Deceptive Sales Practices
Wisconsin’s primary misrepresentation statute, Wis. Stat. § 100.18(1) prohibits companies and individuals from making misrepresentations in the sale of homes, products, and services. To recover under the statute, a person or firm must generally show three things:
- That the company or individual made a misrepresentation to the public with the intent of inducing a sale or obligation;
- That the representation was untrue, deceptive or misleading; and
- That the representation caused damages.
The Use of “As-Is” Clauses
Where the owner of real estate or personal property desires to make no warranty at all about the condition of the property being sold, the owner has traditionally turned to the use of an “as-is” clause. It essentially states affirmatively that the purchaser takes and accepts the property being purchased in its existing condition, with any defects. In a recent case decided by the Court of Appeals of Wisconsin, a bank discovered that the clause did not protect it from a misrepresentation charge.
The Fricano Case
In Fricano v. Bank of America, 2016 Wisconsin App. 11 (Dec. 23, 2015), the Court held that a bank made a deceptive statement regarding the sale of a home it had acquired through foreclosure when it contracted with a prospective buyer to sell the property on an “as-is” basis. It also failed to disclose that the home had significant levels of mold present. The court said that, under the facts of the case, the bank had a duty under Wis. Stat. § 100.18(1) to disclose the full significance of the mold. This is in spite of the fact that the contract indicated that the buyer was accepting the property with any hidden defects, and in spite further of the fact that the buyer’s inspector actually found mold during his inspection, but the buyer chose to close without additional investigation or work on the property.
After closing, the buyer determined that the problem was much worse than expected. The interior of the house had to be gutted to the studs. The buyer then sued the bank for damages, offering an ingenious – and successful – argument. The buyer argued that it wasn’t so much that the bank had misrepresented the condition of the property; indeed, it had not. Rather, the bank had misrepresented that it “had little or no direct knowledge regarding the condition of the property” – another phrase in the contract. Nothing could have been further from the truth, argued the buyer, since the bank had gone to considerable expense, in the form of new drywall, painting, carpeting and flooring to remedy the situation. The bank could not represent that it had no knowledge when, in fact, it did.
Important Take-Away
The take-away here is that an “as-is” clause is not a complete bar to a misrepresentation claim where a seller – such as the bank – has made other affirmative misrepresentations. All real estate sellers, particularly those that are commercial enterprises, should re-examine their ongoing sales contracts for exculpatory language such as that used by the bank in the Fricano case. Language changes are likely in order.
Milwaukee Business and Commercial Litigation Attorneys
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