Elm Retirement Center v. Callaway (CA1 11/2/10)

This was originally a memorandum but the court then decided to publish it. It is publishable because it points out that even Arizona courts will sometimes enforce disclaimers in contracts. It also, in passing, contains a practice pointer about how not to write a Complaint.

Elm bought a house advertised as being 3792 square feet. It turned out to be 3605 square feet. The contract said “BUYER IS AWARE THAT ANY REFERENCE TO THE SQUARE FOOTAGE OF THE PREMISES, BOTH THE REAL PROPERTY (LAND) AND IMPROVEMENTS THEREON, IS APPROXIMATE. IF SQUARE FOOTAGE IS A MATERIAL MATTER TO THE BUYER, IT MUST BE VERIFIED DURING THE INSPECTION PERIOD.” Elm hadn’t bothered to check the square footage but sued anyway, alleging everything it could think of. The trial court dismissed the case; which this opinion affirms.

On appeal, Elm argued first that the court should have considered the motion to dismiss as a motion for summary judgment since the sales contract was attached to the motion – i.e., the court had to look outside the pleadings. But a document that is “central to the claim,” even if it isn’t actually attached to the Complaint, can be considered without converting dismissal into summary judgment (see Strategic Development, which the court cites for the proposition).

In addition to breach of contract Elm had alleged bad faith, fraud, and negligence. The trial court had dismissed the tort claims under the economic loss doctrine. The Court of Appeals affirms for a different reason – the statute of limitations. Elm argued the discovery rule. But “the rule does not permit a party to hide behind its ignorance when reasonable investigation would have alerted it to the claim.” Elm’s Complaint failed to allege facts showing that it used reasonable diligence to find the problem. It said instead that Elm discovered it “within the timeframe as set forth by applicable law” – in other words, it thought about the problem but did things the lazy way. This has always been but seems increasingly to be a problem with Complaints: people forget, or never knew, that they must allege facts and that conclusions of law are surplusage and do not, technically, even require an answer.

On the contract claim Elm argued that the 3792 sf. advertisement was a warranty. The court held that the language quoted above was a disclaimer of any such warranty, that disclaimers are valid, and that a court is required to give effect to all the terms of the contract. Elm wanted to present evidence that it thought it could “verify” the square footage just by asking the seller about it. The court held that the contract was not reasonably susceptible to that interpretation since the verification language appeared in a paragraph listing the type of technical inspections that the prospective buyer could have performed on the house.

The opinion also affirms the refusal to allow Elm to amend its Complaint since that’s within the trial court’s broad discretion and since the proposed amendments would not have cured the defects.

By CA1 standards this is a nice opinion, only thirteen pages and three footnotes reasonably well-organized.


(link to opinion )