Where the seller of real property was found not liable for negligent misrepresentation, the trial court’s finding of liability for negligence was reversed, as “a seller’s liability for the failure to disclose such material facts in a real estate transaction is coextensive with a party’s liability for fraudulent or negligent misrepresentation.” (internal citation omitted).
In Baker v. Baskin, No. M2023-00433-COA-R3-CV (Tenn. Ct. App. Dec. 30, 2024), the plaintiffs purchased a home from the defendants, who were husband and wife. The defendants had lived in the home for thirty-two years. Seven months before the sale, defendant husband noticed a dip in the ground while mowing. He investigated and found a small hole near a bush. The husband believed this hole was likely caused by the decayed roots of a tree he had previously removed. The husband filled the hole with two four-by-four posts, placed topsoil and a topsoil bag on top of it, then covered the area with soil and grass. In the months between finding the hole and closing the sale, the husband did not notice any additional problems despite riding his heavy lawn mower over the area many times. It was undisputed that the husband did not tell his wife about the hole.
The defendants did not disclose this hole in the documents related to the real estate sale. They also marked no on questions related to sinkholes or other soil problems. The contract the parties negotiated included an “as is” provision, and the plaintiff buyers signed a disclosure recommending a geotechnical engineer.
Several months after the sale closed, the plaintiffs noticed a small hole by the bush. Like the defendant, the plaintiffs initially thought the hole was caused by a decayed tree root. Upon investigation, they discovered the defendant husband’s mitigation efforts. When they eventually hired a professional, he found a sinkhole that was at least twelve feet deep.
The plaintiffs thereafter filed this suit, asserting claims for breach of contract, negligent misrepresentation, negligence, negligence per se, gross negligence, residential disclosure violations, and fraud. The trial court ruled that the defendant husband was liable on the ordinary negligence claim, but it ruled in the defendants’ favor on all other claims. The trial court awarded the plaintiffs compensatory damages pursuant to a diminution of value theory and attorneys’ fees under the contract. On appeal, this ruling was reversed.
On appeal, the defendant husband raised three arguments against the negligence finding. First, he asserted that he had no knowledge of the sinkhole and therefore no duty to disclose it, and the Court of Appeals agreed. The Court noted that this hole did not meet the statutory definition of a sinkhole. They also noted that the trial court credited the defendant husband’s testimony that he believed the hole was from a rotted root and that he had fully repaired the hole. “[A] plaintiff purchaser must show that the seller actually knew of the defect, not merely that he or she should have known.” (internal citations omitted). The evidence here showed that the defendant husband thought he repaired the hole and drove his mower over it many times after the repair without issue. Accordingly, the Court of Appeals found that “the evidence preponderate[d] against the trial court’s determination that [the defendant] breached the duty of reasonable care by not informing the Buyers of the existence of the hole prior to the purchase of the Property.” (internal citation omitted). Because breach of duty is an element of a negligence claim, and the plaintiffs could not show a breach, the ruling that the defendant husband was negligent was reversed.
Although the duty issue was dispositive of the negligence claim, the Court analyzed the defendant’s other two arguments as well. Second, the defendant asserted that the finding of negligence was “irreconcilable with [the trial court’s] findings of non-liability for fraud and negligent misrepresentation.” Here, the negligence and negligent misrepresentation claim were based on the same conduct—the failure to inform the plaintiff buyers about the hole. The claimed negligent conduct was not “separate from the communication of misinformation.” (internal citation omitted). Because the claims were based on the same factual allegations, the Court ruled that the finding of nonliability on negligent misrepresentation but liability on ordinary negligence was “irreconcilable.”
The defendant’s third argument was that the plaintiffs could not show causation, as nothing “Sellers did or failed to do damaged or devalued the Property.” Instead, “it was the existence of the sinkhole, which was unknown to Sellers, that devalued the Property.” The Court of Appeals agreed with this argument as well, finding that the defendant had negated another essential element of the negligence claim.
While the plaintiffs’ argued on appeal that the defendant husband was liable for gross negligence, the Court rejected this assertion. The Court stated that the defendant did not know about the sinkhole and did nothing to damage the property, concluding that there was no evidence of the defendant committing “acts or omissions [that] were of such a nature as to indicate an utter unconcern for the safety of others, or that his acts or omissions constituted a reckless disregard for the rights of others.” (internal citation and quotation omitted). The finding for the defendants on gross negligence was affirmed, and the finding for the plaintiffs on ordinary negligence was reversed.
Because the defendants prevailed on appeal, the award of damages and attorneys’ fees for plaintiff was vacated. The case was remanded with instructions to assess an award of attorneys’ fees in defendants’ favor.
This opinion is a good example of how negligent misrepresentation and negligence can be closely tied together in a real estate transaction setting. Because the alleged negligence was based on the same nondisclosure as the alleged negligent misrepresentation, the defendants could not be liable for negligence after the negligent misrepresentation claim failed.
This opinion was released nine months after oral arguments in this case.