Benton v. Clegg Land Co.

Citations: 99 So. 3d 872; 2012 Ala. Civ. App. LEXIS 165; 2012 WL 2362628Docket: 2110317

Court: Court of Civil Appeals of Alabama; June 22, 2012; Alabama; State Appellate Court

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Russell Benton, Russell, and Jason Benton appeal a summary judgment favoring Clegg Land Co. Ltd., Clegg, Speaks Land Company, and Ken Buce. The factual background reveals that Curtis Adams and his wife had contracted Don Casey to construct a 10-acre lake on their 646-acre recreational property in Macon County before 2002. After the lake's construction, Adams sold the property to Clegg in 2002. Clegg subsequently made several improvements to the property and noticed fluctuations in the lake's water level. In 2003, Clegg asked Casey to inspect the dam, where Casey discovered signs of seepage but no identifiable cause. Following this, Clegg attempted to mitigate the issue by adding bentonite to the lake, but the fluctuations persisted.

When Clegg listed the property for sale at $3,250 per acre, Jason and Russell, experienced land purchasers, expressed interest. During a visit on October 11, 2007, amidst a drought, they inquired about the low water level. Speaks and Buce attributed it to the drought, assuring them there were no issues with the lake. Jason subsequently signed a purchase contract for $1,950,000 with a closing deadline of November 26, 2007. The contract included a clause stating that neither the seller nor any agent made representations about the property's condition, placing the responsibility on the purchaser to assess any material conditions, including subsurface and soil conditions.

Purchaser accepts the Property in its current 'AS IS' condition, with no oral statements or representations being valid unless included in the written agreement. All written covenants and obligations survive closing and bind successors and assigns. The contract constitutes the entire agreement between the parties, requiring any modifications to be in writing and signed by all involved. Both the Seller and Purchaser confirm they did not rely on any representations from Brokers regarding the property's condition or investment potential. The contract does not address the condition of the lake, nor does it condition the Purchaser’s obligation on the lake's status. 

Jason provided a $100,000 earnest money check to Buce, pending Clegg's agreement to sell the property. After Clegg signed the contract on October 15, 2007, Jason requested a specific closing date and access to the property before closing, which Clegg refused. Consequently, Jason stopped payment on the check, prompting Clegg to threaten legal action. However, they later agreed to close on November 9, 2007, with the sale actually occurring on November 5, 2007. Although Russell did not sign the contract, he acknowledged their joint purchase and involvement in financing. Post-purchase, they made improvements to the property, including constructing a lodge and docks, but found that the lake's water level remained low, exposing significant shoreline.

Russell and Jason purchased the property to entertain clients, with the lake envisioned as a central feature. They testified that low water levels turned the lake into an eyesore. Prior to their lawsuit, Jason discussed the lake's water levels with Adams, who indicated that Clegg had caused the lake's issues through prior work. Jason also noted that Russell met with Casey, leading them to believe there was fraudulent misrepresentation regarding the lake's condition. They filed a lawsuit against Clegg, Speaks Land Company, and Buce on August 9, 2009, alleging multiple fraud claims, including misrepresentation about the lake's issues, suppression of material defects, breach of contract, unjust enrichment, negligent hiring and supervision, and bad faith.

In response, Clegg, Speaks Land Company, and Buce filed for summary judgment, arguing that the claims were barred by the doctrine of caveat emptor and the 'as is' clause in their contract. They contended that Jason and Russell could not show reasonable reliance on any alleged misrepresentations. Additionally, they claimed no duty of care was owed and that Jason and Russell had assumed the risk. They maintained that they had not breached the contract since the property was sold 'as is.' For the unjust enrichment claim, they argued that since the property was sold in its purchased condition for the agreed price, there was no basis for unjust enrichment. Finally, they asserted that the bad faith claim failed because it required an insurance contract, which did not exist between the parties.

Jason and Russell opposed summary-judgment motions by arguing that their suppression claims were not barred by caveat emptor, asserting that Clegg, Speaks Land Company, and Buce were aware of a defect in the lake that Jason and Russell could not discover. They contended that these parties had a duty to disclose this defect. For their misrepresentation claims, they stated that after inquiring about the low water level, Speaks and Buce falsely attributed it to drought, denying any issues with the lake. They further argued that the 'as is' clause in the contract did not protect the defendants because: (1) Russell did not sign the contract, (2) the contract was a fill-in-the-blanks document provided by Buce, and (3) access to the property was denied by Clegg, making it impossible for them to assess the lake's condition before closing. They maintained that negligence claims were valid as Clegg, Speaks, and Buce owed them a duty of care and they had not assumed any risk. Additionally, they claimed entitlement to breach-of-contract and unjust-enrichment claims, stating they sought a property with a satisfactory lake for client entertainment but received a property that did not meet that expectation. They filed a Rule 56(f) affidavit seeking depositions of Adams, Casey, and Dennis to gather evidence essential to their opposition. Following a hearing, the trial court granted summary judgment in favor of the defendants without explanation. Jason and Russell's subsequent motion to alter or vacate the judgment was denied, leading them to appeal, which was transferred to a higher court. The standard of review for the appeal is de novo, focusing on whether a genuine issue of material fact exists based on the evidence presented.

In summary judgment reviews, evidence is evaluated in favor of the non-moving party, allowing for reasonable jury inferences. Jason and Russell contend the trial court improperly granted summary judgment on their misrepresentation and suppression claims, arguing that Clegg, Speaks Land Company, and Buce were aware of defects in the lake that were not obvious to them and thus had a duty to disclose this information, which they breached. They assert that Speaks and Buce misrepresented the low water level as drought-related and denied any issues with the lake, and that Russell, not having signed the contract, was not bound by the 'as is' clause. 

Alabama law has abolished the doctrine of caveat emptor for new real estate but retains it for used real estate, generally relieving sellers and their agents of the duty to disclose defects. However, exceptions exist: sellers must disclose defects if a fiduciary relationship is present, or if the buyer directly inquires about material conditions. If an agent knows of a material defect affecting health or safety that the buyer cannot observe, there is a duty to disclose. A buyer's inquiry can trigger a duty for truthful disclosure, but an 'as is' clause in a sales contract may preclude fraud claims arising from pre-contractual representations. 

Case law illustrates this principle; in Massey, a buyer's reliance on an agent's oral assurances was deemed misplaced after signing an 'as is' contract, while in Haygood, sellers misrepresented the condition of a basement despite prior repairs, yet the buyers were bound by their 'as is' agreement.

The sales contract included a clause stating that neither the Seller nor the Broker made any representations about the property's condition, and the Purchaser acknowledged that they did not rely on any other representations. The court ruled that the Haygoods did not claim reliance on misrepresentations, affirming that their signed documents negated any potential claims. In a related case, Leatherwood, the Bakers, after signing an 'as is' contract, discovered significant structural issues post-purchase and were barred from pursuing claims against the realty company due to the contract's terms. Similarly, in Teer v. Johnston, the seller misrepresented flooding issues but the court upheld the 'as is' clause, denying the purchasers' claims. The supreme court declined to overrule established case law, affirming that the sellers had no fiduciary duty and that the alleged defect did not affect health or safety. Although Jason and Russell's inquiry about the lake imposed a duty to disclose known defects, evidence suggested that Clegg, Speaks Land Company, and Buce were aware of a defect at the time of inquiry, although the existence of such a defect was not undisputed.

Undisputed evidence indicated that Speaks and Buce failed to disclose a defect in the lake when Jason and Russell inquired, instead claiming the low water level was due to drought. Jason subsequently signed a contract containing an 'as is' clause, while Russell, who did not sign, nonetheless admitted to joint ownership and financing of the property with Jason and participated in the closing process. Russell also filed a breach-of-contract claim against Clegg, Speaks Land Company, and Buce, based on the same contract he argues is not binding on him for misrepresentation and suppression claims. Legal precedent supports that a party can ratify a contract through acceptance of its benefits, making the 'as is' clause binding on both parties. Consequently, this clause precluded Jason and Russell’s claims of misrepresentation and suppression, leading to the affirmation of summary judgment regarding those claims.

For the negligence claim, Clegg, Speaks Land Company, and Buce sought summary judgment on three grounds, including that the 'as is' clause barred the claim. Jason and Russell contested the second and third grounds but did not challenge the first. The trial court did not specify its rationale, and since Jason and Russell did not argue against the first ground on appeal, they waived the issue. Legal precedent confirms that an 'as is' clause also bars negligence claims, allowing the affirmation of summary judgment on this claim as well.

Jason and Russell contend that the trial court incorrectly granted summary judgment on their breach-of-contract claim against Clegg, Speaks Land Company, and Buce, alleging the property purchased was supposed to be free from material defects. However, they had contracted for the property in an "as is" condition and received it as such, thereby failing to prove nonperformance by the defendants, a key element of their claim under Alabama law. Consequently, the court affirmed the summary judgment regarding this claim.

Regarding their unjust-enrichment claim, Jason and Russell failed to provide relevant legal authority specific to this issue, relying instead on cases concerning breach-of-contract claims. This lack of applicable argument led to the court's decision to affirm the summary judgment on the unjust-enrichment claim as well.

For the bad-faith claim, Jason and Russell did not contest the defendants' motion for summary judgment in the trial court or on appeal, resulting in a waiver of this issue. The court thus affirmed the summary judgment on the bad-faith claim.

Lastly, Jason and Russell argued that the trial court disregarded their Rule 56(f) affidavit, which sought additional discovery before the summary judgment was granted. However, Rule 56(f) requires specific details regarding the unavailability of evidence and the intended future actions to secure it. The court noted that the trial court has discretion over such requests, affirming the summary judgment in favor of the defendants.

The trial court's denial of a continuance based on Jason and Russell's Rule 56(f) affidavit was upheld. Their affidavit stated the need to depose Adams, Casey, and Dennis to oppose summary-judgment motions, claiming Adams could testify about the defect in the lake and Casey and Dennis about their work on the property. The court concluded that it did not abuse its discretion for these reasons: (1) the expected testimony would be cumulative, as Clegg had already acknowledged key facts about the lake's condition and previous attempts to address it; (2) the anticipated testimony would not defeat the summary-judgment motions, as it could not establish a genuine issue regarding essential facts, specifically that the property was used real estate and contained an “as is” clause; and (3) Jason and Russell had sufficient time to conduct the depositions before the first motion was filed. Additionally, Jason's deposition included hearsay regarding Adams' anticipated testimony, which was considered because no motion to strike it was made.

The action was initiated on August 9, 2009, but the first summary-judgment motion was not filed until March 14, 2011, an 18-month delay. Jason and Russell were aware of potential witnesses—Adams, Casey, and Dennis—who could provide relevant testimony, yet they did not depose them during this period. Their Rule 56(f) affidavit failed to justify this lack of action, leading the trial court to determine that sufficient time for discovery had passed before the summary-judgment motion was submitted. Consequently, the court affirmed the summary judgment in favor of Clegg, Speaks Land Company, and Buce. Additionally, while the Bentons had sued Clegg Capital, Inc. and Matthew R. Clegg, the trial court dismissed these claims on July 19, 2010, and Jason and Russell did not appeal this dismissal. Any potential challenges to the summary judgment regarding the negligence claim could not be considered on appeal, as they did not present relevant arguments to the trial court before the motion was submitted. The same applied to the bad-faith claim, further limiting the scope of their appeal.