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S Development Company v. Pima Capital Management Co.8/30/2001
ble inspection. To hold otherwise would allow vendors to conceal latent problems with the property and "hide behind contract language purporting to shift the risk of nondisclosure to the purchaser." Haney, 839 F. Supp. at 757. We are confident that this result would offend the implied covenant of good faith and fair dealing that the law incorporates into every contract. See Restatement (Second) of Torts § 551 cmt. l. If the defective plumbing was a latent defect known to the appellants and that defective plumbing was a fact basic to the transaction, the appellants were under an obligation to disclose that condition regardless of the "as is" clause.
We also find support for our holding in the commentary to § 551 of the Restatement (Second) of Torts. Comment j states in part that " f the parties expressly or impliedly place the risk as to the existence of a fact on one party or if the law places it there by custom or otherwise the other party has no duty of disclosure." Restatement (Second) of Torts § 551 cmt. j. An "as is" clause shifts the burden of discovering those facts that are basic to the transaction. The commentary indicates, however, that the burden shifts to the other party to discover patent facts--facts that are discoverable upon a reasonable inspection.
The rule stated in Subsection (1) reflects the traditional ethics of bargaining between adversaries, in the absence of any special reason for the application of a different rule. When the facts are patent . . . there is no obligation to give aid to a bargaining antagonist by disclosing what the defendant has himself discovered. Restatement (Second) of Torts § 551 cmt. k; see also Lorenzo v. Noel, 522 N.W.2d 724, 726-27 (Mich. Ct. App. 1994) ("'As is' clauses allocate the risk of loss arising from conditions unknown to the parties. . . . 'As is' clauses also transfer the risk of loss where the defect should have reasonably been discovered upon inspection, but was not." (citation omitted)); Jaffe v. Bolton, 817 S.W.2d 19, 25 (Tenn. Ct. App. 1991) (" 'as-is' clause basically refers to the obvious or reasonably discernible defects in the property."); Conahan v. Fisher, 463 N.W.2d 118, 119 (Mich. Ct. App. 1990) (per curiam) ("Generally, the buyer bears the risk of loss under an 'as is' contract unless the seller fails to disclose concealed defects known to him."); C. Lambert & Assocs. v. Horizon Corp., 748 P.2d 504, 507 (N.M. 1988) (" n 'as is' clause provides absolute protection to a seller . . . only when the buyer and seller possess equal knowledge of the property."); William L. Prosser, Handbook of the Law of Torts § 106, at 697-98 (4th ed. 1971) (" here has been a rather amorphous tendency on the part of most courts to find a duty of disclosure in cases where the defendant has special knowledge, or means of knowledge, not open to the plaintiff . . . . This has now generally been extended to any facts or conditions basic to the transaction . . . .").
Even if we assume that the plumbing defect in this case was a "patent defect," the jury was free to conclude that the "as is" clauses did not protect the appellants because the buyers were not given a chance to investigate. The Restatement (Second) of Torts further indicates that "when the plaintiff has equal opportunity for obtaining information that he may be expected to utilize if he cares to do so," then the defendant is not under a duty to disclose. Restatement (Second) of Torts § 551 cmt. k. The evidence developed at trial demonstrates that, even if the plumbing defects were patent defects, the appellees did not have an "equal opportunity" to discover the defects because 1) the defective pipe was buried six inches inside the walls; 2) the contracts precluded the ap
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