Opinion
21-00152-CV
08-23-2022
BILLY WISCHNEWSKY AND AMY WISCHNEWSKY, Appellant v. JAMES MARSH AND KASEY MARSH, Appellee
On Appeal from the 10th District Court Galveston County, Texas Trial Court Case No. 19-CV-0437
Panel consists of Chief Justice Radack and Justices Kelly and Landau.
MEMORANDUM OPINION
SARAH BETH LANDAU JUSTICE
Billy and Amy Wischnewsky sued James and Kasey Marsh over a real estate transaction, claiming that the Marshes fraudulently induced them into buying the property by fraudulent misrepresentation or concealing known defects. The Marshes moved for summary judgment, which the trial court granted. The Wischnewskys appeal that ruling, arguing that the trial court erred because they raised fact issues as to the enforceability of the "as is" clause of the contract. We affirm.
I. Background
In 2018, the Wischnewskys agreed to purchase a home from the Marshes. The Marshes were represented by Marilyn Ames of Ames Properties, L.L.C. The Marshes executed a form Seller's Disclosure Notice from the Texas Association of Realtors. The Marshes answered "no" to the question about whether they knew of any "room additions, structural modifications, or other alterations or repairs made without necessary permits, with unresolved permits, or not in compliance with building codes in effect at the time." The disclosure noted that the roof was 15 years old, and the Marshes affidavit confirmed there was an "[a]ddition of patio cover on rear of house in November 2012."
The parties used a standard contract from the Texas Real Estate Commission that included an "as is" clause. "As is" is defined as "the present condition of the Property with any and all defects and without warranty except for the warranties of title and the warranties in this contract." The clause also provided that "Buyer accepts the Property As Is provided Seller, at Seller's expense, shall complete the following specific repairs and treatments: Properly patch and paint wall in downstairs half bath after removing cabinet." While the "as is" language was part of the form, the parties negotiated that the Marshes would patch and paint the wall in the bathroom where a cabinet would be removed before sale.
Before the option period ended, when the Wischnewskys had an unrestricted right to terminate the contract, they had a professional inspection of the property. The Wischnewskys reviewed the resulting inspection report before closing. The inspection report noted roof flashing problems, exposed nail heads, damaged shingles, and fiber cement siding problems. After the inspection, the Wischnewskys noted many needed repairs but told the Marshes that they preferred to reduce the purchase price by $25,000 rather than have the Marshes make repairs. After negotiations, they settled on a $15,000 price reduction. During the walkthrough of the property before closing, the Wischnewskys saw a water stain above the fireplace and patching on the second-floor ceiling. Mr. Marsh explained that a roof leak was patched before the Marshes bought the home. The Wischnewskys decided the issues were not serious enough to abandon the contract, so they bought the property.
Months later, the Wischnewskys experienced roof-related damage and learned that the Marshes did not get permits for installing the back patio cover. The Wischnewskys then sued the Marshes, Marilyn Ames, and Ames Properties for civil conspiracy, common law fraud, and statutory fraud in a real estate transaction under Section 27.01 of the Texas Business and Commerce Code. The Marshes moved for traditional and no-evidence summary judgment based on the "as is" clause, and the trial court granted it. Marilyn Ames and Ames properties also moved for traditional and no-evidence summary judgment that the trial court also granted. The Wischnewskys appeal the grant of summary judgment. They argue that the trial court erred because they raised fact issues about the "as is" defense and the claimed damages.
II. Standard of Review and Applicable Law
We review a grant of summary judgment de novo. Provident Life and Acc. Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). To prevail on a traditional motion for summary judgment, the movant "must establish that there is no genuine issue as to any material fact and that he or she is entitled to judgment as a matter of law." Randall's Food Mkts., Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995); Tex.R.Civ.P. 166a(c). A defendant is entitled to summary judgment if at least one element of each of the plaintiff's claims is disproven, or the defendant establishes each element of an affirmative defense. Friendswood Dev. Co. v. McDade & Co., 926 S.W.2d 280, 282 (Tex. 1996). We consider all evidence favorable to the nonmovant as true, indulge every reasonable inference in favor of the nonmovant, and resolve any doubts in the nonmovant's favor. Johnson, 891 S.W.2d at 644.
For a no-evidence motion for summary judgment, after adequate time for discovery, the movant must state the elements of a claim unsupported by evidence. Tex.R.Civ.P. 166a(i). The court must grant the motion if the nonmovant fails to produce evidence raising a genuine issue of material fact. Tex.R.Civ.P. 166a(i); Howell v. Hilton Hotels Corp., 84 S.W.3d 708, 715 (Tex. App.-Houston [1st Dist.] 2002, pet. denied).
When a party moves for summary judgment under Rules 166a(c) and 166a(i), we first review the trial court's judgment under Rule 166a(i). Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004). If the appellants do not produce more than a scintilla of evidence under that burden, then there is no need to analyze the trial court's judgment under Rule 166a(c). Id. But "we may review a summary judgment under the matter-of-law standard first if it would be dispositive." Juda v. MarineMax, Inc., No. 01-08-00138-CV, 2018 WL 6693586, at *5 (Tex. App.- Houston [1st Dist.] Dec. 20, 2018, no pet.) (mem. op.); see also Tex. R. App. P. 47.1.
If a trial court does not specify the ground for summary judgment, we must affirm if any of the theories advanced by the movant and preserved for appellate review are meritorious. See Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 626 (Tex. 1996). We do not consider arguments the nonmovant failed to present to the trial court in its written motion or response. McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 343 (Tex. 1993).
III. Analysis
The Wischnewskys contend that the trial court erred because they produced evidence raising a genuine issue of material fact about the Marshes "as is" defense and about damages.
A. The "as is" Clause
First, the Wischnewskys argue that the contract does not bind them if the Marshes induced their agreement through fraudulent misrepresentation or concealment. Generally, a valid "as is" clause will preclude a showing of causation and reliance for fraud claims. Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd., 896 S.W.2d 156, 161 (Tex. 1995); see Williams v. Dardenne, 345 S.W.3d 118, 124 (Tex. App.-Houston [1st Dist.] 2011, pet. denied). When a buyer agrees to purchase something "as is," they are making their own appraisal of the sale and accepting the risk that they may be wrong. Prudential, 896 S.W.2d at 161 (citing Mid Continent Aircraft Corp. v. Curry Cnty. Spraying Serv. Inc., 572 S.W.2d 308, 313 (Tex. 1978)).
But a buyer is not bound by an "as is" clause if they were induced to make the purchase by fraudulent representation, fraudulent concealment, or if the seller obstructs the buyer's ability to inspect the property. Id. at 162; Bynum v. Prudential Residential Servs., 129 S.W.3d 781, 788-89 (Tex. App.-Houston [1st Dist.] 2004, pet. denied). A buyer who challenges the enforceability of an "as is" clause must present more than a scintilla of evidence that raises a fact issue as to its enforceability. See Van Duren v. Chife, 569 S.W.3d 176, 186 (Tex. App.-Houston [1st Dist.] 2018, no pet.).
We consider the totality of the circumstances surrounding the agreement to determine whether an "as is" clause is enforceable. Prudential, 896 S.W.2d at 162. Factors that must be considered are whether the "as is" clause is key to the bargain, rather than an incidental or boiler-plate provision, and whether the parties have relatively equal bargaining positions. Id.
1. Circumstances, Bargaining Position, and Fraudulent Inducement
The Wischnewskys do not argue that the "as is" clause was key to the bargain, or that they had unequal bargaining power. Thus, we focus only on whether there was fraudulent inducement. The Wischnewskys argue that the Marshes knew that an unpermitted patio cover was installed and that the roof leaked.
Fraudulent inducement is a type of common law fraud arising in the context of a contract. Anderson v. Durant, 550 S.W.3d 605, 614 (Tex. 2018). The elements of fraudulent inducement are (1) that a material representation was made; (2) that it was false; (3) that it was known to be false or it was made recklessly without knowledge of its truth; (4) that it was made with the intent that the other party should act based on it; (5) the other party relied on that representation; and (6) the other party was injured as a result. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001) (citing Formosa Plastics Corp. v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998)).
To overcome a no-evidence motion for summary judgment, the Wischnewskys had to raise an issue of fact about the enforceability of the "as is" clause by producing more than a scintilla of evidence to support their claim that they were fraudulently induced to purchase the property. See Van Duren, 569 S.W.3d at 186; Howell, 84 S.W.3d at 712 (it is improper to grant a no-evidence summary judgment if there is more than a scintilla of evidence raising a genuine issue of material fact).
(1) Fraudulent Misrepresentation and Concealment of the Roof Defects
The Wischnewskys argue that the roof leaked before their purchase of the home and the Marshes either misrepresented or failed to disclose their knowledge of roof leaks.
The summary judgment evidence establishes that the Marshes executed the Seller's Disclosure Notice stating that they were unaware of any additions, modifications, alterations, or repairs made without necessary permits or not in compliance with building codes. And the Wischnewskys obtained an inspection report that revealed issues with the roof and home that they used to negotiate a price reduction. Before closing, they conducted a walkthrough where they noticed water stains, but after discussing it with Mr. Marsh they decided to purchase the house anyway.
Texas courts have held that a buyer's independent inspection precludes a showing of causation and reliance if the buyer made the purchase after the learning the same facts that the seller allegedly failed to disclose. Williams, 345 S.W.3d at 125-26 (collecting cases discussing how a buyer's independent inspection affects causation and reliance). Texas courts have also considered whether the buyer relies on the independent inspection as a basis to renegotiate the contract.
The courts are divided about whether the record must show that there was a renegotiation of the purchase contract based on the buyer's independent inspection. Compare Dubow v. Dragon, 746 S.W.2d 857, 860 (Tex. App.-Dallas 1988, no writ) (holding that an independent inspection negated causation and reliance because the buyer relied on information from the inspection to renegotiate contract), and Ritchey v. Pinnell, 324 S.W.3d 815, 819 (Tex. App.-Texarkana 2010, no pet.) (following Dubow), with Lesieur v. Fryar, 325 S.W.3d 242, 250 (Tex. App.-San Antonio 2010, pet. denied) (holding that evidence of renegotiation of the contract is not required). Here, the more stringent standard is satisfied, so we need not decide which approach is correct. See Tex. R. App. P. 47.1.
Here, through disclosures, an inspection, and their own observations, the Wischnewskys knew: the roof was 15 years old, the roof flashing needed repairs, nail heads were exposed on the shingles, there were damaged shingles that needed replacing, fiber cement siding needed repair, and there were water stains and patching on the ceilings. As a result, the Wischnewskys failed to produce evidence that they were fraudulently induced to enter the contract. See Williams, 345 S.W.3d at 126 (when a buyer knows facts they cannot rely on misrepresentation of those facts). Because there is no evidence the contract resulted from fraud, the "as is" clause precludes the establishment of the elements of causation and reliance for the roof defects. See Lutfak v. Gainsborough, No. 01-15-01068-CV, 2017 WL 2180716, at *5-7 (Tex. App.-Houston [1st Dist.] May 18, 2017, no pet.) (mem. op.) (citing Prudential, 896 S.W.2d at 161-62).
(2) Fraudulent Misrepresentation and Concealment of the Back Patio Cover Permissions
Another basis for fraudulent inducement is that the Marshes installed the back patio cover without the required permissions. The Wischnewskys contend that the Marshes failed to obtain (1) foundation and framing plans from a structural engineer licensed in Texas; (2) construction permits; and (3) approval from the homeowner's association. To set aside the "as is" clause because of fraudulent inducement the Wischnewskys must show that the Marshes had actual knowledge of their misrepresentation. Bynum, 129 S.W.3d at 790 (citing Prudential, 896 S.W.2d at 162 (evidence that the seller should have known of a property condition is insufficient to show knowledge)). At the same time, a seller has no duty to disclose facts he does not know and is not liable for failing to disclose facts he should have known. Prudential, 896 S.W.2d at 162.
The Wischnewskys argue that they relied on the Marshes answer of "no" about whether there were any "room additions, structural modifications, or other alterations or repairs made without necessary permits, with unresolved permits, or not in compliance with building codes in effect at the time" when they purchased the property. For the Marshes' patio cover, the Wischnewskys provided the applicable city ordinance requiring permits as well as foundation and framing plans from a structural engineer licensed in Texas. The Wischnewskys also provided the relevant HOA regulations. But the Marshes admitted that they were unaware whether the city required any permits or inspections for the back patio cover. Nor were they aware whether there were requirements under their HOA.
While the evidence shows that plans, permits, and approval were required to construct the back patio cover, there is no evidence that the Marshes had any knowledge of those requirements. In Bynum, the evidence showed that the sellers had intentionally avoided seeking approval from their civic association as required under the deed restrictions; failed to ask about the qualifications of their contractor; had heard of building permits; and had neighbors who obtained building permits. 129 S.W.3d at 791. Even so, the court determined that there was insufficient evidence to raise a fact issue about the sellers' actual knowledge that the construction occurred without the required permits. Id. at 791-92.
Similarly, the Marshes were supposed to have obtained approval from their HOA's architectural review committee, much like in Bynum, where the sellers required their civic association's approval. But there is no evidence that the Marshes should have known there were construction requirements. Unlike in Bynum, nothing in the record shows that the Marshes were aware of building permits or that they had seen anyone in their area obtain building permits for home additions or remodels. Instead, the Wischnewskys rely on the fact that there were requirements imposed by the city and HOA that the Marshes should have known about.
But a seller has no duty to disclose facts he does not know and is not liable for failing to disclose what he should have known about. Prudential, 896 S.W.2d at 162. The evidence presented here is less compelling than in Bynum or Prudential. See Bynum, 129 S.W.3d at 791-92 (where the sellers' carelessness did not justify setting aside an "as is" clause); Prudential, 896 S.W.2d at 162-63. As a result, there is not enough evidence to establish that the Marshes knew that their back patio cover was installed without the required permissions. Thus, the Wischnewskys cannot show fraudulent inducement, meaning that the "as is" clause cannot be set aside. The application of the "as is" clause precludes the Wischnewskys from showing causation and reliance. See Prudential, 896 S.W.2d at 161-63. The trial court did not err in granting summary judgment in the Marshes' favor as to their claims that they were fraudulently induced to purchase their home by the Marshes' fraudulent misrepresentations or concealment that the back patio cover lacked the required permissions.
B. Damages
Because the fraudulent inducement exception to the application of an "as is" clause does not apply here, the "as is" clause precludes the Wischnewskys from satisfying necessary elements of their claims, so we need not address damages. See Tex. R. App. P. 47.1.
IV. Conclusion
In sum, because the Wischnewskys failed to provide evidence to support the fraudulent inducement exception to the "as is" clause, that clause cannot be set aside, so it precludes the Wischnewskys from satisfying their claims. We affirm the trial court's judgment.