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S Development Company v. Pima Capital Management Co.8/30/2001
rovision, which stated:
Disclaimer of Warranties. Buyer acknowledges that except as expressly set forth in the Agreement, Seller makes and has made no representations or warranties of any kind whatsoever, including but not limited to warranties concerning the condition of title, physical condition, encroachments, access, zoning, value, future value, income potential, any survey, environmental report or other information prepared by third parties, loan assumability, or the presence on or absence from the Property of any hazardous materials or underground storage tanks. Buyer is purchasing the Property as a result of its own examination thereof in its "AS IS" condition, and upon the exercise of its own judgment and investigation. (Emphasis added.)
Both contracts also contained the following provision for the appellees to inspect the property:
Buyer's Inspection. During the Review Period described ... below, Buyer and Buyer's agents, servants, employees and independent contractors shall have reasonable access to the Property for the purpose of investigating the condition of the same, and for any other reasonable purpose which relates to the potential use, occupancy, operation and maintenance of the Property; provided, however, that in conducting any such investigations ... (ii) Buyer shall not injure or damage the Property, and shall indemnify and hold Seller harmless for, from and against any and all liability, loss, cost, damage, or expense ... which may arise out of such entry and Buyer's activity upon the Property. ... n the event that this Escrow does not close, Buyer shall restore the Property to the same condition which existed at opening of Escrow ... . (Emphasis added.)
Prior to the close of the transactions, the appellees inspected the property in accord with the contract. Those inspections did not reveal any substantial problem with the buildings' plumbing. It was not until approximately two years after closing that the appellees learned that the plumbing in both Presidio North and Bell Tower consisted of polybutylene ("PB") pipe.
When the appellees sued the appellants alleging fraud and non-disclosure for having failed to disclose the defective plumbing prior to the close of the transactions, the appellants candidly responded that, because they were unaware that the buildings had been constructed using PB pipe when they sold the property to the appellees, they could not disclose the unknown condition. The appellees in turn acknowledged that their inspections of the buildings had not revealed the presence of PB pipe.
The parties do not dispute that the appellees' claim for non-disclosure is predicated on Restatement (Second) of Torts section ("Section") 551 (1977), and the appellants do not claim that the "as is" clause in the purchase contracts relieves them of tort liability for non-disclosure as a matter of law. Rather, the appellants argue that the "as is" clause pertains to but one element of the tort of non-disclosure - the element of duty - relieving them of liability as follows: Even had they known of the defective plumbing - which they did not, the appellants were under no duty to disclose the PB pipe to the appellees by operation of the "as is" clause; the "as is" clause did not act as a waiver of the appellants' tort liability but, instead, concerned the assignment of duty and risk; the burden of discovering the defect thereby shifted to the appellees; the appellants did not withhold from the appellees the opportunity to discover the defective plumbing; the appellants accordingly are not liable for the appellees' failure to discover the PB pipe, and the appellants should have been granted judgment as a matter of law.
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