Signing an “As Is” Agreement Negates Reliance on Alleged Misrepresentation

Justifiable reliance is one of four elements a plaintiff must prove in a negligent misrepresentation case. In the recent case of Pritchett v. Comas Montgomery Realty & Auction Co., Inc., No. M2014-00583-COA-R3-CV (Tenn. Ct. App. April 15, 2015), the Court of Appeals held that a plaintiff who signed an agreement stating that the sale of real estate was “as is” and that he would only rely upon his own inspection could not prove this essential reliance element of his negligent misrepresentation claim.

The plaintiff in Pritchett went to an auction for commercial real estate that had been advertised as being 11,556 square feet. Before the auction began, plaintiff signed a “Terms of Sale” form that stated that everything was being sold “as is” and that “buyer shall rely entirely on their own inspection and information.” The auctioneer also announced that all property was sold “as is.” Plaintiff was the highest bidder and thus signed a contract of sale. The contract stated that “buyer specifically acknowledges herein that the property is being purchased ‘as is’ and that neither the Seller nor [Defendant] makes any warranties or representations, express or implied, as to the habitability or condition of the real property contained herein.” The sales contract did not state the square feet of the building. After taking possession of the property, plaintiff discovered that the building was actually only 9,353 square feet and accordingly brought this negligent misrepresentation claim. The trial court granted summary judgment to defendant, and the Court of Appeals affirmed, although on different grounds.

The Court of Appeals focused on whether defendant had negated the essential element that plaintiff relied on defendant’s alleged misrepresentation. The Court pointed out that justifiable reliance is one of four elements of a negligent misrepresentation claim, and that proving justifiable reliance involved two issues: “whether the plaintiff actually relied on the misrepresentation and whether that reliance was reasonable.” In light of the language in the agreements signed by plaintiff here, the Court stated that the issue was whether such agreements “negate[d] plaintiff’s actual reliance.” The Court reasoned that “[p]arties may agree to disclaim reliance on another’s representations[,]” and that “agreeing to accept real property ‘as is’ may negate any reliance on the representations about the condition of that property.” Here, the Court determined that by using the two agreements signed by plaintiff, defendant had negated an essential element of plaintiff’s claim and that defendant was therefore entitled to summary judgment.

Plaintiff asserted that the language in the agreements was “generic” and “not sufficient to negate his reliance on Defendant’s statements.” While the Court conceded that one of the cases relied upon in its reasoning dealt with more specific language, it rejected plaintiff’s argument, finding that the prior decision did not hinge on the specificity of the language but instead concluded that “the agreement by the plaintiffs to accept the property ‘as is’ defeats any negligent misrepresentation claims.” (quoting Stafford v. Emberton, No. M2008-02250-COA-R3-CV, 2009 WL 2960391 (Tenn. Ct. App. Sept. 15, 2009)).

This case seems to provide a way for realtors and auction companies to essentially insure themselves against negligent misrepresentation claims. If any “as is” agreement or language negates the element of justifiable reliance, then including such language seems like an easy way for property sellers to avoid liability for potential misrepresentations. It would be interesting to know the sophistication of the plaintiff in this case, or to know how much of an opportunity he was given to inspect the property at issue, neither of which are mentioned in this opinion, although it is unclear that any such information would have affected the result of this case.