In Ohio, an Auctioneer Cannot be Held Liable for Negligent Misrepresentation when the Property is sold “AS IS”

The Court Of Appeals of Ohio, Seventh Appellate District, Mahoning County in Lewis v. Basinger, 2004-Ohio-6377, P 12 (Ohio Ct. App., Mahoning County Nov. 22, 2004) held that the "AS IS" nature of a contract and the doctrine of caveat emptor preclude recovery against a seller and the seller’s agent when there is no fraud. 

Basinger (“Appellant”) is a licensed auctioneer and real estate broker.  He was hired to auction and sell a real property on behalf of an estate.  The Appellant advertised the auction sale and held two open houses. Lewises (“Appellees”) were interested in purchasing the property if the house was connected to the sewer. The Appellees attended an open house and asked the Appellant if the home was connected to the sewer. The auctioneer did not remember the specific discussions with the buyers at the open house.  However, he later told them that the property was connected to the sewer. At the time of the open house, there was a sewer manhole on the property.  The buyers, however, did not see any signs that the property had a septic system.  The Appellees submitted the winning bid and signed a contract of sale.  The contract stated that the Appellees accepted the home in its present condition with no additional warranties.  After signing the contract, Appellees discovered that the home was not connected to the sewer.
 
Appellees moved to the court against Appellant in the Mahoning County Court of Common Pleas. The case was later transferred to the Struthers Municipal Court. After a bench trial, the trial court found that the auctioneer negligently misrepresented that the home was connected to the sewer and granted judgment to the buyers.  The Appellant consequently appealed. 
 
Appellant contented that the trial court erred when it found him liable for negligent misrepresentation because the real estate was sold "AS IS" and the doctrine of caveat emptor shielded him from all liability except for fraud.  The Appellee in response argued that Appellant cannot rely on the language in the contract because he was not a party to the contract. Lewis. 2004-Ohio-6377.
 
The Court noted that the doctrine of caveat emptor generally applies to all real estate transactions. Id. at P9.  That doctrine precludes recovery in a buyer’s action where “1) the condition complained of is open to observation or discoverable upon reasonable inspection; 2) the purchaser had the unimpeded opportunity to examine the premises; and, 3) there is no fraud on the part of the vendor.” Id. (citing Layman v. Binns (1988), 35 Ohio St.3d 176, 519 N.E.2d 642,) syllabus).  The Court stated that a seller is relieved of any duty to disclose a property's latent conditions when a buyer contractually agrees to accept property "as is."  Id. (citing Kaye v. Buehrle (1983), 8 Ohio App.3d 381, 383, 8 Ohio B. 495, 457 N.E.2d 373). However, for the doctrine to apply there should be no fraud on the seller’s part. Id. Therefore, the only duty that a seller has in such cases is not commit affirmative fraud. Id.
 
The Court stated that Ohio courts have “consistently held a seller's agent is as protected by the doctrine of caveat emptor and the "as is" language in a sales contract as the seller.” Id. at P10 (citing Buchanan v. Geneva Chervenic Realty (1996), 115 Ohio App.3d 250, 685 N.E.2d 265; Duman v. Campbell, 8th Dist. No. 79859, 2002 Ohio 2253; Durica v. Donaldson (Mar. 3, 2000), 11th Dist. No. 97-T-0183, 2000 Ohio App. LEXIS 789; Hearty v. First Merit Bank (Nov. 24, 1999), 9th Dist. No. 19273, 1999 Ohio App. LEXIS 5544; Petta v. Clarke (Jan. 15, 1997), 9th Dist. No. 96CA006327, 1997 Ohio App. LEXIS 54; Mills v. Saxton Real Estate (Apr. 27, 1995), 10th Dist. No. 94APE09-1304, 1995 Ohio App. LEXIS 1756.).  The Court stated that the rationale behind this is as follows.  Both an "as is" contract and the doctrine of caveat emptor place the risk on the buyer. Therefore, the buyer bears the risk of discovering latent conditions. That burden does not shift simply because the defendant is the seller's agent and not the seller. Because the buyer is the party who bears the risk, these defenses apply equally to both the seller and the seller's agents. Id.
The Court found that the property was sold "AS IS" in the present case.  Therefore, the Appellee could not recover against Appellant because he did not commit fraud when answering their questions about the septic system. Id. at P11.  The Court stated that the trial court concluded that the Appellant auctioneer acted negligently, not fraudulently. Thus, the trial court erred when it granted judgment to the Appellees. Id. at P2.  The Court reversed trial court's decision and vacated the judgment against Appellant. Id.