Wasson v. Schubert

Citations: 964 S.W.2d 520; 1998 Mo. App. LEXIS 406; 1998 WL 99545Docket: WD 54090

Court: Missouri Court of Appeals; March 10, 1998; Missouri; State Appellate Court

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The Missouri Court of Appeals case 964 S.W.2d 520 (1998) involves William R. and Kathryn E. Wasson appealing a trial court's judgment favoring Noland E. and Cheryl L.A. Schubert, who were the respondents. The Wassons contend that the trial court improperly ruled in favor of the Schuberts on claims of breach of contract and fraudulent misrepresentation related to the sale of a property. They argue that the court erred by concluding they did not present evidence of damages.

The facts indicate that the Schuberts purchased a property in Raytown, Missouri, in August 1988, and identified multiple water leaks in the basement over the years. They attempted repairs but continued to experience leaks. When selling the property to the Wassons in 1995, the Schuberts completed a "Sellers' Disclosure—Statement of Condition Addendum," wherein they were required to disclose all known material defects affecting property value. They acknowledged past water leakage but denied any foundation cracks, despite having encountered such issues prior. The Schuberts' disclosures were vague and did not adequately detail their repair efforts.

The sale contract was contingent on the completion of the disclosure document, which was deemed an integral part of the transaction. The Wassons signed the acknowledgment of the sellers' disclosure, which outlined the conditions and defects as disclosed by the Schuberts.

The Schuberts failed to disclose a December 1988 water leak and subsequent January 1989 repairs in the basement to the Wassons when providing the sellers' disclosure. They also did not inform the Wassons that a leak from a drainpipe in the furnace room persisted after attempted repairs in May 1993 up until the sale. The Wassons conducted a visual inspection prior to purchase in September 1995, noticing no leaks or cracks, and took possession around October 1, 1995. They did not perform a structural inspection before closing. Since January 1996, the Wassons experienced recurring water leaks at the same sites of previous repairs, exacerbating during rain or snowmelt. 

At trial, the court ruled in favor of the Schuberts, stating that the sellers' disclosure, dated one day after the contract, could not support the Wassons' claims of breach of contract or fraudulent misrepresentation, citing a lack of evidence for damages. The Wassons appealed, arguing that the trial court erred by not recognizing that the sellers' disclosure was incorporated into the contract and asserting that the Schuberts had not disclosed material defects. The appellate review will favorably consider evidence for the Wassons while rejecting unfavorable evidence against them. The court found that the Wassons had indeed established a submissible breach of contract claim. The contract and disclosure were accepted as valid, and the trial court's reasoning regarding the disclosure's timing was contested.

Matters incorporated by reference in a contract are considered part of the contract as if explicitly included. In this case, the sellers' disclosure was an addendum that stipulated the contract wouldn't be effective until the seller completed and the buyer signed the Statement of Condition Addendum. The Wassons signed the sellers' disclosure after the contract, indicating the contract's effectiveness was contingent on that signature. The sellers, the Schuberts, failed to disclose a significant crack in the basement foundation wall and ongoing leaks in the furnace room, which they argued were not material. However, the sellers’ disclosure required them to disclose all known cracks, irrespective of their perceived materiality. The Wassons have a potential case for misleading information based on the Schuberts' vague disclosure regarding leaks. 

Regarding damages, the Wassons assert that the proper measure is the property's diminished value, calculated by comparing the value as represented by the Schuberts to its actual value at sale. The Schuberts contend the appropriate measure is either the difference in fair market value before and after damage or the cost of repairs, whichever is lesser, arguing the Wassons did not prove repair costs. Missouri generally follows the diminution in value rule, while the cost of repair is an exception applicable when repair costs are minimal compared to the property’s diminished value. Homeowners can express opinions on their property’s diminished value, which are admissible and carry probative value, even if based on hearsay knowledge.

In Wood River Pipeline Co. v. Sommer, the court evaluated evidence of monetary damages stemming from the Schuberts' misrepresentations, primarily relying on the Wassons' testimonies. The Schuberts contested the admissibility of the Wassons' estimates for repair costs as hearsay, leading to the trial court sustaining the objection to the estimates but allowing Mr. Wasson's testimony, which incorporated those estimates. Mr. Wasson assessed the property's value at $68,000, citing a $10,000 reduction due to necessary repairs and water damage. Mrs. Wasson corroborated this, stating she wouldn't pay more than $68,000 given the water issues.

The court addressed the Schuberts' argument regarding the competence of the Wassons' purchase price as evidence of fair market value, affirming that fair market value is defined as the price a willing seller would accept from a buyer not under compulsion. The court referenced precedent indicating that the purchase price, along with improvements made, can substantiate property valuation. Although the trial court is not obligated to accept the Wassons' valuation, their testimonies constitute a valid case for damages.

On remand, if the Wassons prove the existence of a contract and its breach by the Schuberts, they will have established a case for damages, even if actual damages are not proven, thereby entitling them to nominal damages.

The trial court's ruling in favor of the Schuberts and against the Wassons regarding the claim of fraudulent misrepresentation is challenged on two grounds: 1) it was contrary to the evidence and misapplied the law; and 2) evidence demonstrated that the Schuberts failed to disclose significant defects affecting the property's value, knowingly provided inaccurate information, intended for the Wassons to rely on their disclosures, and that the Wassons were unaware of the falsity of those disclosures. The Wassons relied on the Schuberts' misrepresentations, suffered damages as a result, and presented a legally sufficient claim of fraudulent misrepresentation. 

To establish such a claim, the following elements must be proven: a false representation, its materiality, the speaker’s knowledge or ignorance of its truth, intent for the representation to be acted upon, the hearer’s ignorance of its falsity, reliance on the representation, the right to rely, and injury. The Wassons provided evidence that the Schuberts did not disclose a crack in the basement stairs, a water leak, and ongoing issues with the furnace room leak. The court found substantial evidence, including photographs, indicating that these omissions were material. The Schuberts' intent for the Wassons to rely on the sellers' disclosure was acknowledged by Mr. Schubert during the trial.

The Wassons were not aware of the property’s defects during their inspection due to obstructions and did not conduct a structural inspection. They agreed to pay $78,000 for the house, believing it was worth $10,000 less than that figure in its actual condition, indicating they likely would not have paid the full price if aware of the issues. The Wassons relied on the disclosures, which justified their decision against obtaining a structural inspection, affirming their right to trust the information provided.

A party that conducts its own investigation typically cannot rely on another's misrepresentations. However, three exceptions allow for reliance on such misrepresentations. The first exception allows a party to maintain a fraud action if they conduct only a partial investigation and also rely on misrepresentations. In this case, the Wassons only partially inspected the house as they did not conduct a structural inspection, despite viewing the house and having a mechanical inspection. 

The second exception applies when the party making the representations possesses facts that are not equally accessible to the buyer, particularly when the buyer lacks equal footing with the seller. The Schuberts, having lived in the house when providing the disclosure, had superior knowledge about the property's condition, making it difficult for the Wassons to uncover issues like an undisclosed crack behind the stairs.

The third exception states that a buyer can rely on specific representations from the seller, irrespective of equal footing or knowledge. The Schuberts made specific representations in their disclosure about the property’s condition, thereby negating their argument against the Wassons' reliance on these representations, even though the Wassons were aware of their right to conduct a structural inspection.

Regarding damages in a fraudulent misrepresentation case, the appropriate measure is the difference between the property's actual value at the contract's execution and its value had the representations been true. The Wassons have established a claim for damages based on this standard. Consequently, the judgment is reversed, and the case is remanded for a new trial. All concur.