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Alaface v. National Investment Co.9/1/1994
narrowly. Holding the seller responsible for his own agent's misrepresentation is a fair way to protect the innocent buyer who bought the property on the basis of the misrepresentation. See Light, 33 Ariz. at 108, 261 P. at 971. In addition, holding the seller responsible for the acts of an agent he has chosen is not unfair if the buyer advises the seller of the fraud and offers to return both parties to the status quo. However, to hold the seller responsible for misrepresentations made by the buyer's own agent, whom the seller did not choose, even under a rescission/ratification theory would not be just. Therefore, we conclude that Light and Jerger do not apply to impose liability on NIC for Martin's false statements.
2. Negligent Misrepresentation by Omission and Negligence Per Se
Included in their claim for negligent misrepresentation, the Alafaces argue that NIC is liable for its own misrepresentation by omission under a theory of negligence per se due to NIC's alleged violation of the subdivision reporting statutes. We conclude that this argument has merit.
Initially we point out that Arizona common law has, under some circumstances, imposed on a seller a duty to disclose. E.g., Hill v. Jones, 151 Ariz. 81, 725 P.2d 1115 (App. 1986); Frazier v. Southwest Sav. and Loan Ass'n, 134 Ariz. 12, 653 P.2d 362 (App. 1982).
A duty to speak . . . will be imposed on a party to a business transaction "if he knows that the other is about to enter into it under a mistake as to [facts basic to the transaction], and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts". If a party has such knowledge, then a duty will be imposed to exercise reasonable care to disclose such facts to the other party.
Frazier, 134 Ariz. at 17-18, 653 P.2d at 367-68 (quoting Restatement (Second) of Torts § 551 (1977)) (footnote omitted). This is especially true when "disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing." Hill, 151 Ariz. at 84, 725 P.2d at 1118 (quoting Restatement (Second) of Contracts § 161 (1981)).
Whether NIC had sufficient knowledge under the circumstances of this sale to impose on it a duty to disclose is a question of fact to be determined by the jury. Frazier, 134 Ariz. at 18, 653 P.2d at 368. Viewing the evidence in a light most favorable to the Alafaces, we determine that there is sufficient evidence to preclude summary judgment. The lot was located in a residential subdivision where other houses were constructed or in the process of being constructed. The real estate purchase contract was contingent upon obtaining a "cabin construction contract." Certainly, a reasonable juror could conclude that NIC knew that the Alafaces intended to build a residence on the lot. In 1982, the Department of Real Estate investigated the activities of NIC with regard to the sale of lots in Diamond Valley. As a result, NIC offered to rescind the earlier sales because the property was in an "illegal subdivision" and agreed to obtain a subdivision public report. Additionally, NIC included in some of the escrow instructions for earlier lot sales a disclaimer as to the availability of water. From this evidence a reasonable
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