Opinion
No. 52050-4-I.
Filed: March 22, 2004. UNPUBLISHED OPINION
Appeal from Superior Court of King County. Docket No. 01-2-17537-8. Judgment or order under review. Date filed: 03/12/2003. Judge signing: Hon. John P Erlick.
Counsel for Appellant(s), Allan Weldon Munro, Attorney at Law, 1925 41st Ave SW, Seattle, WA 98116-2002.
Counsel for Respondent(s), Matthew F. Davis, Attorney at Law, 5224 Wilson Ave S Ste 200, Seattle, WA 98118-2564.
James B. Ransom, Attorney at Law, South Tower Ste 540, 100 W Harrison St, Seattle, WA 98119-4116.
Realtor Bill Woods/Bill Woods Realty (Woods), sold the Wests' vacant lot to HWH Valley Development, Inc. (HWH). The trial court found Woods liable for negligent misrepresentation because Woods listed the property as a "Good Building Lot" even though he knew it was not buildable without a variance. But the court found the Wests not liable for failing to disclose that an application for a variance had previously been denied. Because this fact was also material to the sale to HWH, we reverse this portion of the trial court's ruling. We remand the case to the trial court to recompute damages consistent with this opinion.
FACTS
In late September 2000, Joseph West went to Bill Woods Realty to list a lot on Willow Street in Seattle for $39,950.00. The Wests had attempted to sell the property at least three times in the past through other real estate offices, most recently in 1995. When West listed the property with Woods, he said it was undersized and a variance would be required to build a house on it. The Wests did not tell Woods that during the 1995 attempt to sell the property, the City denied an application for a variance. After the Wests signed the listing agreement, Woods added "Good Building Lot-65 x 54" to the confidential comments section in the listing. He did not tell the Wests about the listing comment.
HWH buys and develops property primarily in the Rainier Valley area of Seattle. HWH has three shareholders, one of whom is Cheryl Webber, a licensed real estate agent who negotiated the purchase at issue here for HWH. The next day, Webber saw the listing in the multiple listing service and as a licensed agent acting for HWH, drew up a vacant land purchase and sale agreement. The document was a full-price offer for $40,000, and the sale was subject to a feasibility contingency. The purchase agreement contained the following contingency paragraph:
v. Feasibility Contingency. It is the Buyer's responsibility to verify before the Feasibility Contingency Expiration Date identified in Specific Term No. 18 [5 days after mutual acceptance] whether or not the Property can be platted, developed and/or built on (now or in the future) and what it will cost to do this. BUYER SHOULD NOT RELY ON ANY ORAL STATEMENTS concerning this made by the Seller, Listing Agent or Selling Licensee. Buyer should inquire at the city or county, and water, sewer, or other special districts in which the Property is located. Buyer's inquiry should include, but not be limited to: building or development moratoriums applicable to or being considered for the Property; and special building requirements, including setbacks, height limits or restrictions on where buildings may be constructed on the Property; whether the Property is affected by a flood zone, wetlands, shorelands or other environmentally sensitive area; road, school, fire and any other growth mitigation or impact fees that must be paid; the procedure and length of time necessary to obtain plat approval and/or a building permit; sufficient water, sewer, and utility and any services connection charges; and all other charges that must be paid.
Webber conducted the feasibility study for HWH. She contacted the City of Seattle's Department of Construction and Land Use (DCLU), the Seattle Transportation Department, and the King County Archives. DCLU incorrectly told Webber that the lot was platted before 1959 and was therefore grandfathered in under the zoning code to allow building a single-family home even though the current zoning requirements would not permit that use. The Wests did not tell either Woods or HWH that a variance had been denied. And, although Webber did not speak with the Wests, she tried to speak with Woods about the property. Webber testified that she spoke with Woods' wife at the real estate office and was told that it was a good building lot.
After conducting the study, HWH waived the feasibility contingency and closed the transaction. HWH later discovered that it needed a variance to use the property and that a variance had previously been denied. HWH had to spend an additional $30,649.60 to acquire property from an adjacent lot so it could build on the Willow Street property.
At trial, HWH's expert testified that Webber's feasibility study was adequate, although far less than what he would have done to determine whether the lot was truly buildable.
The trial court found that Bill Woods and Bill Woods Realty did not act as the real estate agent for HWH and had no duty to HWH under chapter 18.86 RCW. It ruled that Webber acted as the agent for her own company. The court also held that the contract obligated HWH to conduct its own feasibility study and to bear the risk of errors in its due diligence. Therefore, the court found that HWH was not damaged by Woods' actions or failure to act under the statute. But the court also found that Woods breached the common law duty of disclosure and had negligently misrepresented a material fact about the property. Woods' representation on the listing that the property was a good building lot was negligent and misled HWH. The court found that HWH reasonably relied on Woods' written representation, and the misrepresentation proximately caused a portion of its damages.
The trial court also found that the Wests did not make incomplete or ambiguous statements that could be construed as misleading, and they were not liable to HWH. It dismissed the Wests from the lawsuit and awarded them $8,092 in attorney fees.
The court determined that HWH's damages were $10,649.60. It calculated damages based on the difference between the value of the property at trial, $60,000, and the cost of buying the property and the adjacent strip of land, $70,649.60. The court ruled that Woods was liable for 35 percent of that amount and ordered judgment in favor of HWH for $3,727.36.
DISCUSSION
Woods Realty/Woods:
The trial court rejected HWH's argument that Woods was liable because it violated the statutory duties of a real estate licensee under RCW 18.86.030. HWH appeals that ruling. But because the trial court found Woods liable for common law negligent misrepresentation and we affirm that ruling, we need not determine whether RCW 18.86.030 applies in this situation.
RCW 18.86.030(1)(d) provides:
(1) Regardless of whether the licensee is an agent, a licensee owes to all parties to whom the licensee renders real estate brokerage services the following duties, which may not be waived:
. . . .
(d) To disclose all existing material facts known by the licensee and not apparent or readily ascertainable to a party; provided that this subsection shall not be construed to imply any duty to investigate matters that the licensee has not agreed to investigate[.]
A seller's agent may be liable to a buyer for intentional or negligent misrepresentation. Because he is in a unique position to communicate and verify critical information given him by the seller, the law imposes a duty to avoid disseminating false information to the buyer.
Tennant v. Lawton, 26 Wn. App. 701, 706, 615 P.2d 1305 (1980).
Even though he knew a variance was necessary to develop the lot, Woods represented on the listing that the property was "a Good Building Lot," and his wife, who worked in the Woods Realty office, repeated that misrepresentation to Webber. The statement was not true, and Woods had a duty to disclose the information he had about needing a variance. At the very least, the law requires that Woods exercise reasonable care to assure he does not provide misleading information. There is ample evidence to support the trial court's ruling that Woods negligently misrepresented that it was a good building lot and damaged HWH. We affirm on this issue.
HWH contends that the misrepresentation was intentional and that the trial court erred in not so finding. But the evidence does not support that characterization because Woods also listed the substandard size of the lot.
The Wests:
Sellers and their agents have a duty to disclose to the buyer all material facts the buyer cannot reasonably ascertain, and the seller has a statutory duty to disclose material facts about the property. The trial court ruled the Wests made no statement to HWH that could be construed as misleading. While this is true, it does not exonerate the Wests because they were silent about a fact that was material to the transaction. It is clear from the record that had West disclosed the variance denial history to Woods, Woods' duty to disclose would in turn have required that he inform potential buyers like HWH. Wests' failure to disclose this material fact damaged HWH because had HWH known about it, it would have known that the Willow Street property was not a "good building lot." We conclude the Wests violated both the common law and statutory duty to disclose and reverse the trial court on this issue.
McRae v. Bolstad, 32 Wn. App. 173, 176-77, 646 P.2d 771 (1982), aff'd, 101 Wn.2d 161, 676 P.2d 496 (1984).
RCW 64.06.020; McRae, 32 Wn. App. at 176-77.
See RCW 64.06.020 (seller's disclosures).
(1) In a transaction for the sale of residential property, the seller shall, unless the buyer has expressly waived the right to receive the disclosure statement, or unless the transfer is exempt under RCW 64.06.010, deliver to the buyer a completed seller disclosure statement in the following format and that contains, at a minimum, the following information:
. . . .
. . . H. Are there any zoning violations, nonconforming uses, or any unusual restrictions on the property that would affect future construction or remodeling?
. . . .
Computation of Damages:
HWH asserts the trial court erred in computing damages. We agree. Sections 552(1) and 552B of the Restatement (Second) of Torts (1977) govern damages for misrepresentation. The plaintiff is entitled to damages necessary to compensate him for the pecuniary loss the misrepresentation caused and include: (a) the difference in value of what the buyer received in the transaction and its purchase price and (b) any other pecuniary loss the buyer incurred because he relied on the misrepresentation. As we noted above, the trial court computed damages of $10,649.60, reduced by HWH's and other non-party's negligence. But in order to compensate HWH as the Restatement directs, damages must be computed at the time of the sale because that is when HWH actually incurred the loss. Whatever it chose to do to try to make the lot buildable is not relevant to its damages as a result of the Wests' and Woods' misrepresentations. The court should deduct from the price HWH paid for the property, $40,000, the actual value of the "unbuildable" vacant lot at the time of sale. Testimony at trial indicated that the value of the lot at that time was $8,000 to $10,000. Although it is not clear from the record whether HWH suffered any other pecuniary losses, the trial court is free to make that determination when it recomputes damages on remand.
Janda v. Brier Realty, 97 Wn. App. 45, 50, 984 P.2d 412 (1999) (citing ESCA Corp. v. KPMG Peat Marwick, 135 Wn.2d 820, 826, 959 P.2d 651 (1998), and Condor Enters., Inc. v. Boise Cascade Corp., 71 Wn. App. 48, 52, 856 P.2d 713 (1993)).
Allocation of Fault:
HWH contends the trial court erred in allocating fault. It asserts that comparative/contributory negligence cannot be used to reduce the amount of damages where those damages were intentionally inflicted. We would agree if the evidence supported a ruling that the negligence was intentional. But the evidence does not support that conclusion. And there is substantial evidence to support a showing that HWH's damages were partly the result of its own errors in conducting a flawed contingency feasibility study. The trial court properly applied comparative fault to reduce the damage award as contemplated by the uniform comparative fault statute, RCW 4.22.005:
Schmidt v. Cornerstone Invs., Inc., 115 Wn.2d 148, 161, 795 P.2d 1143 (1990).
In an action based on fault seeking to recover damages for injury or death to person or harm to property, any contributory fault chargeable to the claimant diminishes proportionately the amount awarded as compensatory damages for an injury attributable to the claimant's contributory fault, but does not bar recovery. . . .
Principles of comparative negligence and contributory fault apply in negligence actions where a plaintiff has suffered purely economic loss, and the plaintiff's negligence may reduce his recovery by his percentage of negligence. The trial court properly applied these principles in allocating fault.
ESCA Corp., 135 Wn.2d at 831.
Lawyers Title Ins. Corp. v. Baik, 147 Wn.2d 536, 551, 55 P.3d 619 (2002); ESCA Corp., 135 Wn.2d at 830-31.
HWH challenges the trial court's conclusion that it bore a portion of the fault because it failed to conduct a thorough due diligence study on the property before waiving the feasibility condition. But it is clear that the purchase and sale agreement obligated HWH to conduct a feasibility study and, if it waived the contingency, it bore the risk of errors or problems with the property. HWH waived the contingency, and its own witness testified to the marginal quality of its feasibility study. That evidence was sufficient to support the trial court's comparative negligence finding.
HWH is correct that by waiving the contingency it did not waive its right to disclosure of material facts by the Wests, and HWH is also correct that it was justified in relying on the facts Woods misrepresented. On remand, the trial court should reapportion the fault among West, Woods and HWH.
The record does not disclose why HWH did not join DCLU as a defendant even though it gave HWH incorrect information. The trial court may also consider this factor in apportioning fault on remand.
Prejudgment Interest:
HWH asserts the trial court should have awarded prejudgment interest on its mitigation costs. Assuming those costs were properly included as damages, prejudgment interest is not available when the amount awarded is based in part on opinion or discretion. It is available only for liquidated claims. When Webber testified about mitigation costs, she acknowledged that some of them were estimates or amounts HWH had not yet spent. The trial court properly denied prejudgment interest.
PUD 1 of Klickitat County v. Int'l Ins. Co., 124 Wn.2d 789, 810, 881 P.2d 1020 (1994) (citing Hansen v. Rothaus, 107 Wn.2d 468, 472, 730 P.2d 662 (1986)).
Smith v. Olympic Bank, 103 Wn.2d 418, 425, 693 P.2d 92 (1985), and Cox v. Helenius, 103 Wn.2d 383, 390, 693 P.2d 683 (1985) (both citing Prier v. Refrigeration Eng'g Co., 74 Wn.2d 25, 32, 442 P.2d 621 (1968)).
Attorney Fees:
Finally, HWH contends the trial court erred in awarding the Wests attorney fees and denying HWH's request for fees as the prevailing party. The prevailing party under the contract is the one to whom the court awards judgment. Because we conclude the Wests are liable to HWH for their negligent misrepresentation, HWH is entitled to an award of fees against them. But the Woods were not a party to the purchase and sale agreement in which the attorney fee provision is found, so there is no basis for an award of fees against them.
Riss v. Angel, 131 Wn.2d 612, 633, 934 P.2d 669 (1997) (citing Schmidt, 115 Wn.2d at 164).
The decision of the trial court is affirmed in part, reversed in part and remanded to determine and apportion damages. We award attorney fees to HWH against the Wests on appeal and at trial. The trial court shall determine the amount of fees at trial and on appeal.
COX and BAKER, JJ., concur.