In the fall of 2002, Ivan R. Fuller was interested in purchasing a Sioux Falls home owned by James and Patricia Croston, the sole owners of the house since its construction. Fuller received a signed and completed seller's property disclosure statement, as required by SDCL 43-4-38, from the Crostons. The disclosure statement indicated that the home had not experienced any water penetration problems. However, when the Crostons signed the disclosure statement in November 2002, they were aware of two to three occasions between 1969 and 1977 when water had seeped into the basement. They maintain that they did not include this information in the disclosure statement on the recommendation of their real estate agent, Janey Johnson (a licensed real estate agent), who allegedly advised the Crostons that if they believed the problem was fixed they did not have to disclose it. She denies these allegations. The Crostons, believing that the water problems had been resolved, did not disclose the prior seepage on the disclosure statement. Their disclosure statement also indicated that there were no cracks in the interior walls of the house. However, the Crostons were aware of some cracks in the walls in the basement behind the washer and dryer. They puttied and painted over these cracks two to three years before selling the house to Fuller. Before signing the purchase agreement, Fuller visited the home with the Crostons. He noticed some flaking on one of the basement walls. When he asked about this, Crostons informed Fuller of a little bit of water there some time back. They told him that they had experienced some water in the basement on two to three occasions between 1969 and 1977, but they had not experienced any additional water problems since adding a sunroom to the home in 1977. Fuller also noticed some roughness of the paneling in the family room. The Crostons explained that when they added a sunroom and a garage, they had some water come into the basement. As a result, they did landscaping to seal off the water and also placed wood paneling over the drywall in the basement. After the conversation with the Crostons about water in the basement, Fuller still offered to purchase the Crostons' home for 158,000. The Crostons accepted this offer and the purchase agreement provided that Fuller would have 10 days to complete a professional home inspection and notify the Crostons of any unacceptable conditions discovered. Fuller hired David Kemper of Kemper Inspection Services to perform the inspection. The report noted a small horizontal crack and minor bowing at the north and south foundation walls. The report explained that the north wall had been patched and there was no new cracking. According to the inspection report, this was not unusual and was of no structural significance at the time. The inspection report further indicated some signs of past dampness, which appeared to be old, in the basement. The cracking and dampness issues raised by the inspection report were not addressed by the addendum because Kemper felt these matters were not significant. On January 17, 2003, the parties closed the sale on the home. By August 2003, Fuller completely moved into the home. On June 16, 2004, the total rainfall for Sioux Falls was approximately eight inches. According to a FEMA Report, Sioux Falls accumulated a total of 12.74 inches of rain from May 17 to June 16, 2004, a record amount for a 31-day period. At some point during or immediately after this rainfall, Fuller noticed water entering his basement, but could not determine precisely where it was coming in. He stated that the water appeared to be seeping in around the foundation and the walls. The water created puddles here and there until the carpet was largely saturated. Fuller contacted Roy Johnson, a contractor, to evaluate and remedy the water problem. When Johnson removed some of the paneling in the basement, the stuff behind the paneling crumbled in his hands. Johnson advised Fuller that it appeared there had been previous water penetration in the home. He blamed the water infiltration on the existence of cracks in the home's foundation and bowing of the walls. He also told Fuller that there had been major water damage in the past and that frequent water problems would persist unless action was taken. Johnson then installed drain tile around the perimeter of the basement and a sump pump, and reinforced the foundation walls. Fuller also purchased and installed new padding and carpet for the basement. At about the same time Fuller encountered the water issues, he noticed the garage roof was sagging once again. He contacted Duane Boice, an engineer, to evaluate the roof. Boice advised Fuller that installation of the support beam actually weakened the roof and made it worse. Boice explained that the roof would have to be fixed, or it would collapse. Fuller then hired Able Construction to repair the roof. Fuller filed suit on the grounds that he was not made aware of the extent of the previous water damage or all of the cracks in the basement walls and that the Crostons were aware of damage behind the paneling. What should the court do with the suit and why?
Question 2
When an accountant negligently prepares a financial statement knowing that the client intends to use it in obtaining a loan from a bank, the accountant will be liable to whichever lender actually makes the loan under the __________rule.
A) known user
B) contact
C) foreseeable user.
D) privity
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