Engelhart v. Kramer
570 N.W.2d 550, 1997 SD 124, 1997 S.D. LEXIS 122 (1997)
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Rule of Law:
Under South Dakota's residential real property disclosure statutes, a seller must complete the required disclosure statement in good faith, which requires a truthful and complete disclosure of known defects, and a seller may be liable for a negligent or intentional failure to do so.
Facts:
- In May 1991, Crystal Kay Kramer purchased a home in Sioux Falls, South Dakota.
- The home's basement had walls with large cracks and crumbling cement pieces.
- In September 1993, four days before putting the home on the market, Kramer covered the defective basement walls with wood paneling, taking photographs of the walls' condition before doing so.
- Kramer completed a mandatory property disclosure statement, indicating 'some spots in basement walls' and that the 'basement cement walls have some crumbling, behind paneling.'
- Karen Engelhart, a first-time home buyer, relied on this disclosure statement and purchased the home from Kramer in October 1994.
- In March 1995, Engelhart discovered water seeping through the basement's south wall.
- After removing the paneling, Engelhart found the walls were very badly cracked, the concrete was disintegrating, and the foundation was at risk of collapse and required complete replacement.
Procedural Posture:
- Karen Engelhart sued Crystal Kay Kramer in the Second Judicial Circuit Court (trial court) for misrepresentation in a property disclosure statement.
- The case was tried before the court without a jury.
- The trial court ruled in favor of Engelhart, finding Kramer failed to comply with disclosure statutes and committed fraud.
- A judgment of $34,800 was entered against Kramer.
- Kramer, the appellant, appealed the judgment to the Supreme Court of South Dakota.
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Issue:
Does a seller of residential property fail to complete a mandatory disclosure statement in good faith, as required by SDCL Ch 43-4, by describing severe cracks and disintegration in basement walls as 'some spots' and 'some crumbling' after concealing them with paneling?
Opinions:
Majority - Gilbertson, J.
Yes, a seller fails to complete the disclosure statement in good faith by using misleadingly minimal language to describe a severe, known defect. The South Dakota disclosure statutes abrogate the doctrine of caveat emptor and impose a duty on sellers to disclose known defects in good faith. The statutory requirement that a seller 'truthfully complete' the disclosure form requires more than literal truth; it must be read in conjunction with the duty to act in 'good faith,' which encompasses an honest intention not to take unconscientious advantage of another. The trial court found that Kramer deliberately paneled the walls to hide their true condition, meaning her description was not an 'innocent misrepresentation.' Her failure to show Engelhart the photographs she took of the walls' true condition was unreasonable and constituted negligence under SDCL 43-4-42, which imposes liability for intentional or negligent violations. The court holds that a seller's good faith is determined by a reasonable person standard, and Kramer's misleadingly incomplete description failed to meet this standard.
Analysis:
This case establishes the controlling interpretation of South Dakota's then-recent residential real estate disclosure statutes, marking a definitive shift away from the common law doctrine of caveat emptor ('let the buyer beware'). The court's decision clarifies that sellers cannot hide behind technically true but misleadingly incomplete statements to avoid liability. By defining 'good faith' under a reasonableness standard and imposing liability for both intentional and negligent misrepresentations, the ruling places a significant burden on sellers to be fully transparent about known defects. This precedent strongly protects buyers and requires sellers and their agents to be meticulous and comprehensive in their property disclosures.
