Tennessee “As Is” Property Buyers Better Beware

by Butler Snow LLP

A recent Tennessee Court of Appeals decision reinforces that parties to a contract are free to disclaim reliance on representations made by the other party.

In Terry Pritchett v. Comas Montgomery Realty & Auction Company, Inc. et al., No. M2014-00583-COA-R3-CV (April 15, 2015), the plaintiff purchased a commercial building at an auction. On the day before the auction plaintiff signed a “Terms of Sale” form that stated “everything will be sold AS IS, WHERE is.” Additionally, immediately prior to the auction, Defendant’s auctioneer announced to those in attendance that “your bids today are based solely upon your inspection.” Finally, after plaintiff was determined to be the successful bidder, plaintiff signed the contract of sale that also stated that “buyer specifically acknowledges herein that the property is being purchased “as is” and that neither the Seller or [Defendant] makes any … representations … as to the condition of the real property.”

After his purchase, plaintiff discovered that the building was smaller than advertised at the auction (9,353 sqft; not 11,556 sqft), and sued the auction company for negligently misrepresenting the size of the building. Plaintiff operated under two causes of action: 1) intentional/fraudulent misrepresentation and negligent misrepresentation. For reasons undisclosed in the opinion, plaintiff inexplicably and voluntarily dismissed his claim for fraudulent/intentional misrepresentation, and proceeded solely under negligent misrepresentation.

Negligent misrepresentation occurs when a plaintiff justifiably relies on faulty information supplied by a defendant who, in the course of its business, profession, or a transaction in which it has a pecuniary interest, has failed to exercise reasonable care in obtaining or communicating that information. The essential elements for a claim of negligent misrepresentation are: (1) the defendant was acting in the course of its business or profession or in a transaction in which it had a pecuniary interest; (2) the defendant supplied faulty information meant to guide others in their business transactions; (3) the defendant failed to exercise reasonable care in obtaining or communicating the information; and the plaintiff justifiably relied upon the information.

Justifiable reliance involves two separate issues: whether the plaintiff actually relied on the misrepresentation and whether that reliance was reasonable. In this case Defendant moved for summary judgment arguing: (1) expert testimony was required to establish the standard of care for auctioneers and that Plaintiff’s expert failed to establish the standard of care; and (2) Plaintiff’s claim was barred by the “as is” agreements he acknowledged in three separate instances, and his reliance was not reasonable. The trial court granted plaintiff’s motion on the first ground – standard of care.

The court of appeals affirmed, but on different grounds. Specifically, and without addressing the standard of care argument, the Tennessee Court of Appeals held that since there was no claim that defendant engaged in fraud, intentional misconduct, or gross negligence, then plaintiff had effectively negated an essential element of plaintiff’s claim: justifiable reliance.

As an aside, I have a 22,000 sqft house on 700 acres, including a 45 acres lake, that comes complete with a helicopter pad for sale. Just remember that you will be taking that “AS IS,” and any of your offers will be based on solely on your personal inspection. Please sign acknowledging your understanding. X_______________________. Any takers?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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