The justices of the Massachusetts Supreme Judicial Court have agreed to hear a case that puts at issue what many lawyers, until now, had thought to be a well-accepted interpretation of a critical paragraph of residential purchase and sale agreements.

The SJC’s decision in the case could have far-reaching implications for real estate brokers and buyers and sellers of properties.

On March 5, the SJC granted further appellate review in DeWolfe v. Hingham Centre, Ltd., 80 Mass. App. Ct. 765 (2011). At issue is the interpretation of the exculpatory clause found in the Greater Boston Real Estate Board’s standard form purchase and sale agreement.

The exculpatory clause reads as follows:

“The BUYER acknowledges that the BUYER has not been influenced to enter into this transaction nor has he relied upon any warranties or representations not set forth or incorporated in this agreement or previously made in writing, except for the following additional warranties and representations, if any, made by either the SELLER or the Broker(s): … .” (Emphasis added.)

One of the issues in DeWolfe is whether certain representations “previously made in writing” by a real estate broker survived that language.

The plaintiff, Daniel DeWolfe, had operated a hair salon business in the town of Norwell for years and was interested in relocating his business. DeWolfe became interested in property located at 461 Washington St. in Norwell after seeing an advertisement in a local newspaper.

The advertisement stated that the property was “[z]oned Business B” and that Hingham Centre was the realtor.

In a subsequent meeting at the property with Hingham Centre’s real estate broker, M. Eileen Richards, DeWolfe told Richards that he wanted to purchase a property that would accommodate a six-station hair salon.

During the meeting, Richards provided DeWolfe with (i) a copy of the MLS listing, which also stated that the property was zoned as “Business B,” and (ii) a portion of the Norwell zoning ordinance.

The pages from the zoning ordinance were captioned “Business B,” which had been handwritten at the top, and included the word “hairdresser” as one of the permitted business uses for properties located in a Business B district.

DeWolfe entered into a purchase and sale agreement to purchase the property. Under the heading, “WARRANTIES AND REPRESENTATIONS,” the agreement contained the standard form exculpatory language, as set forth above. In the blank space that followed the language, the parties to the agreement added the word “NONE.”

After DeWolfe purchased the property, he learned that it was not in a Business B district, but rather was in a Residential B district in which a six-station hair salon was not a permitted use.

DeWolfe sued, inter alia, Hingham Centre and Richards for misrepresentation and violation of G.L.c. 93A. A trial court judge allowed the defendants’ motion for summary judgment and dismissed DeWolfe’s claims. One of the reasons underlying the summary judgment decision was the exculpatory language in the agreement.

DeWolfe appealed the summary judgment decision to the Appeals Court.

Split court

A five-judge panel of the Appeals Court split on the meaning of the exculpatory clause in the agreement and, therefore, whether DeWolfe could base his claims against the defendants on representations previously made in writing, such as the advertisement coupled with the MLS listing and the zoning bylaws.

The majority opinion held that DeWolfe could base his claims on representations previously made in writing, stating that “while an exculpatory clause was included in the warranties and representations section in the standard form purchase and sale agreement used by the parties, it explicitly excludes representations previously made in writing. As noted above, Richards misrepresented the zoning classification in writing on more than one occasion.”

In reaching that opinion, the majority emphasized that the language of the exculpatory clause was “plain.”

The court also observed that “[t]he only warranties or representations upon which the buyer may rely are those ‘set forth or incorporated in this agreement or previously made in writing.’”

Notwithstanding the apparent plain meaning of the exculpatory language, two judges of the Appeals Court (including the chief justice) reached an opposite conclusion. They read the exculpatory clause as excluding “the buyer’s reliance on representations previously made in writing” that are not listed in the agreement.

Thus, the dissent in DeWolfe stated:

“The warranties or representations that the buyer states he has not relied upon are broken down into two categories: (1) those ‘not set forth or incorporated in this agreement or’ (2) those ‘previously made in writing.’ After that, the parties may write in any exceptions, and here they added ‘NONE.’ The clause thus sets forth two types of things which, the buyer agrees, have not influenced him and upon which he did not rely when he entered the transaction. Unlike the majority, I cannot read those ‘previously made in writing’ to be an exception, because the final clause of the sentence explicitly sets out what is to be excepted, which would be what the parties may write in after the colon.”

Far-reaching implications

As the majority stated in its decision, how the SJC interprets the exculpatory language of the standard form purchase and sale agreement will have far-reaching implications:

“The dissent’s proposed construction would have broad implications, because the language at issue appears in the Greater Boston Real Estate Board standard form purchase and sale agreement. It would strip from every buyer using this form his or her right to rely upon written warranties or representations made by brokers or sellers, a right that every buyer and every lawyer until now properly has understood the buyer to have. … while we are respectful of the views of our dissenting colleagues, its adoption would be a significant error.”

Notwithstanding the majority’s dire warning, and its ostensibly “plain” reading of the exculpatory clause, it cannot be said that the dissent’s reading of the clause is without foundation.

A final verdict on this language will have to await the SJC’s decision.