Gibb v. Citicorp Mortgage, Inc.
246 Neb. 355, 518 N.W.2d 910 (1994)
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Rule of Law:
An 'as is' clause and a general contract disclaimer in a real estate agreement do not, as a matter of law, bar a cause of action for fraudulent misrepresentation or fraudulent concealment. The reasonableness of the buyer's reliance on the seller's representations remains a question of fact.
Facts:
- Citicorp Mortgage, Inc. (Citicorp) acquired a house through foreclosure after the previous owner abandoned it due to extensive termite infestation and damage.
- A termite service informed Citicorp's selling agent that the property was infested with termites, appeared to have extensive damage, and recommended an assessment by a qualified building inspector.
- Citicorp disregarded the recommendation for a full assessment and instead hired the service only to treat the termites and make cosmetic repairs to the visible damage.
- Citicorp's agent showed the prospective buyer, Patrick B. Gibb, a single area of repaired termite damage and assured him it was the only damaged area and that the problem had been fully treated.
- The purchase agreement stated the sale was 'based upon [Gibb's] personal inspection' and that the property was 'sold strictly in ‘AS IS’ condition.'
- The agreement also required a new 'wood destroying insect inspection' to be performed at Gibb's cost, but this was never done.
- At closing, Citicorp provided Gibb with a five-month-old report from the termite service which noted visible infestation and that control measures were performed, but not the initial report recommending a full damage assessment.
Procedural Posture:
- Patrick B. Gibb sued Citicorp Mortgage, Inc. in the Nebraska district court (trial court).
- Citicorp filed a demurrer, arguing Gibb's petition failed to state a valid cause of action.
- The district court sustained Citicorp's demurrer and dismissed Gibb's lawsuit.
- Gibb, as appellant, appealed the dismissal to the Nebraska Court of Appeals.
- The Nebraska Supreme Court, on its own motion, removed the case from the Court of Appeals to its own docket for review.
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Issue:
Does an 'as is' clause and a disclaimer of representations in a real estate purchase agreement automatically bar a buyer from stating a cause of action against the seller for fraudulent misrepresentation, fraudulent concealment, and negligent misrepresentation?
Opinions:
Majority - Caporale, J.
No, an 'as is' clause and a general disclaimer in a purchase agreement do not automatically bar a buyer from stating a cause of action for fraud or negligent misrepresentation. The court reasoned that while such clauses are relevant to determining whether a buyer's reliance on a seller's representations was reasonable, they are not controlling and do not preclude a trier of fact from considering whether fraud induced the formation of the contract. Citing Nebraska precedents like Wolford v. Freeman and Menking v. Larson, the court affirmed that a principal (Citicorp) can be held liable for the fraudulent representations of its agent concerning the subject matter of the contract, as a sales agent has ostensible authority to make such representations. The court also formally adopted the Restatement (Second) of Torts § 552 definition for negligent misrepresentation, holding that Gibb had sufficiently pleaded a cause of action under this theory as well, as Citicorp's agent allegedly failed to exercise reasonable care in supplying correct information during a transaction in which Citicorp had a pecuniary interest.
Analysis:
This decision reinforces the legal principle that a contractual 'as is' clause is not a license to commit fraud. By treating the buyer's reliance as a question of fact rather than being defeated as a matter of law by the contract's language, the court preserves the ability of wronged buyers to have their day in court. The formal adoption of the Restatement's standard for negligent misrepresentation broadens the grounds for recovery for plaintiffs in Nebraska, allowing claims based on a failure to exercise reasonable care in providing information, not just intentional deceit. This case serves as a strong precedent against sellers using boilerplate contract language to shield themselves from liability for active, material misrepresentations made by themselves or their agents.
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