Deceptive promises trigger personal liability

By David Evenhuis, Esq.

Casual promises sometimes produce hard lessons. The Superior Court recently held that a builder's representative could be found personally liable for deceptive promises he made to home buyers. His conduct was serious enough to warrant double damages for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL).

Construction problems

The facts of the case are not uncommon. Two couples contracted with a residential builder to construct new homes. During construction, both couples noticed numerous problems. They notified the builder's representative who assured them repeatedly that the work was high quality. His assurances were specific, direct and often in the form of personal guarantees.

After construction, the couples discovered other defects in their new homes. A dormer had inadequate framing and required installation of temporary bracing, nails protruded, and kitchen tiles were cracked. The floors were so poorly supported that joints moved while walking across them, and a home inspector found code violations with insulation, height clearances, and the plumbing and electrical systems. Furthermore, windows were drafty and the smell of gas rose from the basement, where water leached in through cracks in the foundation.

Deceptive promises

When notified of the construction defects, the builder's representative made specific reassurances about the integrity and quality of the construction. He certified the design and quality of the new dormer and responded to complaints about the cracked foundation by saying that he "will take care of it and will take care of you." The representative also promised to fix the warped flooring and repeated his guarantee to resolve specific problems and general concerns. But despite the guarantees, he failed to deliver and the couples were faced with thousands of dollars in repairs.

Personal liability

The couples filed suit against the representative and the builder for breach of contract, breach of warranty and violations of the UTPCPL. A jury found the defendants liable on all three counts and concluded that the representative acted in such a deceptive manner that his conduct exposed him to personal liability. The Superior Court agreed and affirmed a double damages award under the UTPCPL. The representative was found liable for over $200,000 in damages.

Lessons learned

Do the casual promises or exaggerations made during other real estate transactions trigger similar personal liability for licensees?

Generally, agents are not personally liable on contracts between buyers and sellers, or buyers and builders. An agent may assume liability, however, by voluntarily undertaking some specific responsibility or by committing fraud. What is particularly noteworthy in this decision is that the Court allowed personal liability to be imposed for either fraudulent or deceptive conduct, where statements and representations can create a likelihood of confusion or misunderstanding. This is a change in the law that makes it much easier for disgruntled buyers to win substantial damages from agents.

In the case here, the builder's representative assumed personal liability by making specific promises and specific guarantees repeatedly over time. Licensees can expose themselves to similar liability if they too make repeated and specific promises that their clients might mistake as personal guarantees. As sales agents, Realtors® act as extensions of brokers, who are liable for agent conduct within the scope of that relationship. But where agents voluntarily offer unauthorized and deceptive promises to close a sale or compel performance, the relationship may not shield against agent liability. What's more, your Errors & Omissions coverage may not protect you in this circumstance . . . but that's a topic for a different article.