PENELOPE ALDERMAN v. TONY C. ADAMS AND LAURA H. ADAMS
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RENDERED: April 21, 2000; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NOS. 1998-CA-002337-MR
AND 1999-CA-000153-MR
PENELOPE ALDERMAN
v.
APPELLANT
CONSOLIDATED APPEALS FROM ROWAN CIRCUIT COURT
HONORABLE WILLIAM B. MAINS, JUDGE
ACTION NO. 97-CI-90120
TONY C. ADAMS AND
LAURA H. ADAMS
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
BUCKINGHAM, EMBERTON, AND SCHRODER, JUDGES.
SCHRODER, JUDGE:
The purchaser of a preowned house discovered
defects before the purchase but closed anyway and sued for breach
of contract, violation of the Kentucky Consumer Protection Act,
and fraud, with a request for punitive damages and attorney fees.
We believe the doctrines of merger and caveat emptor apply to the
facts of this case and we reverse the jury award and the court’s
award of attorney fees.
Penelope Alderman’s mother had a house built in a
subdivision for Penelope and her three children.
in sometime in 1992.
Penelope moved
A few years later, Penelope moved back to
her parent’s farm and listed the house with a real estate agent.
Tony and Laura Adams viewed the house with their agent in 1996
and made an offer of $198,000, contingent on financing and a
satisfactory inspection.
The buyers had 20 days to have the
property inspected and to notify the seller of any defects.
The
Adamses hired Bill Saylor to conduct a house inspection which he
did along with a written report.
Based on the Saylor report,
Penelope agreed to reduce the price by $1000, and the buyers
assumed responsibility for the repairs.
The parties closed on
the house in July of 1996.
Among the defects in the Saylor report were:
second
floor air conditioner was low on Freon; the heat cycle on the
furnace would not turn on; the first floor furnace has rust and
signs of condensate leaking; the first floor condensation line
was being piped under the floor instead of to the outside; a
valley tin on the roof overshoots the gutter; front gutters could
not hold a heavy rain; both bath vents were vented to the attic
instead of outside; large amount of water under floor (emphasis
added); one supply heating and cooling duct pulled loose under
the floor; and one long heating and cooling duct was putting a
strain on the Freon lines under the floor.
After moving into the house, the Adamses hired Glen
Boodry, a registered engineer, to inspect the house.
Boodry
found the furnace duct work was pulled loose from the trunk;
water pooling; floor uneven; crawl space wet; condensate draining
from cooling coil; and span between the girders excessive.
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Subsequently, the Adamses hired the Black and Crose
Construction Company to do another inspection.
They found the
drywall cracking over most doorways; floors sagged from ½ inch to
1½ inches; ceramic floor tile in kitchen and bath cracked and
separated in places; squeaking floors upstairs; upstairs floor
dropped ½ inch to 3/4 inch; the downstairs ceiling fan shakes and
swings when walking upstairs; trim falling off stairway
handrails; leak in a closet; master bath has a ten-foot crack and
separation where the walls meet the ceiling; ceiling cracking;
outside porch concrete is cracking; and the whole house exterior
is mildewing due to lack of ventilation.
Black and Crose
attributed these problems to insufficient support beams; upstairs
walls being eight inches or more off the downstairs bearing
walls; and the beams and floor joist too weak.
They opined that
to correct the problems, the whole inside of the house would need
to be gutted and started over, beginning with more support beams
under the floor.
At trial, the seller called the building inspector who
found no code violations.
Tommy Griffith testified that he
replaced the long duct pipe with a larger one and replaced the
coil.
Art Cummins repaired the overflowing gutters and found one
support beam under the house.
He said it was cheap, but correct.
Jerry Fryer, a structural engineer, testified that the house had
settled, had cracks, and a water problem.
Bill Saylor testified
(by video deposition) that the day he inspected the house, it was
raining and there was a sea of mud under the floor, and that he
advised the Adamses there was a serious problem which should be
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looked at by a contractor.
He also detailed numerous water
problems to the Adamses and advised them not to buy the house.
The jury found for the Adamses on fraud, breach of
warranty on the real estate, and punitive damages.
entered a final order on August 27, 1998.
The court
A motion was made for
attorney fees under the Kentucky Consumer Protection Act, more
than ten days after the final judgment.
On December 15, 1998,
the court awarded attorney fees to the buyers in another final
order.
Penelope appealed both orders and the cases were
consolidated by our Court.
Penelope’s first argument is that she was entitled to a
directed verdict on the fraud claim and the breach of warranty
claim because the Adamses had the property inspected and knew
about the defects, and because the contract warranties were
merged in the deed.
This is really two separate legal arguments.
The doctrine of merger states that when a purchase
contract contains representations, the buyer has a duty to
inspect the property and if the parties close, the
representations are worked out or merged into the deed.
3
American Law of Property § 11.65 (A.J. Casner ed. 1952); Borden
v. Litchford, Ky. App., 619 S.W.2d 715 (1981).
If there is a
closing, then the doctrine of caveat emptor applies, that is, the
buyer beware, as the property is being accepted as is.
The
warranty deed only covers warranties in title, not in the
physical condition of the property.
Vanada v. Hopkins, 1 J.J.
Marsh. 285, 19 Am. Dec. 92 (Ky. 1829).
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Although the rule of caveat emptor generally applies to
the sale of land, the doctrine has an exception, fraud - that is,
representations of material facts by the seller to the buyer to
induce the buyer to purchase, and reliance by the buyer.
Bryant
v. Troutman, Ky., 287 S.W.2d 918 (1956); Sanford Construction Co.
v. S & H Contractors, Inc., Ky., 443 S.W.2d 227 (1969).
There is
also concealment or non-disclosure of facts by a vendor that may
amount to fraud.
Weikel v. Sterns, 142 Ky. 513, 134 S.W. 908
(1911); Bryant v. Troutman, Ky., 287 S.W.2d 918 (1956); Hall v.
Carter, Ky., 324 S.W.2d 410 (1959).
However, when the facts are
equally accessible to the seller as to the buyer, and nothing is
said or done by the seller to mislead the purchaser, it is not
fraud.
3 American Law of Property § 11.20 (A.J. Casner ed.
1952); Bryant v. Troutman, Ky., 287 S.W.2d 918, (1956); Hall v.
Carter, Ky., 324 S.W.2d 410 (1959); Sanford Construction Co. v. S
& H Contractors, Inc., Ky., 443 S.W.2d 227 (1969).
Also, the
buyers waive their rights under fraud when they discover the
defects while the contract is executory and they proceed to
closing.
Hopkins v. Performance Tire and Auto Service Center,
Inc., Ky. App., 866 S.W.2d 438 (1993).
Knowledge is a defense.
Borden, 619 S.W.2d 715.
With the facts not in dispute, the court should have
given a directed verdict in favor of the seller.
The standard of
review of a denial of a directed verdict is set forth in Lewis v.
Bledsoe Surface Mining Co., Ky., 798 S.W.2d 459, 461 (1990):
All evidence which favors the prevailing
party must be taken as true and the reviewing
court is not at liberty to determine
credibility or the weight which should be
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given to the evidence, these being functions
reserved to the trier of fact. The
prevailing party is entitled to all
reasonable inferences which may be drawn from
the evidence. Upon completion of such an
evidentiary review, the appellate court must
determine whether the verdict rendered is
“‘palpably or flagrantly’ against the
evidence so as ‘to indicate that it was
reached as a result of passion or
prejudice.’”
See also USSA Casualty Insurance Company v. Kramer, Ky., 987
S.W.2d 779, 781 (1999).
Penelope made no direct representations as to the
condition of the house.
The realtors showed the house without
Penelope present, and only after the buyers discovered problems,
did she communicate with the buyers by agreeing to a $1000
reduction in the selling price.
Also, the contract was left
blank as to defects, with the buyers reserving the right to
inspect, which they did.
Bill Saylor conducted a whole house
inspection before the closing and found the problems, even
advised against buying the house because of the sea of mud in the
crawl space, and other problems.
The defects were not concealed,
even though discovery required some climbing in the attic and
crawling around in the crawl space.
What defects did exist were
discovered before closing, and the parties compromised the
purchase price.
The buyers may have gotten a bad bargain for
repairs, but then the purchase price may have been low to start
with.
We don’t know and need not to speculate because this case
calls for the application of both the doctrine of merger and the
doctrine of caveat emptor.
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The punitive damage award must also be set aside.
A
breach of contract or breach of warranty does not justify an
award of punitive damages in Kentucky.
Ford Motor Co. v. Mayes,
Ky. App., 575 S.W.2d 480 (1978); KRS 355.1-106(1); KRS
411.186(4); and Faulkner Drilling Co. v. Gross, Ky. App., 943
S.W.2d 634 (1997).
Although fraud can support an award of
punitive damages in addition to compensatory damages, the setting
aside of the fraud verdict voids the punitive damage issue.
KRS
411.184; Faulkner Drilling Co., 943 S.W.2d 634.
The award of attorney fees was based on the allegations
of violation of the Kentucky Consumer Protection Act, KRS
367.110, et seq.
The fallacy of this argument is three-fold.
First, although there was an allegation of a violation of the
Act, there was no finding that the seller violated the Act.
jury found fraud and breach of warranty.
The
Mere allegations are
not enough to invoke authority for imposition of attorney fees.
We are presented with no other authority, and under Batson v.
Clark, Ky. App., 980 S.W.2d 566 (1998), a party must show
authority for an award of attorney fees.
Second, we do not
believe that the Kentucky Consumer Protection Act applies to the
sale of real estate by an individual home owner.
Aud v. Illinois
Cent. R. Co., 955 F. Supp. 757 ( W.D. Ky. 1997); Miles v.
Shauntee, Ky., 664 S.W.2d 512 (1983); and KRS 367.220(1) which
applies to:
[a]ny person who purchases or leases goods or
services primarily for personal, family or
household purposes and thereby suffers any
ascertainable loss of money or property, real
or personal, as a result of the use or
employment by another person of a method, act
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or practice declared unlawful by KRS
367.170. . . . (Emphasis added).
As of this date, we are unaware of any Kentucky case which has
determined that the Kentucky Consumer Protection Act is
applicable to single real estate transactions.1
Third, the
judgment entered August 27, 1998 contains finality language.
With a final judgment, a party has to request attorney fees
within ten days under a CR 59 motion to amend or alter a judgment
or the judgment becomes final.
Scott v. Campbell County Board of
Education, Ky. App., 618 S.W.2d 589 (1981).
For the foregoing reasons, the judgments of the Rowan
Circuit Court are reversed and the matter remanded for the entry
of an order dismissing the claim.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Barbara Anderson
Lexington, Kentucky
Thomas W. Miller
Donald R. Rose
Carl D. Devine
Lexington, Kentucky
1
The Act itself has a section covering “Recreation and
Retirement Use Land Sales” which covers subdivisions of land not
developed and out of state sales.
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