Richey v. Patrick: Wyoming High Court Reviews Plaintiff's Claim of Misrepresentation for Seller's Nondisclosure of Property Condition With "As-Is" Contract Provision

In Richey v. Patrick, the Supreme Court of Wyoming addressed the effect of nondisclosure of sediment in a well system by the seller under an "as is" contract. The court found that the "as is" clause and the buyer's right to inspect the property negated buyer's contention that seller's nondisclosure amounted to misrepresentation.

On June 21, 1990, the Patricks looked at a home owned by the Richeys. On June 22, they made an offer on the home, which was accepted three days later. A well supplied the home with water. Because the water was hard, the home was equipped with a water treatment unit. Unbeknown to the Patricks, the Richeys had experienced problems with black sediment coming through the well system. After each incident, the sediment problem went away after the treatment unit was cleaned and the filters replaced. Prior to making their offer on the house, the Patricks asked the real estate agent how the water was; and the agent told them it was hard. The Patricks did not ask the agent or attempt to contact the Richeys prior to closing about the well, the treatment system or ask if there had been any problems with sediment.

The contract signed by the Patricks contained provisions regarding the conditions of the property, inspections, and warranties. Regarding the property condition, the contract stated that the seller represented that there were no known violations of state law or local ordinances. It also stated that a "property condition statement" was not available, that any known or unknown defects were waived, and that the buyer did not rely upon any representations of the seller. Regarding inspections, the contract stated that buyer was free, at its own expense, to inspect the property themselves or through inspectors. Finally, the contract stated that the buyer accepted the property "as is," without any implied or express warranty by seller. The Patricks admitted that they did not, or attempt to, do any inspections of any kind on the property.

The Patricks sued the Richeys claiming breach of contract, fraud, misrepresentation, and nondisclosure. The trial court found the Patricks were "fraudulently induced" into entering the contract, and declared it void. The Richeys appealed.

The Court noted that the "district court found that the information omitted was negligent but concluded that the Patricks were 'fraudulently induced' into the contract. The supreme court stated that "fraud requires a finding that a party made a representation with the intent to induce action by another." The court held that the finding that the omission was negligent precluded a finding of the intent required for fraud because negligence is not intentional. Thus, the court concluded that there was no fraud by the Richeys.

The Court stated that negligent misrepresentation exists if a person who has a pecuniary interest in a transaction supplies false information for the guidance of others, if he fails to exercise reasonable care or competence in obtaining or communicating the information. The court stated that the nondisclosure of information cannot support a claim for misrepresentation, as nothing has been represented. Here, the Richeys did not supply any information, true or false, to the Patricks. Thus, they were not liable for misrepresentation.

The Court also addressed liability for nondisclosure. It noted that one who fails to disclose a fact that he knows may justifiably induce another to act on is subject to liability, but only if he is under a duty to disclose the matter in question. The court also noted that the "as is" clause shifted the burden of discovering defects in the property to the Patricks. The contract further provided for inspections by experts hired by the Patricks, of which they failed to take advantage. The court concluded by stating that "a contract to sell realty, which contains an 'as is' clause bars any claims for nondisclosure absent the existence of fraud or misrepresentations." The court previously found no evidence of fraud or misrepresentation. Thus, the court reversed the district court decision.

Richey v. Patrick, 904 P.2d 798 (Wyo. 1995).

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