Introduction. In Ivy v. Garcia, Buyer sued Sellers for fraudulently inducing Buyer into entering a contract and buying Sellers’ defective home. 03-18-00545-CV, 2019 WL 3756483 (Tex. App.—Austin Aug. 9, 2019, no pet. h.). Sellers filed a motion for summary judgment on the basis that the as-is clause in the purchase contact barred Buyer’s claims as a matter of law. The trial court granted the motion for summary judgment and the Austin Court of Appeals reversed.
Background. On July 26, 2015, Buyer entered into a purchase agreement to buy Sellers’ home using a standard contract promulgated by the Texas Real Estate Commission. The contract contained a clause that the Buyer accepted the home “As Is” defined as “the present condition of the Property with any and all defects and without warranty except for the warranties of title and the warranties in this contract.”
On August 17, 2017, two years after purchasing the house, Buyer sued Sellers alleging Sellers failed to disclose defects in the home. Buyer alleged causes of action including for deceptive trade and fraudulent inducement to enter a contract. Sellers stated in the disclosure notice that they were not aware of any fires. As part of the Buyer’s response to the Seller’s motion for summary judgment, Buyer attached a report from the local fire department report documenting that the home had been struck by lightning and that it caused a small fire in the home.
Court’s holding. The Austin Court of Appeals found that under Texas law, a buyer is not bound to an as-is agreement, “if the agreement is a product of a fraudulent representation or concealment of information by the seller.” Prudential Ins. Co. of Am. v. Jefferson Associates, Ltd., 896 S.W.2d 156, 162 (Tex. 1995). The court went onto hold that the report presented by the Buyer from the local fire department presented an issue of fact as to the Buyer’s fraudulent inducement claim. The Court of Appeals reversed the Trial Court’s dismissal of Buyer’s claims and remanded the case to the Trial Court for further proceedings.
Lessons learned. A seller in a real estate transaction should ensure that the seller makes full and adequate disclosures in any required disclosure statement. The seller’s attorney will also want to make sure that an “as-is” provision in the sale agreement is coupled with a disclaimer clause stating that the buyer is not relying upon any representations not included in the sale agreement including as to the condition of the property being sold. This should help the seller to defeat a fraudulent inducement claim by a buyer attempting to avoid enforcement of an “as-is” clause.