DOCKET NO. A-0520-13T1
A. John Falciani, attorney for appellant. Alterman & Associates, LLC, attorneys for respondent (Stuart J. Alterman, of counsel; Matthew R. Dempsky, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Hayden and Leone. On appeal from Superior Court of New Jersey, Law Division, Cumberland County, Docket No L-394-11. A. John Falciani, attorney for appellant. Alterman & Associates, LLC, attorneys for respondent (Stuart J. Alterman, of counsel; Matthew R. Dempsky, on the brief). PER CURIAM
Plaintiff Karena A. Wilson appeals from the July 1, 2013 Law Division order granting summary judgment in favor of defendant Darlene McCann and dismissing the complaint for breach of contract, violation of the covenant of good faith and fair dealing, equitable fraud, and negligent misrepresentation. Wilson asserts that McCann fraudulently or negligently misrepresented the fact that the septic system on the property Wilson purchased was installed too close to the potable water well. For the reasons that follow, we affirm.
The record reveals the following facts. In 2007, McCann contracted with Gates Excavating to construct and install a new septic system on her property. Gates Excavating in turn contracted with Site Engineering Services to perform a survey plan of the property and an engineering design plan of the new septic system. Those plans erroneously indicated that the well supplying potable water to the home was located 103.60 feet from the site of the proposed septic system. After buying the property, Wilson learned that the potable water well was actually located only forty-five to fifty feet from the septic system, an environmentally-unsafe distance which required the construction of a new well.
When McCann purchased the property in 1999, a survey of the property contained a notation near the house labeled "well?" seeming to indicate that the surveyor was unsure where the well was located. Before the 1999 closing, the then-owner, Jane Meyers, told McCann that the property had two wells. Ms. Meyers showed McCann an open well located near the house that Ms. Meyers reported was for irrigation purposes. Meyers also stated that that the well supplying potable water to the home was located under the far southeast end of the driveway.
McCann's friend Larry Jordan acted as a liaison between McCann and Gates Excavating. McCann told Larry Jordan where she believed the well supplying potable water was located based on her conversation with Meyers. Those were the only conversations she had with anyone regarding the potable water well's location. Jordan also spoke to Meyers' husband, who confirmed the reported location. The 2007 survey located the potable water well where Jordan and Meyers indicated it was, denoting the well "as indicated by owner."
According to Thomas J. Tedesco, who drew up the plans, the "as indicated by owner" notation on the survey plan was based solely on the information he received from Larry Jordan about the location of the potable water well under the driveway. Tedesco did not verify what well was actually supplying water to the home, and he did not investigate the notation "well?" marked on the 1999 survey, which was located closer to the home. The County Health Department approved the design of the new septic system and after a final inspection, approved the installation in September 2007.
Several weeks later, on October 11, 2007, Wilson and McCann entered into a real estate contract of sale, which was prepared by Wilson's attorney. Paragraph 9 of the contract, entitled "Physical Conditions of the Property" set forth:
This property is being sold in an "as is" condition. The seller does not make any claims or promises about the condition or value of any of the property included in this sale. The Buyer has inspected the property and relies on said inspection and its determination to purchase the property in an "as is" condition but for any further inspection rights set forth in other sections of this agreement. . . .
Paragraph 16B of the contract reiterated that the property was being sold "in an 'AS IS' condition," but granted Wilson the following inspections rights:
The Buyer acknowledges that the property was being sold in an "AS IS" condition. Therefore, the Buyer, at the Buyer's sole cost and expense, is granted the right to have the dwelling and all other aspects of the property, inspected and evaluated by "qualified inspectors" . . . for the purpose of determining the existence of any physical defects or environmental conditions such as outline[d] above. If buyer chooses to make inspections referred to in this paragraph, such inspections must be completed, and written reports must be furnished to the Seller within twenty (20) calendar days after the end of the Attorney Review Period. If Buyer shall fail to furnish such written reports to the Seller within the time frame specified in this paragraph, this contingency clause shall be deemed waived by Buyer, and the property shall be deemed acceptable by Buyer. The time period for furnishing the inspection reports is referred to as the "Inspection Time Period."
In addition, Paragraph 7 provided that the buyer was responsible for obtaining a survey if needed. Paragraph 22 provided that the property was being sold subject to "such facts as an accurate survey might disclose." Nevertheless, Wilson decided to use the survey that was done as part of the septic design plans rather than obtaining her own survey.
Sometime after the closing, Wilson began certain site work on the property and discovered that the new septic system was too close to the potable water well. According to Wilson, a replacement well the proper distance from the septic system would cost about $25,000. On April 27, 2011, Wilson filed suit against McCann alleging breach of contract, violation of the covenant of good faith and fair dealing, violation of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20, equitable fraud and negligent misrepresentation.
Wilson later voluntarily dismissed her Consumer Fraud Act count.
After the close of discovery, McCann filed a motion for summary judgment. On July 1, 2013, the trial judge granted McCann's motion and issued a comprehensive written memorandum of his decision. The judge determined that Wilson failed to present any evidence that McCann knew or should have known of the defective condition, that she knowingly or negligently misrepresented or concealed the defective condition to Wilson when selling the property, or that she failed to act in good faith or acted with ill or bad motive in rendering performance of the contract.
As to the fraud and the negligent misrepresentation claims, the judge found that the record established that McCann did not intentionally tell Wilson or Tedesco a false or incorrect well location. Additionally, he pointed out that the well located near the house was open and visible and its possible existence was noted on the 1999 survey. The judge further noted that Wilson admitted that she was aware of the existence of the open well. The judge emphasized that the record was "devoid of any evidence that the seller knew, or should have known, the true location of the well prior to closing."
The judge also determined that McCann did not breach the contract. The judge noted that the "property was clearly and unambiguously sold in an 'as is' condition," and "[d]espite having the right to have inspections undertaken by qualified inspectors and a survey performed, Wilson chose to do neither, waiving any defects which would have been revealed by such inspections and survey." The judge found that under the contract "by not having any inspections or survey performed, the property was deemed acceptable to Wilson."
Regarding the alleged violation of good faith and fair dealing, the judge found that there was "no evidence in the record that McCann knowingly misrepresented the location of the well, and she certainly did not misrepresent its location directly to Wilson" when performing in accordance with the contract. Accordingly, the judge concluded that the entirety of Wilson's allegations were unsupported by the record, and summary judgment in favor of McCann was appropriate. This appeal followed.
Our "review of the trial court's grant of summary judgment is de novo, employing the same standard used by the trial court." Tarabokia v. Structure Tone, 429 N.J. Super. 103, 106 (App. Div. 2012) (citing Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998)), certif. denied, 213 N.J. 534 (2013). Thus, "[w]e must view the evidence in the light most favorable to the non-moving party and analyze whether the moving party was entitled to judgment as a matter of law." Mem'l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 524 (2012) (citing Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995)). In essence, the court must determine "'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007) (quoting Brill, supra, 142 N.J. at 536).
First, Wilson argues McCann had a duty to disclose the latent material condition on her property, and accordingly, the "as is" contractual term purporting to shift all liability to Wilson was unenforceable. Di Bernardo v. Mosley, 206 N.J. Super. 371, 376-77 (App. Div.), certif. denied, 103 N.J. 503 (1986). Wilson also contends that the rule of caveat emptor does not apply here as McCann either actually knew or constructively knew of a latent material condition on the property, citing Weintraub v. Krobatsch, 64 N.J. 445 (1974). Wilson further claims that an issue of fact exists concerning whether the seller constructively knew about the condition. We disagree.
Wilson is correct that a seller of real property has an affirmative duty to disclose to the buyer any known latent defective conditions that are material to the transaction. Weintraub, supra, 64 N.J. at 449; Correa v. Maggiore, 196 N.J. Super. 273, 281 (App. Div. 1984). That is, a seller "is not only liable to a buyer for his [or her] affirmative and intentional misrepresentations to a buyer, but he [or she] is also liable for mere nondisclosure to the buyer of defects known to him [or her] and unknown and unobservable by the buyer." Weintraub, supra, 64 N.J. at 454 (internal quotation marks and citation omitted). Accordingly, a contract that purports to sell real property "as is" or in its "present condition," is nevertheless subject to rescission or monetary damages where the seller fails to disclose or conceals material defects in the property which are actually known or constructively known to the seller, but not readily apparent to the buyer. Weintraub, supra, 64 N.J. at 454; Correa, supra, 196 N.J. Super. at 281.
In this case, the record is devoid of any evidence that McCann knew or should have known that the new septic system was installed too closely to the potable water well. Although McCann was aware of the open well close to the house, which the prior owner claimed was for irrigation purposes, Wilson presented no evidence that McCann knew or should have known that the open well supplied water to the home. Rather, the evidence establishes that McCann simply relied upon the previous owner's statement when discussing the potable water well location with Larry Jordan and she had no occasion, while she owned the property, to determine the source of the potable water.
Here, as the trial judge correctly pointed out, this is not "a case in which the actual field conditions of the property provided information to the seller that should have alerted her to the true location of the well to any greater extent than to a surveyor or inspector." Furthermore, there is no evidence in the record that McCann attempted to conceal any defect relating to the septic system. Additionally, as the judge found, nothing in the record demonstrates that McCann made any express or implied warranty or promises with regard to the septic system, and there was no evidence of bad faith or ill intent of McCann with regard to her performance of the contract. See Wilson v. Amerada Hess Corp., 168 N.J. 236, 251 (2001) (finding that a breach of duty of good faith requires proof of bad motive or intention).
Wilson next argues that summary judgment was inappropriate under the principle of equitable fraud. Wilson argues that McCann garnered a $25,000 windfall as the brand new septic system that the parties contemplated was a material part of the transaction, and the trial court's decision must be reversed as it misapplied the law. Again we disagree.
In order to establish a claim of legal fraud, the plaintiff must show: "'(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.'" Banco Popular N. Am. v. Gandi, 184 N.J. 161, 172-73 (2005) (quoting Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997)). Under common law equitable fraud, a defendant's knowledge of the falsity of the statement is not required. Jewish Ctr. of Sussex Cnty. v. Whale, 86 N.J. 619, 625 (1981) (noting that when a plaintiff seeks to prove equitable fraud, "[t]he elements of scienter, that is, knowledge of the falsity and an intention to obtain an undue advantage therefrom, are not essential[.]") (internal citations omitted); see also Marino v. Marino, 200 N.J. 315, 341 (2009). Nevertheless, "[m]isrepresentation and reliance are the hallmarks of any fraud claim, and a fraud cause of action fails without them." Banco Popular, supra, 184 N.J. at 174 (citations omitted).
A defendant's misrepresentation need not be communicated directly to a plaintiff for a fraud action to lie. Kaufman v. I-Stat Corp., 165 N.J. 94, 108 (2000). Under the principle of indirect reliance, a plaintiff can prove fraud "when he or she heard a statement not from the party that defrauded him or her but from that party's agent or from someone to whom the party communicated the false statement with the intention that the victim hear it, rely on it, and act to his or her detriment." Ibid. (citing Judson v. Peoples Bank & Trust Co., 25 N.J. 17, 27 (1957)). Only equitable relief is available in a successful claim for equitable fraud. NCP Litig. Trust v. KPMG LLP, 187 N.J. 353, 395 n.8 (2006).
Here, Wilson need not show that McCann knew of the falsity of her statement or that McCann intended to obtain an undue advantage. Jewish Ctr., supra, 86 N.J. at 625. However, Wilson has presented no evidence that McCann made the statement regarding the well's location to Larry Jordan with the intent that Wilson rely on that statement. Indeed, the undisputed evidence shows that McCann made the statement in furtherance of the septic system plan. Hence, Wilson has not established the elements of equitable fraud. Additionally, equitable fraud cannot support Wilson's requested relief for monetary damages. See NCP Litig. Trust, supra, 187 N.J. at 395 n.8.
Finally, we reject Wilson's contention that she made a prima facie case of negligent misrepresentation. Wilson argues that McCann "negligently made a statement as to the utility of a brand new septic system and the location of the well on the property she sold" to Wilson. Wilson contends that she clearly "relied on [d]efendant's statements as to the efficacy of the brand new septic system [McCann] promised," and she has suffered substantial damages.
Negligent misrepresentation is "'[a]n incorrect statement, negligently made and justifiably relied upon, [and] may be the basis for recovery of damages for economic loss . . . sustained as a consequence of that reliance.'" Green v. Morgan Props., 215 N.J. 431, 457 (2013) (quoting H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 334 (1983), superseded on other grounds, N.J.S.A. 2A:53A-25). In order to sustain a cause of action based on negligent misrepresentation, the plaintiff must establish that the defendant negligently made an incorrect statement of a past or existing fact, that the plaintiff justifiably relied on it and that his or her reliance caused a loss or injury. Kaufman, supra, 165 N.J. at 109 (finding that the "element of reliance is the same for fraud and negligent misrepresentation"). The principle of indirect reliance applies to negligent misrepresentation as well as fraud. Id. at 108-09.
However, liability for negligent misrepresentation is narrower than for fraudulent misrepresentation as the "fault of the maker of the misrepresentation is sufficiently less to justify a narrower responsibility for its consequences." Restatement (Second) of Torts § 552 comment a (1977) (Restatement). Liability is not unlimited and does not cover whoever may hear a statement. Petrillo v. Bachenberg, 139 N.J. 472, 484 (1995). Instead, the Restatement generally limits liability for negligent misrepresentation to those persons for whose benefit and guidance the statement was made with knowledge that the recipient would rely on it. Restatement, supra, § 552; see also Singer v. Beach Trading Co., 379 N.J. Super. 63, 76 (App. Div. 2005).
Wilson provided no evidence that McCann's misstatement was made to her or a third party with the intention that she hear it and rely on it. See Kaufman, supra, 165 N.J. at 108. Again, the undisputed and sole purpose of McCann's statement about the well was to get the septic system built. Thus, Wilson has not set forth a prima facie case of negligent misrepresentation. Id. at 109.
Even assuming that Wilson stated a prima facie case for negligent misrepresentation, Wilson has not argued and the record does not show that McCann owed an independent duty outside of the contract of sale to support a tort recovery. See Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 316 (2002) ("Under New Jersey law, a tort remedy does not arise from a contractual relationship unless the breaching party owes an independent duty imposed by law."); see also Singer, supra, 379 N.J. Super. at 74 (in determining the tort of negligent misrepresentation, one must determine if the defendant owed a duty to plaintiff to exercise reasonable care).
Wilson also argues that McCann made statements guaranteeing the new septic system. Having thoroughly reviewed the record, we find nothing that indicates McCann made any statements or promises to Wilson regarding the efficacy or utility of the new septic system. To the contrary, Wilson acknowledged that "[b]ecause the system was new and had only been approved a month prior to the signing of the contract, I did not question the condition of the septic." Furthermore, the contract states that the property was being sold "in an 'as is' condition," and that McCann did not "make any claims or promises about the condition or value of any of the property included in this sale." Accordingly, Wilson has failed to set forth sufficient facts to establish a prima facie claim of negligent misrepresentation.
In sum, viewing the evidence in the light most favorable to Wilson, summary judgment in favor of McCann was appropriate. See Brill, supra, 142 N.J. at 523.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION