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ARKANSAS COURT OF APPEALS
DIVISIONS I & II
No. CV-16-373
Opinion Delivered: April 12, 2017
MICHAEL R. MORRIS
APPELLANT/CROSS APPELLEE APPEAL FROM THE BAXTER
COUNTY CIRCUIT COURT
[NO. 03CV-08-112]
V.
HONORABLE JOHN R. PUTMAN,
JUDGE
NICKOLAS KNOPICK
APPELLEE/CROSS APPELLANT AFFIRMED ON DIRECT APPEAL;
AFFIRMED IN PART AND DISMISSED
V. WITHOUT PREJUDICE IN PART ON
CROSS-APPEAL
MARIE HADZIMA
CROSS-APPELLEE
DAVID M. GLOVER, Judge
This appeal primarily pertains to the conveyance of a Matco toolbox and tools. 1 The
transfer of these items was included as a term of a real-estate contract entered into by buyer
Margaret Conti and seller Michael Morris. Although the contract was signed by Conti and
Morris, the negotiations were between Morris and Conti’s son, Nickolas Knopick. The
litigation commenced with Conti suing Morris, but Knopick was eventually substituted for
Conti by agreement of the parties. Following a bench trial, the trial court ordered Morris
to pay Knopick $92,000 in damages. Both Morris and Knopick appeal.
1
The case returns to our court after a previous dismissal for lack of a final order. See
Morris v. Knopick, 2015 Ark. App. 653.
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I. Background
Michael Morris listed for sale a house and thirty acres of land in Baxter County,
Arkansas. He initially listed the property with Century 21 Realty. While the property was
listed with Century 21, Nickolas Knopick toured the house with a realtor from Lake River
Land Realty; he had an exclusive-buyer agency agreement with Lake River Land Realty
that ran from June 20, 2007, until December 31, 2007.
After Morris’s listing with Century 21 expired, he and Knopick entered into
negotiations regarding the sale of the property. The parties dispute the relevant facts
surrounding the negotiations. However, the negotiations culminated with Morris entering
into a contract with Margaret Conti, Knopick’s mother, for the sale of the house,
surrounding acreage, and specific items of personal property—the most important items for
the purposes of this appeal being a set of Matco tools and a tool box—on November 26,
2007. The purchase price was $863,060. Conti never visited the property prior to the sale.
A local realtor, Marie Hadzima, represented both Morris and Conti in the transaction.
Knopick contends that the $863,060 offer was made in reliance on Morris’s
statements that the tools and the tool box being sold with the property were worth
$150,000. The real-estate contract included a provision for the transfer of a Matco toolbox
and tools with a $100,000 value placed on the tools. After the transaction closed, Knopick
determined that the tools transferred in the sale were worth significantly less than $100,000. 2
2
At trial, an expert estimated that the tools and the tool box were worth between
$7,000 and $8,000.
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Conti sued Morris to rescind the agreement or, alternatively, for damages, claiming
that she was supposed to receive a Matco tool box, $150,000 worth of tools, wicker
furniture, a washer and dryer, and a nightstand in the transaction. She later amended her
complaint, naming Hadzima as a party and suing her for negligence. Additionally, Nickolas
Knopick was allowed to intervene as a necessary party.
A bench trial was held on the issues pertaining to the transfer of the tools and the
toolbox, At the beginning of the trial, counsel for Knopick announced that Knopick was
the real party in interest and that the parties agreed that Knopick would be substituted for
Conti. Following the trial, the court prepared and entered a judgment in favor of Knopick
and awarded him $92,000 in damages against Morris. The judgment also dismissed
Knopick’s negligence claim against Hadzima. Both Knopick and Morris timely appealed
the trial court’s judgment. Our court dismissed the first appeal without prejudice because
the trial court’s judgment failed to adjudicate issues regarding the transfer of the wicker
furniture, the washer and dryer, and the nightstand. Morris, supra.
Following our court’s dismissal of the appeal, the parties returned to the trial court
and a supplemental judgment was entered dismissing with prejudice Knopick’s claims
regarding the wicker furniture, the washer and dryer, and the nightstand. Morris and
Knopick timely appealed from the judgment and supplemental judgment. Also following
the entry of the supplemental judgment, Knopick filed a motion for new trial that was
deemed denied. Knopick filed an amended notice of cross-appeal from the deemed denial.
Additionally, Knopick filed a motion for attorney’s fees and costs requesting attorney’s fees
for both the trial work and the work done in the first appeal. The trial court granted the
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request for attorney’s fees and costs from the trial work, but it refused to rule on the request
for work done in the first appeal. Instead, the court directed the attorneys to brief the issue
of whether attorney’s fees for appellate work was proper and announced that it would rule
on this portion of the motion after the briefing was completed. From this order, Knopick
filed a second amended notice of appeal to challenge the trial court’s denial of his request
for attorney’s fees and costs for appellate work.
II. Issues on Appeal
On direct appeal, Morris argues that (1) the trial court erred by finding that the parties
had a contract and then failing to apply the terms of the contract; (2) there was no justifiable
reliance by Knopick or Conti; (3) Morris did not make misrepresentations actionable as
fraud; (4) neither Knopick nor Conti suffered damages caused by any alleged
misrepresentation, and (5) Knopick is barred from recovery because of unclean hands.
Knopick cross-appeals, arguing that the trial court erred by (1) failing to grant
rescission and restitution; (2) failing to find fraud and award compensatory and punitive
damages; (3) failing to find Hadzima negligent; (4) denying his motion for new trial; and (5)
denying his motion for attorneys’ fees and costs for work done in the first appeal.
III. Jurisdiction
As a preliminary matter, we must address a jurisdictional issue raised by Knopick. He
contends that this appeal must again be dismissed for lack of finality—this time because the
trial court has not adjudicated all of the claims as they pertain to Conti. Specifically, Knopick
argues that Conti’s rescission claim has not been adjudicated. This argument is without
merit. The trial court’s judgment disposes of the rescission claim.
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Knopick also argues that the trial court improperly substituted him for Conti. This
argument is similarly unpersuasive. Knopick first raised this argument in a motion for new
trial. An objection first made in a motion for new trial is not timely. Cochran v. Bentley,
369 Ark. 159, 251 S.W.3d 253 (2007). A party cannot wait until the outcome of the case
to bring an error to the trial court’s attention. Id. at 175, 251 S.W.3d at 267. Here, not
only did Knopick fail to challenge the substitution, he agreed to it and his counsel
announced the agreed substitution to the court. It is logical that he waived any potential
defect regarding his substitution by his consent to proceed with the litigation.
IV. Morris’s Direct Appeal
With jurisdiction established, we turn to Morris’s arguments on direct appeal. Morris
challenges several of the trial court’s findings, and we evaluate the trial court’s findings using
a clearly erroneous standard of review. Poff v. Peedin, 2010 Ark. 136, 366 S.W.3d 347.
A. A Contract
Morris argues that the trial court erred by determining that he and Knopick had a
contract and then by not applying the terms of the contract. First, Morris contends that the
trial court erred in finding a contract between Knopick and him. However, the parties
agreed to Knopick’s substitution for Conti, and with that substitution, Conti’s claims
became Knopick’s to pursue. Additionally, Morris did not develop this argument before
the trial court; thus, he is precluded from doing so here. Kulbeth v. Purdom, 305 Ark. 19,
805 S.W.2d 622 (1991). Accordingly, we affirm the trial court’s finding of a contract.
Determining whether the trial court failed to apply the terms of the contract requires
a review of the contract itself. Morris bases his argument on the premise that the contract
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provision that the buyer will not rely on any warranties, representations, or statements of
the seller controls. However, the contract also includes a specific, handwritten provision
stating that the sale included the transfer of a Matco toolbox and tools with a $100,000 value
placed on the tools.
It is the duty of the courts to enforce contracts as they are written and in accordance
with the ordinary meaning of the language used and the overall intent and purpose of the
parties. Hancock v. Tri-State Ins. Co., 43 Ark. App. 47, 858 S.W.2d 152 (1993). “In seeking
to harmonize different clauses of a contract, we should not give effect to one to the exclusion
of another even though they seem conflicting or contradictory, nor adopt an interpretation
which neutralizes a provision if the various clauses can be reconciled.” RAD-Razorback Ltd.
P’ship. v. B.G. Coney Co., 289 Ark. 550, 554, 713 S.W.2d 462, 465 (1986). When a
contract contains general and specific provisions relating to the same subject, the specific
provision controls over more general terms. Taylor v. Hinkle, 360 Ark. 121, 200 S.W.3d
387 (2004). We conclude that the provisions of the real-estate contract can be read
harmoniously. The alleged value of the tools was reduced to writing and included as a term
of the contract. This specific provision controlled over the more general provision that
disallowed reliance on representations by the seller. Therefore, we hold that the trial court
did not err by failing to apply the contractual provision that the buyer will not rely on any
warranties, representations, or statements of the seller.
B. Justifiable Reliance
Morris also takes issue with the trial court’s finding of fraud. In order to establish
fraud, there must be (1) a false misrepresentation of a material fact; (2) knowledge that the
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representation is false or that there is insufficient evidence upon which to make the
representation; (3) intent to induce action or inaction in reliance upon the representation;
(4) justifiable reliance on the representation; and (5) damages suffered as a result of the
reliance. Tyson Foods, Inc. v. Davis, 347 Ark. 566, 66 S.W.3d 568 (2002).
Morris first aims to show that any reliance by Knopick on his alleged
misrepresentation of the tools’ value was not justifiable. Whether there was justifiable
reliance is a question of fact. Sunbelt Bus. Brokers of Ark., Inc. v. James, 2009 Ark. App. 659,
(citing Godwin v. Hampton, 11 Ark. App. 205, 669 S.W.2d 12 (1984)). On appeal, it is our
duty to determine whether the trial court’s finding is clearly erroneous or clearly against the
preponderance of the evidence. Poff, supra. In our review of the evidence, we are mindful
that we must defer to the trial court’s evaluation of the credibility of the witnesses. Minton
v. Minton, 2010 Ark. App. 310, 374 S.W.3d 818.
The evidence established that Knopick was an experienced buyer. He testified he
was familiar with tools. Knopick claimed he relied on statements by Morris when
purchasing the property, particularly where he was out of state during the negotiations.
Knopick recalled that when he had earlier viewed the property, he noticed the large tool
box. He said that later, when he was negotiating the purchase of the property, Morris told
him there were tools in the tool box worth $150,000 and that the receipts were available.
Knopick further claimed he was told most of the tools had “never seen grease.” Knopick
also testified that Morris offered to bring the receipts for the tools to the closing. Based on
all this, he said he trusted and believed Morris when he told him the value of the tools, and
he thought no one would be foolish enough to lie to that extreme in a real-estate contract.
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Morris’s argument for reversal is premised on the idea that an experienced buyer such
as Knopick would not have justifiably relied on his statements. Sunbelt, supra, also involved
justifiable reliance, and there we reversed; but Sunbelt is distinguishable. In Sunbelt, the
appellee was a financial-services advisor with extensive accounting experience who entered
into a contract to purchase Subway stores. She entered into this contract with the aid of
her husband, a CPA who had been the chief financial officer for several other Subway stores
and had vast experience in the purchase and sale of businesses. Appellee and her husband
testified that, in purchasing the stores, they relied heavily on the cash-flow forms provided
to them by appellants. After the purchase, appellee determined that the stores’ profits were
not as expected and that the cash-flow forms contained errors. She sued for fraud and,
ultimately, received a judgment in her favor. Our court reversed that judgment, holding
that, based on appellee’s and her husband’s extensive experience in the areas of accounting,
business, and financial matters, which was central to her decision whether the Subway stores
were profitable, she could not have reasonably relied on the cash-flow forms.
This case is not similar to Sunbelt. Here, there is some evidence that Knopick was
experienced in real-estate transactions and had some knowledge about tools because he had
his own tools. However, this evidence does not rise to the level of expertise and specialized
knowledge that the appellee in Sunbelt had. Justifiable reliance is a factual question for the
trial court to resolve. Our standard of review is to determine whether the trial court’s
decision was clearly erroneous. We cannot say it was and affirm on this point.
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C. Misrepresentation
Morris also claims that the trial court erred by finding that he had misrepresented the
value of the tools to Knopick. He advances two primary arguments in support of reversal
on this point.
First, Morris argues that he was merely expressing his opinion of the value of the
tools and that his opinion is not actionable as fraud. Fraud cannot be based on an expression
of opinion or puffery. Grendell v. Kiehl, 291 Ark. 228, 723 S.W.2d 830 (1987). “Although
a statement of opinion is a representation of fact, it is of an immaterial fact, on which the
law will not permit the opposing party to rely. However, when such reliance is regarded
as reasonable and permissible, a misstatement of opinion may be a sufficient basis for relief.”
Prosser & Keeton, Torts, § 109, 5th ed. 1984.
During the negotiations, Morris allegedly stated that the tools could sell for an
amount over $100,000 and offered to provide receipts for the purchase price of the tools.
The trial court’s conclusion that this went beyond mere opinion and that it was reasonable
for Knopick to rely on this representation is not clearly erroneous.
Morris also contends that the trial court erred by finding he committed fraud because
a requirement of fraud is that the party making the misrepresentation must know it to be
false or lack a sufficient basis of information to make the representation. Goforth v. Smith,
338 Ark. 54, 991 S.W.2d 579 (1999).
First, Morris argues that the trial court erred in failing to make specific findings that
Morris knew his representation was false or that he lacked the knowledge to make it. We
easily dispose of this argument because our court presumes, in the absence of a showing to
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the contrary, that the trial court acted properly and made the findings of fact necessary to
support its judgment. Arkansas State Bd. of Licensure for Prof’l Eng’rs & Prof’l Surveyors v.
Callicott, 2016 Ark. App. 476, 503 S.W.3d 860.
With regard to the evidence, Morris identifies evidence tending to show that he
lacked the requisite state of mind. Specifically, he highlights that his statements about what
the tools could be sold for were based on what he paid and that if he had been purposely
misleading, he would not have aided Hadzima when she was taking photos of the tools after
the closing. We must consider this evidence in the context of the other statements allegedly
made during the negotiations. Knopick and Hadzima testified that the transfer of the tools
was an integral part of the contract negotiations, and Hadzima testified that both Morris and
Knopick told her that the contract would not be effectuated without the inclusion of the
tools provision. This evidence demonstrates that it is reasonable to conclude that both
parties understood the nature and consequences of the agreement they were signing.
Furthermore, we defer to the trial court’s evaluation of the credibility of the witnesses.
Minton v. Minton, 2010 Ark. App. 310, 374 S.W.3d 818. It was not clearly erroneous for
the trial court to reach the alternative conclusion.
D. Damages
In the judgment, the court awarded Knopick $92,000 in damages from Morris by
presumably subtracting the value of the tools, as testified about by the expert, from the
$100,000 amount included in the real-estate contract.
Morris argues that the trial court’s order should be reversed because Knopick did not
prove entitlement to damages. We disagree. The real-estate contract provided that Knopick
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was to receive $100,000 worth of tools, and the evidence established that he received, at
best, only $8,000 worth of tools. Additionally, there is no evidence, other than the passage
of time, that the tools decreased in value; nor is there any evidence that they had been
tampered with or moved. There is sufficient evidence to indicate that Knopick did not
receive the benefit of his bargain, and we conclude that the damages award was not clearly
erroneous.
E. Unclean Hands
In his final argument on appeal, Morris contends that the trial court erred in finding
for Knopick because Knopick was barred from recovery because of unclean hands. Morris
failed to plead the affirmative defense of unclean hands to the trial court, and the trial court
did not rule on it. An appellant is precluded from raising an argument on appeal that was
not first brought to the attention of the trial court. Green v. State, 265 Ark. 478, 231 S.W.3d
638 (2006). We summarily dispose of Morris’s final point on appeal on this basis.
V. Knopick’s Cross-Appeal
A. Rescission
Knopick contends that the trial court erred when it awarded damages rather than
rescission of the contract. In its judgment, the trial court found that Knopick had made
substantial expenditures and improvements on the house. “Rescission will be granted only
when the party asking for it restores to the other party substantially the consideration
received; if he cannot do so he is remitted to an action for damages.” Strout Realty, Inc. v.
Burghoff, 19 Ark. App. 176, 186, 718 S.W.2d 469, 474 (1986). With improvements made
to the property, it would be difficult, if not impossible, to restore to Morris substantially the
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consideration he received. Therefore, we hold that the trial court did not clearly err in
awarding Knopick damages.
B. Fraud
In Knopick’s second point on appeal, he inexplicably devotes his argument to
whether he proved fraud. The trial court found that Morris committed fraud. Regardless
of the argument Knopick intended to make, he failed to fully develop any argument in this
section. When an argument is not fully developed at the trial level or on appeal, it is not
preserved for review. Omni Holding & Dev. Corp. v. 3D.S.A., 356 Ark. 440, 156 S.W.3d
228 (2004). We summarily dispose of this point on appeal.
C. Claims against Hadzima
Knopick also argues that the trial court erroneously concluded that Knopick did not
sustain a negligence claim against Hadzima. Negligence is the failure to do something that
a reasonably careful person would do, or the doing of something that a reasonably careful
person would not do. City of Caddo Valley v. George, 340 Ark. 203, 9 S.W.3d 481 (2000).
It is a well-established rule that a real-estate broker is under a duty to exercise reasonable
care and skill or that degree of care and skill ordinarily employed by persons of common
capacity in the same business. Edwards v. Pennino, 276 Ark. 380, 635 S.W.2d 246 (1982).
In support of reversal, Knopick focuses on evidence showing that Hadzima did not
verify the value of the tools and contends that this demonstrates that she did not exercise
appropriate care. We disagree. In its judgment, the trial court found that Hadzima did
what was asked and required of her in the transaction. The evidence shows that she strongly
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advised against the tools provision that served as the impetus for this litigation. The trial
court did not clearly err by finding that Hadzima was not negligent.
D. The Motion for New Trial
Knopick contends that the trial court erred in refusing to grant a new trial and makes
several arguments for reversal on this basis. Specifically, he contends that (1) there was error
in substitution, (2) there was error in ruling rescission was not available as a remedy, (3)
there was error in failing to award both compensatory and punitive damages, and (4) it was
error to find that Hadzima was not negligent.
We easily dispose of Knopick’s arguments related to whether there was error (1) in
substitution, (2) in ruling rescission was unavailable, and (3) in finding that Hadzima was
not negligent. Each of these points has been previously argued by Knopick, and his
arguments remain the same.
Knopick’s remaining new-trial argument is that the trial court erred by failing to
award punitive damages in addition to compensatory damages. Our review of the refusal
to award punitive damages is limited to whether there was a manifest abuse of discretion by
the trial court. Bulsara v. Watkins, 2012 Ark. 108, 387 S.W.3d 165.
Fraud is an intentional tort, and courts may award punitive damages for an
intentional tort. Mitchell v. Beard, 256 Ark. 926, 513 S.W.2d 905 (1974) (emphasis added).
The purpose of punitive damages is to punish and deter. D’Arbonne Constr. Co., Inc. v.
Foster, 354 Ark. 304, 123 S.W.3d 894 (2003). One could easily conclude that the
compensatory-damages award was sufficient punishment, and the deterrence element does
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not readily apply to these facts. We hold that the trial court did not abuse its discretion in
refusing to award punitive damages.
E. Attorney’s Fees
As a final point on appeal, Knopick challenges the trial court’s refusal to award him
attorney’s fees for the work done on his behalf in the first appeal. However, we must dismiss
this issue without prejudice. 3 In the order for attorney’s fees, the trial court specifically
reserved ruling on the issue of attorney’s fees for appellate work. Without a final ruling on
the issue of attorney’s fees, we are without jurisdiction to consider it.
Affirmed on direct appeal; affirmed in part and dismissed without prejudice in part
on cross-appeal.
ABRAMSON, VAUGHT, and BROWN, JJ., agree.
KLAPPENBACH and HIXSON, JJ., dissent.
KENNETH S. HIXSON, Judge, dissenting. The majority’s conclusion that the
paucity of evidence herein was sufficient to prove justifiable reliance is myopic and
effectively extirpates “justifiable” from the essential elements of fraud. I respectfully disagree
with the majority’s determination that Knopick proved justifiable reliance. Because
justifiable reliance 1 depends on the experience and sophistication of the buyer, below are
3
Attorney’s fees are often considered a collateral issue that does not prohibit our court
from exercising jurisdiction even if the issue has not been resolved. Harold Ives Trucking Co.
v. Pro Transp., 341 Ark. 735, 19 S.W.3d 600 (2000). For this reason, we may dispose of all
issues in this appeal except for those related to the attorney-fee award.
1
Before addressing the issue of justifiable reliance, I additionally note that there is also
an issue as to whether the representation of the “value of the tools” is a representation of
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some excerpts from Knopick’s testimony regarding his experience in residential and
commercial real estate transactions and the execution of contracts, his determination of
value, and his familiarity with tools:
I’m no novice with regard to the buying and selling of real estate; commercial,
residential. I’ve had over 40 years experience buying and selling real estate, yes. . . . [I
have] bought and sold more than 20 tracts, different tracts, of real estate, yes. To answer you
honestly, I have experience in signing contracts. I usually entrust that to either the lawyers
that work for me or the realtors that work for me. Well, I had a lawyer on retainer,
but not for this. I had – Ms. Hadzima was my representative.
....
And I’m familiar with tools, although — I mean, I’ve got my own. It was just value.
I could either keep them, sell them, get rid of them, but at least the value was there as
equity at some point. Same with the tool box.
....
No, I never went out to the house and walked through and looked at these things before the
sale was concluded. Yes, my logic is if someone is going to give you receipts, then
they’re telling the truth basically. [Hadzima] said he brought — or was bringing the
receipts down at the closing. And I said, it will not happen without that. And she
was well aware of that. That was the whole crux of this offer, was that amount of
money. It was equity to me. It wasn’t money, it was equity. It justified my bid.
....
No sir, I did not inspect or look at the tools ever before the purchase — before I concluded
the sale. No, I didn’t look at pictures of the tools. Well, the receipts, yes, I did ask to
see those. No, I never looked at the receipts. No sir, I did not send a disinterested third
party, — like a Matco representative or someone to go look at the tools and confirm what was
important to me, the value. . . . Somebody signs a contract and says [they’re] going to
provide receipts, and you say it’s what it’s worth, hey, I’ll take a shot.
fact. A representation of value is a subjective opinion of the seller. The majority seems to
say that because the representation of value was inserted as a term into the contract, it
transformed the representation into a fact. If this case was a breach of contract, that might
be true. However, because this case is based on fraud, the statement concerning the value
of the tools is still a representation of the opinion of the seller.
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(Emphasis added.)
And, regarding the extent of Knopick’s sophistication and experience in real estate
transactions, the record indicates that after he retained Marie Hadzima for this purchase, he
retained Ms. Hadzima for another twelve purchases, totaling more than $1,297,000 worth
of real estate.
The comment to Restatement (Second) of Torts § 541 (1977) discusses justifiable
reliance as follows:
Although the recipient of a fraudulent misrepresentation is not barred from recovery
because he could have discovered its falsity if he had shown his distrust of the maker’s
honesty by investigating its truth, he is nonetheless required to use his senses, and cannot
recover if he blindly relies upon a misrepresentation the falsity of which would be patent to him
if he had utilized his opportunity to make a cursory examination or investigation. Thus, if
one induces another to buy a horse by representing it to be sound, the purchaser
cannot recover even though the horse has but one eye, if the horse is shown to the
purchaser before he buys it and the slightest inspection would have disclosed the
defect. On the other hand, the rule stated in this Section applies only when the
recipient of the misrepresentation is capable of appreciating its falsity at the time by
the use of his senses. Thus a defect that any experienced horseman would at once
recognize at first glance may not be patent to a person who has had no experience
with horses.
(Emphasis added.)
As stated in the Restatement comment: a party is required to use his senses and
“cannot recover if he blindly relies upon a misrepresentation the falsity of which would be
patent to him if he had utilized his opportunity to make a cursory examination or
investigation.” (Emphasis added.) Here, Knopick admittedly was looking only for “equity”
in the purchase of the real estate and was not interested in the tools. Knopick never saw
the tools, had the tools appraised, or even inspected them. Knopick said he might keep the
tools, sell them, or put them on Ebay. In fact, Knopick candidly testified, “Somebody signs
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a contract and says they’re going to provide receipts, and you say it’s what it’s worth, hey,
I’ll take a shot.” (Emphasis added.) As described in the comment to the Restatement, this is
blind reliance. This real estate transaction was an investment opportunity by a sophisticated
person who has over 40 years’ experience in the real estate business. Knopick stated that
when he looked at the tool box for the first time after closing, “I – immediately as soon as
I saw this tool box, I realized that it was not worth more than $150,000.” Hence, as
suggested by the Restatement comment, even the slightest inspection by Knopick would
have revealed that the “horse only had one eye.”
This case is analogous to Sunbelt Business Brokers of Arkansas, Inc. v. James, 2009 Ark.
App. 659. While the majority attempts to adroitly distinguish James, the attempt is hollow.
In James, the trial court found that James proved fraud and awarded judgment in her favor.
However, we reversed, holding that the trial court’s finding that James’s reliance was
justified was clearly erroneous. Id. We explained that James and her husband had extensive
experience in accounting, business, and financial services. Id. Based on her experience, we
agreed with appellants that she could not have reasonably believed the amount of money
indicated on Sunbelt’s cash-flow form. Id. Additionally, we noted that James did not
demonstrate the standard of diligence required of a plaintiff alleging fraud and that one has
an affirmative duty to make further inquiry into conflicting information. Id. Therefore, we
held that, based upon the information that James possessed before the sale plus the
information she could have received but did not request, her reliance on the cash-flow form
was not reasonable and we reversed the trial court’s decision. Id.
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Turning to the case at bar, Knopick is a sophisticated buyer who testified that he was
familiar with real estate transactions, contracts, and tools. He had lawyers on retainer and
had been buying and selling real estate for more than 40 years. Like the buyer in James,
Knopick did not demonstrate the standard of diligence required of a plaintiff alleging fraud,
nor did he show that he made any affirmative steps to make any inquiry of the
representations. The only evidence introduced by Knopick to prove justifiable reliance was
his meager statement that he testified that he “thought no one would be foolish enough to
lie to that extreme in a real-estate contract.” This is not evidence of justifiable reliance—
perhaps blind reliance. Knopick’s reliance on Morris’s statements as to the value of the tools
was not reasonable. Therefore, as this court was in James, I am left with a definite and firm
conviction that a mistake has been committed and would reverse on direct appeal. By
affirming this case, we have effectively abolished the “justifiable” portion of justifiable
reliance. All an aggrieved party will have to do to sustain his or her burden of proof is to
testify that “[he or she] didn’t think anyone would lie to that extreme” and do nothing
more.
KLAPPENBACH, J., joins in this dissent.
Ethredge & Copeland, P.A., by: Johnnie A. Copeland, for appellant.
Robert S. Tschiemer, for appellee.
18