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Condo | HOA Lawyers

AS-IS Clause Does Not Foreclose a Fraud Claim

An AS IS exculpatory clause in a contract does not automatically relieve a party of any liability, especially where that party committed fraud to obtain the exculpatory clause.

The Facts

In both of the cases referenced below, the defendant included an as-is clause in a real estate contract. In Frianco the bank defendant (after discovering that the property that it had foreclosed on had significant water damage, and after paying to have those damages repaired) advised the purchaser of property in the offer contract that “it had little or no direct knowledge as to the condition of the property.” Similarly in Herhold, the defendant first represented to the buyers that they would be able to build a home on property they were selling, despite knowing of significant issues that would make that difficult or impossible. The defendant then included an “AS IS” clause in the real estate purchase agreement that also stated that “neither Seller, Broker nor Agent have made any representation or warranties…”

Jury Verdicts

In each case the jury came back in favor of the plaintiff.  In fact, in the Herhold case the jury came back that way twice.  The first time the court of appeals overturned their verdict for the plaintiff in the total amount of about $261,000.  On retrial, the jury award about $285,000.

Appeals Courts

In each case the Court of Appeals affirmed the decision of the trial court and the jury verdict.

Lessons Learned
  1. A Seller of property, regardless of any AS IS clause, has the duty to advise the other party of any material adverse fact about the property;
  2. Failing to advise a Buyer of a material adverse fact of which a Seller has notice will likely result in a lawsuit and could subject the Seller to attorney fees and punitive damages, not to mention any compensatory damages; and
  3. Don’t buy something that is being sold AS IS or has the terms AS IS in the contract, unless you really know what you are doing; and
  4. If you have signed a contract with an AS IS clause and you feel something has been misrepresented to you, all hope may not be lost.

Frianco v. Bank of America, 366 Wis.2d 748 (2015)

Herhold v. Smith Land Company, 2019 WL 2531000, 2019 –Ohio- 2418

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