
fraud, in which liability is premised on representations that are made by one who, not
knowing whether they are true or not, asserts them to be true. Beatty v. Haggard, 87 Ark.
App. 75, 184 S.W.3d 479 (2004). Constructive fraud has been defined as a breach of a legal
or equitable duty, which, irrespective of the moral guilt of the fraud feasor, the law declares
to be fraudulent because of its tendency to deceive others. Id. In fact, it has been said that
constructive fraud generally involves a mere mistake of fact. Id. Thus, neither actual
dishonesty of purpose nor intent to deceive is an essential element of constructive fraud, and
a party’s lack of knowledge of the material representations asserted by him to be true or his
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good faith in making the representations is no defense to liability. Id. In Lane v. Rachel, 239
Ark. 400, 389 S.W.2d 621 (1965), our supreme court held that constructive fraud could occur
where a seller made a misrepresentation, even though the seller did not know that he was
making a misrepresentation, and even though he made the representation in good faith; the
key was that the buyer relied to his detriment on statements that proved to be untrue. See also
Knox v. Chambers, 8 Ark. App. 336, 654 S.W.2d 582 (1983).
Appellants contend that they demonstrated evidence that appellees misrepresented the
condition of the house’s foundation. We agree. They provided evidence that Mr. Pickering
represented to Mrs. Garrison, Mr. Williams, and Ms. Coney that the house was built entirely
on a slab, when it is undisputed that this representation was incorrect — in fact, there were
two areas built over crawl spaces for which no access existed.
Appellants also presented evidence that appellees misrepresented the condition of the
roof in the disclosure form, where, in question 21, appellees responded that there had never
been a problem, such as leaks, with the roof. Appellants also provided evidence that Mr.
Pickering verbally represented to appellants that the roof did not leak. However, in his
affidavit, Mr. Levart described the heat sensor in the “gold bedroom” as not operational but
merely covering up damage to the sheetrock in the ceiling caused by a water leak. Also, Mrs.
Garrison testified that the ceiling had been caulked and painted to conceal the damage, and
Mr. Garrison testified in his deposition that appellants had discovered other roof leaks after
moving into the house.
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Further, appellants presented evidence that appellees misrepresented whether the
house had suffered any termite damage when, in fact, it is undisputed that the exercise room
in the house was infested with termites at the time of the sale. Appellees’ lack of knowledge
of such termite damage is a question of material fact in light of the photographs of the
baseboards in the exercise room that show that they had been caulked and repainted and Mrs.
Pickering’s admission in her deposition that touch-up painting had been performed in the
house. Additionally, Mrs. Garrison testified in her deposition that appellees had placed a
four-drawer file cabinet in such a way that it obstructed the view of the hot-water heater
closet when the inspection was done; although one could determine that the heater was
working during the inspection, appellants discovered termite mud on the floor of the closet
after they moved in. From this evidence, a reasonable juror could conclude that appellees
were aware of the termite problems and took steps to prevent appellants from viewing the
closet before closing.
Appellants also submitted sufficient evidence from which a reasonable juror could
conclude that appellees intended that appellants rely on their representations about the house;
the representations concerning the slab foundation were made in response to a specific
inquiry from the inspector. Also, in this case, there is no reasonable doubt that the sellers
intended that the buyers rely on the statements in the disclosure form.
We also believe that appellants’ reliance on appellees’ representations was justifiable,
because Mr. Pickering had peculiar knowledge of the house’s condition as a result of living
there for twelve years and because his company built the house. The fact that appellants hired
10
an inspector and a roofer to inspect the property before closing does not automatically mean
that, as a matter of law, they did not justifiably rely on appellees’ representations. See Fausett
& Co. v. Bullard, 217 Ark. 176, 229 S.W.2d 490 (1950). Whether justifiable reliance
occurred is generally a question of fact. See Tyson Foods, Inc. v. Davis, 347 Ark. 566, 66
S.W.3d 568 (2002); Hart v. Bridges, 30 Ark. App. 262, 786 S.W.2d 589 (1990); Godwin
v. Hampton, 11 Ark. App. 205, 669 S.W.2d 12 (1984).
Appellants additionally argue that the “as-is” clause did not prevent them from
justifiably relying on appellees’ misrepresentations, and we agree. An “as-is” clause does not
bar a claim for fraud. Beatty v. Haggard, supra. Further, the merger clause could not prevent
appellants from showing that they were fraudulently induced to enter into the contract.
Farmers Coop. Ass’n v. Garrison, 248 Ark. 948, 454 S.W.2d 644 (1970). Additionally, we
disagree with appellees’ contention that constructive fraud will not apply in the absence of
a special or fiduciary relationship. Although a fiduciary relationship may form the basis for
the practice of a constructive fraud, such a relationship is not vital to a finding of constructive
fraud. Evans Indus. Coatings, Inc. v. Chancery Court of Union County, 315 Ark. 728, 870
S.W.2d 701 (1994). Even in the absence of such a relationship, appellees had a legal duty to
disclose what they knew about the house. Beatty v. Haggard, supra.
In conclusion, the “as-is” clause, the Buyer’s Disclaimer of Reliance, and the
Inspection, Repair, and Survey Addendum do not, as a matter of law, bar an action for
fraudulent inducement where the buyer offers evidence of all of the elements of fraud or
constructive fraud. Although such documents are relevant facts to be considered by the jury,
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they do not, in and of themselves, form the basis for the award of summary judgment to the
sellers. Because appellants raised genuine issues of material fact on all of the elements of
their cause of action, including justifiable reliance, the entry of summary judgment for
appellees was not proper.
Reversed and remanded.
G LADWIN and R OBBINS, JJ., agree.
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