Bott v. Holman ( 2014 )

Decisions of the Nebraska Court of Appeals
BOTT v. HOLMAN 229
Cite as 22 Neb. Ct. App. 229
participation in the drug court program. We further reverse
and vacate Workman’s convictions and sentences, and we
remand the cause to the district court for further proceedings.
We need not address Workman’s remaining assigned errors.
An appellate court is not obligated to engage in an analysis
that is not needed to adjudicate the controversy before it. State
v. Merchant, 285 Neb. 456, 827 N.W.2d 473 (2013).
CONCLUSION
The district court erred in accepting Workman’s pleas of
guilty without the existence of a factual basis for the pleas. We
therefore reverse the orders of the district court which accepted
Workman’s guilty pleas and terminated his participation in the
drug court program, we reverse and vacate Workman’s convic-
tions and sentences, and we remand the cause to the district
court for further proceedings to allow Workman to move to
withdraw his previous pleas of guilty.
Judgment reversed, sentences vacated, and
cause remanded for further proceedings.
Jeff Bott Victoria Bott, husband and wife,
and
appellants, v. Thomas L. Holman and Sharon
A. Holman, husband and wife, appellees.
___ N.W.2d ___
Filed July 29, 2014. No. A-13-301.
1. Actions: Rescission: Equity. An action for rescission sounds in equity.
2. Equity: Appeal and Error. In an appeal of an equity action, an appellate court
tries factual questions de novo on the record, reaching a decision independent of
the findings of the trial court. Where credible evidence is in conflict on a material
issue of fact, the appellate court will consider and may give weight to the fact the
trial judge heard and observed the witnesses and accepted one version of the facts
rather than another.
3. Actions: Fraud: Proof. To maintain an action for fraudulent misrepresentation,
a plaintiff must allege and prove the following elements: (1) that a representa-
tion was made; (2) that the representation was false; (3) that when made, the
representation was known to be false or made recklessly without knowledge of
its truth and as a positive assertion; (4) that it was made with the intention that
the plaintiff should rely upon it; (5) that the plaintiff reasonably did so rely; and
(6) that the plaintiff suffered damage as a result.
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230 22 NEBRASKA APPELLATE REPORTS
4. Fraud: Rescission: Proof. The party alleging fraud as the basis for rescission
must prove all the elements of the fraudulent conduct by clear and convinc-
ing evidence.
5. Fraud. A statement that is true but partial or incomplete may be a misrepre-
sentation, because it is misleading when it purports to tell the whole truth and
does not.
6. ____. When a party makes a partial or fragmentary statement that is materially
misleading because of the party’s failure to state additional or qualifying facts,
the statement is fraudulent.
7. Fraud: Proof. To succeed on a claim of fraudulent misrepresentation, a plain-
tiff must prove not only a misrepresentation, but also justifiable reliance upon
that representation.
8. Fraud. A party is justified in relying upon a representation made to the party as
a positive statement of fact when an investigation would be required to ascertain
its falsity.
9. ____. Nebraska law imposes a duty of ordinary prudence upon a party claiming
fraudulent misrepresentation.
10. ____. In fraudulent misrepresentation cases, whether a plaintiff exercised ordi-
nary prudence is relevant to whether the plaintiff justifiably relied on the
misrepresentation when the means of discovering the truth was in the plain-
tiff’s hands.
11. Actions: Fraud. The fact that a plaintiff made inquiries elsewhere which did not
disclose the falsity of the representations is not, as a matter of law, a defense to a
fraud action.
Appeal from the District Court for Scotts Bluff County:
Leo Dobrovolny, Judge. Reversed and remanded for further
proceedings.
Maren Lynn Chaloupka, of Chaloupka, Holyoke, Snyder,
Chaloupka, Longoria & Kishiyama, P.C., L.L.O., for
appellants.
Paul W. Snyder, of Smith, Snyder & Petitt, G.P., for
appellees.
Moore, Pirtle, and Riedmann, Judges.
Riedmann, Judge.
INTRODUCTION
Jeff Bott and Victoria Bott brought an action for rescis-
sion of a purchase agreement they entered into with Thomas
(Tom) L. Holman and Sharon A. Holman, based on allegations
of fraudulent misrepresentation and fraudulent concealment.
Following a bench trial, the district court for Scotts Bluff
Decisions of the Nebraska Court of Appeals
BOTT v. HOLMAN 231
Cite as 22 Neb. Ct. App. 229
County found insufficient evidence to establish the Botts’
claims and entered judgment in favor of the Holmans. The
Botts appeal from that judgment. Because we find that the
Botts proved all of the elements of fraudulent misrepresenta-
tion, we reverse the district court’s order and remand the mat-
ter for further proceedings.
BACKGROUND
In June 2011, the Botts entered into a purchase agreement
with the Holmans for the purchase of a home in Scottsbluff,
Nebraska. Shortly after moving in, the Botts hired a contractor
to install a heating and cooling system in the crawl space of
the residence. While working in the crawl space, the contrac-
tor discovered water damage on the floor joists and alerted the
Botts. Jeff Bott went into the crawl space and observed that
the floor joists in the northeast corner of the house were rotten,
crumbling, and moldy.
The Botts hired an engineer, Larry McCaslin, to conduct
a structural inspection of the home in September 2011. Upon
inspecting the crawl space, McCaslin observed a considerable
amount of damage in the flooring system. McCaslin observed
multiple floor joists that were cracked and rotten. Some of the
floor joists had rotted so severely that they no longer reached
the sill plate, and they were being supported by floor jacks and
shims. The insulation between the floor joists and above the
sill plate was deteriorated and black, and there was mold and
mildew throughout the crawl space.
A sill plate is a 11⁄2-inch-thick piece of wood that sits on top
of the concrete foundation. McCaslin explained that the pur-
pose of the sill plate is to provide a smooth and level surface to
which the floor joists are attached and to transfer the load from
the floor joists down to the foundation. McCaslin observed that
the sill plate had completely rotted away in the northeast cor-
ner of the home, causing the floor joists to sit 11⁄2 inches lower
in that area.
McCaslin noted damage in other areas as well, but the most
severe damage was in the northeast corner of the home. He
believed the damage was caused by moisture leaking into the
crawl space. McCaslin described the status of the flooring
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232 22 NEBRASKA APPELLATE REPORTS
system as “critical,” and he stated that it needed to be repaired
right away to make the house safe. McCaslin recommended
replacing the sill plate, floor joists, and insulation, and regrad-
ing the site to direct water drainage away from the house,
among other possible repairs.
The Botts hired a contractor to provide an estimate for the
necessary repairs. The contractor explained that the house
would have to be jacked up in order to replace the sill plate and
floor joists. He estimated that the total cost, including materials
and labor, would be approximately $72,000.
The Botts brought this action to rescind the purchase agree-
ment on the basis of fraudulent misrepresentation and fraudu-
lent concealment in the property condition disclosure statement
provided by the Holmans. The evidence at trial established
that the Holmans were aware of at least some of the damage in
the flooring system and did not fully disclose their knowledge
to the Botts.
The Holmans had owned and lived in the home since July
1989, prior to selling it to the Botts. During that time, there
were multiple occasions in which water had leaked into the
crawl space below the flooring system. There had been a wash-
ing machine leak in the southwest corner of the house in 1989,
a leak in the shower drain in the northeast corner of the house
in 1993 and 1994, and a leak in a water line on the north side
of the house in 1997. In addition to those plumbing leaks, there
had been water leakage around the foundation into the crawl
space due to rainstorms.
In 2007, the Holmans hired Dan Flammang to retile the
bathroom floor in the northeast corner of the house. After
noticing that the bathroom floor was sagging, Flammang went
into the crawl space to investigate the problem. Flammang
identified rotting in the sill plate and floor joists that appeared
to have been caused by moisture. Some areas of the sill plate
had rotted away completely, which Flammang believed was the
primary cause of the sagging floor. Flammang testified that he
advised the Holmans about the rotting sill plate and the sag-
ging floor, but that they chose not to take any corrective action
at that time. Tom Holman, however, testified that Flammang
Decisions of the Nebraska Court of Appeals
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Cite as 22 Neb. Ct. App. 229
advised them that the floor was sagging, but did not mention
the rotten sill plate or floor joists.
The Holmans contacted Flammang approximately a year
later in May 2008 when they noticed the grout in the tile floor
was cracking. Flammang returned to the house and advised
the Holmans that the cracking was due to the sagging floor.
Flammang stabilized the floor by placing a beam and two jacks
under the floor joists to prop up the floor in the northeast cor-
ner of the house. The Holmans did not request any additional
work to be done to repair the rotting sill plate or floor joists.
However, Tom Holman did instruct Flammang to run caulk-
ing along the north side of the house, where the sidewalk had
separated from the foundation, to prevent further water leakage
into the crawl space. In 2009, the Holmans hired Flammang
to install cement siding on the house and recaulk around
the foundation.
In June 2011, the Holmans contacted a real estate agent to
assist them in selling their house. The agent discussed the pro-
cedures necessary to properly list the home for sale, including
completion of a seller property condition disclosure statement.
The agent instructed them to fill out the disclosure form com-
pletely, accurately, and honestly regarding the condition of the
house, inside and out. Tom Holman testified that he knew the
disclosure statement was going to be provided to potential buy-
ers and that he intended for them to rely upon it.
The first page of the disclosure statement contains the fol-
lowing language:
This statement is a disclosure of the condition of the
real property known by the seller on the date on which
this statement is signed. This statement is not a warranty
of any kind by the seller or any agent representing a
principal in the transaction, and should not be accepted
as a substitute for any inspection or warranty that the
purchaser may wish to obtain. Even though the infor-
mation provided in this statement is not a warranty, the
purchaser may rely on the information contained herein
in deciding whether and on what terms to purchase the
real property.
Decisions of the Nebraska Court of Appeals
234 22 NEBRASKA APPELLATE REPORTS
The disclosure statement contains several questions regard-
ing the structural condition of the property, among other things,
to which the seller must respond by checking one of three
boxes: “Yes,” “No,” or “Do not know.” If the answer to any
question is “Yes,” the seller is instructed to explain the condi-
tion in the comments section on the following page. The ques-
tions on the disclosure statement that are relevant to this case
are as follows:
•  Has there been leakage/seepage in the basement or crawl
“
space?”
•  Are there any structural problems with the structures on the
“
real property?”
•  Have you experienced any moving or settling of the . . .
“
floor?”
The Holmans checked “Yes” regarding “leakage/seepage”
in the crawl space and wrote “Previous to new siding” in the
margin. They checked “No” regarding structural problems and
moving or settling of the floor. Tom Holman testified that he
answered “No” to the question regarding moving or settling
of the floor, because the issue with the sagging floor had been
repaired. The Holmans did not disclose the sagging floor, the
rotten sill plate and floor joists, the installation of the beam
and floor jacks in the crawl space, or any of the prior plumbing
leaks into the crawl space.
The disclosure statement was provided to the Botts soon
after they became interested in purchasing the home. Jeff Bott
testified that he and his wife reviewed the disclosure state-
ment and relied upon it in deciding to purchase the property.
They also visited the home with their real estate agent, Jane
Heimbach, on at least three occasions and spent a total of 3
or 4 hours inspecting the home. The Botts took their time and
checked out the home carefully, although they did not go into
the crawl space. Heimbach testified that the Botts did every-
thing a prudent buyer would do. Neither Heimbach nor the
Botts observed anything in the home that led them to believe
there was a defect in the flooring system.
The Botts entered into a purchase agreement with the
Holmans on June 16, 2011. The purchase agreement was
contingent upon a home inspection. Heimbach testified that
Decisions of the Nebraska Court of Appeals
BOTT v. HOLMAN 235
Cite as 22 Neb. Ct. App. 229
she recommends home buyers obtain an inspection regard-
less of the disclosure statement, so that they can learn as
much as possible about the property before buying it. If there
are conditions checked “Yes” on the disclosure statement,
she makes sure those things are thoroughly addressed by the
home inspector.
Heimbach made arrangements for a whole home inspection
by Darrel Atchison. Atchison completed the inspection after
the parties had signed the purchase agreement, but prior to
closing. Atchison’s inspection report did not indicate any prob-
lems with the crawl space or flooring system. The Botts did
not actually receive a copy of the inspection report until after
they closed on the purchase of the house; however, Heimbach
had told them it was a clean inspection, with no deficien-
cies noted.
Unbeknownst to Heimbach and the Botts, Atchison went
no more than 5 or 10 feet into the crawl space and spent only
3 minutes inspecting it. Atchison testified that he was unable
to conduct a proper inspection of the crawl space, because
he was having back problems and was in a lot of pain at the
time. He did not inform Heimbach or the Botts that he had
been unable to properly inspect the crawl space. Atchison
testified that if he had done a proper inspection, he would
have observed the damage to the sill plate, floor joists, and
insulation, and that he would have reported those defects on
his inspection report.
Jeff Bott testified that although the inspection should have
disclosed the damage to the flooring system, he and his wife
had already relied on the disclosure statement in making an
offer and deciding to purchase the property prior to order-
ing an inspection. In fact, he testified that they would have
walked away from the property without ever making an
offer if the Holmans had disclosed the sagging floor on the
disclosure statement. Additionally, Heimbach testified that
she would have specifically mentioned the sagging floor to
Atchison and directed him to check it thoroughly if she had
known about it.
Following a bench trial, the district court found in favor
of the Holmans. It found that the Holmans were aware of the
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236 22 NEBRASKA APPELLATE REPORTS
sagging floor and water damage under the bathroom and that
they failed to disclose those conditions. Nonetheless, it con-
cluded that the disclosure statement, considered as a whole,
did not establish fraudulent misrepresentation or fraudulent
concealment because it put the Botts on notice that there
had been water leakage in the crawl space and a reason-
able inspection would have disclosed the damage. The Botts
timely appeal.
ASSIGNMENTS OF ERROR
On appeal, the Botts allege that the district court erred
in (1) treating the Holmans’ property condition disclosure
statement as a contract, (2) failing to find that the Holmans’
conduct constituted fraudulent concealment, and (3) fail-
ing to find that the Holmans’ conduct constituted fraudulent
misrepresentation.
STANDARD OF REVIEW
[1,2] An action for rescission sounds in equity. Cao v.
Nguyen, 258 Neb. 1027, 607 N.W.2d 528 (2000). In an appeal
of an equity action, an appellate court tries factual questions
de novo on the record, reaching a decision independent of the
findings of the trial court. Id. Where credible evidence is in
conflict on a material issue of fact, the appellate court will con-
sider and may give weight to the fact the trial judge heard and
observed the witnesses and accepted one version of the facts
rather than another. Id.
ANALYSIS
We begin our analysis by addressing the Botts’ third
assignment of error regarding their claim of fraudulent
misrepresentation.
[3,4] To maintain an action for fraudulent misrepresenta-
tion, a plaintiff must allege and prove the following elements:
(1) that a representation was made; (2) that the representa-
tion was false; (3) that when made, the representation was
known to be false or made recklessly without knowledge of
its truth and as a positive assertion; (4) that it was made with
the intention that the plaintiff should rely upon it; (5) that
the plaintiff reasonably did so rely; and (6) that the plaintiff
Decisions of the Nebraska Court of Appeals
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Cite as 22 Neb. Ct. App. 229
suffered damage as a result. Cao v. Nguyen, supra. The party
alleging fraud as the basis for rescission must prove all the
elements of the fraudulent conduct by clear and convincing
evidence. Id.
Representations.
The Holmans’ representation on the disclosure statement
that they had not experienced moving or settling of the floor
was false. The evidence is clear and convincing that Flammang
told the Holmans that the bathroom floor was sagging or set-
tling. Tom Holman testified that the reason he marked “No”
was because the problem had been corrected; however, the
question asks, “Have you experienced any moving or set-
tling . . . ,” which clearly inquires into the past. See Nelson v.
Wardyn, 19 Neb. Ct. App. 864, 820 N.W.2d 82 (2012).
[5,6] The Holmans also misled the Botts in their answer
to the question regarding leakage in the crawl space by fail-
ing to disclose the history of plumbing leaks. Their partial
disclosure that leakage had occurred only “[p]revious to new
siding” gave the impression that it was an isolated occurrence
that had been fully resolved. A statement that is true but par-
tial or incomplete may be a misrepresentation, because it is
misleading when it purports to tell the whole truth and does
not. Zawaideh v. Nebraska Dept. of Health & Human Servs.,
280 Neb. 997, 792 N.W.2d 484 (2011). When a party makes a
partial or fragmentary statement that is materially misleading
because of the party’s failure to state additional or qualify-
ing facts, the statement is fraudulent. Knights of Columbus
Council 3152 v. KFS BD, Inc., 280 Neb. 904, 791 N.W.2d
317 (2010).
The Botts further claim that the Holmans made a misrepre-
sentation of fact by answering “No” to the question regarding
structural problems. The trial court determined that despite
the conflicting testimony of Tom Holman and Flammang, the
Holmans were aware of the damage to the floor joist ends,
sill plates, and rim joists. The evidence is not clear and con-
vincing, however, that either Tom Holman or Sharon Holman
considered this a structural problem. Furthermore, the ques-
tion is in the present tense, inquiring whether there “[a]re . . .
Decisions of the Nebraska Court of Appeals
238 22 NEBRASKA APPELLATE REPORTS
any structural problems . . . .” There is no evidence that the
Holmans knew that the house had structural problems at the
time they completed the disclosure statement.
Based upon the Holmans’ answers to the questions regard-
ing movement or settling of the floor and leakage in the crawl
space, we find that the first three elements of fraudulent mis-
representation have been met.
Reliance.
[7] To succeed on a claim of fraudulent misrepresentation, a
plaintiff must prove not only a misrepresentation, but also jus-
tifiable reliance upon that representation. The disclosure state-
ment provides that although not a substitute for an inspection,
the purchaser may rely on the information contained therein
in determining whether to purchase the property. Tom Holman
admitted that he intended potential purchasers to rely upon the
disclosure statement, along with any inspection report. Jeff
Bott testified that he and his wife did in fact rely on the dis-
closure statement in deciding to make an offer and ultimately
purchase the property.
[8-10] A party is justified in relying upon a representation
made to the party as a positive statement of fact when an
investigation would be required to ascertain its falsity. Cao v.
Nguyen, 258 Neb. 1027, 607 N.W.2d 528 (2000). However,
Nebraska law imposes a duty of ordinary prudence upon a
party claiming fraudulent misrepresentation. Precision Enters.
v. Duffack Enters., 14 Neb. Ct. App. 512, 710 N.W.2d 348 (2006),
overruled on other grounds, Knights of Columbus Council
3152 v. KFS BD, Inc., supra. In fraudulent misrepresentation
cases, whether the plaintiff exercised ordinary prudence is
relevant to whether the plaintiff justifiably relied on the mis-
representation when the means of discovering the truth was in
the plaintiff’s hands. See Lucky 7 v. THT Realty, 278 Neb. 997,
775 N.W.2d 671 (2009).
The Nebraska Supreme Court has held that the ordinary
prudence rule does not apply where the defects are latent. See
Foxley Cattle Co. v. Bank of Mead, 196 Neb. 1, 241 N.W.2d
495 (1976). Rather, “[i]t is applicable where the party who
claims to have been defrauded . . . purchased real estate after
Decisions of the Nebraska Court of Appeals
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Cite as 22 Neb. Ct. App. 229
inspecting the property and failed to notice obvious defects.”
Omaha Nat. Bank v. Manufacturers Life Ins. Co., 213 Neb.
873, 883, 332 N.W.2d 196, 202 (1983). See, also, Lucky 7 v.
THT Realty, 278 Neb. at 1003-04, 775 N.W.2d at 676 (noting
that “we have rejected misrepresentation claims when the truth
of the property’s condition was obviously apparent to a poten-
tial buyer upon inspection”).
The defects at issue in this case were not obviously appar-
ent to a potential buyer and would have been discoverable
only upon crawling underneath the house in a space that was
unlit and only 36 inches in height. Heimbach testified that the
Botts did everything that prudent home buyers would do. They
visited the property on multiple occasions and spent 3 or 4
hours carefully inspecting the premises. Neither the Botts nor
Heimbach, who was an experienced real estate agent, observed
anything that led them to believe that the property had struc-
tural damage within the flooring system.
Although the home inspection should have disclosed the
defects, the Botts relied on the disclosure statement in decid-
ing to make an offer and purchase the home before an inspec-
tion was ever ordered. Jeff Bott testified that he would have
walked away from the property without having made an offer
if the Holmans had disclosed the sagging floor. In other words,
although the flawed home inspection added to the Botts’ belief
that there were no serious problems with the house, they never
would have formed such a belief had the Holmans properly
disclosed the defects on the disclosure statement. The disclo-
sure statement specifically states that it may be relied upon in
deciding whether and on what terms to purchase the property.
The Botts were entitled to rely on the disclosure statement, and
we find that they did so reasonably.
[11] The fact that a plaintiff made inquiries elsewhere which
did not disclose the falsity of the representations is not, as
a matter of law, a defense to a fraud action. Henderson v.
Forman, 231 Neb. 440, 436 N.W.2d 526 (1989); Foxley Cattle
Co. v. Bank of Mead, 196 Neb. 1, 241 N.W.2d 495 (1976).
Thus, we find that the fraudulent misrepresentations on the
disclosure statement are not excused by the fact that a proper
home inspection would have revealed the defects.
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240 22 NEBRASKA APPELLATE REPORTS
The evidence clearly shows that the Botts suffered dam-
ages as a result of the Holmans’ fraudulent misrepresentations.
Although there was conflicting testimony regarding the esti-
mated repair costs, it was undisputed that the flooring system
was damaged and in need of significant repairs.
Based on our de novo review of the record, we conclude
that (1) the Holmans made representations that they had not
experienced any moving or settling of the floor and that there
had been “leakage/seepage” in the crawl space only prior to the
installation of new siding; (2) such representations were false;
(3) when such representations were made, they were known
to be false or were made recklessly without knowledge of the
truth and as positive assertions; (4) the Holmans intended for
the Botts to rely upon such representations; (5) the Botts did in
fact rely upon the representations; and (6) the Botts were dam-
aged as a result. Therefore, the Botts have proved a cause of
action for fraudulent misrepresentation.
Because the Botts have established their claim of fraudu-
lent misrepresentation, we need not address the remaining
assignments of error. We note, however, that the Holmans
stated several affirmative defenses in their answer, and we
remand the matter to the trial court for consideration of
these defenses.
CONCLUSION
We conclude that the evidence established each of the
required elements of fraudulent misrepresentation by clear and
convincing evidence. Accordingly, the judgment of the district
court is reversed and the matter is remanded for further pro-
ceedings consistent with this opinion.
R eversed and remanded for
further proceedings.