## Facts

- Buyers contracted to purchase sellers’ three-year-old home for $310,000, with a $5,000 deposit and an additional $26,000 deposit due shortly thereafter.
- The contract included a roof-inspection clause giving the buyers the right to obtain a roofer’s report that the roof was watertight and requiring the sellers to pay for repairs needed to correct leaks or related damage.
- Before paying the additional $26,000 deposit, the buyers observed buckling/peeling plaster near a window and ceiling stains in the family room and kitchen.
- The seller explained the window problem was minor and corrected, and the stains were attributed to wallpaper glue and moving ceiling beams; the parties disputed whether the seller also stated there had never been roof or ceiling problems.
- After the sellers vacated, a heavy rain revealed significant water intrusion from around the window, through the family-room ceiling, light fixtures, doors, and onto/around the kitchen stove.
- Roofers associated with the sellers’ broker opined leaks could be fixed for under $1,000; roofers hired by the buyers concluded the roof was inherently defective and required replacement costing about $15,000 to be made watertight.
- The buyers sued for breach of contract, fraud, and misrepresentation, seeking rescission and return of their deposit; the sellers counterclaimed for the deposit as liquidated damages.
- The trial court awarded the buyers $26,000 plus interest and the sellers $5,000 plus interest, with each side bearing its own fees; on appeal, the district court affirmed the return of $26,000, reversed the $5,000 award, and held the buyers were entitled to costs and attorney’s fees as prevailing parties.
- The Florida Supreme Court accepted review to resolve conflict among district courts regarding a seller’s duty to disclose defects in residential property sales.

## Issues

1. Whether a home seller has a duty to disclose known latent defects materially affecting the property’s value when the defects are not readily observable and are not known to the buyer.
2. Whether the sellers’ nondisclosure and statements minimizing the roof and water-intrusion problems constituted fraudulent concealment or misrepresentation supporting rescission and return of the buyers’ deposit.
3. Whether the buyers were entitled to prevailing-party costs and attorney’s fees under the contract following rescission.

## Decision

- The Florida Supreme Court approved the district court’s decision in favor of the buyers.
- The Court held that a seller who knows facts materially affecting the value of a home that are not readily observable and not known to the buyer has an affirmative duty to disclose those facts.
- The Court concluded the sellers’ concealment and/or misrepresentation regarding the roof’s condition constituted fraud, entitling the buyers to rescind the contract and recover their deposit.
- The buyers were treated as prevailing parties for purposes of contractual costs and attorney’s fees.

## Legal Principles

- In residential home sales, caveat emptor is limited: a seller must disclose known facts materially affecting the property’s value when those facts are not readily observable and are not known to the buyer.
- A latent defect is one not readily observable; the duty to disclose is directed at such defects rather than open and obvious conditions.
- Materiality turns on whether the undisclosed condition materially affects value; substantial water intrusion and the need for costly roof replacement support materiality.
- Fraud in this context may be established by affirmative misstatements or by concealment of known latent material defects; silence can be actionable when the seller has superior knowledge and the defect would not be discovered through ordinary observation.

## Conclusion

The Florida Supreme Court held that home sellers must disclose known latent defects that materially affect value and are not readily observable or known to buyers; failure to do so can constitute fraud justifying rescission, return of deposits, and prevailing-party fee consequences under the contract.


Johnson v. Davis, 480 So. 2d 625 (Fla. 1985)