Opinion
No. 106,506.
2012-07-27
Xavier NG, Appellee, v. Michael S. SCHAFFTER and Betty J. Schaffter, Appellants.
Appeal from Reno District Court; Timothy J. Chambers, Judge. Matthew L. Bretz, of Bretz Law Offices, LLC, of Hutchinson, for appellant. Dan W. Forker, Jr., of Forker Suter LLC, of Hutchinson, for appellee.
Appeal from Reno District Court; Timothy J. Chambers, Judge.
Matthew L. Bretz, of Bretz Law Offices, LLC, of Hutchinson, for appellant. Dan W. Forker, Jr., of Forker Suter LLC, of Hutchinson, for appellee.
Before BRUNS, P.J., MARQUARDT and HILL, JJ.
MEMORANDUM OPINION
PER CURIAM.
Michael and Betty Schaffter appeal the district court's decision granting judgment in favor of Dr. Xavier Ng. We affirm.
Michael and Betty Schaffter (the Schaffters) owned one unit in the five unit townhouse condominium complex at 4601 Winged Foot Drive in Hutchinson, Kansas. All of the residents of the complex belong to a homeowner's association known as Spyglass Hills Homeowner's Association (the Association).
In the fall of 2008, the Schaffters hired Chris O'Day, a local real estate agent, to assist in selling their townhouse. On November 10, 2008, the Schaffters completed a Seller's Property Disclosure Statement (disclosure statement). Question 8 in Section H of the disclosure statement asked whether the Schaffters were aware of “[a]ny pending or levied special assessments on real estate including but not limited to those for sidewalks, streets, sewers, water, and/or natural gas lines.” The Schaffters provided a negative response to this question. In signing the disclosure statement, the Schaffters certified that the answers to all of the questions were truthful and that “ [a]ny substantive changes will be disclosed by SELLER to BUYER prior to closing.”
In the Association's Declaration of Covenants, Conditions, Restrictions and Dedication of Easements (Declaration), Article V, Section 4 provides that the Association's Board of Directors may levy a special assessment on townhouse owners to pay the cost of repairs, replacements, or capital improvements. The special assessment cost is apportioned among the Association members based upon the size of the living area in that member's unit. The Declaration provides that a special assessment requires:
“an affirmative vote of a simple majority of the Association members who are present and voting in person ... at a special meeting called for the purpose of considering the special assessment after not less than thirty (30) days' notice in writing to each member of the Association, stating the time, place and purpose of said meeting.”
The Association members held various meetings to discuss possible repair or improvement projects. These meetings were usually very informal, did not normally involve all of the Association members, and usually occurred in common areas, such as the parking lot or the front yard area. The Association also holds an annual meeting, usually near the beginning of each year.
Sometime in 2008, members of the Association began discussing the need to replace the stucco on the exterior of the townhouses. According to Richard Manka, president of the Association, the condition of the stucco in certain areas was “obvious and pervasive” in its deterioration. In September 2008, the Association began contacting companies to obtain bids for the cost of repairing the damaged or deteriorated stucco.
On January 31, 2009, Dr. Xavier Ng and his wife, Faye Ng, signed a contract to purchase the Schaffters townhouse. On that same date, Dr. Ng and his wife received a copy of the Schaffters' disclosure statement. Paragraph 3 of the acknowledgement provided that the Ngs agreed “to verify any of the above information that is important to me by an independent investigation of my own” and that the Ngs had “been advised to have the property examined by professional, third-party inspectors.”
After signing the contract, the Ngs hired Voran Home Inspections to perform an inspection. Ng accompanied Voran during the inspection and observed that the paint on certain portions of the exterior was lifting and peeling. On February 12, 2009, Voran prepared a home inspection report on the Schaffter's unit in which he noted that the exterior “appears to be traditional stucco, which is installed over wire or metal lath in several coats, and is approximately 1/2? thick. The stucco is tight to the wall, no cracks are present, and the overall condition is good.” The report recommended several minor repairs to the chimney, around the back patio outlet, and on the front side of the garage, where the paint was peeling and lifting.
Because of Voran's inspection report, the Ngs requested that the Schaffters make several repairs before closing on the purchase of the townhouse. On March 2, the parties executed an inspection addendum which listed the repairs that the Schaffters agreed to make before closing. In paragraph F of the addendum, the Schaffters agreed to give the Ngs a $3,000 allowance, payable at closing, in lieu of repairing several additional items. Upon the completion of the repairs enumerated in the addendum, the Ngs agreed to accept the property “ ‘as is, where is, in its present condition’ “ and to release the Schaffters from “any further responsibility for repair to, or replacement of, any defects discovered in said reports.”
Sometime between February 20 and February 22, 2009, the Association held its annual meeting at which the members discussed Air Capital Stucco Company's bid to repair the damaged stucco. Air Capital's bid was rejected, and the members agreed to solicit bids from other companies. Betty Schaffter attended this meeting.
According to Manka, Air Capital's bid was not a pending special assessment; however, if the homeowners had accepted that proposal, that would have been sufficient to trigger a special assessment. Prior to the February annual meeting, Manka believed that the Association members were in agreement that the stucco on the exterior of the townhouses was in need of repair. After the February meeting, however, Manka believed that the Association members had concluded that more extensive work on the exterior stucco would probably be required. Michael Schaffter testified that the vote at the February meeting indicated they would seek additional bids to repair the stucco.
On March 13, the Ngs closed on the purchase of the Schaffters' townhouse. On March 26, Reitmayer Construction submitted a proposal, offering to replace the stucco on all of the townhouses at a cost of $61,691. That same day, Manka sent a letter to the Association members advising them of the Reitmayer proposal and suggesting that the Association members accept that proposal. Manka also contacted Ng and told him about the Association's activities in soliciting bids for the repair of the stucco. Manka testified that Ng was surprised to learn about the Association's activities and expressed concern about the fact that he would be required to help pay for the Reitmayer stucco project. Ng told Manka that he would probably go along with whichever proposal the Association members accepted.
According to Ng, the first time he heard about the Association's solicitation and consideration of proposals to repair the exterior stucco was during his March 26 telephone conversation with Manka. After speaking with Manka, Ng contacted his real estate agent, Jim Davis, and asked if Davis had ever been notified that the Association was soliciting bids to repair or replace the stucco. Davis told Ng that he was never informed of the Association's solicitation of bids or its discussions to repair or replace the stucco. Chris O'Day also indicated that the Schaffters never informed her of the possibility of any assessment or discussion to repair the stucco.
Sometime between March 26 and April 1, Ng called Manka and told Manka that he was voting in favor of the Reitmayer proposal. On April 1, a letter was sent to all of the Association members, notifying them of the special assessment and specifying the amount that each member would be required to pay. The cost of the assessment for the Ngs was $11,264.78.
Ng subsequently filed a petition in Reno County, alleging that the Schaffters breached the real estate contract by failing to disclose that the Association had an assessment pending before they closed on the purchase of the Schaffters' townhouse. After a bench trial, the district court entered a judgment in favor of Ng and awarded him $11,264 in damages. Specifically, the district court found: “Prior to closing ... the assessment had moved beyond mere contemplation or casual conversation. Bids were being sought and after the February meeting of the association, it was clear the assessment was going to be made.” The Schaffters timely appealed.
Breach of Real Estate Contract
The legal effect of a written instrument is a question of law, and therefore, an appellate court's standard of review is de novo. Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011). “The primary rule for interpreting written contracts is to ascertain the parties' intent. If the terms of the contract are clear, the intent of the parties is to be determined from the contract language without applying rules of construction.” Carrothers Const Co., L.L.C. v. City of South Hutchinson, 288 Kan. 743, 751, 207 P.3d 231 (2009). In interpreting a contract, an appellate court will ascribe to the words used their plain and ordinary meaning. First Financial Ins. Co. v. Bugg, 265 Kan. 690, 694, 962 P.2d 515 (1998).
The Schaffters assert that the district court erred in finding that an assessment was pending prior to the closing of the sale of the townhouse to the Ngs. The Schaffters also argue that the district court ascribed an incorrect meaning to the word “pending” because a special assessment was not pending until a majority of the Association members voted to approve an assessment.
In their disclosure statement, the Schaffters stated that they were not aware of any “pending or levied special assessments” on their townhouse. Under the terms of that disclosure statement, the Schaffters had a continuing duty to notify a potential buyer of any substantive changes to any of the information contained in that document. A panel of this court has also recognized that a seller of property has an affirmative duty to provide correct information in the disclosure statement. Osterhaus v. Toth, 39 Kan.App.2d 999, 1009, 187 P.3d 126 (2008), aff'd291 Kan. 759, 249 P.3d 888 (2011).
Ng claimed that the Schaffters failed to disclose a pending special assessment. In essence, Ng's claim blends the elements of a traditional breach of contract claim with the tort of negligent misrepresentation. Kansas appellate courts have implicitly recognized such hybrid claims in the context of real estate transactions in which the buyer sues the seller for the seller's failure to disclose significant and material information prior to closing. See Osterhaus, 291 Kan. at 785–86;Stechschulte v. Jennings, 43 Kan.App.2d 47, 53–54, 222 P.3d 507 (2010).
To support a claim of negligent misrepresentation, the plaintiff must show: (1) that the person supplying the false information failed to exercise reasonable care or competence in obtaining or communicating false information; (2) that the party receiving the information reasonably relied on the information; and (3) that the party who received the information suffered damages. PIK Civ. 4th 127.43. Furthermore, a matter is deemed material if it is one to which a reasonable person would attach importance in deciding his or her choice of action in the transaction in question. Griffith v. Byers Construction Co., 212 Kan. 65, 73, 510 P.2d 198 (1973).
Ng claims he relied on the information supplied by the Schaffters in their disclosure statement, and because of that, he suffered an unforeseen and unanticipated $11,264.78 loss by having to pay the special assessment. Moreover, he claims the information regarding the existence of a pending special assessment prior to the closing date was material to this transaction. Ng testified that if the Schaffters had disclosed to him that Association members were discussing replacing the exterior stucco, it would have affected his decision to purchase the townhouse or the price that he was willing to pay-Thus, the central issue in this case is whether the Schaffters negligently supplied false information in their disclosure statement by either indicating that they were not aware of any pending special assessment or by failing to notify the Ngs of the Association's activities in soliciting and considering bids to repair the stucco.
If there was a pending special assessment between January 31 and March 13, 2009, then the Schaffters failed to provide the Ngs with correct information in the disclosure statement. However, if no special assessment was pending during that time period, then the Schaffters' disclosure statement was correct, and Ng's claim for breach of contract would fail.
The Schaffters contend that they did not negligently supply false information in their disclosure statement because an assessment was not pending until a majority of the Association members voted to approve a bid. The Schaffters acknowledge that the Association's annual meeting occurred around February 20, 2009. They also acknowledge that Michael Schaffter was present at that meeting at which the Association members rejected Air Capital's bid and agreed to solicit other bids. The Schaffters argue that an assessment was not pending until sometime between March 26 and April 1, when the members of the Association voted to approve the Reitmayer bid. This occurred nearly 2 weeks after the Ngs closed on the purchase of the townhouse.
In reaching its decision, the district court considered several definitions of the word pending. Black's Law Dictionary defines pending as follows: “Begun, but not yet completed; during; before the conclusion of; prior to the completion of; unsettled; undetermined; in process of settlement or adjustment. Awaiting an occurrence or conclusion of action, period of continuance or indeterminancy.” Black's Law Dictionary 1134 (6th ed.1990). A subsequent edition of Black's Law Dictionary offers the following definition for the word pending: “Remaining undecided; awaiting decision.” Black's Law Dictionary 1248 (9th ed.2009).
The district court found:
“ ‘[P]ending’ does not require the assessment to have been approved by the homeowner's association. Conversely, a mere contemplation or backyard discussion between neighbors does not trigger a ‘pending’ action. For an action to be pending, there must be a beginning or commencement.
“Prior to closing, the evidence indicates, primarily through the testimony of Mr. Manka, the assessment had moved beyond mere contemplation or casual conversation. Bids were being sought and after the February meeting of the association, it was clear the assessment was going to be made. The issue was as to what bid was going to be approved. The Defendants were aware of the pending assessment with Mrs. Schaffter being present at the February meeting and a member of the governing body.
“The issue of the pending assessment was material to the transaction. The Defendants had notice of the pending assessment and did not communicate the same to the Plaintiff. Under the terms of the contract and disclosure statement, the information was required to be communicated.”
Article V, Section 4 of the Declaration unambiguously declares that a special assessment requires the affirmative vote of a simple majority of the Association's members at a special meeting called for the purpose of considering the special assessment. However, the Declaration language does not resolve the issue of whether the stucco repair was pending before that vote.
Ng contends that the Schaffters present the court with a false dilemma by arguing that an assessment can be pending “only if a clear-cut event occurs, such as the vote to accept a particular bid.” Manka testified that before the February annual meeting, he believed that the Association members were in agreement that the exterior stucco on the townhouses required repair. Manka's belief is supported by the fact that bids were being solicited.
Ng also invokes the principle that a contract should not be construed in a manner which renders a term of the contract meaningless. Ng points out that the disclosure statement asked if the Schaffters were aware of any “pending or levied special assessments.” Ng argues that the interpretation advanced by the Schaffters renders the word levied meaningless because a special assessment would be both pending and levied when the special assessment was approved by a majority vote of the Association members. Instead, Ng asserts that when the Association “voted to approve the bid, the assessment undoubtedly became ‘levied,’ “ but “when bids were being seriously considered and discussed by the [Association], the assessment was, as the District Court found, ‘pending.’ “
It is a basic principle that a court should not interpret a contract in a manner which renders a term of the contract meaningless. Guss v. Fort Hays State Univ., 38 Kan.App.2d 912, Syl. ¶ 8, 173 P.3d 1159 (2008).
The district court did not err in finding that the special assessment for the Association's stucco repair project was pending prior to the date the Ngs purchased the Schaffters' townhouse. Accordingly, we find that the district court did not err in entering judgment for Ng.
Affirmed.