Buyer’s fraud claim not barred by caveat emptor

The Fairfax County Circuit Court has refused to reconsider its judgment that misrepresentations about hidden defects made by home sellers fraudulently induced a buyer to purchase property, even though she never made further inquiry into the issues.

The court awarded $575,000 in compensatory damages and $150,000 in punitive damages to the buyer. Moving for reconsideration, the sellers — a married couple — claimed that caveat emptor barred the claims and that the buyer had ample opportunity to examine the property before buying it.

But Judge Richard E. Gardiner said the defendants ignored that caveat emptor doesn’t apply “if the defect is concealed and not ‘obvious to ordinary intelligence’ or ‘open and obvious’ and discoverable by ‘a cursory inspection.’”

Lacking any evidence that the seller’s wife made misrepresentations, Gardiner dismissed her and held the husband solely liable for the judgment in Gwin v. Beatty, et al. (VLW 024-8-070).

Mark Cummings of Sher, Cummings and Ellis told Virginia Lawyers Weekly that his client has authorized him to appeal the ruling to the Supreme Court of Virginia. Gwin’s attorneys did not respond to a request for comment.

Pillar to post report

Prior to purchasing residential property from John and Deborah Beatty in Fairfax County, Lauren Gwin’s realtors walked through the property with John Beatty, who provided them with a Pillar to Post, or P2P, report about the property.

John had placed checkmarks beside numerous deficiencies or issues noted in the P2P report. Additionally, he made several statements to Gwin’s realtors about the P2P report and the property. Gwin made no further inquiry into the deficiencies or issues before completing the sale.

But Gwin soon discovered that several of the issues and deficiencies had never been corrected, thereby diminishing the value of the property.

Gwin filed suit, alleging that misrepresentations made by the sellers on the P2P report and to her realtors fraudulently induced her to purchase the property. The court granted judgment in Gwin’s favor and awarded $575,000 damages, as well as $150,000 punitive damages.

The Beattys moved for reconsideration.

Nuanced reading

While the Beattys relied on the Supreme Court of Virginia’s opinion in Kuczmanski v. Gill, Gwin cited a later ruling — Boykin v. Hermitage Realty — to argue that an exception to the doctrine of caveat emptor applies where a seller procures a sale by fraudulent representations.

Gardiner said the Beattys’ reliance was misplaced as Kuczmanski required a “more nuanced reading.”

“The lesson of Kuczmanski is that, when a defect about which a false representation is made is open and obvious, e.g., missing storm windows, the doctrine of caveat emptor does not apply,” the judge explained.

The high court shed greater light on the doctrine of caveat emptor in Horner v. Ahern with the help of a comprehensive summary from 1894’s Lake v. Tyree.

“[A]s with the modern language in Kuczmanski (‘open and obvious defect’), the doctrine of caveat emptor does not apply where the defect (to use Lake’s term) is ‘obvious to ordinary intelligence’ or concerns ‘matters directly before [the purchaser’s eyes]’ or the property ‘reveals its own qualities …,’” Gardiner wrote.

The Horner court held that a buyer’s knowledge of the fact of actual termite infestation didn’t impose a duty to investigate. Further, the sellers’ misrepresentation about termite damage was designed to deter the buyers from investigating.

Similarly, caveat emptor didn’t bar the claims in Boykin where a seller misrepresented that a wooded area would remain undeveloped.

And in Watson v. Avon Street Center, the court described Armentrout v. French and Horner as “cases in which it was alleged that a seller, having knowledge of a material fact which he concealed, made a misleading statement calculated to forestall further inquiry and examination by the purchaser.”

“Thus, Armentrout and Horner are consistent with Kuczmanski and Lake, in that caveat emptor does not apply where a defect is ‘concealed’ (Armentrout and Horner), but does apply where a defect was an ‘open and obvious defect which could have been discovered by the [buyers] by even a cursory inspection of the premises,’ … or which is ‘obvious to ordinary intelligence,’ or concerns ‘matters directly before [the buyers] …,’” Gardiner said.

Thrown off guard

Despite acknowledging that a seller must not throw a purchaser off their guard or divert them from making prudent inquiry and examination, the defendants cited Kuczmanski to argue that Gwin’s claims were barred because she had ample opportunity to examine the property.

Gardiner noted that the defendants disregarded a long-established requirement for caveat emptor.

“[E]ven if a buyer has opportunity to examine and inquire further about the property, if the defect is concealed and not ‘obvious to ordinary intelligence’ or ‘open and obvious’ and discoverable by ‘a cursory inspection,’ the seller/defendant may not invoke caveat emptor,” Gardiner said.

Additionally, the judge said the defendants’ argument was contrary to the holding in Cerriglio v. Pettit that a buyer may rely on a seller’s representations.

Gardiner rejected the defendants’ challenges to the factual findings and said Gwin’s failure to further inquire was immaterial.

Moreover, the defendants ignored a very important exception to the rule that a purchaser is bound to discover the true condition for himself if he has information on which would excite the suspicions of a reasonably prudent man.

“‘That exception is that the vendor must not say or do anything to throw the purchaser off his guard or to divert him from making the inquiries and examination which a prudent man ought to make,’” the judge said, citing Horner.

“Here, Mr. Beatty’s checkmark and his representations that everything had been fixed were things that threw Plaintiff and her realtors off their guard,” Gardiner concluded.

The judgment for damages was warranted and the award of punitive damages wasn’t clearly erroneous.

Gardiner denied the motion to reconsider except as to Deborah Beatty, whom the judge felt compelled to dismiss from the case because there was no evidence she made any material misrepresentations.