By: Robert Flynn
Covenant Title Corp.
The pivotal question to be asked in
analyzing a seller’s obligation begins with, “What obligation?”
Trying to research the issue using only Maryland case law as a
guide will leave you frustrated and probably without a clear
answer. Many cases dating back nearly two centuries can be
found, which are still good law but they refer to sellers as
“vendors”. Using a computer assisted search without the word
“vendor” would lead you to think Maryland has never before
addressed these issues.
Because the cases necessarily
revolve around differing fact patterns, it can be somewhat
difficult to glean the general rules or “black letter law” that
so many of us seek when providing advice to clients or each
other. However, the source documents upon which most of the
cases rely is still available for us. Corbin on Contracts
and Williston on Contracts are the textbooks for
many areas involving contracts, including this one. Each
treatise provides a framework for understanding this very
interesting area of law.
Generally, there is no duty to
disclose adverse facts to the other party in a contract
setting. To hold otherwise would create the absurd result that
a party would have to tell the other party that the deal is too
good, and why. That would not exactly be conducive to our
commercial enterprise system.
So, if the rule of caveat
emptor is alive and well, when is it mollified?
When a statute requires a
disclosure, it must be made. Whenever a true statement when
made becomes false, a duty exists to explain it. When a
confidential relationship exists, disclosure is required.
Whenever a statement is offered, it must be truthful and
complete. A seller certainly cannot take active measures to
hide defects. What else is there?
When does a seller, who knows of
a latent, material defect in property, required to make a
disclosure of such, given the general rule states above?
In general terms, disclosure must be
made when the seller is aware of a material, latent defect.
“Material” is a fact about the property that would change a
reasonable person’s purchasing decision. “Latent” means that
the defect is not readily observable or readily discoverable by
reasonable means. The cases are decided on what property,
defect, material and latent are. Williston calls this the
“passive concealment” exception to the caveat emptor rule.
In describing the pendulum swing
from caveat emptor to disclosure, Corbin states:
“A Seller of … land … is under an obligation to disclose latent
defects. This is a very old doctrine, though its history is not
smooth … Although the dust has not settled, it may safely be
said that the older law [disclosure] once again prevails as to
latent defects in consumer transactions and single family
housing.” Corbin is very concise!