FAILURE TO DISCLOSE, ROUND NEXT

            Jacqueline and Thomas Onions hired real estate agent Laura Kopchynski to list their South Carolina property for sale. Sellers indicated in a Disclosure Form that there was no fungus at the property.

            Laura quickly found buyers, who obtained an inspection report noting the ground is damp and not covered by a vapor barrier in a crawl space. The buyers then engaged Andy Ward, an exterminator, who found elevated moisture conditions of 20-25%, evidence of wood decay fungi and visible damage.

            Sellers engaged a handyman to repair the crawl space, install a vapor barrier, and related work.

            As closing approached, the first buyers hired other exterminators to prepare a report. Again, an elevated wood moisture content of 20-25% was found. For reasons unrelated to the property condition, the first buyers terminated their contract.

            Laura went back to work and procured Rory and Kimberly Isaac as the next buyers. Laura offered to send the last inspection report to M/M Isaac, but their agent declined this offer. Regardless, Sellers furnished M/M Isaac with their previous Disclosure Form.

Seller’s previous Disclosure Form indicated the absence of fungus.

            Sellers and M/M Isaac signed a contract. The new buyers hired an inspector, who noted there was no evidence of fungus and the moisture content was not excessive at 8-18%.

            M/M Isaac closed on the Property. Two days later, heavy rainfall flooded the crawl space. M/M Isaac hired Andy to inspect it. Andy found moisture of 27-32%, active fungi, and related damage.

            M/M Isaac asserted a claim against Laura for fraud, negligence, and negligent misrepresentation. The trial court granted summary judgment for Laura on all counts, noting that M/M Isaac had relied on their own inspection, which they had commissioned, when they closed the purchase. The trial court further determined that Buyers could not hold Laura responsible for inaccuracies in that report.

            Buyers appealed.

            The court of appeals reversed the judgment of the trial court regarding negligent misrepresentation and allowed M/M Isaac to prevail on that count.

            So Laura appealed.

            The Supreme Court started with an analysis of negligent misrepresentation. There are six elements that must be established: (1) defendant made a false representation to plaintiff; (2) defendant had a pecuniary interest in making the statement; (3) defendant owed a duty of care to communicate truthful information to plaintiff; (4) defendant breached that duty; (5) plaintiff justifiably relied on the representation; and (6) plaintiff was damaged as a result of reliance on the representation.

            The Court then stated that “There is no liability for casual statements, representations as to matters of law, or matters which plaintiff could ascertain on his own in the exercise of due diligence” [italics added by yours truly].

            As a real estate licensee, Laura owed a duty to M/M Isaac to be truthful. That duty, however, does not obligate Laura to inspect property to confirm or deny statements made by Sellers. And as a consequence, the Court determined that M/M Isaac cannot claim that they reasonably relied on any representation of Laura concerning the condition of the Property.

            The judgment of the court of appeals is reversed. The judgment of the trial court is reinstated. Laura wins again. See Isaac v. Onions and Kopchynski; Supreme Court of South Carolina, Case 2023-001462; April 23, 2025: https://cases.justia.com/south-carolina/supreme-court/2025-28274.pdf?ts=1745419292.           

Questions / Issues:

 

1.         But Wait, What About the Duty to Disclose? Other States require the full disclosure of all material conditions and latent defects actually known to a licensee and principal. Was this duty adequately discharged here?

2.         But Wait, Don’t REALTORS® Have a Duty to be Truthful? I don’t know if Laura is a REALTOR® or not; the fact that she is a South Carolina licensee does not necessarily mean she is also a member of the National Association of REALTORS® or one of its local boards. But if she is . . . then REALTORS® must be “honest and truthful in their real estate communications.” See Article 12, National Association of REALTORS® Code of Ethics and Standards of Practice effective January 1, 2025: https://www.nar.realtor/sites/default/files/2024-12/2025-COE-Standards-of-Practice-2024-12-24.pdf. 

3.         But Wait, Don’t REALTORS® Have a Duty to Disclose all Pertinent Facts? REALTORS® must “avoid misrepresentation or concealment of pertinent facts relating to the property or the transaction.” However, REALTORS® do not have an obligation to discover latent defects. See Article 2 and related Standards of Practice, National Association of REALTORS® Code of Ethics and Standards of Practice effective January 1, 2025: https://www.nar.realtor/sites/default/files/2024-12/2025-COE-Standards-of-Practice-2024-12-24.pdf.

 

                                                                        Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial and Residential Real Estate Law,

Texas Board of Legal Specialization

Licensed in the States of Texas and New York

REALTY OR PERSONALTY?

    There are matters of law that have forever remained unclear. And presumably, always will be.

 

    Pornography vs. obscenity is one. Limitations to constitutionally-protected free speech are another.

 

     Realty vs. personalty is a third.

 

            Bryce Corp operates a manufacturing plant in Searcy, Arkansas. Bryce makes flexible packaging, such as potato chip bags and zip pouches. As part of the production process, the Searcy plant operates an 80-foot-long industrial lamination line with multiple machines.

 

            A roll of unlaminated material is placed on a spindle. The material is then unwound and fed through a series of machines for lamination. At the end, another machine rewinds the laminated material into a new roll.

 

            This last machine is a “rewinder.”

 

            In 2010 a new rewinder was purchased from Bobst Italia, transported to the Searcy plant in sections, and assembled there over a 10-day period with the help of a forklift. The machine weighed 10 tons and was affixed to the floor of the Searcy plant with metal ties. The rewinder’s electrical and air pressure systems were then connected to the plant’s systems to make the rewinder operational.

 

            Vernon Holland worked at the Searcy plant as a laminator helper. In November 2016 the material on the lamination line became miswound, and production was stopped. Vernon opened the rewinder and entered the machine to fix the issue.

 

            When Vernon entered the rewinder, one of the two spindles was still turning. While pulling the miswound film, Vernon backed into the turning spindle and was propelled through the rewinder.

 

            Vernon died in May 2017 as a consequence of his injuries.

 

            Robert Cearley, the personal representative of Vernon’s estate, sued Bobst Group North America, the equipment manufacturer’s affiliate. Bobst’s primary defense was based on a statute of repose.

 

            The district court granted Bobst’s motion for summary judgment. Cearley appealed.

 

            Arkansas has a statute of repose for claims arising from personal injury or wrongful death caused by construction defects. The statute provides that all claims must be asserted within four years after substantial completion of the improvement to real property.

 

            As a consequence, Cearley’s case could proceed only if the lamination equipment is personal property. However, if it constitutes real property, then Cearley’s case must fail as the claim was not filed within four years after the new rewinder became “an improvement to real property.”

 

            The Court of Appeals determined that the machinery: (a) was affixed to the real property, (b) furthers the purpose of the realty, and (c) was designed for long-term use in connection with the real estate. As a consequence, the machinery is a permanent improvement to the realty for purposes of the statute of repose.

 

            The lamination machine was determined to be realty. Not personalty. This conclusion was reached although the equipment was secured to the floor only with metal ties.

 

            Since the equipment was incorporated into the (and thus becomes) realty, the statute of repose applies. Claims involving this rewinder, installed in 2010, must be asserted by 2014.

 

            Not 2023.

 

Cearley loses; Bobst Group NA again prevails. See Cearley v. Bobst Group North America; US Court of Appeals, 8^th Circuit; Case No. 23-1101; February 21, 2025:  https://cases.justia.com/federal/appellate-courts/ca8/23-1101/23-1101-2025-02-21.pdf?ts=1740155438.

 

            Questions / Issues:

 

1.         Why Is This Realty? This case gives little guidance about its conclusion. The only elements to justify this result are that the machinery: (a) was “affixed” to the real property; (b) “furthers the purpose” of the realty, and (c) was designed for long-term use in connection with the real property.

 

            While (c) is undoubtedly true, one must wonder what evidence was submitted and compelled the Court of Appeals to find that (a) and (b) are also true. Because all we know from the appellate decision is that the equipment was secured to the floor with metal ties. Then, electrical and air pressure systems were connected.

 

2.         Alt-Recourse. Is it possible that the Court took judicial notice of parallel litigation asserted by Cearley against Siemens and others, and perhaps assumed that Cearley would prevail there?

 

3.         Practice Point. This Court finds that a large, expensive, but replaceable fixture lost its character as personalty and instead was converted to realty at installation. I am unconvinced that other courts would follow a similar path.

 

Regardless, the message is that timely filing of claims is essential. Ignoring or missing these deadlines can prove to be a fatal mistake.

 

                                                                        Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial and Residential Real Estate Law,

Texas Board of Legal Specialization

 

Licensed in the States of Texas and New York