DBTC Law Firm

Taking the Bait: Is it justifiable to rely on a bare statement that a toolbox is worth $150,000?

The old adage, “[i]f it seems to be too good to be true, it probably is,” is well worth considering the next time you make a large purchase. That advice would have come in quite handy for a woman and her son who paid an extra $100,000 for a parcel of real estate in order to purchase various tools that were located on the property.

Prior to selling the parcel of real estate, the seller told the purchaser’s son that sale included valuable tools that were located on the property. He represented that the tools were worth $150,000, but offered to sell them along with the real property for “only” an additional $100,000. Considering the offer to be a bargain, and without actually seeing the tools, the woman and her son took the bait – hook, line, and sinker. They made the purchase without any further investigation. However, after the woman and her son eagerly purchased the real estate and accompanying tools, they almost immediately discovered that the tools were actually only worth about $8,000.

As a result of their shocking discovery, the woman and her son pursued a lawsuit against the seller and alleged various causes of action that included fraud. Although there was little doubt that the seller knowingly misrepresented material facts and that the mother and son relied upon those misrepresentations in entering into the real estate purchase agreement, in order for the fraud claim to be actionable they also had to prove that they were justified in relying upon the misrepresentations. The trial court found that the son had justifiably relied upon the seller’s misrepresentations, and it granted him a judgment against the seller in an amount equal to the difference between the $100,000 that was paid for the tools and $8,000, the actual value of the tools. The Arkansas Court of Appeals upheld the trial court’s ruling, concluding that, although the son was familiar with tools and real estate transacting, he was not an “expert.”

While the Arkansas Court of Appeals upheld the judgment against the seller, two dissenting Arkansas Court of Appeals Judges warned that the majority had effectively done away with the requirement that reliance be justifiable in proving fraud. Citing Restatement (Second) of Torts §541 (1977), a legal treatise, the Judge reminded the majority that one “cannot recover if he blindly relies upon a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation.” Despite the dissenting Judges’ admonitions, the majority’s ruling resulted in the son recovering a judgment against the seller in the amount of $92,000.

Even though the plaintiffs were successful in proving fraud and obtaining a judgment, they were unable to get the contract completely rescinded and they were prevented from recovering any attorneys’ fees that were expended in their various appeals. If there is one lesson to be learned from their misfortune, it is that if a deal appears to be so fantastic that it is almost unbelievable, it might be worth doing some preliminary investigation prior to biting into that shiny hook.

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