Staggs v. Sells: Sellers Liable for Agent's Negligent Misrepresentation to Buyer

A Tennessee appellate court has considered whether an owner of a property was held liable for agent's failure to properly disclose flooding on the property in the purchase agreement.

William E. and Betty Jean Sells ("Sellers") purchased a home in 1987 for their daughter. The Sellers never actually lived in the home. In 1995, the Sellers sold the property to Christell Staggs ("Buyer"). The Sellers never actually saw the Buyer's offer and gave their "agent" (court doesn't specify, but presumably it was the Sellers' real estate salesperson) ("Agent") the authority to sign their name on the purchase agreement. The purchase agreement stated that the property had not been damaged by flooding and the property did not require flood insurance. The Sellers never reviewed the purchase agreement.

The Buyer inspected the property herself and hired an appraiser. The appraisal noted that the property was in a low-lying area and should be checked by a surveyor for flooding. The mortgage lender accepted the appraisal report for the property without hiring a surveyor, and the property was classified in a flood certification as "flood zone C", meaning that flood insurance could be purchased but was not required. At closing, the Buyer asked her "agent" what a "flood zone C" classification meant and her agent explained that it referred to the fact that the property was in a low-lying area but wasn't supposed to flood.

The property flooded approximately fifteen times in the years following the closing. Although the flooding actually never came into the house and didn't cause any structural damage, it did completely surround the house on a couple of occasions, making the house an island. The Buyer brought a lawsuit against the Sellers, and the trial court ruled that the Sellers were guilty of negligent misrepresentation and also ruled that the Buyer had suffered $25,000 in damages. Since Tennessee uses the comparative fault doctrine in negligence cases, the court determined that the Sellers were 60% at fault and the Buyer 40% at fault, and so judgment was entered against the Sellers for $15,000. The Sellers appealed.

The Court of Appeals of Tennessee affirmed the rulings of the trial court. The court first considered the negligent misrepresentation allegations. To succeed in a negligent misrepresentation action, the Buyer would need to show: the Agent provided her with information; the information was false; the Agent did not exercise reasonable care in obtaining information provided to the Buyer; and the Buyer justifiably relied upon this information to her detriment. The trial court had determined that the Sellers had been aware of the flooding on the property, and the Agent had failed to use "reasonable care" before making the disclosures about flooding on the property in the purchase contract. The court found that even though the Sellers had never reviewed the purchase agreement, they were responsible for the disclosures made in the agreement because they had authorized the Agent to sign the agreement on their behalf. Since the information in the purchase agreement was not accurate, the court ruled that the Sellers were liable for negligent misrepresentation. The court also rejected the Sellers' argument that the Buyer could have discovered the flooding on her own, since there was no visible water damage to the structure and the flooding could only be discovered at the times when the property was in fact flooded. Thus, the trial court affirmed the award for negligent misrepresentation.

Next, the court considered the Sellers' argument that the comparative fault doctrine does not apply to negligent misrepresentation cases. The Sellers argued that since the Buyer must show her justifiable reliance on statements contained in the purchase contract and if she was 40% negligent (as determined by the trial court), then the Buyer could not claim justifiable reliance. The court found that so long as the Buyer was less negligent than the Sellers, she was entitled to recover. Thus, the court affirmed the award to the Buyer.

Staggs v. Sells, 86 S.W.3d 219 (Tenn. Ct. App. 2001).

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