Brief Fact Summary. The Plaintiffs, Warren Hill and Gloria Hill (Plaintiffs), entered into a contract for the purchase of a residence from the Defendants, Ora Jones and Barbara Jones (Defendants). After learning of a termite infestation, Plaintiffs brought suit, seeking rescission of the sale based on misrepresentation.
Synopsis of Rule of Law. When a seller is aware of a material fact that could affect the value of property in its possession, a duty to disclose is imposed.
Issue. The issue presented on appeal is whether the Defendants could be held to a duty to disclose to the Plaintiffs information that could materially affect the value of the property.
Held. Reversed and Remanded.
From the record, there was no visible evidence of an infestation, but the Plaintiffs learned there had been a prior infestation, after they bought the property from Defendants.
The Court focused on the rule of disclosure, maintaining that there is a duty to disclose material facts where: (1) it is necessary to prevent an assertion of misrepresentation; (2) it could correct a mistake made by the other party as to a basic assumption on the terms of the contract; (3) it would correct a mistake as to the contents of an agreement and (4) the other person is entitled to know of the fact because of a relationship of trust.
In this case, disclosure of a previous termite problem would have prevented an assertion of misrepresentation. Without disclosing necessary information, which affects the value of the property, it is a question of fact as to whether Defendants were acting in good faith and a new trial was an adequate solution.
Discussion. Also note, in this case, the Defendants tried to draw a distinction between a past infestation of termites and a new infestation, contending that the fact of a past infestation was not material to Plaintiffs, once they rectified the past problems. The court focused on the materiality of the fact, saying that a material fact must be disclosed, if it is one which may affect the decision of another party.