V.S.H. Realty, Inc. v. Texaco, Inc.
757 F.2d 411 (1985)
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Rule of Law:
In a commercial real estate transaction, an 'as is' clause does not shield a seller from liability for common law misrepresentation when the seller makes partial and misleading disclosures, nor does it preclude a claim under a state statute prohibiting unfair and deceptive trade practices for failure to disclose material facts.
Facts:
- V.S.H. Realty, Inc. offered to purchase a used bulk storage petroleum facility from Texaco, Inc. for $2.8 million.
- In the offer to purchase, Texaco disclosed that fuel oil had migrated under a garage building on the property.
- The agreement included a clause stating that V.S.H. had inspected the property and accepted it 'as is' without any representation from Texaco as to its condition.
- Texaco also provided a signed acknowledgement stating it had not received any notice from a government agency regarding modifications or improvements to the facility.
- V.S.H. made a $280,000 down payment to Texaco.
- Approximately one month after Texaco accepted the offer, V.S.H. representatives visited the property and observed two other oil seepages that Texaco had not disclosed.
- V.S.H. subsequently learned that the U.S. Coast Guard had conducted an investigation of the property, which Texaco also had not disclosed.
- When Texaco refused V.S.H.'s demands to correct the oil problem, provide indemnification, or reduce the price, V.S.H. demanded the return of its down payment, which Texaco refused.
Procedural Posture:
- V.S.H. Realty, Inc. filed a three-count complaint against Texaco, Inc. in the U.S. District Court for the District of Massachusetts.
- The complaint alleged common law misrepresentation, breach of contract, and violation of Mass. Gen. Laws ch. 93A.
- Texaco filed a motion under Fed. R. Civ. P. 12(b)(6) to dismiss all counts for failure to state a claim upon which relief can be granted.
- The district court granted Texaco's motion and dismissed the entire complaint.
- The district court subsequently denied V.S.H.'s motion to vacate the judgment and permit an amendment of the complaint.
- V.S.H. Realty, Inc., as appellant, appealed the dismissal to the U.S. Court of Appeals for the First Circuit; Texaco, Inc. was the appellee.
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Issue:
Does a commercial real estate seller's failure to disclose known oil seepages and a government investigation, after making a partial disclosure about a different leak and in the face of the buyer's inquiries, state a valid claim for common law misrepresentation and violation of Mass. Gen. Laws ch. 93A, despite the buyer's agreement to purchase the property 'as is'?
Opinions:
Majority - Judge Coffin
Yes. A seller's partial and misleading disclosures can give rise to claims for misrepresentation and violation of Mass. Gen. Laws ch. 93A, and an 'as is' clause does not automatically bar such claims. While there is generally no duty to speak in an arm's-length transaction, a party who voluntarily discloses partial information has a duty to reveal all material facts to avoid deceiving the other party. Texaco's disclosure of one leak while concealing others and a Coast Guard investigation, especially after V.S.H.'s inquiries, constitutes a 'half-truth' sufficient to state a claim for misrepresentation. Furthermore, Massachusetts's chapter 93A, which prohibits unfair and deceptive acts, is broader than common law fraud and can be violated by the failure to disclose a material fact that may have influenced the buyer. An 'as is' clause, which generally disclaims warranties, does not permit a party to contract out of liability for fraudulent or deceptive conduct. The court affirmed the dismissal of the breach of contract claim, finding the possibility of future environmental liens too speculative to constitute a present 'encumbrance' on the title.
Concurring in part and dissenting in part - Judge Breyer
Yes, as to misrepresentation; No, as to the Chapter 93A claim for pure nondisclosure. The common law misrepresentation claim is sufficient to survive dismissal. However, applying chapter 93A's disclosure requirements to a transaction between sophisticated business parties with a clear 'as is' clause effectively reads the 'as is' contract out of Massachusetts law. The purpose of an 'as is' clause, explicitly permitted by the Uniform Commercial Code, is to shift the burden of inspection and risk of hidden defects to the buyer. Forbidding this risk allocation between knowledgeable businesses does not serve the consumer protection goals of chapter 93A and may raise prices by preventing parties from allocating risks efficiently. The Attorney General's regulation requiring disclosure was likely not intended to override the validity of 'as is' contracts in commercial transactions between sophisticated parties where there is no affirmative misrepresentation.
Analysis:
This decision significantly limits the defensive power of an 'as is' clause in commercial real estate transactions under Massachusetts law. It establishes that such clauses cannot be used as a shield against claims of deception, whether through common law misrepresentation (i.e., half-truths) or the broader statutory prohibitions of chapter 93A. The ruling reinforces a seller's duty to be forthcoming once they begin to make disclosures on a particular subject. The dissent highlights a critical tension between broad business-practice statutes and the freedom-of-contract principles codified in the UCC, suggesting that future courts will have to grapple with how to balance these competing policies in transactions between sophisticated parties.
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