Opinion
No. 122135
June 9, 2005
MEMORANDUM OF DECISION
This vigorously contested matter involves a suit on a note arising from an apartment house sale by the plaintiff to the defendant. Previously the plaintiff has withdrawn claims against others so that only the following procedural background is now relevant to the case.
On July 2, 2003, Plaintiff filed an Amended Complaint against the Defendant Andrew Lockwood. Defendant, Andrew Lockwood, has filed an Answer, special defense and a Counterclaim against Plaintiff, Dee Cheshire, consisting of three counts (Fraud, CUTPA and Breach of Contract).
Plaintiff claims damages, attorneys fees and costs of this action pursuant to the Promissory Note from the Defendant.
The defendant has admitted signing the note and not making payments, but in his special defense and Counterclaim alleges that he is not obliged to pay the plaintiff because of the alleged fraud on the part of the plaintiff in regards to the condition of the property, the condemnation of some of the apartments by the city building official and illegal occupancy by tenants listed on an alleged "rent roll." In his counterclaim the defendant claims damages resulting from the alleged action of the plaintiff.
FINDING OF FACTS
From the evidence, including the testimony of witnesses, exhibits of the parties, and the reasonable inferences from the same as well as taking into consideration the credibility of the witnesses, the court makes the following findings of fact.
The plaintiff is a retired member of the U.S. Navy engaged in the general contracting trades in New London County and also a sometimes investor in real property.
The defendant is the owner of a hotel and several residential rental properties in the New London County area and is currently a student. He has previously operated a used car dealership in the same area. He is a very experienced and proficient businessman.
Plaintiff and real estate agent, William Shaw, were acquainted for about 20 years prior to May 16, 2000, the date Plaintiff sold the Property at 171 Garfield Avenue, New London, Connecticut (the property) to Defendant. Their relationship originated in the Navy and was both social and business related. Shaw represented the Plaintiff when he purchased the property approximately two years earlier. At about that time there was discussion between the plaintiff and Shaw as to a possible partnership with regard to the property but that did not materialize. Shaw was a licensed real estate broker employed by the Sylvia K. Real Estate Agency. The property consisted of an apartment house with 12 apartments. During the time the plaintiff owned the property he had considerable difficulty with tenants and those persons who would use the empty apartments for illicit purposes. There were numerous reports to the police by the plaintiff. There were shootings and stabbings at the property. During this time the plaintiff sought the assistance of the City of New London building office, having learned that if an apartment was found to be in violation of a building code in some regard the city would not let the apartment be occupied. The city found that some repairs were needed and condemned 7 of the units after inspection. The condemned units were all vacant at the time of the inspection by the building official. Placards were posted on the apartments that were condemned but they were later removed by persons unknown. It is not clear what repairs were made during this time because the plaintiff kept no records. Approximately $20,000 was spent on repairs by the plaintiff. No effort by the plaintiff was made to get another inspection by the building inspector after the repairs or to remove the condemned status. During the period when the plaintiff owned the property, Shaw, with whom he spoke regularly, helped in the management of the apartment house by keeping the plaintiff's checking account used to record the receipts and expenses for the property. His agency had keys to all apartments and common areas on the property. Mr. Shaw was aware of the difficulties in the management of the property and of the condemnation of some of the units by the city of New London. Testimony by Mr. Shaw to the contrary was not credible. During this time there also was a water lien of the City of New London on the property, which was in some stage of being foreclosed. The plaintiff eventually decided to sell the property. He listed the property for sale with his friend Mr. Shaw at a price of $149,000. Shaw also was a friend of Mr. Lockwood, the defendant, having previously represented him with regard to his purchase of several residential investment properties in New London, Connecticut, some of which were multi-family. The plaintiff also was friendly with the defendant, having been introduced by Mr. Shaw in 1986, and at the time in 2000 was working with his heavy equipment on a residential construction job for him in Ledyard, Connecticut. Shaw contacted the defendant after February 9, 2000, and brought the property to his attention. The defendant visited the property and inspected the same at least three times. Some of these visits were with his lawyer and business consultant and some with the plaintiff and the agent Shaw. During the visits to the property the defendant examined the interior of some of the apartments but was not permitted by the tenants to see some of the occupied units.
The plaintiff cooperated fully with the defendant in connection with his inspection of the property. The tenants were notified in advance by the plaintiff that the defendant would be inspecting the apartments. Some of the apartments were unoccupied and the defendant saw them and was aware of their condition. Neither the defendant nor Shaw asked the plaintiff for further time to visit and inspect the apartments that were not available at the time of his inspections. The defendant was not deified access to any of the apartments by the plaintiff. At the time of the visits there were no placards on the condemned apartments. The defendant inspected the city tax records at City Hall. Shaw prepared and gave to the defendant what appeared to be a list of occupants with the amount of the rent for their unit. There were eight names listed with a total of $4,100. During this time and at all times relevant to this case the agent Shaw represented both the Plaintiff and the Defendant with full knowledge and disclosure.
Thereafter, Plaintiff and Defendant entered in a Purchase Sale Agreement related to the Property. That agreement contained the following paragraph: "5. INSPECTION OF PREMISES; The BUYER represents that he has examined said property, including fixtures and personal property which convey and is satisfied with the physical condition thereof, subject to the provisions of any inspections/tests made a part of this Agreement. BUYER further agrees neither SELLER nor SELLER'S agent have made any representations or promises other than those expressly stated herein, upon which BUYER has relied in making the Agreement. The property and improvements are to be conveyed in their present condition, subject to ordinary wear and use, as they are on the date of this Agreement. The BUYER has the right to make a final inspection of the premises prior to the closing. In the event the Seller has not furnished Buyer with the Property Condition disclosure form required by P.A. 95-311 prior to the Buyer's execution of this Agreement, Seller shall give and Buyer shall receive a credit of $300 off of the purchase price at closing."
The defendant relied upon his own business acumen, his inspections of the property, the advice of his attorney and business consultant and the records he obtained in the city hall at the assessor's office in connection with his decision to purchase the property and not on anything the plaintiff did or said about the property.
On May 16, 2000, Plaintiff conveyed the Property to Defendant. Alan Messier, Esq., who prepared all of the papers for the closing, represented defendant at the closing. Plaintiff was unrepresented by legal counsel at the closing but the agent Mr. Shaw was in attendance. Defendant assumed the first mortgage from the previous owner and Defendant executed a second mortgage to Alan Messier, Esq., Trustee securing a promisory note of $44,000.00. Defendant then executed the promissory note, which is the basis of this action, secured by a third mortgage to Plaintiff. This note, in the amount of $36,240.95, provides for monthly payments of $240.95 with interest of 9% per annum. It also includes a requirement that the defendant pay costs of collection including attorneys fees and calls for an 18% interest rate in the event of default.
At the closing the plaintiff was required to and did sign a Stewart Title Guaranty Company form affidavit containing the following provision: "7. That I/we have no knowledge of any violation of any covenants, restrictions, agreements, conditions or zoning ordinances affecting said premises.
At the closing there was no mention of the condition of the apartments or the 7 units having been condemned by the City of New London building official, nor did the plaintiff say or do anything affirmatively to misrepresent the situation.
At the closing, using a standard HUD-1 form, a settlement statement was signed by the parties providing for payment of $28,136.80 to the plaintiff/seller and among other things a payment of $6,250.00 to Mr. Shaw's agency for a commission. The buyer/defendant paid costs of $3,840.00. The water lien was paid from the closing. The closing attorney following the closing and the recording of the papers with the town clerk made these payments.
After closing, Defendant was informed by the City of New London that because seven of the twelve apartment units had been previously condemned in early 1999 due to various defects (e.g., repair electrical outlets, install smoke detectors, plumbing, refurbish floors/ceilings, paint), he was responsible to relocate the tenants from those units. He was also told he could not collect rents from those units.
The Defendant asked the plaintiff to a meeting shortly thereafter and later on June 10, 2000 wrote a letter to demand either the payment of money and the release of the note and third mortgage or the repurchase of the property and the payment of his expenses. This letter also evidences other disagreements between the plaintiff and defendant unrelated to this transaction. Defendant has not made any payments to Plaintiff pursuant to the Promissory Note.
There was no evidence of the cost of completing the repairs still required by the building official in the condemned units after the closing of the purchase. There was no evidence as to the amount of rent, if any, that the defendant collected from any of the apartment units after the closing and before the foreclosure.
The defendant moved Glenda Melendez from an apartment to a room in his hotel pursuant to his relocation requirement and has produced some evidence of the duration of her stay there. He claims the plaintiff is obligated to pay her daily hotel rate for the over three months she stayed there.
In addition the defendant paid to the holder of the first mortgage four payments of $760.05 each. Evidence as to the alleged repayment of security deposits and costs of relocation without documentation is not found credible.
The defendant has incurred expenses for attorneys fees related to this case which he claims totals $12,857.00 (Def. Exh. 11).
There was no evidence offered by the defendant as to the alleged $44,000 second mortgage note and obligation to his attorney as trustee.
During the pendency of this case the first mortgage on the property was foreclosed by the prior owner on or about February 20, 2002, so that the parties herein have no interest in the property at the present time which appears of record.
THE COMPLAINT AND SPECIAL DEFENSES
The defendant does not question the validity or execution of the note sued upon. Nor are there issues relating to its terms. The issue, therefore, with respect to the complaint is raised by the special defenses of the defendant.
In the first special defense the defendant alleges that the plaintiff misrepresented the property as being suitable for its intended use when he know there were code violations; that the plaintiff failed to disclose the condemnation of seven of the units and removed or permitted to be removed the placards concerning the same; and that those facts constituted fraud depriving the plaintiff of the right to enforce the note.
The second special defense relates to the foreclosure, which is no longer relevant.
The defendant offered no evidence with respect to the third special defense, which is also therefore not considered.
The defendant in his argument places great reliance on the plaintiff's having signed the title insurance affidavit about violations of "covenant, restrictions, agreements, conditions or zoning ordinances affecting said premises." That title insurance affidavit relates to title matters and there has been no evidence that there were deficiencies in the title created by violations of covenants, restrictions, agreements, conditions or zoning ordinances. That affidavit even to the extent that it was completed does not purport to relate to building code matters. The defendant offered no evidence that the plaintiff removed (or "permitted" to be removed) the placards. The plaintiff points to paragraph 5 of the Purchase and Sale Agreement quoted above in which the buyer actually makes a representation as to his examination of the property and denies in writing any reliance on a representation by the seller other than those stated. There were none expressly stated. In fact, neither the purchase and sale agreement nor the listing agreement state how many apartments are on the property, their condition or what rent can be expected. That paragraph, it is claimed, essentially made this an "as-is sale. Moreover the plaintiff points to paragraph 16 of the contract wherein the parties agree that the agreement is the "entire Agreement between the parties."
The plaintiff also argues that the failure to ask for the P.A. 95-311 disclosure might have some significance, but the court finds that statute by its terms not applicable to a 12-unit building.
COUNTERCLAIM
The counterclaim is in three counts. The first claims "misrepresentation"; the second alleges a violation of the Connecticut Unfair Trade Practices Act; and the third alleges breach of contract.
Both parties filed briefs in support of their claims and counterclaims with the indication by the court that any items not briefed were considered abandoned.
CONCLUSIONS OF LAW
The fundamental elements of common law fraud are: "(1) a false representation . . . made as a statement of fact; (2) [the representation] was untrue and known to be untrue by the party making it; (3) [the representation] was made to induce the other party to act upon it; and (4) the other party did so act upon that false representation to his injury." Barbara Weisman, Trustee v. Kaspar, 233 Conn. 531, 539, 661 A.2d 530 (1995). "[U]nder certain circumstances, there may be as much fraud in a person's silence as in a false statement . . . Mere nondisclosure, however, does not ordinarily amount to fraud . . . It will arise from such a source only under exceptional circumstances . . . To constitute [fraudulent nondisclosure] there must be a failure to disclose known facts and, in addition thereto, a request or an occasion or a circumstance which imposes a duty to speak." (Citations omitted.) Egan v. Hudson Nut Products, Inc., 142 Conn. 344, 347, 114 A.2d 213 (1955). "Fraudulent nondisclosure in a real estate situation is ample grounds for relief under both fraud and CUTPA." Sullivan v. Mang, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 00 0372972 (July 30, 2002, Gormley, J.). "The standard of proof of fraud is higher than mere preponderance of the evidence. It must be clear, precise and unequivocal." Id., citing Rego v. Connecticut Insurance Placement Facility, 219 Conn. 339, 343, 593 A.2d 491 (1991).
The Connecticut Supreme Court has recognized that "[t]o be actionable for fraud, the nondisclosure must be by a person intending or expecting thereby to cause a mistake by another to exist or to continue, in order to induce the latter to enter into or refrain from entering into a transaction . . . A vendor of property may not do anything to conceal from the vendee a material fact affecting it . . . or deliberately hide defects, for, in so doing, he is not merely remaining silent but is taking active steps to mislead. So the surrounding circumstances may be such that the effect of his silence is actually to produce a false impression in the mind of the vendee, and the making of an agreement or doing of some other act may in itself lead the vendee to believe that a certain fact exists and so amount to an affirmation of it. So the vendor may stand in such a relationship of trust and confidence to the vendee that it is his duty to make a full disclosure. [Nevertheless] . . . the general rule is that the silence of a vendor with reference to facts affecting the value or desirability of property sold cannot give rise to an action by the vendee [for fraud]. Certainly this is true as to all facts which are open to discovery upon reasonable inquiry by the vendee." (Citation omitted; internal quotation marks omitted.) Egan v. Hudson Nut Products, Inc., supra, 142 Conn. 347-48, quoting Gayne v. Smith, 104 Conn. 650, 652, 134 A. 62 (1926).
"This is the time-honored doctrine of caveat emptor . . ." Robinson v. Parillo, Superior Court, judicial district of New Haven, Docket No. 403691 (April 8, 1999, Blue, J.). There are, however, exceptions to the general rule. It has been established that "although a vendor may, under the circumstances, have no duty to speak, nevertheless, if he does assume to speak, he must make a full and fair disclosure as to the matters about which he assumes to speak. He must then avoid deliberate nondisclosure." Franchey v. Hannes, 152 Conn. 372, 379, 207 A.2d 268 (1965). "The key element in a case of fraudulent nondisclosure is that there must be circumstances which impose a duty to speak." Jackson v. Jackson, 2 Conn.App. 179, 194, CT Page 9867 478 A.2d 1026, cert. denied, 194 Conn. 805, 482 A.2d 710 (1984).
The "second exception to the general rule of caveat emptor is . . . that, [a] vendor of property may not do anything to conceal from the vendee a material fact affecting it." (Internal quotation marks omitted.) Robinson v. Parillo, supra, Superior Court, Docket No. 403691, quoting Gayne v. Smith, supra, 104 Conn. 652. Moreover, the Supreme Court has also recognized that a duty to speak is imposed when there is a fiduciary or confidential relationship between the parties. Macomber v. Travelers Property Casualty Corp., 261 Conn. 620, 640, 804 A.2d 180 (2002). "A fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other." (Internal quotation marks omitted.) Konover Development Corp. v. Zeller, 228 Conn. 206, 219, 635 A.2d 798 (1994).
Special Defense
On March 2, 2004, the defendant filed a special defense. The defendant asserts the special defense of fraudulent nondisclosure. In his special defense, the defendant alleges that "the [p]laintiff . . . represented to the defendant . . . that the property in question was suitable for its then use as a residential apartment building . . . when the plaintiff knew, [that] the property had been in violation of the City of New London building code in many respects for a period of months if not years prior to the proposed closing date." The defendant further alleges that "The plaintiff . . . failed to disclose to the defendant . . . that one or more of the apartments in the premises were condemned . . ." Therefore, the defendant alleges that "the forgoing actions of the plaintiff . . . constitute fraud, depriving the plaintiff of the right to enforce either the [p]romissory [n]ote or the [m]ortgage alleged in his complaint." The burden of pleading and proving a special defense rests with the defendant. New England Savings Bank v. Bedford Realty Corp., 246 Conn. 594, 606 n. 10, 717 A.2d 713 (1998).
The defendant has asserted three special defenses; however, the only relevant defense remaining is for fraudulent nondisclosure. The defendant has alleged, in his first special defense, that "the plaintiff failed to disclose . . . that one or more of the apartments . . . were condemned" and "that the plaintiff represented to the defendant that the property . . . was suitable for its then use as a residential apartment building when . . . the plaintiff knew the property had been in violation of the City of New London building code . . ." In sum, the defendant alleges that this fraud deprives the plaintiff of the right to enforce the promissory note or mortgage. This court will interpret these allegations as asserting the defense of fraudulent nondisclosure. Moreover, this court has already determined that the second special defense is no longer relevant and that the defendant has failed to offer any evidence in support of the third defense; therefore, this court will not consider the second and third special defenses.
This matter was tried before this court, on January 13, 2005 and January 18, 2005, and both parties filed post-trial briefs on February 15, 2005. The plaintiff argues in his post-trial brief that he is entitled to enforcement of the promissory note and damages as a result of the defendant's breach of contract. The plaintiff further argues that the defendant represented to the plaintiff that he had inspected the property to his full satisfaction and that the defendant agreed that the plaintiff did not make any representations or promises other than those listed in the Purchase and Sale Agreement. The plaintiff cites to paragraph 5 of the Purchase and Sale Agreement titled "Inspection of Premises" which provides in relevant part: "The BUYER represents that he has examined said property . . . and is satisfied with the physical condition thereof . . . BUYER further agrees neither SELLER nor SELLER'S agent have made any representations or promises other than those expressly stated herein, upon which BUYER has relied in making the Agreement. The property and improvements are to be conveyed in their present condition, subject to ordinary wear and use, as they are on the date of this Agreement. The BUYER has the right to make a final inspection of the premises prior to the closing." Specifically, the plaintiff argues that pursuant to paragraph 5 of the Agreement, the parties agreed that the property would be conveyed in its present condition or "as is." Moreover, the plaintiff argues that pursuant to paragraph 16 of the Purchase and Sale Agreement the parties expressly agreed that the Purchase and Sale Agreement represented the entire agreement between the parties and did not include any representations regarding the habitability of the units. Furthermore, the plaintiff asserts that the doctrine of caveat emptor is applicable to the present case thereby barring the defendant's claims and that the plaintiff was under no duty to disclose information related to the property's condition. Specifically, the plaintiff argues that he did not assume to speak nor were there circumstances that created a duty to speak about the condition of the property.
The defendant argues in his post-trial brief that the enforcement of the promissory note is barred by the doctrine of fraudulent nondisclosure. The defendant argues that the plaintiff committed fraud by concealing the fact that seven of the twelve units were condemned and illegally occupied. Specifically, the defendant argues that the plaintiff, by allowing the defendant to rely upon the rent roll prepared by Shaw, while withholding information concerning the unlawful occupants and condemned status, deceived the defendant in this real estate transaction. Therefore, the defendant argues that he is entitled to rescission of the contract i.e., the Purchase and Sale Agreement.
"The decisive question [in this matter] is whether, in view of the foregoing legal principles, the circumstances . . . were of such a nature that the [plaintiff's] silence produced a false impression in the [defendant's mind] as to the . . . condition of the [property] . . ." Egan v. Hudson Nut Products, Inc., supra, 142 Conn. 348. Applying the law to the facts of this case, this court finds that the plaintiff's conduct does not constitute fraudulent nondisclosure.
The defendant asserts that the plaintiff had a duty to disclose that one or more of the apartments were condemned and that such failure to disclose constitutes fraudulent nondisclosure. It is well established that "[t]he key element in a case of fraudulent nondisclosure is that there must be circumstances which impose a duty to speak." Jackson v. Jackson, supra, 2 Conn.App. 194. In the present case, this court finds that the plaintiff did not have a duty to speak and no circumstances existed that imposed a duty to speak. This court finds the following facts relevant. The defendant is a very experienced and proficient businessman and is the owner of a hotel and several residential rental properties. The defendant visited the property and inspected the property at least three times. During these visits he examined the interior of some of the apartments but was not permitted by the tenants to see some of the occupied units. The defendant, however, did inspect some unoccupied apartments and was aware of their condition. Furthermore, the plaintiff fully cooperated with the defendant in connection with his inspection of the property and the defendant was not denied access to any apartment by the plaintiff. Moreover, neither the defendant nor the real estate agent, Shaw, requested further time to visit and inspect the apartments that were not available at the time of the defendant's inspections.
More importantly, this court finds that the defendant relied upon his own business acumen, his inspections of the property, the advice of his attorney and business consultant and the records he obtained from the assessor's office in City Hall, when making the decision to purchase the property. The defendant's decision was not based upon anything that the plaintiff did or said about the property. The court further finds that at the closing the plaintiff did not mention the condition of the apartments or the condemnation of seven of the units, nor did the plaintiff affirmatively say or do anything to misrepresent the situation. Moreover, there is no evidence that the defendant asked any questions regarding the condition of the property. Furthermore, such condition would have been reasonably discoverable upon an examination of the premises; therefore, this court finds that the defendant had ample opportunity to fully investigate this property but failed to.
Firstly, "although a vendor may, under the circumstances, have no duty to speak, nevertheless, if he does assume to speak, he must make a full and fair disclosure as to the matters about which he assumes to speak. He must then avoid deliberate nondisclosure." Franchey v. Hannes, supra, 152 Conn. 379. In the present case, the plaintiff did not assume to speak about the condition of the property requiring him to provide a full and fair disclosure of the property's condition. Secondly, "[a] vendor of property may not do anything to conceal from the vendee a material fact affecting it." Robinson v. Parillo, supra, Superior Court, Docket No. 403691, quoting Gayne v. Smith, supra, 104 Conn. 652. There is no evidence that the plaintiff deliberately concealed the condemnation of seven out of the twelve units or the condition of the property. Additionally, there is no evidence that the plaintiff removed or allowed removal of the placards on the condemned units. On the contrary, the plaintiff fully cooperated with the defendant's examination of the property and never denied the defendant access to any of the apartments.
Thirdly, there exists a duty to speak when there is a fiduciary or confidential relationship between the parties. Macomber v. Travelers Property Casualty Corp., supra, 261 Conn. 640. "A fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other." (Internal quotation marks omitted.) Konover Development Corp. v. Zeller, supra, 228 Conn. 219. The plaintiff and the defendant were not in a fiduciary or confidential relationship with a unique degree of trust and confidence which imposed a duty to represent the interests of the other. In fact, the opposite is true; the plaintiff and the defendant were dealing with each other as acquaintances in an arm's-length transaction. The plaintiff was introduced to the defendant by Shaw in 1986, and in 2000 they engaged in business together. Both parties as sophisticated businessmen were fully aware of the nature of business dealings and did not rely on each other's superior knowledge, skill or expertise in the real estate transaction.
Moreover, there is "nothing in the situation to indicate that the [plaintiff's] failure to mention the [condition of the property] was for the deliberately conceived purpose of deceiving the [defendant] or of luring [him] into a false belief . . . [I]n the case at bar, [the circumstances were] inadequate to impose upon the [plaintiff] a duty to disclose in the absence of any question propounded about the [condition] by the [defendant]." See Egan v. Hudson Nut Products, Inc., supra, 142 Conn. 349.
In sum, this court finds that the plaintiff did not conceal the condition of the property, there was no occasion calling upon the plaintiff to speak about the condition, no circumstances existed in which the plaintiff's silence would produce a false belief in the mind of the defendant, and the condition of the property could easily have been ascertained by the defendant upon reasonable inspection. Therefore, this court finds that the defendant has failed to prove fraudulent nondisclosure on behalf of the plaintiff. See Stanio v. Berner Lohne Co., Inc., 127 Conn. 431, 434, 17 A.2d 502 (1941).
Furthermore, at all times pertinent to this real estate transaction it is important to note that Shaw, in his capacity as a real estate agent, represented both the plaintiff and the defendant. Moreover, this court finds that Shaw was aware of the difficulties in the management of the property and the condemnation of some of the units. Shaw regularly assisted in the management of the apartments by keeping the plaintiff's checking account to record the receipts and expenses for the property and had keys to all apartments and common areas on the property. This relationship brings into question the legal significance of this dual representation and the claimed nondisclosure.
The Connecticut Supreme Court has held that "[i]t is undoubted law that the knowledge of an agent gained while acting for his principal and in reference to a matter in the course of his agency is the knowledge of the principal . . . The rule is, however, subject to exceptions. It is founded upon the presumption that the agent will perform his duty and give the knowledge he has obtained in the course of his agency to his principal. The rule is founded in the public safety. When, however, the circumstances are such as to raise a clear presumption that the agent will not perform this duty, the presumption that he has performed no longer holds . . . Three sets of circumstances which are held to rebut this presumption are: (1) [w]here it is not the duty of the agent to disclose; (2) when the agent is acting adversely to the interest of his principal, whether for the interest of himself or a third party; [and] (3) where the agent is acting in fraud of his principal." (Citations omitted.) Resnik v. Morganstern, 100 Conn. 38, 42-43, 122 A. 910 (1923); see also, McKay v. Aetna Life Ins. Co., 118 Conn. 538, 549-50, 173 A. 783 (1934); Mutual Assurance Co. v. Norwich Savings Society, 128 Conn. 510, 513-14, 24 A.2d 477 (1942); Reider v. Arthur Anderson, LLP, 47 Conn.Sup. 202, 209-10, 784 A.2d 464 (2001).
In this case, this court finds that the knowledge of the agent (Shaw), concerning the condition and condemnation of the property, is not imputed to the principal (the defendant). This case falls squarely within the "adverse interest exception" to the general rule which applies when the agent is acting adversely to the interest of his principal. Shaw, as the defendant's real estate agent, had a duty to disclose to the defendant his knowledge concerning the condition and condemnation of the property. Shaw acted adversely to the defendant's interest by not disclosing these material facts. Clearly, the condition and condemnation of the property are facts that Shaw knew or should have known would have reasonably affected the defendant's judgment if the defendant in fact was unaware of them.
Counterclaim Misrepresentation
On March 2, 2004, along with an amended answer and special defense the defendant also filed a three-count counterclaim. Count one of the counterclaim alleges misrepresentation, count two alleges a violation of the Connecticut Unfair Trade Practices Act and count three alleges breach of contract. In count one of the counterclaim the defendant alleges that the plaintiff and the defendant held meetings to discuss the purchase of commercial real estate located at 171 Garfield Avenue, New London, Connecticut, i.e., the subject property. The defendant alleges that "[d]uring the course of these meetings, [the plaintiff] showed the property to [the defendant] and specifically, presented the apartments therein as lawful dwelling units in which [the plaintiff] had tenants." The defendant further alleges that "[a]t no time prior to the closing did [the plaintiff] disclose to [the defendant] that in fact, numerous . . . apartments . . . occupied by tenants . . . had in fact been condemned by the City of New London, at the [p]laintiff's request." Further, the defendant alleges that "[a]t no time on or before [the closing date] did [the plaintiff] disclose to [the defendant] that by allowing residential tenants to occupy the condemned apartment [building the plaintiff] not only was . . . violating the law but was otherwise exposing a transferee of the property to fines [and] penalties, [including] liability for the relocation expense of such unlawful tenants." Moreover, the defendant alleges that he "relied upon [the plaintiff's] representations concerning the status of the property, made both before and during the closing and in reliance thereon not only proceeded with the purchase but either invested or borrowed sums in excess of $45,000.00 [to] complete the purchase of the property." As a result of the plaintiff's alleged misrepresentations the defendant alleges the following damages: (1) buying a property for the sum of $125,000.00 "that was [worth substantially less] particularly in light of the fact that it had no lawful occupants at the time of the sale"; (2) "immediately after acquiring title to the property . . . [being] required [by the City of New London] to pay substantial sums of money [for] immediate repairs to the property [and relocation costs]"; (3) "[foregoing] other business opportunities that he has pursued [and] could have made a significant profit upon"; and (4) having to expend money to secure an attorney because he was arrested for having tenants in unlawful dwelling units, although these charges were dismissed.
The defendant in count one of his counterclaim generally uses the term misrepresentation. The defendant, however, fails to specifically indicate whether the misrepresentation was intentional, negligent or innocent. Nonetheless, the defendant argues in his post-trial brief that the plaintiff "engaged in this duplicitous act [failing to disclose material facts] to influence [the defendant] . . . to buy the building from him at an inflated price on the eve of a tax lien foreclosure sale." Duplicitous has been defined as "[g]iven to or marked by deliberate deceptiveness in behavior or speech." The American Heritage Dictionary of the English Language (4th Ed. 2000). Therefore, this court will interpret the defendant's argument as a claim for intentional misrepresentation.
The defendant argues in his post-trial brief that the plaintiff misrepresented the property's condition by not disclosing "the condemnation issue or the fact that five of the existing tenants in the building were liable to be relocated at the landlord's expense." Specifically, the defendant argues that "[h]aving furnished [to the defendant] the rent roll, it was reasonable for [the defendant] to assume that there [were] no legal [impediments] to the continuation of those tenancies and his collections of those rents." This misrepresentation, he argues, amounts to fraud. In sum, the defendant argues that the plaintiff's failure to disclose that "five condemned units were illegally occupied . . . and the condemnation order . . . made the representations concerning the building's income and condition materially false. These false representations related to . . . the legal status of the apartments and the [l]andlord's right to collect the stated rents." The defendant asserts that the plaintiff "engaged in this duplicitous act to influence [the defendant] . . . to buy the building from him at an inflated price on the eve of a tax lien foreclosure sale."
The plaintiff counters by arguing in his post-trial brief that he did not "hide the fact that several units were condemned because of various defects." In support of this argument the plaintiff refers to testimony elicited at trial that establishes that the plaintiff personally contacted the New London Building Inspector to report defects on the property and the removal of the placards. The plaintiff further argues that "the defendant presented no evidence related to certain misrepresentations regarding rental income from the [p]roperty." In support the plaintiff argues that at trial both Shaw and the defendant testified that Shaw and not the plaintiff prepared the "rent roll and the rent roll is not signed, dated or authored." Moreover, the plaintiff argues that neither the "defendant, nor his agents, ever asked [the plaintiff] about rental income and the plaintiff testified that he made no representations related thereto. [Specifically] the defendant testified that neither he, nor his agents, ever requested, demanded or reviewed any outstanding leases from tenants in possession at the time of the [c]losing." In sum, the plaintiff argues that the "defendant offered no evidence that [the plaintiff] did anything to conceal the fact that several units had been condemned by the City of New London over fifteen months before the [c]losing."
"In order to prevail on a [counterclaim] for negligent misrepresentation or intentional misrepresentation, the [defendant] must prove that the [plaintiff] made a false statement of material fact, or failed to disclose a material fact, and the [defendant] relied upon that representation or nondisclosure." McGovern v. Maddy, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 010185713 (April 29, 2005, Radcliffe, J.), citing Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 575, 657 A.2d 212 (1995). "A cause of action for intentional misrepresentation is essentially a claim of fraud . . . It has long been held [in Connecticut] that [f]raud vitiates all contracts, written or otherwise . . . Accordingly, fraud cannot be contracted against." (Citations omitted; internal quotation marks omitted.) Martinez v. Zovich, 87 Conn.App. 766, 778, 867 A.2d 149 (2005). Fraud must be proven by clear and convincing evidence, also referred to as clear, precise and unequivocal evidence. Barbara Weisman, Trustee v. Kaspar, supra, 233 Conn. 540.
In the present case, this court finds that the defendant has failed to prove that the plaintiff made a false statement of material fact, or failed to disclose a material fact, or that the defendant relied upon any such representation or nondisclosure. Firstly, this court finds that the defendant has failed to prove that the plaintiff has made a false statement of material fact. At the closing neither the condition nor the condemnations of the apartments were mentioned nor did the plaintiff say or do anything to affirmatively misrepresent the situation. Secondly, this court finds that the defendant failed to prove that the plaintiff failed to disclose a material fact. The evidence fails to prove that the plaintiff deliberately concealed the condemnation of seven out of the twelve units or the condition of the property.
On the contrary, the evidence indicates that the plaintiff fully cooperated with the defendant in his inspections of the property and neither the defendant nor the defendant's agents requested further time to visit and inspect the apartments. Furthermore, there is no evidence that the defendant asked any questions regarding the condition of the property. Thirdly, this court finds that the defendant failed to prove reliance upon any such misrepresentation or nondisclosure. This court finds that the defendant, in making his decision to purchase the property, relied upon his own business acumen, his inspections of the property, the advice of his attorney and business consultant and the records he obtained from the assessor's office in City Hall. Most importantly, this court finds that the defendant did not rely on anything that the plaintiff did or said about the property. Reliance is a fundamental element of a cause of action for misrepresentation, regardless of whether the misrepresentation is intentional or negligent. Burnham v. Karl Gelb, P.C., 50 Conn.App. 385, 390, 717 A.2d 811 (1998), aff'd, 252 Conn. 153, 745 A.2d 178 (2000). Therefore, this court finds that count one of the defendant's counterclaim for intentional misrepresentation must fail.
Connecticut Unfair Trade Practice Act
Count two of the defendant's counterclaim alleges a violation of the Connecticut Unfair Trade Practices Act, § 42-110a et seq. The Connecticut Unfair Trade Practices Act (CUTPA) allows recovery for harm caused by unfair trade practices. The defendant alleges that "the [plaintiff's] actions [of] concealing and misrepresenting the legal status of the premises [constitute] an unfair trade practice for purposes of [CUTPA]." Specifically, the defendant alleges that the plaintiff's "misrepresentation concerning the premises and his failure to disclose that the premises was subject to a municipal condemnation order at or prior to closing was in conscious disregard of the [defendant's] best interests and rights . . . and was done for the purpose of obtaining his money or property without regard to [the defendant's] rights or interests in the matter." The defendant further alleges that "[a]s a result of [the plaintiff's actions the defendant] sustained an ascertainable loss of money or property" thereby "[entitling him] to an award of punitive damages pursuant to General Statutes § 42-110g."
General Statutes § 42-110b titled "Unfair Trade Practices Prohibited. Legislative Intent" provides:
(a) No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.
(b) It is the intent of the legislature that in construing subsection (a) of this section, the commissioner and the courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act ( 15 USC 45(a)(1)), as from time to time amended.
(c) The commissioner may, in accordance with chapter 54, establish by regulation acts, practices or methods which shall be deemed to be unfair or deceptive in violation of subsection (a) of this section. Such regulations shall not be inconsistent with the rules, regulations and decisions of the federal trade commission and the federal courts in interpreting the provisions of the Federal Trade Commission Act.
(d) It is the intention of the legislature that this chapter be remedial and be so construed.
General Statutes § 42-110g titled "Action for damages. Class actions. Costs and fees. Equitable relief. Jury trial" provides:
(a) Any person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42-110b, may bring an action in the judicial district in which the plaintiff or defendant resides or has his principal place of business or is doing business, to recover actual damages. Proof of public interest or public injury shall not be required in any action brought under this section. The court may, in its discretion, award punitive damages and may provide such equitable relief as it deems necessary or proper.
(b) Persons entitled to bring an action under subsection (a) of this section may, pursuant to rules established by the judges of the Superior Court, bring a class action on behalf of themselves and other persons similarly situated who are residents of this state or injured in this state to recover damages.
(c) Upon commencement of any action brought under subsection (a) of this section, the plaintiff shall mail a copy of the complaint to the Attorney General and the Commissioner of Consumer Protection and, upon entry of any judgment or decree in the action, shall mail a copy of such judgment or decree to the Attorney General and the Commissioner of Consumer Protection.
(d) In any action brought by a person under this section, the court may award, to the plaintiff, in addition to the relief provided in this section, costs and reasonable attorneys' fees based on the work reasonably performed by an attorney and not on the amount of recovery. In a class action in which there is no monetary recovery, but other relief is granted on behalf of a class, the court may award, to the plaintiff, in addition to other relief provided in this section, costs and reasonable attorneys' fees. In any action brought under this section, the court may, in its discretion, order, in addition to damages or in lieu of damages, injunctive or other equitable relief.
(e) Any final order issued by the Department of Consumer Protection and any permanent injunction, final judgment or final order of the court made under section 42-110d, 42-110m, 42-110o or 42-110p shall be prima facie evidence in an action brought under this section that the respondent or defendant used or employed a method, act or practice prohibited by section 42-110b, provided this section shall not apply to consent orders or judgments entered before any testimony has been taken.
(f) An action under this section may not be brought more than three years after the occurrence of a violation of this chapter.
(g) In any action brought by a person under this section there shall be a right to a jury trial except with respect to the award of punitive damages under subsection (a) of this section or the award of costs, reasonable attorneys' fees and injunctive or other equitable relief under subsection (d) of this section.
"It is well settled that in determining whether [an act or] practice violates CUTPA [Connecticut courts] have adopted the criteria set out in the cigarette rule by the federal trade commission for determining when [an act or] practice is unfair . . ." (Internal quotation marks omitted.) Kane v. Neveleff, Superior Court, judicial district of New Haven, Docket No. CV 00 0439308 (July 11, 2002, Arnold, J.), quoting Normand Josef Enterprise, Inc. v. Connecticut National Bank, 230 Conn. 486, 522, 646 A.2d 1289 (1994). "[W]hen determining whether a practice violates CUTPA, [Connecticut courts] will consider (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen) . . . Thus, a violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy." (Internal quotation marks omitted.) De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 433-34, 849 A.2d 382 (2004).
Moreover, "[a]ll three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three . . . Furthermore, a party need not prove an intent to deceive to prevail under CUTPA." (Citations omitted; internal quotation marks omitted.) Kane v. Neveleff, supra, Superior Court, Docket No. CV 00 0439308.
In the present matter, the defendant alleges that the plaintiff, by concealing and misrepresenting the legal status of the premises, engaged in an unfair trade practice under CUTPA. As previously noted this court finds that the defendant has failed to prove that the plaintiff concealed or misrepresented the legal status of the premises; therefore, the defendant's claim does not satisfy the "cigarette rule" of the CUTPA analysis. Consequently, this court finds that the defendant's counterclaim for a violation of CUTPA fails.
Breach of Contract
Count three of the defendant's counterclaim alleges breach of contract based upon the plaintiff's alleged concealment and misrepresentations. The defendant has failed to brief count three of his counterclaim in his post-trial brief; therefore, this court considers count three abandoned.
Conclusion
For the foregoing reasons, judgment may enter for the plaintiff on the complaint in the amount of $36,240.95 principal, $32,756.01 interest and $12,450.00 attorneys fees plus costs.
Judgment may also enter for the plaintiff on the defendant's counterclaim.
Robert C. Leuba, JTR