Brief Fact Summary. One party to a real estate contract unintentionally misrepresented certain material facts to another party upon which that other party relied.
Synopsis of Rule of Law. "[A] purchaser of land may rely on material representations made by the seller and is not obligated to ascertain whether such representations are truthful." Additionally, "[a] buyer of land, relying on an innocent misrepresentation, is barred from recovery only if the buyer's acts in failing to discover defects were wholly irrational, preposterous, or in bad faith."
Issue. Are the Appellants entitled to the recisssion of a contract for the sale of land due to false statements made by the Appellees?
Held. Yes. The court first observes "an innocent misrepresentation may be the basis for rescinding a contract." The court then breaks its analysis into three parts. First, whether the Appellant relied on the Appellees' statement. Second, whether a reasonable person would have treated the statements as important when making their decision to purchase or not purchase the property. Third, whether the Appellant's reliance was justifiable.
• As to the first, the court found that the Appellant clearly relied on the representation in the multiple listing, which said "1 MILLION IN GRAVEL". This is irrespective of the fact that the subsequent listing referenced 80,000 cubic yards of gravel. This second approximation did not "disclaim the earlier statements regarding the amount of gravel." The court also found that the Appellant relied on the Appellee's representations about the highway frontage.
• As to the second, the court first recognized materiality is a mixed question of fact and law. A material fact is one "to which a reasonable man might be expected to attach importance in making his choice of action." The court concluded as a matter of law that the statements concerning "highway frontage and gravel content were material." A reasonable person would take both of these things into consideration when deciding whether to purchase the property.
• As to the third, the court first noted the recent tendency of courts to move away from the doctrine of caveat emptor even where there is an innocent misrepresentation. The court held that "a purchaser of land may rely on material representations made by the seller and is not obligated to ascertain whether such representations are truthful." Further, "[a] buyer of land, relying on an innocent misrepresentation, is barred from recovery only if the buyer's acts in failing to discover defects were wholly irrational, preposterous, or in bad faith." Applying these rules, the court found that although the Appellant arguably demonstrated poor judgment in not investigating further, recovery should not be denied.
Discussion. This case offers an informative discussion about unintentional misrepresentations of material fact in the context of a real estate transaction.