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McFarland v. Associated Brokers: Inspection and Discovery of Leak by Buyer Does Not Protect Licensee From Misrepresentation Claim

In McFarland v. Associated Brokers, a case involving a leaking roof, the buyer claimed that the listing broker knowingly concealed the extent of the problem. In this case, Bruce McFarland (the “Buyer”) bought a home listed by Associated Brokers (the “Listing Broker”). According to the decision, he was “assisted” in the purchase by another brokerage (the “Selling Broker”); there is no specific mention of whether the Selling Broker represented him or was acting as a subagent.

Prior to the closing, the Buyer had the property inspected. While the inspector did not discover any major roof problems, on that same day, the Buyer himself noticed water in a light fixture. He requested roof repairs at the seller’s expense and a one-year guaranty. Repairs were made and he received the guaranty from the contractor. Upon moving into the house, the Buyer discovered that the roof still leaked.

The Buyer sued the Listing Broker, alleging negligence, violations of the Texas Deceptive Trade Practices - Consumer Protection Act (the “DTPA”), and fraud. He sought damages for what he claimed were the Listing Broker’s knowing concealment (misrepresentation), non-disclosure of known defects and non-disclosure of false representations made by the sellers.

In response, the Listing Broker filed a motion for summary judgment on the grounds that it was not the cause of the Buyer’s harm. It argued that it was not the cause of the damages because four factors broke the chain of causation: 1) a contract addendum in which the Buyer agreed that he was not relying on representations or statements made by the licensee; 2) the property inspection; 3) the Buyer’s discovery of the leak; and 4) the Buyer’s agreement with the roofer. The trial court granted the motion. In addition, the Listing Broker’s counterclaim for attorney fees was tried to a jury, which awarded it $19,200 for legal fees.

The Buyer appealed both the grant of summary judgment and the award of attorney fees to the Court of Appeals of Texas. The Listing Broker’s motion for summary judgment had been based solely on the issue of the absence of causation and had not addressed the issue of misrepresentation. Therefore, the court explained that for purposes of the appeal, it would assume that there was knowing concealment by the Listing Broker and only would address the arguments with respect to the issue of causation, not misrepresentation. Proof of causation would be necessary for the Buyer to recover on all of his claims - any negligence action requires proof of proximate cause.

The Buyer argued that the Listing Broker’s conduct was in fact the cause of his harm. The court disagreed with the Listing Broker’s arguments that the four factors it listed broke the chain of causation. It specifically rejected the argument that a buyer’s careful inspection “constitutes a new and independent basis of the purchase, thus intervening and superseding the sellers’ alleged wrongful act.” This was not a situation where the Buyer bought the property “as-is”; he never expressly agreed to rely only upon his own examination of the property. The court stated that while a licensee does not have a duty to inspect a property to discover defects, “a seller does have a duty to avoid making misrepresentations and to disclose known material facts under certain circumstances.” Moreover, the court stated that if the Listing Broker knew that the roof was damaged more than was reflected in the property inspection report, then such nondisclosure could be a cause of the Buyer’s harm.

The Buyer also asserted that the trial court’s interpretation of the property inspection clause addendum was incorrect. He argued that the clause only covered the Selling Broker. The relevant portion of the addendum stated that “....the buyer has not relied upon and is not relying upon any representations or statements made by [licensee] regarding the condition of the property.” While the court questioned whether this provision would waive responsibility under the Texas DTPA, it did not reach a conclusion on that issue. It did agree with the Buyer, finding that the addendum itself made it clear that it only applied to the Selling Broker, not to the Listing Broker.

As far as the award of attorney fees, the Buyer claimed that since the summary judgment had been granted improperly, the Listing Broker could not recover attorney fees as the “prevailing party” under the contract of sale, and the court agreed. The case was remanded for a trial on the merits.

McFarland v. Associated Brokers, 977 S.W.2d 427 (Ct. App. Tex. 1998).