Raymond M. Hulse and Kristina Hulse v. BHJ, Inc.

On August 10, 1998, the Hulses filed their complaint surrounding their purchase of a
piece of real property. The Hulses alleged breach of contract, negligence, fraud, and bad
faith against First American Title Company of Crook County (First American) and negligence
and fraud against BHJ, the real estate broker of the selling party. The basis of the
complaint stemmed from allegations that there was a failure by First American and BHJ to
disclose that the access easement to the property was restricted prohibiting commercial use
of the easement.

[4] In their complaint, the Hulses allege they purchased the property with the intent of
conducting commercial business, including an outfitting and hunting business and a bed and
breakfast, and that both First American and BHJ were aware of the Hulses' reasons for
purchasing the property. However, subsequent to the purchase, the Hulses learned that sole
access to the property was by way of a restricted easement which prohibited commercial use
of the easement causing the Hulses to sustain damages.

[5] Initially, the district court granted summary judgment in favor of both First American
and BHJ. Following appeal, this court issued its opinion in Hulse v. First American Title Co.
of Crook County, 2001 WY 95, 33 P.3d 122 (Wyo. 2001) (hereinafter, Hulse I), upholding
the summary judgment ruling as to First American and BHJ, with the exception of summary
judgment entered in favor of BHJ on the negligence claim. Specifically, this court remanded
the negligence claim asserted against BHJ to the district court for a determination of whether
BHJ's agent, Edward "Amory" Hubbard, exercised the care, skill, and diligence others who
are engaged in the profession would ordinarily exercise under similar circumstances in
fulfilling the duties imposed upon him by statute. Hulse I, at 62. In Hulse I, this court also
recognized that the claim asserted by the Hulses against BHJ, while labeled "negligent
misrepresentation," essentially asserted a breach of the duty of care owed by real estate professionals to non-client buyers or a "professional negligence" claim as defined under
Wyo. Stat. Ann. § 33-28-124 (LexisNexis 2001) and controlled by Wyo. Stat. Ann. § 1-3-
107 (LexisNexis 2001). Hulse I, at 51-62.

[6] On remand, BHJ filed a second motion for summary judgment asserting that the
Hulses had failed to timely file their professional negligence claim against BHJ within the
applicable two -year statute of limitations called for under Wyo. Stat. Ann. § 1-3-107. Upon
review, the district court entered summary judgment in favor of BHJ. This appeal followed.

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[8] The Hulses contend that Wyo. Stat. Ann. §§ 33-28-124 and 1-3-107 refer to the
rendering of services and that the rendering of services contemplates a contractual or fiduciary
relationship with a client, not a non-client.1 Therefore, the Hulses reason that because they had no contractual or fiduciary relationship with BHJ, BHJ's agent, Mr. Hubbard, could
not have provided professional services to the Hulses. The Hulses argue that due to the fact
that they had no contractual or fiduciary relationship with BHJ, they may only sue BHJ for
non-disclosure of the restricted easement under a "negligent misrepresentation" theory
defined under Wyo. Stat. Ann. § 33-28-303(c) (LexisNexis 2001), which they assert is
controlled by Wyo. Stat. Ann. § 1-3-105(a)(iv)(C) (LexisNexis 2001), affording a four-year
statute of limitations.2 Thus, the Hulses conclude that their negligence claim against BHJ
was timely made.

[9] We begin our analysis by reiterating the language stated in Hulse I. While we recognize
that this quotation is somewhat lengthy, we find it instructive. Therein, we stated:

The Hulses appeal the district court's grant of summary
judgment for the defendant BHJ, Inc., a licensed real estate
brokerage, for the acts of its agent Amory Hubbard on claims
they label negligent misrepresentation and fraud. We take this
opportunity to clarify the duties owed by licensed real estate
brokers, agents, and salespersons and the causes of action that
may arise as a result of an alleged breach of those duties.

The Hulses assert a claim of negligent misrepresentation
against defendant BHJ, Inc. citing Restatement (Second) Torts
§ 552. In Richey v. Patrick, a case involving claims by purchasers
of real property against lay sellers, we discussed the tort of
negligent misrepresentation as found in the Restatement and
stated that in order for there to have been a negligent misrepresentation,
the plaintiff must show that

[o]ne who, in the course of his business, profession or
employment, or in any other transaction in which he has
a pecuniary interest, supplies false information for the
guidance of others in their business transactions, is
subject to liability for pecuniary loss caused to them by
their justifiable reliance upon the information, if he
fails to exercise reasonable care or competence in
obtaining or communicating the information.

Richey, 904 P.2d 798, 802 (Wyo. 1995).

In Richey, we found that the sellers had not "supplied
false information," as required by the claim, because the sellers
had not supplied any information to the purchasers. We said,
"[a] nondisclosure of information cannot support a claim of misrepresentation;
since nothing has been represented, an essential
element of the claim is missing." Id. at 802 (citing Burman v.
Richmond Homes, Ltd., 821 P.2d 913, 919 (Colo.App. 1991)).
We went on to hold that the crux of the purchasers' complaint
was that the sellers should have informed them of a material
fact, they owed a duty to do so, and it was this nondisclosure
that caused the plaintiff's damage. In Richey, we then clarified
that the appropriate claim was one for negligent nondisclosure
as found within Restatement (Second) Torts § 551. However,
we declined to apply the Restatement section to the plaintiffs'
claim because we reasoned that the "as is" clause contained
within the purchase contract signed by the sellers and purchasers
placed the risk of discovery of adverse material facts upon purchasers
of real estate. Thus, we recognized the relationship
between the parties was essentially contractual and held that when a contract places the burden on the purchaser to discover
defects, they are barred from seeking relief for negligent nondisclosure.

Likewise, in our recent case of Snyder v. Lovercheck, we
addressed as an issue of first impression whether a purchaser of
realty could even bring a claim of negligent misrepresentation, a
tort action, against a seller when the relationship between the
parties arises in contract. Again, we held that the contractual
relationship is controlling. When purchasers of realty sign contracts
with disclaimers and merger clauses stating that the
purchaser is not relying on the representations of the sellers or
their agents as to the condition of the property, the contract has
allocated the risks of loss resulting from the purchaser's reliance
on the seller's representations to the purchaser. In reasoning to
our ultimate conclusion, this court had an extended discussion
of the distinction between duties arising by tort and those arising
by contract. We said:

Tort law proceeds from a long historical evolution of
externally imposed duties and liabilities. Contract law
proceeds from an even longer historical evolution of
bargained-for duties and liabilities. The careless and unnecessary blanket confusion of tort and contract would
undermine the carefully evolved utility of both.

In tort, the legislatures and the courts have set the
parameters of social policy and imposed them on individual
members of society without their consent. The
social policy in the field of contract has been left to the
parties themselves to determine, with judicial and legislative
intervention tolerated only in the most extreme
cases. Where there has been intervention, it has been by
the application of well established contract doctrines,
most of which focus on threats to the integrity of the bargaining
process itself such as fraud or extreme imbalance
in bargaining power.

Snyder v. Lovercheck, 992 P.2d at 1087.

As illustrated by our holdings in Richey and Snyder, this
court continues to value the freedom to contract between sellers
and purchasers of realty. We recognize that the parties to the
contract may allocate the risks of loss as they so choose. Having
done so, absent proof of fraud, we generally allow the
unambiguous language found in the parties' contract to control
the scope of subsequent litigation. We have been exceedingly
reluctant to introduce tort principles into claims that are essentially
contract actions.

However, this court's jurisprudence reflects that the
inverse rule is likewise valid. Contract principles that govern
the parties to a contract are not controlling on claims against
nonparty professionals whose duties arise in tort. Our precedent
reveals a recognition that tort duties and liabilities
imposed by the legislatures and courts are supported by
underlying social policies which require the imposition of
obligations on a defendant to act reasonably for the protection
of a plaintiff. By imposing tort duties, courts and legislatures
have externally allocated the risks arising from certain relationships
for the protection of the public. Having done so,
individual parties are limited in shifting those burdens from
the obligor to the obligee by private action.

At this point in time, there can be no doubt that
licensed professional real estate agents and brokers are a class of persons on whom the law has imposed affirmative tort
duties. Two decades ago this court stated in Hagar v. Mobley:

Real estate brokers and salesmen are licensed by
the State of Wyoming and required to meet high standards
of honesty, integrity, trustworthiness and
competency. Theirs is a regulated profession. Failure
to satisfy those standards is ground for suspension or
revocation of a real estate broker's or salesperson's
license. An act licensing real estate agents must be
construed in the light of an obvious purpose of protecting
the public in the handling of important and
valuable transactions relating to real property. As a
result, such an agent does not stand in the same shoes
of a lay vendor. Such realtors owe the vendee the same
duties of integrity owed the public at large. They must
be honest, trustworthy and competent.

Hagar v. Mobley, 638 P.2d 127, 136 (Wyo. 1981) (emphasis
added and citation omitted). In Hagar, we cited with approval
the reasoning of the Utah Supreme Court reversing the dismissal
of a claim against a realtor:

In this state, it is apparent that the rule of caveat
emptor does not apply to those dealing with a licensed
real estate agent. Though not occupying a fiduciary
relationship with prospective purchasers, a real estate
agent hired by the vendor is expected to be honest, ethical,
and competent and is answerable at law for
breaches of his or her statutory duty to the public.

Hagar, 638 P.2d at 137 (quoting Dugan v. Jones, 615 P.2d
1239, 1248 (Utah 1980)).

Furthermore, we cited with approval the Montana
Supreme Court's then recent holding that real estate brokers
have, like other professionals, certain standards of care which
must be satisfied. We said that the Montana court observed
that the failure to maintain those standards of skill, competency,
and integrity exposes realtors to, in effect malpractice
actions. Hagar, 638 P.2d at 137 (citing McCarty v. Lincoln
Green, Inc. 620 P.2d 1221, 1225 (Mt. 1980)). This court went
on to state that we may exact a high standard of care from realtors
and held that the standard of care for realtors may be adopted by the court from a legislative enactment. Id. (citing
Distad v. Cubin, 633 P.2d 167 (Wyo. 1981)). We reiterated:

Realtors, just like doctors, lawyers, engineering
consultants, and builders, hold themselves out as
professionals; it is their job to know their profession.
People rely on and trust them. Failure to comply with
either the accepted standards in the field or the standards
society is willing to recognize as acceptable, is
actionable.

Hagar, 638 P.2d at 138. As to the question of damages, we held
"[t]he liability of real estate agents, brokers and salespersons, as
in all actions predicated upon the failure to perform some duty,
sounds in tort. In tort cases damages are generally awarded in
order to compensate claimants for loss. The measure of damages
is the amount which will compensate for all the detriment
proximately caused by the breach of duty." Hagar, at 139.

Subsequent to our holding in Hagar, parties have apparently
seized on the language within the opinion stating the duty
of care as "the broker is liable because of material representations
of the principal if he repeats them and knows, or
reasonably should know, of their falsity. Liability attaches in
this context on grounds of negligence," id. at 137, and have
asserted claims labeled "negligent misrepresentation" against
both lay sellers and real estate brokers and agents. "Negligent
misrepresentation" and "negligent nondisclosure" are generic
tort actions found within the Restatement (Second) Torts §§ 552
and 551 respectively. These torts have specific elements and, as
previously discussed, this court has addressed in various opinions
whether to adopt and apply them to claims brought by
plaintiffs against sellers of realty and real estate brokers and
agents. See Richey v. Patrick, 904 P.2d 798 (Wyo. 1995);
Snyder v. Lovercheck, 992 P.2d 1079 (Wyo. 1999); Sundown,
Inc. v. Pearson Real Estate Co., Inc., 8 P.3d 324 (Wyo. 2000).
We have also addressed the effect of various exculpatory
clauses on the above causes of action. At this juncture, we reaffirm
all prior holdings and precedent as applied to lay
vendors/sellers of real property and their agents or subagents, who are not licensed real estate professionals.

However, notwithstanding any subsequent confusion in
formulating, titling, or deciding tort claims against licensed real estate professionals premised upon their duties imposed
by statute, it is abundantly clear that Hagar contemplated that
the claim was one of professional negligence. This is the
holding that we expressly reaffirm by this decision. It is further
supported by legislative enactments in 1997 by which the
Wyoming Legislature essentially codified the court's holding
in Hagar and went further to expand and clarify the duty of
care owed by real estate professionals to parties when acting
as seller's, buyer's or intermediary agents. See Wyo. Stat.
§ 33-28-303 (LexisNexis 2001) Seller's agent engaged by
seller; Wyo. Stat. § 33-28-304 (LexisNexis 2001) Agent
engaged by buyer; Wyo. Stat. Ann. § 33-28-305 (LexisNexis
2001) Intermediary. The Wyoming Legislature in 2000
adopted Wyo. Stat. § 33-28-124 Act, error or omission in the
rendering of real estate services, which provides: "A cause of
action arising from an act, error or omission in the rendering
of services provided by a licensee under this act shall be
brought within the time limits provided under W.S. 1-3-107."
Wyo. Stat. Ann. § 1-3-107 is the statute of limitations for
claims of professional negligence. It is applicable to claims arising after the effective date of Wyo. Stat. Ann. § 33-28-124.

As we held in Hagar, the court may adopt from legislative
enactment a standard of care for realtors. Id., 638 P.2d at
137. Wyo. Stat. § 33-28-303(c) provides:

A broker acting as a seller's agent owes no duty
or obligation to the buyer, except that a broker shall
disclose to any prospective buyer all adverse material
facts actually known by the broker. The adverse material
facts may include adverse material facts pertaining to the
title and the physical condition of the property, any material
defects in the property and any envi ronmental
hazards affecting the property which are required by law
to be disclosed. The broker acting as a seller's agent
shall not perpetuate a material misrepresentation of the
seller which the broker knows or should know is false."

In Hagar we said that the facts necessary to be disclosed are
those that are "pivotal to the transaction from the buyer's perspective."
Id. at 138 (quoting Tennant v. Lawton, 615 P.2d
1305, 1309-1310 (Wash.App. 1980)).

Having hereby outlined what law is applicable to the
liability of real estate brokers and salespersons, we note that
the claims asserted by the plaintiffs, while labeled "negligent
misrepresentation," essentially assert a breach of the duty of
care owed by real estate professionals to non-client buyers.
However, as a reviewing court, we are not fact finders in the
first instance. The district court's grant of summary judgment
did not address the issue of whether BHJ, Inc.'s agent, Hubbard,
exercised such care, skill, and diligence as others who are
engaged in the profession would ordinarily exercise under
similar circumstances in fulfilling the duties imposed upon him
by statute. We, therefore, vacate the district court's grant of
summary judgment to BHJ, Inc. on the issue of "negligent
misrepresentation" and remand for a determination under the
applicable standard consistent with the law we have herein set
out.

Hulse, at 51-62 (emphasis added and footnotes omitted).

[10] We specifically clarified in Hulse I, citing Hagar and other cases as precedent, that an
affirmative duty exists on the part of real estate professionals with respect to non-client
parties to a real estate transaction. Such duty is imposed as a matter of public policy given
the importance of transactions relating to real property. As stated in Richey, at 802, such
duty arises in anyone who, in the course of his business, profession, or employment, supplies
false information for the guidance of others in their business transactions, if he fails to
exercise reasonable care or competence in obtaining or communicating the information.
Thus, within the real estate context, brokers and realtors who unquestionably act through
their business, profession, or employment owe a buyer, although not in privity in contract
with that buyer, duties of integrity, honesty, and competency.

[11] Accordingly, we do not agree with the Hulses' argument that because §§ 33-28-124
and 1-3-107 refer to the "rendering of services," such infers the rendering of professional
services requiring a formal contractual or fiduciary relationship with a client and, therefore,
these statutes are inapplicable in this instance where the Hulses were not clients of BHJ. To
the contrary, we made it clear in Hulse I, (citing in part Hagar, at 137 (quoting Dugan v.
Jones, at 1248)), that although no contractual or fiduciary relationship exists with a buyer, a
real estate professional hired by the seller is expected to be honest, ethical, and competent
and is answerable at law for breaches of that statutory duty to the buyer as a matter of public
policy.

[12] Likewise, we came to this same conclusion in Hulse I with respect to the application
of § 33-28-303(c) defining "negligent misrepresentation." As such, we note that § 33-28-303
is not controlled by the four-year statute of limitations imposed by § 1-3-105(a)(iv)(C) but is instead governed by the two-year statute of limitations set forth in § 1-3-107. As stated in
Hulse I:

[N]otwithstanding any subsequent confusion in formulating,
titling, or deciding tort claims against licensed real estate professionals
premised upon their duties imposed by statute, it is
abundantly clear that Hagar contemplated that the claim was
one of professional negligence. This is the holding that we
expressly reaffirm by this decision.

Hulse I, at 60. This statement simply cannot be characterized as obiter dictum as asserted
by the Hulses. Rather, this is the established law in Wyoming, as well as the established law
of this case. As plainly stated in Hulse I, at 60-62, § 1-3-107 sets forth the statute of limitations
for claims of professional negligence after the effective date of § 33-28-124. Claims
of professional negligence include those claims asserted under § 33-28-303(c) for "negligent
misrepresentation" against real estate professionals by non-client buyers.

[13] Finally, as indicated above, our holding is consistent with long standing case law
authority and enacted statutory mandate established in Wyoming. Hence, argument by the
Hulses to the contrary is not well taken. In addition, the Hulses request that we adopt the
reasoning in Durbin v. Ross, 916 P.2d 758 (Mo nt. 1996), implying that because the realtors
in that case did not represent the buyers there was no professional relationship and, without
such a professional relationship, there could be no actionable claim for professional negligence.
We, however, decline to do so. As stated above, insofar as the court in Durbin
espouses such a rule of law and is not otherwise limited solely to the required expert testimony
issue therein particularly addressed, we find such holding to be directly contrary to
established Wyoming authority.

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