## Facts

- Eric and Joyce Jensen sold their St. Petersburg residence to Gene and Cynthia Bailey under a June 2005 contract; the sale closed in July 2005 and the Baileys took possession.
- Before contracting, the Jensens completed a written property disclosure statement and answered “NO” to whether they were aware of improvements or additions constructed in violation of building codes or without necessary permits.
- About two years after closing, the Baileys sued for damages alleging breach of contract, nondisclosure of material defects under *Johnson v. Davis*, and fraudulent concealment.
- The litigation focused on (1) an alleged defective sanitary sewer causing recurring backups and (2) unpermitted remodeling changes later found not to conform to building codes and requiring reconstruction.
- After a bench trial, the court found the evidence insufficient on the sewer-related claims but found for Bailey on the *Johnson v. Davis* nondisclosure claim based on the unpermitted changes.
- The trial court expressly found the Jensens had no actual knowledge of the code-violating, unpermitted work, but imposed liability because they “should have known” of the defects.

## Issues

1. In a residential nondisclosure claim under *Johnson v. Davis*, may a seller be held liable based on constructive knowledge (“should have known”) of an undisclosed material defect, or must the buyer prove the seller’s actual knowledge?

## Decision

- The Second District Court of Appeal reversed the judgment for Bailey on the *Johnson v. Davis* nondisclosure claim.
- The court held the trial court applied an incorrect legal standard by imposing *Johnson* liability based on constructive knowledge rather than actual knowledge.
- The court rejected Bailey’s cross-appeal seeking to treat the record as establishing actual knowledge despite the trial court’s express finding that the Jensens lacked such knowledge.

## Legal Principles

- A residential seller’s disclosure duty under *Johnson v. Davis* applies to latent facts materially affecting value that the seller actually knows and that are not readily observable and not known to the buyer.
- *Johnson v. Davis* liability requires proof of the seller’s actual knowledge of the undisclosed material defect at the time of sale; constructive knowledge is insufficient.
- Actual knowledge may be proved by circumstantial evidence, but it must support an inference the seller truly knew the defect, not merely that the seller should have discovered it.
- When the trier of fact expressly finds the seller lacked actual knowledge, a nondisclosure judgment under *Johnson* cannot stand as a matter of law if based only on a “should have known” theory.

## Conclusion

The court reversed a nondisclosure judgment because *Johnson v. Davis* requires the buyer to prove the seller’s actual knowledge of a latent, material defect; a finding that the seller merely should have known of unpermitted, code-violating work does not establish liability.


Jensen v. Bailey, 76 So. 3d 980 (Fla. Dist. Ct. App. 2d Dist. 2011)