Wisconsin Appeals Ct Says Corporate Agents May Be Individually Liable for Misstatements in Property Condition Reports

In Ferris v. Location 3 Corp., 804 N.W.2d 822 (Wisc. Ct. App.  2011), the plaintiff Ferris purchased real property located from defendant Location 3 Corporation.3 Sometime after closing, Ferris discovered that the landfill adjacent to his property was also a Superfund4 site.

Ferris then filed a complaint against Location 3 and certain employees of firm alleging that they knew about the Superfund site but failed to disclose it in the real estate condition report. The report, which was signed by defendant Lechner, had a “no” circled next to the question “[a]re you aware of any other conditions or occurrences which would significantly increase the cost of development or reduce the value of the Property to a reasonable person with knowledge of the nature and scope of the condition or occurrence?” Ferris alleged that the real estate condition report constituted a knowing false representation of fact regarding the condition of the property. Although the real estate condition report was only signed by defendant Lechner, Ferris alleged that Lechner signed the condition report after consulting and discussing the issues regarding disclosure with the other individual defendants, and acted in concert with the three of them in signing the condition report.

The trial court found that because Ferris had not alleged facts that showed the individual defendants acted outside the scope of their authority as corporate agents, they could not be held personally liable. However, the appeals court reversed, holding that the state Supreme Court has ruled that individual defendants could be held personally liable if a fact finder finds that they engaged in tortious conduct, regardless of whether they acted on behalf of Location 3.

New York has a property condition disclosure law for residential properties that provides for a $500 penalty if a seller does not complete the form. Many lawyers advise their clients to simply give the buyers the statutory credit rather than complete the form and risk exposing themselves to claims for misrepresentation.