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Gibb v. Citicorp Mortg. - 246 Neb. 355, 518 N.W.2d 910 (1994)

Rule:

A provision in a contract, to the effect that the agent cannot bind the company by any representations, statements or agreements, will not relieve the principal from responsibility for the fraudulent representations, made by its agents, concerning the subject-matter of the contract for a sales agent has ostensible authority to make representations as to the subject-matter of the sale, and his fraud, committed within the limits of such authority, will fix responsibility upon his principal.

Facts:

Appellee seller Citicorp Mortgage, Inc. (“Citicorp”), through its selling agent, sold a termite-infested property to appellant purchaser Patrick Gibb (“Gibb”). The purchase agreement provided that the property was “sold strictly in an ‘AS IS’ condition. Although neither the agent nor Citicorp made any effort to determine the full extent of the damage, the agent knew that the nonvisible termite damage had not been repaired and that it was much greater than the visible evidence indicated; nonetheless, the agent represented that the damage had been repaired and the termite problem alleviated. Citicorp knew the agent's representations to be false but failed to repudiate them; rather, Citicorp and the agent concealed and suppressed all evidence of termite damage.  Gibb sought recovery under a negligence theory or a contract theory. He claimed to have relied on the misrepresentations made to him and asserted damage as a consequence. After Citicorp successfully demurred, Gibb elected to stand on his pleading; the district court thereupon dismissed the action. Gibb then appealed to the Nebraska Court of Appeals, assigning the dismissal as error, claiming in effect that the district court erred in concluding he had failed to state a cause of action.

Issue:

  1. Did purchser Gibb fail to state a cause of action under his negligence theory, thereby, making recovery under this theory unwarranted?
  2. Did purchaser Gibb fail to state a cause of action under his contract theory?

Answer:

1) No. 2) No.

Conclusion:

The Supreme Court of Nebraska held that Gibb’s negligence theory did not fail merely because he alleged that Citicorp’s liability arose from its agent's negligent misrepresentations. A principal was liable for the contracts of its agent even though the agent, in contracting, acted in his or her own interests and adversely to the principal, where the party with whom the agent contracted had no knowledge of the agent's dereliction and was not cognizant of any fact charging him or her with knowledge thereof. The Court averred that the Citicorp could not escape liability for the fraudulent conduct of its agent because it included a disclaimer and "as is" clause in the purchase agreement. According to the Court, Gibb would have been justified in relying upon a representation in all cases if it was a positive statement of fact and if an investigation would have been required to discover the truth. Moreover, Gibb’s breach of contract claim was not inconsistent with his other theories of recovery because he elected to affirm the contract and sue for damages and thus did not ask the court to disaffirm the contract in his fraud-and negligence-based claims and recognize the contract in his breach of contract claim. Accordingly, the Court reversed the judgment of the district court and remanded the cause for further proceedings.

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