IN COURT OF APPEALS
James J. Kellogg, et al.,
William B. Woods, defendant and third party plaintiff,
Wayne Anderson, d/b/a Mariway Land Consultants, third party defendant,
Filed September 12, 2006
Affirmed in part, reversed in part, and remanded
Crow Wing County District Court
File No. C7-03-404
Todd M. Johnson, Johnson Law Group LLP,
Glenn P. Bruder, Mitchell, Bruder & Johnson, 4005 West 65th Street, Suite 110, Edina, MN 55435 (for appellant)
Erik J. Askegaard, Askegaard & Robinson, P.A., 206 North Seventh Street, P.O. Box 826, Brainerd, MN 56401 (for respondent Wayne Anderson, d/b/a Mariway Land Consultants)
Considered and decided by Lansing, Presiding Judge; Klaphake, Judge; and Parker, Judge.*
S Y L L A B U S
I. A seller who represents to a buyer that a septic system complies with applicable sewage-treatment-system rulesand who has reason to know that the representations are false is liable to the buyer under the mandatory-disclosure provisions of Minn. Stat. § 115.55, subd. 6 (2004).
II. When a seller’s liability under Minn. Stat. § 115.55, subd. 6(b), results from a third party’s breach of contract, the seller may recover damages caused by the breach, including reasonable attorneys’ fees paid to the buyer under the disclosure statute.
O P I N I O N
The district court entered judgment against William Woods for violating the mandatory-disclosure requirements for individual sewage-treatment systems set forth in Minn. Stat. § 115.55, subd. 6 (2004). Woods appeals, arguing that the district court misinterpreted the statute, that the record does not support the district court’s findings that the system was noncompliant when he sold the property and that he had reason to know of the noncompliance, and that the district court improperly limited damages for the septic-system inspector’s breach of contract. Because the district court correctly applied section 115.55, subdivision 6, and the findings supporting the judgment are not clearly erroneous, we affirm Woods’s liability to the buyers under section 115.55. But because the district court erred in its legal determination of the scope of damages for a negligent septic-system inspection, we reverse and remand for further proceedings on damages.
F A C T S
William Woods purchased a lake cabin in the fall of 1996 for seasonal use. Because his family rarely used the cabin, he decided to sell it in 2000. James and Tari Kellogg signed a purchase agreement for the property in March 2001 and closed on the sale in April 2001. An addendum to the purchase agreement stated that the “[s]eller agrees to provide buyers with a current septic inspection and warrants its compliance.”
Jim Christensen, Woods’s
real estate agent, contracted with Wayne Anderson to inspect the septic tank,
and on March 28, 2001,
The inspection was consistent with a previous disclosure statement, signed by Woods and issued in September 2000. The disclosure statement represented that the tank was in compliance with applicable laws and rules, had a 500-gallon capacity, was pumped three times a year, and had last been emptied in September 1999.
Shortly after signing the
purchase agreement, the Kelloggs arranged to have the tank emptied because they
had noticed, when first viewing the property, that the tank level-indicator showed
that the tank was full. According to James
Kellogg, the company he hired went to the site on March 28, and Anderson, who
was inspecting the tank, said that it did not need emptying.
The Kelloggs hired Arlen Sergent to inspect the septic tank in August 2001. Sergent found that the bottom of the tank was cracked and that the septic system was failing. The Kelloggs later sold the property and, for purposes of the sale, removed the septic tank in May 2002 and installed two 750-gallon tanks. When removing the old tank, Sergent noted in his report that, when the tank was emptied for the August 2001 inspection, it had “numerous cracks in the floor.” The report also noted that, “It appeared to have been that way for a long time.”
The Kelloggs sued Woods and
Anderson in conciliation court in September 2002 to recover the costs of replacing
the cracked septic tank. The conciliation
court found Woods liable to the Kelloggs for the cost of replacing the tank
because he had warranted the septic system’s compliance. The conciliation court dismissed the claim
In response to Woods’s
demand, the case was removed to the district court. The district court granted the parties leave
to amend the complaint and answer and also granted Woods’s motion to join
Following a trial, the
district court determined that Woods violated Minn. Stat. § 115.55, subd.
6(b). The court ordered Woods to pay the
Kelloggs the costs incurred to replace the septic tank and the statutorily
permitted attorneys’ fees. On Woods’s
I S S U E S
I. Did the district court err by applying Minn. Stat. § 115.55, subd. 6(b) (2004), to find that a seller is liable to a buyer for representing a septic system’s compliance with sewage-treatment-system rules on the ground that the seller had reason to know the representations were false?
II. Is the evidence sufficient to support the district court’s finding that, at the time of the sale, the seller had reason to know that the septic system was not in compliance?
III. Did the district court err by limiting a septic-system inspector’s liability for a negligent inspection to the costs of a second inspection?
A N A L Y S I S
Woods argues that the district court erred in its interpretation of Minn. Stat. § 115.55, subd. 6(b), because the court used a constructive-knowledge standard instead of an actual-knowledge standard. This interpretation, he argues, effectively makes sellers guarantors of septic systems when selling real property.
interpretation is a question of law, which we review de novo. ILHC of
6(a)(2) first requires a seller to disclose, “to the seller’s . . . knowledge,”
whether the system is in compliance with state regulations.
The specific context of subdivision 6 and the general context of the statute as a whole make it clear that the provisions are aimed at ensuring that buyers are informed. The statute would lose its force if a seller could make statements that the seller either has reason to know are false or does not actually know to be true or false. See Yost v. Millhouse, 373 N.W.2d 826, 830 (Minn. App. 1985) (noting that, for purposes of misrepresentation claim, knowledge of falsity is not required and can be satisfied by proof that representer asserted facts of own knowledge without knowing their truth or falsity). As applied to subdivision 6(b) a seller may therefore be held liable to the buyer when the seller has reason to know that he has erroneously represented the status of the septic system.
The statute does not, as Woods interprets the district court to suggest, make the seller a guarantor of the system; the statute only requires disclosure of its status. Neither does the district court’s decision impose an independent obligation on sellers to obtain compliance inspections before the sale of real property. It was instead the terms of the purchase agreement that required Woods, as the seller, to obtain a “current septic inspection and warrant its compliance.” The facts of this case raise only the issue of whether the variant operation of the system gave Woods reason to know that the septic tank was not functioning properly and that he should not have represented it to the buyer as a fully compliant system. The district court did not err by applying Minn. Stat. § 115.55, subd. 6(b), to find that a seller is liable to a buyer when the seller makes representations about a septic system’s compliance with sewage-treatment-system rules and the seller has reason to know that the representations are false.
next argues that, even if the district court applied the proper statutory
standard, the record does not support the district court’s findings that the septic tank had cracks in it in March 2001 and that Woods
had reason to know of problems with the tank at the time of the sale. We review the district court’s findings of
fact for clear error.
evidence supports the district court’s finding that the septic tank was cracked when Woods sold the property
to the Kelloggs. Circumstantial evidence
is adequate to support a decision if the evidence justifies the fact-finder’s reasonable
inferences and these inferences outweigh conflicting evidence. Smith
v. Kahler Corp., 297
March 2001, despite limited use of the property by Woods’s family, the
level-indicator signified that the tank was full.
The record also supports the district court’s finding that Woods had reason to know that the tank was noncompliant at the time of the sale. Woods testified that, throughout his ownership, he “never paid attention to [the septic tank] at all, period.” But the record demonstrates that, despite his inattention, several incidents gave Woods reason to know the tank had operational problems and was not in the condition he represented in the 2000 disclosure statement.
Woods acknowledged that he had to empty the tank in 1997, even though he used the cabin only two times that season. And although he contends that he believed the tank held only 500 gallons, a November 1997 receipt states that 700 gallons were removed from the septic tank. Woods also testified that he never saw the level-indicator raised other than once in 1997. But James Kellogg and Anderson each testified that the indicator was obviously raised in March 2001, and Woods testified that he used the cabin only once or twice in 2000, and only six to eight times during the entire time he owned the cabin. Furthermore, when asked at trial about his reaction to learning the actual capacity of the septic tank, Woods testified, “That would explain to me why the bobber kept going up and down. When I would push it down, it would go back up and down.” This specific testimony contradicts his general testimony that he had not noticed how the system operated and also contradicts his testimony that he never saw the level-indicator raised except in 1997.
Woods challenges the district court’s decision to credit Kellogg’s testimony
over his, credibility determinations are exclusively the province of the
fact-finder. Gada v. Dedefo, 684 N.W.2d 512, 514 (
on its determination that the septic tank was
noncompliant in March 2001, the district court found that
Paired with the many indicators that the tank was not properly operating, the district court did not err by determining that Woods’s inattention and inadequate inspection of the tank supported liability under section 115.55. Woods provided a disclosure to the Kelloggs as required by the statute, but his disclosure was not informed. He had reason to know that the system was not in the condition represented in the 2000 disclosure statement. The statement is full of incorrect information that Woods either had reason to know was not true or did not know to be true or false, given his repeated testimony that he paid little attention to the tank. Woods therefore failed to make an accurate disclosure when he had reason to know the status of the septic system, and the district court did not err by finding him liable to the Kelloggs under Minn. Stat. § 115.55, subd. 6.
an agent acts for a disclosed principal and enters a contract with a third
party on behalf of the principal, the contract is between the principal and the
third party. Kost v. Peterson, 292
challenges the district court’s determination of damages that
district court determined that
D E C I S I O N
The district court correctly interpreted Minn. Stat. § 115.55, subd. 6(b) (2004), to impose liability on a seller who represents that a septic system is compliant with applicable sewage-treatment-system laws and rules when the seller has reason to know the system is noncompliant. Because the seller’s liability to the buyer resulted from a negligent septic-tank inspection, and the seller sought indemnification from the inspector based in contract and not under section 115.55, the seller may recover from the inspector the attorneys’ fees for which he is liable to the buyer.
Affirmed in part, reversed in part, and remanded.
* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.