Olson v Hunter's Point Homes (IL)

Summary:  Sellers’ and real estate agents’ misrepresentation of facts about the nature and character of the utility easements and building code violations may be a misrepresentation that falls under an exception to the Moorman Doctrine.

Olson v Hunter's Point Homes, 2012 IL App (5th) 100506, 964 NE2d 60, 357 Ill Dec 697 (5th D, 2011).

Facts: Seller, a developer of properties in a subdivision, and seller’s real estate agent, and other agents (collectively, “seller”) made representations to buyers as follows, (1) that a home for sale was located on a lot where permanent structures could be built, (2) that the home was built in accordance with all laws, codes, specifications and easements, and (3) that a garage, fence or other structure could be built in the backyard. In reality, the majority of the area behind the home was subject to an Illinois Power easement, prohibiting other structures such as a garage or fence, and the house already encroached onto the easement.

The buyers sued the seller, alleging common law fraud, violations of the Consumer Fraud Act, ordinary negligence, promissory estoppel, and negligent or intentional misrepresentation. The circuit court dismissed all the plaintiffs’ claims based on the Moorman doctrine, which states that a party may not recover in negligence for a purely economic loss. The court granted 30 days to the buyers to amend their complaints but after 30 days no amendments were made and the claims were all dismissed with prejudice.

The plaintiffs appealed the dismissal.

Holding: The appellate court affirmed in part, reversed in part, and remanded the case. The court found that several exceptions to the Moorman doctrine applied to the facts of this case. The dismissal of the negligent misrepresentation count was affirmed. Additionally, one dismissal a cause of action for promissory estoppel was affirmed because promissory estoppel is unavailable when an enforceable contract exists between the parties, as was the case here between buyer and seller.

The court held that the allegations of common law fraud and a violation of the Consumer Fraud Act were not properly dismissed, however, because the allegations contained intentional misrepresentations. The Moorman doctrine does not prevent recovery of economic loss when the allegation is for intentional false representation, and not a mere negligent misrepresentation. Those counts were all reversed and remanded.

A second exception exists to the Moorman doctrine where an individual is in the business of supplying information for the guidance of others in their business transactions makes a negligent misrepresentation. In such cases, a plaintiff may recover economic losses; here, this exception applied to the fraud allegations against the real estate broker. The court reversed and remanded those counts as further exceptions to the Moorman doctrine.

Regarding all the misrepresentations, intentional or otherwise, the court rejected the sellers’ contentions that the buyers were not entitled to rely on representations of law because both parties are presumed to be equally capable of knowing and interpreting the law, and these misrepresentations were discoverable by the buyers in the exercise of ordinary prudence, i.e. examining the public records. The court maintained that sellers are liable when they possess facts with almost exclusive knowledge and the truth or falsity is not readily ascertainable by the buyer. The court found it to be a question of fact whether the nature and character of the utility easements and building code violations at issue should fit into this category.

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By: ATG Underwriting Department | Posted on: Fri, 07/06/2012 - 4:12pm