151 Ariz. 81
-In a suit to rescind a residence purchase agreement for misrepresentation and failure to disclose, the Superior Court of Maricopa County (Arizona) dismissed plaintiff buyers’ misrepresentation claim based upon a contract integration clause, granted summary judgment for defendant sellers on the concealment claim, and awarded the sellers attorney’s fees. The buyers appealed. The sellers cross-appealed the attorney’s fees ruling.
-In response to the buyers’ inquiry of whether a ripple in the home’s floor was termite damage, the sellers answered that it was water damage.
-The termite inspection report placed in escrow as provided by the purchase agreement stated there was no visible evidence of infestation, but failed to note the existence of physical damage or evidence of previous treatment. After the purchase, the buyers discovered termite damage and learned of past termite infestation of which the sellers had knowledge.
The court held that (1) the contract’s integration clause could not shield the sellers from liability should the buyers be able to prove fraud in the statement that the ripple was water damage; (2) the seller had a duty to disclose to the buyer termite damage known to the seller, but not to the buyer, if it materially affected the property’s value, (3) the buyers should have been allowed to present their case to a jury because the issue of whether the termite damage was material was a factual matter for the trier of fact to determine, and (4) the issue of the buyers’ knowledge of the termite problem and their diligence in attempting to inform themselves should have been left to the jury.
- A vendor has an affirmative duty to disclose material facts where disclosure is necessary to prevent a previous assertion from being a misrepresentation or from being fraudulent or material; disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing; disclosure would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part; and the other person is entitled to know the fact because of a relationship of trust and confidence between them.
- Where a misrepresentation is fraudulent or where a negligent misrepresentation is one of material fact, the policy of finality rightly gives way to the policy of promoting honest dealings between the parties. Under certain circumstances nondisclosure of a fact known to one party may be equivalent to the assertion that the fact does not exist. For example when one conveys a false impression by the disclosure of some facts and the concealment of others, such concealment is in effect a false representation that what is disclosed is the whole truth. Thus, nondisclosure may be equated with and given the same legal effect as fraud and misrepresentation.
- Under certain circumstances there may be a duty to speak. In the context of a confidential relationship, suppression of a material fact which a party is bound in good faith to disclose is equivalent to a false representation.
- Where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.
- A duty to disclose may arise where the buyer makes an inquiry of the seller, regardless of whether or not the fact is material.
- A matter = material if it is one to which a reasonable person would attach importance in determining his choice of action in the transaction in question. For example, termite damage substantially affecting the structural soundness of a residence may be material even if there is no evidence of present infestation. Unless reasonable minds could not differ, materiality is a factual matter which must be determined by the trier of fact.
-The court reversed the trial court’s dismissal of the buyers’ misrepresentation claim, summary judgment for the sellers on the buyers’ concealment claim, and attorney’s fees award for the sellers. -Court held that the sellers’ cross-appeal was moot.