Archives for July 2023

Read the Contract: It’s the Law!

I have often in my law practice advised my clients that the first rule of contracts is: “Read the contract!” Now, after a recent North Carolina Court of Appeals decision, I can emphatically say that it is their legal duty to read the contract before they sign it.

In Mann v. Huber Real Estate, Inc., an appeal arising out a case tried in Durham County, North Carolina (COA 22-956, decided June 20, 2023), the plaintiff, Galya Mann, filed suit for money damages against her Realtor (and other defendants, including the builder). This was a case of a residential real estate purchase of a newly-built home that went very wrong after the plaintiff closed on the deal and moved into her new home. The Court’s opinion stated the problem this way:

“After Plaintiff moved into the home, she discovered numerous latent defects, including improper lot grading and drainage, improper shingle and gutter installation, foundation cracks, no moisture barrier in the crawlspace, improper mounting of the HVAC, electrical issues, water in the crawl space, plumbing problems, and biological growth. The repairs to Plaintiff’s home were estimated to cost between $83,894.72 and $90,594.73.”

Ms. Mann sued the builder, the warranty company and her Realtor. Her claims against the Realtor were that he failed to exercise his fiduciary duty to her by failing to advise her concerning the builder’s pre-printed and “standard” sales contract provisions, including warranty disclaimers and limitations of warranty and liability. The plaintiff’s claim was that “she could rely solely on the Realtor’s representation that the sales contract was a ‘standard contract’ and [that she could] forego her own review of the contract.”  (Emphasis added.) She also claimed that her Realtor should have advised her to get legal advice about the contract before she signed it.

The Court’s majority (two judges in a three-judge panel) noted that a Realtor owes a fiduciary duty to the client, “to exercise reasonable care, skill, and diligence in the transaction of business entrusted to him, and he will be responsible to his principal for any loss resulting from his negligence in failing to do so.”  However, in this case, the Court’s majority determined that the Realtor’s reference to the builder’s sales contract as a “standard contract” in answer to Ms. Mann’s question about the contract did not amount to a breach of fiduciary duty. The Court affirmed the trial court’s grant of summary judgment dismissing the breach of fiduciary duty claim (and other claims) against the Realtor, thus absolving the Realtor from any liability in the case.

On this ruling against the plaintiff, the Court stated: “According to well-established North Carolina law, one who signs a paper writing is under a duty to ascertain its contents, and in the absence of a showing that he was willfully misled or misinformed . . .  as to these contents, or that they were kept from him in fraudulent opposition to his request, he is held to have signed with full knowledge and assent as to what is therein contained.”  (Emphasis added.)

The Court’s opinion further notes: “It is well-established in North Carolina that ‘[o]ne who signs a written contract without reading it, when he can do so understandably[,] is bound thereby unless the failure to read is justified by some special circumstances.’ . . . Here, Plaintiff has failed to present evidence that special circumstances absolved her of the duty to read the contract. Plaintiff thus has a positive duty to read the sales contract and her failure to do so ‘is a circumstance against which no relief may be had, either at law or in equity.'” (Emphasis added.)

One of the three judges in the Court of Appeals panel dissented in part, disagreeing with the majority’s decision on the fiduciary duty question.  The dissenting judge wrote that “I would hold that the trial court erred by granting summary judgment to Realtor on Plaintiff’s breach of fiduciary duty claim, because there is a genuine issue of fact [for a jury to find and decide] as to whether Realtor breached their fiduciary duty to Plaintiff regarding the contract between the builder and Plaintiff.”  The dissenting judge noted that expert testimony was given in the trial that if a buyer has questions about a contract, the Realtor’s duty is to refer the buyer to an attorney.  The dissenting judge stated that he believed that “boiler plate language” in the Realtor’s agreement with Ms. Mann was not sufficient to fulfill the Realtor’s fiduciary duty to advise Ms. Mann to get legal advice, and that “failing to advise her, verbally, at the time she signed the agreement, to seek legal counsel” was a breach of fiduciary duty, because she was questioning the form of the contract.

Ellinger Carr lawyers advise clients on all kinds of contracts, including real estate purchase contracts and builder’s construction contracts. We draft, negotiate and revise contracts for clients. Let us know if you need our advice and assistance on any contracts and transactions you are contemplating, and about any legal questions you may have about these transactions, and we will read and help you understand the contract before you sign.