The title of this blog is not entirely tongue in cheek as in an opinion filed on July 1, 2008, the Wisconsin Supreme Court eased the consequences of lying on a Real Estate Condition Report in a residential real estate transaction. In Below v. Norton, 2008 WI 77 (http://www.wisbar.org/res/sup/2008/2005ap002855.htm), the court held that the economic loss doctrine bars common-law claims for intentional misrepresentation in all real estate transactions (residential and commercial).
The title of this blog is not entirely tongue in cheek as in an opinion filed on July 1, 2008, the Wisconsin Supreme Court eased the consequences of lying on a Real Estate Condition Report in a residential real estate transaction. In
Below v. Norton, 2008 WI 77 (
http://www.wisbar.org/res/sup/2008/2005ap002855.htm), the court held that the economic loss doctrine bars common-law claims for intentional misrepresentation in all real estate transactions (residential and commercial). The facts of the case were as follows:
- In 2004 Below purchased a home in Milwaukee from Norton;
- In their property condition report Norton represented that they were not aware of any defects with the house’s plumbing system, except for a problem with their bathtub’s drain handle;
- Following closing Below learned that the sewer line that ran between the house and the street was broken;
- Below filed a lawsuit in Milwaukee County Circuit Court alleging various misrepresentation claims against Norton, including intentional misrepresentation and misrepresentation in violation of Wis. Stat. §100.18. The circuit court dismissed Below’s action on various grounds; Below appealed the decision to the Wisconsin Court of Appeals (who affirmed the dismissal) and then appealed to the Wisconsin Supreme Court;
- The Wisconsin Supreme Court held that Below could not pursue the intentional misrepresentation claim, but could ask the lower court for leave to file a breach of contract claim; and
- To date, the case has not been put before either a judge or jury to determine whether Norton in fact lied on the property condition report.
So what does this mean? Will the case ever be presented before a judge or jury to hear the facts and determine if Norton lied? If yes, will Below have a remedy? The answers – (i) unless the case is settled, yes it will go to a judge or jury to decide the facts, and (ii) yes, if Below prevails, she will have some remedies, however her remedies are now limited.
There are three basic claims that Below and similarly situated parties make; in Below v. Norton the court decided that Below, and like situated plaintiffs, could pursue 2 of these 3 basic claims. The 3 basic claims are: (i) intentional misrepresentation, (ii) breach of contract, and (iii) misrepresentation in violation of state statutes (specifically §100.18, §895.446 and §943.20(1)(d).6). The court in Below v. Norton decided that Below could pursue the claims of breach of contract and misrepresentation in violation of state statutes claim, but because of the economic loss doctrine, Below could not pursue the intentional misrepresentation claims.
Why is this important? If Below and other buyers of real property can sue for breach of contract and misrepresentation in violation of state statutes, why is the barring of an intentional misrepresentation claim relevant or important? It’s important because the remedies available to a plaintiff under a breach of contract claim are generally perceived as being less than the remedies available in an intentional misrepresentation claim. But probably more important is the fact that the statute of limitations on an intentional misrepresentation claim can be much longer than the statute of limitations for a breach of contract claim or claims for misrepresentation in violation of state statutes.
The statute of limitations for an intentional misrepresentation claim is 6 years. The statute of limitations for a breach of contract claim is also 6 years; however the difference is when the clock starts running on the 6 years. In a breach of contract claim, the clock starts running at the time of the breach (in this case, when Norton allegedly lied on the property condition report). In an intentional misrepresentation claim, the clock starts running when the injured party discovers the alleged misrepresentation (in this case, when Below learned that the sewer line was broken). The statute of limitations (repose) for a claim under §100.18 is even shorter – 3 years from the time of the violation.
What does Below v. Norton mean for homebuyers? It means that buyers should not solely rely upon the seller’s representations and warranties, but should perform thorough inspections of the property both before and after purchasing the property. Further, if the buyer discovers a defect and has any concern that the seller lied or misrepresented something in the sale transaction, the buyer should run (not walk) to his/her attorney because the clock is ticking. If the buyer files a lawsuit 6 years + 1 day after the alleged misrepresentation, then the seller wins.
Example:
· Jack bought his home in May of 2002 from Mark;
· On the property condition report Mark stated “No” to the following statement “I am aware of defects in the septic system or other sanitary disposal system”;
· In June of 2008 the septic system failed;
· In July of 2008 a contractor employed by Jack, after looking at the septic system, told Jack that he had been to the property in the past, that the septic system had failed in the past and that he had advised Mark that a new septic system should be installed; and
· In August of 2008, Jack filed a lawsuit against Mark for intentional misrepresentation, breach of contract and misrepresentation in violation of §100.18, Wis. Stats.
Will Jack be successful? No. Mark will be able to kick out the breach of contract claim because the 6 year statute of limitations on that claim ran out in May of 2008, likewise the 3 year statute of limitations (repose) on the §100.18 claim ran out in May of 2005. The intentional misrepresentation claim will be barred under the court’s holding in Below v. Norton. But for Below v. Norton, Jack’s intentional misrepresentation claim would have survived the statute of limitations attack because the 6 year clock would not have started until July of 2008 – the time when Jack discovered the alleged misrepresentation. Because of Below v. Norton, Jack has no recourse against Mark.
If this blog has tickled your interest – I encourage you to read the epitome of dissenting opinion penned by Justice Ann Walsh Bradley. She eloquently and effectively slashes the majority’s opinion in Below v. Norton. My question: Is there a consumer protection group in Wisconsin that will take up this issue to change the statutes to provide that the statute of limitations for these types of contract claims accrue upon discovery of the breach?