Jane and Francesco Secchi negotiated a lease for space for purposes of opening the Italian Cowboy restaurant.

FACT SUMMARY

Jane and Francesco Secchi negotiated a lease for space for purposes of opening the Italian Cowboy restaurant. The negotiations took place through the property manager, Powell, who gave the Secchis various assurances that the leased space was practically new, was in perfect condition, and had no defects. Based on these representations, the Secchis entered into a lease agreement with Prudential (the landlord) for the space and commenced renovations. During this initial period, the Secchis learned that the previous tenant in the space had complained to Powell about a noxious odor that made the space unfit for use. When confronted with the information, Powell denied that the previous tenant had complained and gave further assurances to the Secchis that there had never been a problem with the property. Eventually the odor became sufficiently offensive that the Secchis employed a variety of plumbers and workers to eliminate it, but these attempts were unsuccessful and their restaurant customer base dwindled. After they confirmed that the former tenant had, in fact, complained about the odor directly to Powell, the Secchis terminated the lease and sued their landlord and property manager for fraudulent misrepresentation. Prudential argued that Powell’s representations were puffery and cannot be the basis for a material misrepresentation. The trial court ruled in favor of the Secchis, but the court of appeals reversed. SYNOPSIS OF DECISION AND OPINION The Texas Supreme Court found in favor of the Secchis based on fraud. The fact that Powell had been on the premises and had experienced the odor problems firsthand showed that her statements were made with an intention to hide the truth. The court also ruled that the statements were beyond mere puffery and were in fact material to the contract. WORDS OF THE COURT: Material Fact “Initially, it defies common sense and any plausible meaning of the word ‘problem’ to infer from the first two representations that in Prudential’s ‘opinion,’ the sewer gas odor was not a problem for [the previous tenant]. A foul odor is obviously problematic to a restaurant. Testimony indicated that Powell herself personally experienced the odor and described it as ‘almost unbearable’ and ‘ungodly.’ According to its regional manager, [the previous tenant] had even indicated to Powell that it was late in making rent payments because of the odor. In light of the circumstances, we conclude that the statements concealing the odor ‘problem’ are more properly statements of fact, not pure expressions of opinion. . . . We conclude that as a matter of law, Powell’s representations were actionable, and legally sufficient evidence existed to demonstrate that they were known to be false when made.”

1. Why did the court determine that the statements made by Powell were material?

2. Should the Secchis have contacted the prior tenant to verify Powell’s statements?

3. If the Secchis had contacted the prior tenant and found out that a prior problem existed, would that have affected the outcome of this case? Why or why not?

4. Since the court found that fraud existed, what remedies and damages are the Secchis entitled to?

 

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