In this residential property contract case, the Court addressed whether “as-is” and disclaimer-of-reliance contractual provisions contained in the closing documents barred the homebuyer’s claims for fraud, negligent misrepresentation and violations of the Deceptive Trade Practice Act (DTPA), even when the seller’s disclosure statement apparently misrepresented and omitted material information. Pogue v. Williamson, 01-17-00844-CV, 2020 WL 1173708, at *1 (Tex. App.—Houston [1st Dist.] Mar. 12, 2020, no pet. h.). After considering these issues, the Court of Appeals reversed the $760,769 judgment of the trial court rendered in favor of the homebuyer.
Background. Williamson purchased the home subject of this lawsuit from the Pogues. The parties initially entered an earnest money contract in which Williamson agreed to pay the Pogues $210,000 for the residential property and the Pogues agreed to provide seller financing to Williamson. Williamson also agreed to accept the property “as is” and have the property inspected.
Before the parties closed, Williamson reviewed the disclosure statement provided by the Pogues that it would later be learned contained numerous errors. The closing documents included a deed, a promissory note, and a deed of trust securing payment of the note. The deed of trust contained the following as is and disclaimer-of-reliance language:
As a material part of the consideration for the Property, [the Pogues have] executed this deed and granted, sold and conveyed the above described property, premises and improvements, and [Williamson] has accepted this deed and purchased the above-described property, premises improvements, “AS IS.” [The Pogues] and [Williamson] agree that there is no warranty by [the Pogues] that the Property is fit for a particular purpose. [Williamson] acknowledges that [she] is not relying upon any representations, statements, assertions or non-assertions by the [Pogues] with respect to the Property condition, but is relying solely on [her own] examination of the Property.
Pogue v. Williamson, supra, at *2.
Williamson also signed a document instructing the attorney drafting the closing documents to not perform a termite inspection or take actions to determine whether the property was in a flood plain or had drainage problems.
After moving into the house in October 2010, Williamson discovered serious problems with the house over the next 2 years, including extensive mold and water penetration, septic system problems, electrical problems, and bug infestation including termites. As a result, between 2010 and 2013, Williamson spent over $85,000 on repairs.
A dispute ensued between the parties regarding Williamson’s ability to timely pay the promissory note and Williamson hired an attorney. The attorney sent a demand letter to the Pogues stating that they failed to provide proper disclosures of the home’s condition, the septic tanks wasn’t code compliant, there was existing termite infestation, and there was extensive mold problems throughout the home. The letter requested an extension on the note payment.
The parties were unable to reach an agreement and Williamson filed suit alleging fraud, negligent misrepresentations and DTPA violations. After 7 years of litigation, the case proceeded to trial and the jury awarded a verdict in favor of Williamson. Based upon the verdict, the trial court rendered a judgment for Williamson totaling $760,769. The Pogues appealed on the grounds that the deed of trust “As is” and disclaimer of reliance provisions barred Williamson from recovering on her claims.
Legal analysis. The Court of Appeals placed significance on the jury’s findings in favor of Williamson on her fraud claims because:
A buyer is not bound by an “as-is” clause if she demonstrates that she was induced to enter the agreement by fraudulent representation or concealment of information by the seller. Id. at 162. To succeed on this theory, the buyer must show that the defendant made a material misrepresentation; the defendant was either aware that the representation was false or that he lacked knowledge of its truth; the defendant intended for the plaintiff to rely on the misrepresentation; the plaintiff relied on the misrepresentation; and the plaintiff’s reliance caused injury.”
Pogue v. Williamson, supra, at *4.
However, the Court went onto discuss the disclaimer of reliance clause contained in the deed of trust and stated:
In a “disclaimer-of-reliance” clause, a buyer generally agrees that she is entering the contract relying solely on her own judgment and not on any statement or representation by the seller. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 178–81 (Tex. 1997). And similar to how demonstrating fraudulent inducement can, as a matter of law, preclude a contract’s “as-is” clause, proof of an enforceable disclaimer-of-reliance clause can, as a matter of law, preclude a fraudulent-inducement claim. Lufkin, 573 S.W.3d at 229; Schlumberger, 959 S.W.2d at 181. The enforceability of this disclaimer-of-reliance provision is a question of law. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011) (citing Schlumberger, 959 S.W.2d at 181). And it is dispositive.
Pogue v. Williamson, supra, at *4.
In determining whether a disclaimer-of-reliance clause is enforceable, we consider the totality of the circumstances and whether (1) the disclaimer language is clear; (2) the terms of the agreement were negotiated, rather than boilerplate; (3) the contract was the product of an arm’s-length transaction; (4) the complaining party was represented by counsel; and (5) the parties were knowledgeable in business. Lufkin, 573 S.W.3d at 229 (citing Italian Cowboy, 341 S.W.3d at 337 n.8, and Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60 (Tex. 2008)).
Pogue v. Williamson, supra, at *5.
After considering the totality of the circumstances and the above factors, the Court of Appeals concluded that the disclaimer-of-reliance clause was enforceable and barred Williamson from recovering on her claims. Thus, the Court reversed the trial court’s judgment and rendered judgment that Williamson, the homebuyer, take nothing.
Lessons learned. Although this decision may appear harsh on its face, contractual “as is” and disclaimer-of-reliance provisions are strictly enforced in Texas with only limited exceptions. This may be an issue that can only be changed through legislative action. Until then, if a homebuyer can afford it, the buyer should hire independent counsel to carefully review and revise all closing documents before completing the purchase of a house.