                 IN THE COURT OF APPEALS OF TENNESSEE
                             AT NASHVILLE
                                       July 2000 Session

                         MARK STEVEN ISRAEL, ET AL. v.
                        LARRY MICHAEL WILLIAMS, ET AL.

                    Appeal from the Circuit Court for Williamson County
                            No. I-98121   Russ Heldman, Judge



                    No. M1999-02400-COA-R3-CV - Filed August 22, 2000


This appeal presents the issue of whether the trial court was correct to grant summary judgment
against Plaintiffs regarding their suit for damages resulting from alleged negligent misrepresentation
by Defendants. Plaintiffs claim that Defendants made negligent misrepresentations regarding the
condition of their house prior to the sale of the house to Plaintiffs. Summary judgment was granted
by the trial court. Upon review of this record, we affirm the judgment of the trial court.

        Tenn. R. App. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed

WILLIAM B. CAIN , J., delivered the opinion of the court, in which BEN H. CANTRELL, P.J., M.S. and
PATRICIA J. COTTRELL, J., joined.

Phillip L. Davidson, Nashville, Tennessee, for the appellants, Mark Steven Israel and Dawn Archer
Israel.

Marshall L. Hix and Keith C. Dennen, Nashville, Tennessee, for the appellees, Larry Michael
Williams and Nancy Sloan Williams.

                                             OPINION

                                              I. Facts

        On 23 December 1997, the plaintiffs, Mark and Dawn Israel (“the Israels”), entered into a
contract with the defendants, Larry and Nancy Williams (“the Williams”), agreeing to purchase the
Williams’ home in Franklin, Tennessee. On the same day, Defendants provided a Tennessee
Residential Property Condition Disclosure form (“the disclosure statement”) to Plaintiffs. The
disclosure statement notified the Israels of “[s]ome standing water in gravel under the deck. Some
water in basement in back during periods of excessive rain.” The Israels made the decision to have
the property inspected by a professional inspection service which was accomplished on 11 January
1997. The property was occupied by the Williams at the time of the inspection.
        Numerous problems with the house and basement were found by the property inspector
including “moisture/seepage signs present,” water and moisture symptoms of rotted/decayed wood,
“stains,” “mildew,” “poor drainage,” and “signs of damp walls and floor.” The inspector
recommended repairs which included putting clay soil around the house and noted that the
probability of water seepage/dampness after the recommended changes was medium to low. It was
also noted in the inspection report that the basement wall was bulging in, that there were several
other cracks, and that the front wall was leaning in a bit.

       After receiving the disclosure statement and the property inspection report, the Israels elected
to proceed with purchase of the house without further investigation. Closing of the house was
accomplished on 3 February 1997 and the Israels moved in on 5 March 1997. Immediately after
moving in the Israels allegedly found the sewer drain not operating properly as well as excessive
water seepage into the basement whenever rain occurred. Some time in April of 1997 the Israels
determined that the house suffered from sewer rot, mildew from water seepage, and water pipes
containing excessive rust.

        The Israels claim that the extent of water in the basement and the sewer problems were not
disclosed to them. They allege the Williams had prior knowledge of the sewer problems and failed
to disclose these problems at all. They also allege that the Williams downplayed the water problem
in the basement as being only in several places and only when it rained excessively, when in reality
the basement filled up with water after each rain.

        The Israels initially filed suit for failing to disclose the sewer and drain problems and failing
to reveal the extent of the water problems in the basement in violation of the Residential Property
Disclosure Law. Tenn. Code Ann. § 66-5-201 to -210 (Supp. 1999). The Williams have claimed
no knowledge of prior sewer or drain problems nor any prior severe water damage to the basement.
They further maintain that the disclosure statement was accurate and that the Israels were estopped
from seeking relief due to their having the property inspected by a professional property inspector.
The Williams then filed a Motion to Dismiss claiming that Plaintiffs were barred by the statute of
limitations set forth in Tennessee Code Annotated section 66-5-208(a)(1)(Supp. 1997). The trial
court granted the Williams’ Motion to Dismiss for failure to file the action within the statute of
limitations, as an action for violation of property disclosure laws must be brought within one year
from the date of purchase or receipt of the disclosure statement, whichever occurs first. However,
the court determined that Plaintiffs had adequately asserted a claim for negligent misrepresentation
and allowed those claims to continue forward.

        The Williams then filed a Motion for Summary Judgment and corroborating affidavits
claiming that all representations of material fact made to Plaintiffs were true and undisputed and that
Plaintiffs have not shown that the representations were faulty or carelessly made. They further
asserted that the Israels cannot recover because they had actual or constructive notice of the water
problems in the basement and that the Israels could not have justifiably relied on statements made
by the Williams regarding this matter. The Israels responded to Defendants’ motion claiming there
were genuine issues of material fact regarding two areas of claimed misrepresentation: (1) Whether
or not the Israels misrepresented the seriousness of the water problem in the basement, and (2)

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Whether or not the Williams had knowledge of and failed to disclose the plumbing/sewer problems
with the house.

        In support of their case, the Israels provided some additional evidence for the court’s review.
Two construction company reports were submitted laying out problems found with the basement and
repairs completed to fix the basement defects. The first report appears to be an estimate of repairs
and costs, and it states:

       Excavate dirt around foundation, backfill to another location. Apply foundation
       drain and backfill w/ gravel. Apply rubber membrane to wall. Seal edges and
       overlap w/ masking. Discharge to creek area. Backfill dirt. No landscaping
       included. Extra charges if hit rock to remove around foundation. Cost plus on jack
       hammering. Not responsible for step or concrete color and material.
       Total Price 4200.00

The second report appears to be a recitation of work performed and states:

       Upon removing baseboard and reviewing wood panel and concrete blocks,
       watermarks and stains prove the basement has been leaking four or more years. This
       estimation is due to the rot bu[il]d-up and deterioration along floor and wall line on
       right and left walls and some areas on the front wall.
       On July 16-17th, 1997 HCS excavated dirt around foundation, applied foundation
       drain around front and side walls, backfilled with gravel, ap[p]lied rubber membrane
       to wall, sealed edges and overlapped with masking, replaced window well on one
       side of home and created a gravity flow discharge of the drain system to the creek
       area at rear of house.

       In addition, Mr. Israel provided an affidavit of his own knowledge which stated:

               1.     My name is Mark Israel. Prior to purchasing the house my wife and
       I had been informed by Larry Williams that water only appeared in one small spot
       in the basement only if it rained excessively.

               2.     Williams also told me that if dirt was put around the house, this would
       stop the problem of excessive water.

             3.        The Williams have disclaimed the severity of the problem to me and
       my wife.

                 4.    The inspector inspected the house when it was dry and no rain had
       fallen.

              5.      The Williams added clay soil around the house prior to our moving
       in and without our prior knowledge.

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                6.    The Williams never told us they had a problem with the plumbing
       lines.

              7.     We relied upon the Disclaimer Statement, the statements by Larry
       Williams to buy this house.

              8.     The inspector’s report was also relied upon by us, but the inspector
       explained that he could only view things superficially. If there was drainage
       problems, he could not observe them on his inspection.

The Israels further provided three affidavits of neighbors. These three affidavits were identical
except for the name of the affiant and stated as follows:

             1.     My name is [Affiant]. I have lived near the former home of Larry and
       Nancy Williams since they bought the house in 1991.

              2.     I am personally aware that the Williams home had water seepage
       problems prior to the Israels[’] occupancy of the house.

               3.     I personally saw standing water in the basement of the Williams[’]
       home, not just during periods of excessive rain but when it rained for a short period
       of time.

               4.     I am also aware that the Williams had plumbing problems before the
       Israels occupied the home.

The Plaintiffs’ property inspection report and Defendants’ disclosure statement were also provided
to the court. No other additional evidence was provided by the Israels to support their case.

                                             II. Issues

       The primary issue in this case is whether or not the trial court was correct in granting
Defendants’ motion for summary judgment. The Supreme Court provides an exhaustive discussion
of Tennessee’s summary judgment law in Byrd v. Hall, 847 S.W.2d 208 (Tenn. 1993).

       [S]ummary judgment is to be granted if the “pleadings, depositions, answers to
       interrogatories, and admissions on file, together with the affidavits, if any, show that
       there is no genuine issue as to any material fact and that the moving party is entitled
       to judgment as a matter of law. [The Rules further state] that the nonmoving party
       “may not rest upon the mere allegations or denials of his pleading, but his response,
       by affidavits or [otherwise], must set forth specific facts showing that there is a
       genuine issue for trial.”

Byrd, 847 S.W.2d at 210 (citing Tennessee Court Rules 56.03 and 56.05).

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        The court goes on in Byrd to break down the elements of summary judgment. The initial
burden is on the party seeking summary judgment. That party “must carry the burden of persuading
the court that no genuine and material factual issue exists; [then] the nonmoving party must
affirmatively demonstrate with specific facts that there is indeed a genuine issue and material factual
dispute.” Id. at 214. (emphasis added). First, when the material facts are undisputed, the court may
simply apply the law and resolve the matter in favor of one party or the other and summary judgment
is appropriate. Second, to preclude summary judgment the nonmoving party must demonstrate that
the fact in dispute is material, i.e., whether the resolution of that fact will affect the disposition of
any substantive claims or defenses at which the motion is directed. Third, when the evidence
etablishes a disputed fact and it is determined that the fact is material, the court must determine if
the disputed material fact creates a genuine issue. “The test for a “genuine issue” is whether a
reasonable jury could legitimately resolve that fact in favor of one side or the other.” Id. at 214-15.
It should also be noted that “complete failure of proof concerning an essential element of the
nonmoving party’s case necessarily renders all other facts immaterial.” Id. at 213.

       The Israels claim that the Williams negligently misrepresented two things: (1) the amount
and frequency of water in the basement and resulting damage, and (2) any preexisting
plumbing/sewer problems and the resulting damage. Upon review of Defendants’ initial Motion for
Summary Judgment, we, like the trial court, are persuaded that there was no genuine issue of
material fact present. As a result, Plaintiffs must provide specific facts showing each element of
negligent misrepresentation with regard to the two alleged misrepresentations.

                                            III. Discussion

                            A. Elements of Negligent Misrepresentation

        In order to maintain a case for negligent misrepresentation, a plaintiff must prove that:

        1.      the defendant is acting in the course of his business, profession, or
        employment or is in a transaction in which he has a pecuniary (as opposed to
        gratuitous) interest; and

        2.     the defendant supplies faulty information meant to guide others in their
        business transaction; and

        3.      the defendant fails to exercise reasonable care in obtaining or communicating
        the information; and

        4.      the plaintiff justifiably relies upon the information.

John Martin Co., Inc. v. Morse/Diesel, Inc., 819 S.W.2d 428, 431 (Tenn. 1991). It is easy to see that
element number one is met as the defendants have a pecuniary interest in selling their house.
Plaintiffs must also come forward with specific facts showing that the alleged misrepresentations
meet the other three criteria for negligent misrepresentation.

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                      B. Representations Regarding Water in the Basement

        The first representation regards the amount and frequency of water in the basement.
Plaintiffs must show that the Williams supplied faulty information with regard to the amount and
severity of the water which collected in the basement and that they failed to exercise reasonable care
in obtaining or communicating this information. The following facts are on the record to show what
information was supplied by the Williams as well as the actual condition of the basement as
determined by the Israels following the purchase.

        1.     The Williams informed the Israels prior to purchase of “some standing water in
gravel under the deck. Some water in the basement in the back during periods of excessive rain.”

        2.      The Williams filed an affidavit stating that they had no severe water damage prior to
the sale of their house.

       3.     The Israels and their inspector viewed the house and found superficial evidence of
water damage as evidenced by the inspection report and consistent with the Williams’ assertion of
some past water in the basement.

        4.     The Israels provided a statement from Hudgins Construction Company regarding
repairs needed to waterproof the basement as well as damage found in the basement after removing
baseboards and parts of the basement walls.

        5.       Mark Israel provided an affidavit alleging that Mr. Williams informed him of water
appearing in one small spot in the basement only if it rained excessively; that Mr. Williams informed
him that putting dirt around the house would stop the water problem; that Mr. Williams disclaimed
the severity of the water problem; that the inspector inspected the house when it was dry and no rain
had fallen; that Mr. Williams added clay soil around the house prior to their moving in and without
their knowledge; that they relied on the disclaimer statements made by Mr. Williams to buy the
house; that they also relied on the inspector’s reports (but the inspector was only able to view things
superficially.)

        6.    Plaintiff also provided affidavits of three neighbors who lived “near” the former home
of Larry and Nancy Williams. These affidavits stated that the three neighbors were aware of water
seepage problems prior to the Israels occupying the house; that they personally saw water standing
in the basement, not just during periods of excessive rain, but when it rained for a short period of
time.

        In looking at the above facts and viewing them in a manner most favorable to the Israels,
we find that there is no evidence that the defendants supplied faulty information or failed to exercise
reasonable care in obtaining or communicating the information. The disclosure statement clearly
points out problems with water in the basement. Further, the Williams also let Plaintiffs know that
some repairs might be necessary in the form of putting dirt around the house in order to stop the
water in the basement. There is no evidence in the record that the plaintiffs had any problems

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different from what was described by the Williams. They provide no evidence as to how much rain
it took to cause water flow in the basement nor how much water they actually had in the basement
nor how often the water was there. In addition, the neighbors’ affidavits provide no additional
information regarding when they saw the standing water, how much water there was, or how long
it rained prior to water standing in the basement. As such, this claim for negligent misrepresentation
regarding the basement water must fail.

        In addition, however, we find that there was no justifiable reliance upon Defendant’s
statements regarding the water in the basement. “If one who is in possession of all material facts,
either actually or constructively, proceeds with a purchase of realty, notwithstanding such
knowledge, such a person cannot thereafter recover on the basis of fraud, misrepresentation, or
concealment of the information to which all parties had equal access.” Winstead v. First Tenn. Bank
N.A., Memphis, 709 S.W.2d 627, 633 (Tenn. Ct. App. 1986). Plaintiffs were placed on notice by the
disclosure statement regarding past history of water in the Williams’ basement. As a result of this
information, the Israels performed their own home inspection, hiring a professional inspector who
found numerous problems with the basement including mildew, bulging and cracked walls, poor
drainage, signs of damp walls and floors, seepage signs, water stains, and rotted and decayed wood.
The inspector’s report definitely shows problems with water in the basement and indicates that
repairs are necessary.

        As well, Tennessee Code Annotated section 66-5-201 specifically states, “the disclosure
statement . . . is not a warranty of any kind by a seller and is not a substitute for inspections either
by the individual purchaser or by a professional home inspector.” After reviewing the inspection
report the Israels had as much knowledge about the condition of the basement and the inside of the
basement’s walls as the Williams could. (Mr. and Mrs. Williams could no more see through the
walls and know of the interior damage than the plaintiffs or their inspector.) Based on the
information in the record and the residential inspection report, the Israels had as much (or more)
knowledge as the Williams regarding the actual condition of and potential problems with the
basement. With this knowledge, the Israels elected to proceed forward and purchase the home
without further investigation. Any reliance made on the statements of Mr. and Mrs. Williams was
unjustifiable in light of the Israels’ actual knowledge about the basement condition. See also Atkins
v. Kilpatrick, 823 S.W.2d 547 (Tenn. Ct. App. 1991); Coffey v. Foamex L.P., 2 F.3d 157 (6th Cir.
1993); Metropolitan Gov’t of Nashville and Davidson County v. McKinney, 852 S.W.2d 233 (Tenn.
Ct. App. 1993).

            C.   Failure to Disclose Plumbing/Sewer Problems and Resulting Damage

        We once again look to see whether or not facts show that the Williams provided faulty
information or failed to exercise reasonable care in obtaining or communication information
regarding any plumbing/sewer problems with the house and any resulting damage. The record itself
is conspicuously void of any actual evidence of the Israels having plumbing/sewer problems. In his
affidavit, Mark Israel states that “the Williams never told us they had a problem with the plumbing
lines.” They also state that the inspector could only view things superficially and any drainage
problems could not be observed on his inspection. The affidavits of the neighbors state they are also

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aware that the Williams had plumbing problems before the Israels occupied the home. However,
there is absolutely no evidence of the Israels actually having a plumbing problem or what the
plumbing problem was. Therefore, without any evidence of an actual problem, it cannot be shown
that the defendant’s statements, or lack thereof, were in any way faulty or lacked reasonable care.
Thus, the second allegation of misrepresentation must also fail.

                                          V.    Conclusion

        This Court concludes that summary judgment was warranted. With regard to the Israels’
allegations of misrepresentation about the basement’s water situation, we find that Plaintiffs failed
to demonstrate, through specific facts, any material differences between what was originally
disclosed as water problems in the basement and what the Israels later actually found to be the
condition of the basement. The Israels also failed to demonstrate any knowledge on the part of the
Williams that would render the information supplied to them by the Williams as faulty. We further
find that the Israels could not have justifiably relied on the representations of the Williams regarding
the basement’s water condition in light of the information provided to them by their own property
inspection. With regard to the alleged failure to disclose plumbing and sewer problems, we find that
the Israels failed to come forth with any specific facts showing what plumbing and sewer problems
existed following the purchase of their house, which also existed during the time of the Williams’
ownership of the house, or of which the Williams had knowledge. Due to lack of evidence necessary
to maintain a claim for negligent misrepresentation, we find that the trial court properly dismissed
this case on summary judgment and affirm the trial court’s ruling.




                                               __________________________________________
                                               WILLIAM B. CAIN, JUDGE




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