Case Law Expands the Obligations of Sellers of Real Estate

The doctrine of caveat emptor means “let the buyer beware”. The doctrine was initially applied to the sales of personal property and was later extended to the sales of real property. In the case of Haskell Co. v. Lane Co. Ltd., 612 So.2d 699 (Fla.1st DCA 1993), rev. dismissed 620 So.2d 762 (Fla 1993), and the authorities cited therein trace the history of the doctrine of caveat emptor.

Article 2 of the Uniform Commercial Code which has been adopted by almost every state in the United States has replaced the doctrine of caveat emptor with regard to the sale and purchase of personal property. Article 2 of the Uniform Commercial Code requires that the parties deal fairly and in good faith, as evidenced by the implied warranties of merchantability and fitness for a particular purpose contained in the Uniform Commercial Code. See Ch. 672, F.S.

The abrogation of caveat emptor as applied to real property transactions in Florida occurred in Gable v. Silver, 258 So.2d 11 (Fla. 4th DCA), cert. discharged, 264 So.2d 418 (Fla. 1972), when the Florida Supreme Court upheld the District Court’s decision rejecting the continued applicability of the doctrine of caveat emptor to the purchase of new homes or condominiums. In Johnson v. Davis, 480 So.2d 625 (Fla. 1985), the Florida Supreme Court promulgated the rule that “where a seller of a home knows of facts materially effecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.” In the Johnson case the Florida Supreme Court judicially abolished the doctrine of caveat emptor with respect to residential property, and held the seller of a home liable for failing to disclose material defects of which the seller is aware.

As to commercial property, Florida courts have continued to uphold the viability of the doctrine of caveat emptor and have held the duty to disclose material defects of which the seller is aware does not extend to commercial transactions. See Wasser v. Sasoni, 652 So.2d 411 (Fla. 3d DCA 1995); Futura Realty v. Lone Star Bldg. Centers, Inc., 578 So.2d 363 (Fla. 3d DCA 1991), rev. den. 591 So.2d 181 (Fla. 1991); Mostoufi v. Presto Food Stores, Inc., 618 So.2d 1372 (Fla. 2d DCA 1993), rev. den. 626 So.2d 207 (Fla. 1993).

Some of the Florida District Courts of Appeal have indicated in their opinions they are questioning the justification for not extending the duty to disclose to commercial property. In the case of Haskell Co. v. Lane Co. Ltd., 612 So.2d 669 (Fla. 1st DCA 1993) rev. dismissed sub. nom. Service Merchandise Company, Inc. v. Lane Co. Ltd., 620 So.2d 762 (Fla. 1993), the First District Court concluded that the duty to disclose should be extended to commercial real estate transactions and recognized that purchasers who buy real estate vary widely in their experience, knowledge, sophistication, bargaining power, wealth and access to outside advisors and experts. See also Green Acres, Inc. v. First Union National Bank of Florida, 637 So.2d 363 (Fla. 4th DCA 1994).

In the Haskell case the First District Court opined “that there is little justification for continuing to draw a distinction between transactions involving residential real property and transactions involving commercial property.”

The First District Court in the Haskell case certified the following question to the Florida Supreme Court:

SHOULD THE COMMON LAW DOCTRINE OF CAVEAT EMPTOR
CONTINUE TO APPLY TO COMMERCIAL REAL PROPERTY
TRANSACTIONS; AND IF NOT, WITH WHAT LEGAL PRINCIPAL
SHOULD IT BE REPLACED?

The question presented by the First District Court expressed a desire to extend a duty to disclose known material facts to commercial transactions, but the Florida Supreme Court did not answer the certified question.

In the case of Green Acres, the Fourth District Court discussed the First District Court’s desire in the Haskell’s case to extend the duty to disclose to commercial real estate transactions. Although the Fourth District Court in the Green Acres case stated that it expressly did not reach the issue, the opinion suggests that it would consider whether the Johnson case should be extended to commercial real estate transactions. Even in the Mostoufi case, the Second District Court cited the Haskell case and commented that “while the wisdom of applying the doctrine to commercial property continues to be questioned, that application has not yet been abrogated.”

Even though caveat emptor is still the law in Florida with regard to commercial real property transactions, a purchaser may be able to predicate, under appropriate facts, a cause of action based on exceptions to caveat emptor. Exceptions arise when some artifice or trick has been employed to prevent the purchaser from making independent inquiry; where the other party does not have equal opportunity to become apprized of the fact; and where a party undertakes to disclose facts and fails to disclose the whole truth. Green Acres, Inc.; Ramel v. Chasebrook Constr. Co., 135 So.2d 876 (Fla. 2d DCA 1961), and the cases cited therein.

In the case of Kaplan v. Peterson, 674 So.2d 201(Fla 4th DCA 1996), the Court held that the doctrine of caveat emptor did not preclude a cause of action against the prior owner for liability relating to pollution caused by underground storage tanks under Ch. 376, F.S.

In Gilchrist Timber Co. v. ITT Rayonier, Inc., 696 So.2d 334 (Fla 1997), the buyer bought 22,641 acres of timber land. In selling the property, the seller provided the buyer with a year-old appraisal of the property. The appraisal listed the property as being zoned agricultural, which allowed residential usage. In fact, a majority of the property zoned “preservation,” which permits no residential use. After learning of the zoning restrictions, the buyer unsuccessfully tried to have the zoning changed. The zoning restriction thwarted the buyer’s plan to subdivide the property for residential purposes. The buyer brought suit in federal court. The District Court held for the seller, and on appeal the Eleventh Circuit certified the question of the case to the Supreme Court of Florida.

The Supreme Court of Florida held that a party to transaction who transmits false information which that party did not know was false may be held liable for negligent misrepresentation when the recipient of the information relied on the information’s truthfulness, despite the fact that an investigation by the recipient would have revealed the falsity of the information. The Supreme Court further held that the comparative negligence provisions of Sec. 768.81, F.S., applied to actions involving negligent misrepresentation.

Sellers and purchasers of real property, both residential and commercial, should consider the implications of the Court’s decision in Gilchrist Timber. The Supreme Court did not describe the extent to which purchasers and sellers must investigate the facts to satisfy their respective obligations. Traditional negligence principals will apply in determining whether parties were negligent. Negligence is a factual issue, the limits of which will require further testing in the courts. Seller’s should use due care to determine the truthfulness of their representations before making those representations to purchasers.



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