DECISION AFTER BENCH TRIAL

JAN R. JURDEN, Judge.

Dear Counsel:

A bench trial in this matter concluded on December 11, 2006. The Court requested a post-trial submission from plaintiff, Shaun D. McCoy, addressing whether a claim for the breach of the implied covenant of good faith and fair dealing must be specifically pled in the complaint. The Court has now reviewed the evidence, the applicable law, and the post-trial submission. For the reasons set forth below, the Court finds in favor of the defendants, William Dana Cox and Joanna L. Cox, in part, and plaintiff, Shaun D. McCoy, in part.

PROCEDURAL HISTORY

Plaintiff, Shaun D. McCoy, seeks damages from defendants, William Dana Cox and Joanna L. Cox, related to the contract of sale for a residential property ("the Contract"), located at 1831 Bear Corbitt Road, Bear, Delaware. McCoy alleges that the Coxes failed to disclose the property's material defects, in violation of the Buyer Property Protection Act ("the Act"). The alleged defects include electrical problems and/or unlicensed electrical work, a shower pan leak, a broken ceiling fan, and water accumulation in the garage and basement bathroom after heavy rains. McCoy also alleges that the Coxes failed to disclose that they were informed by New Castle County officials that the property could not be subdivided. McCoy makes a separate claim for breach of contract based on the subdivision issue, arguing that the Coxes breached the parties' Contract by listing the property as subdividable, when the Coxes knew that it was not. McCoy's alleged damages include the cost to repair the defects, and the loss in value of the property because it cannot be subdivided.

McCoy also alleges a claim for breach of the implied covenant of good faith and fair dealing. The Coxes argue McCoy cannot assert a claim that the Coxes breached the implied covenant of good faith and fair dealing because he did not plead it in the complaint. McCoy did not raise this claim until the pretrial stipulation. McCoy argues that a claim for such a breach is implied in all contracts and does not have to be specifically pleaded. The Court ordered post-trial briefing on this issue.

DISCUSSION

A seller of residential real property is required by statute to disclose all the property's known material defects. "[A] seller transferring residential real property shall disclose, in writing, to the buyer, agent and subagent, as applicable, all material defects of that property that are known at the time the property is offered for sale or that are known prior to the time of final settlement." The Seller's Disclosure of Real Property Condition Report ("Disclosure") is not a warranty and is not a substitute for any inspection or warranties that either party may wish to obtain. The Disclosure is intended to be a good faith effort to comply with the Act.

A Disclosure signed by both the buyer and seller, however, becomes a part of the parties' purchase agreement. Accordingly, claims that a seller failed to disclose such material defects have been treated as breaches of contract by Delaware Courts. The elements for a breach of contract include: (1) the existence of a contract; (2) the breach of an obligation imposed by the contract; and (3) resulting damages to the plaintiff.

The parties do not dispute that they entered a contract for the sale of the property at 1831 Bear Corbitt Road, Bear, Delaware. Section 14 of the Contract specifically incorporates the Disclosure into the Contract. The Disclosure at issue was completed on a form approved by the Delaware Real Estate Commission and mimics the language of § 2572.

The Court finds that the following facts were established by a preponderance of the evidence at trial.

A. Subdivision.

The majority of damages at issue relate to whether the property can be subdivided. McCoy makes two claims regarding the subdivision issue in the complaint: (1) the Coxes failed to disclose that they were told by New Castle County government officials that the property could not be subdivided; and (2) the Coxes breached the parties' Contract by failing to disclose "what [they] knew about The Property and by listing it as sub-dividable when they knew that it could not be sub-divided."

The property at issue is a 3.4 acre lot and is zoned for residential use. The first time the Coxes considered subdividing the property was in 2002 when the property was offered for sale the first time. Their realtor at that time, Jerry Strusowski, suggested that they investigate subdivision, because a subdivided property would have greater resale potential and would generate a higher sale price. Dana Cox testified that he pursued subdivision because he wanted to build his "dream home" on the subdivided lot. Strusowski referred the Coxes to Apex Engineering Inc. to have a feasibility study performed.

The Apex feasibility study, dated June 7, 2002, was a preliminary report with basic information to determine whether the Coxes should pursue the subdivision process. The report summarized the research Apex performed for the "possible subdivision" of the property. The report indicated that the property was zoned suburban, and a minimum lot size of one acre is required for subdivision. The report also contained preliminary information about the location of the floodplain on the property, and indicated that "[i]t does not appear that the floodplain would affect the additional lot." The report did not rule out the floodplain as a potential obstacle, and advised that a property survey would have to be completed. Finally, the report addressed the sewerage issue, and conditionally advised that there should not be a problem, as the property was within the New Castle County Sewer Service Area. Apex warned, however, that New Castle County would ultimately decide whether the lot would be connected to the sewer system or be serviced by septic system.

Dana Cox testified that Apex advised him that the property could not be connected to the sewer at that time, because the sewer pipe in front of the property was too small. New Castle County did plan to enlarge the pipe in the future. He also testified that Apex advised him that sewer availability was not required for subdivision. Cox could always "go septic."

On August 27, 2002, the Coxes took the property off the market. They continued to pursue subdivision, and contracted with Merestone Consultants, Inc. ("Merestone") on September 23, 2002, for this purpose. Phase I of Merestone's proposal for the subdivision plan included researching the pertinent regulations, performing a survey of the property, evaluating the soil for septic feasibility, and submitting a subdivision plan to the New Castle County Land Use Department. Merestone also pursued sewer accessibility with New Castle County. On November 5, 2002, Merestone applied for a certification of septic eligibility from New Castle County, which was denied by New Castle County on November 12, 2002.

On October 2, 2002, Merestone contacted Dr. Russell Rebertus of BSA Land Resources Consultants, and hired him to perform a soil/septic evaluation of the property. Dr. Rebertus testified that he spent two hours on the property evaluating the soil. Dr. Rebertus further testified that he advised the Coxes that the soil was not suitable for a septic system on the new lot and encouraged them to connect to the sewer. Dr. Rebertus also advised the Coxes that they would need a wetlands delineation to subdivide the property, and suggested that they have this done now, rather than later, to save money. Dr. Rebertus' testimony is supported by Merestone's records. On November 18, 2002, Merestone advised Dr. Rebertus to proceed with the wetlands location of the site. Although Dr. Rebertus and Dana Cox testified that there was some discussion of the possibility of using a backhoe to perform a more extensive soil evaluation, no further action was taken on the project.

Mike Early of Merestone testified that he advised the Coxes in November 2002 that the property could not be subdivided, because the soil could not support a septic system, and New Castle County would not permit the installing of a grinder pump system for purposes of subdivision. Early did not memorialize this conversion in writing. The Coxes testified that they abandoned the subdivision project, because

Joanna Cox was pregnant with the couple's second child. Joanna Cox said that she wanted to move to a development, because their property was too close to a busy road, and because she wanted her children to be closer to other kids.

On April 17, 2003, the Coxes listed the property for sale with Darenda Olsen of Remax. The Coxes gave Olsen the information packet prepared by Strusowski, which included the Apex report, and Olsen used that information to prepare her brochure for the property. The Multi List Service ("MLS") TReND report prepared by Strusowski indicated that property had "subdivision potential." The Coxes never gave Olsen any information from Merestone or BS A. Olsen also prepared a TReND report that indicated in the "Features" section that subdivision was possible, but affirmatively stated in the "Remarks" section that the property could be subdivided. Olsen also attached the Apex report to her brochure for the property. Olsen testified that she prepared the TReND report by walking around the property and making notes. She used the Apex report for the subdivision information. Olsen never called New Castle County to confirm whether the property could be subdivided. She could not remember discussing the issue with the Coxes, but she did remember calling Apex herself and verifying the information in the report.

Olsen testified that it is her usual procedure to send a copy of the brochure to the seller for review and correction, if necessary. Neither Olsen nor Joanna Cox recalled whether Olsen sent the Coxes a copy of the brochure to review and approve. Dana Cox remembered leafing through the brochure, but did not notice the "Remarks" section, which indicated that the property could be subdivided.

Shaun McCoy learned that the property was for sale by either a newspaper ad or the internet. He contacted Olsen, toured the property, and made an offer for the property on May 3, 2003, sixteen days after it was placed on the market. The Contract was not contingent on the property being subdividable. The McCoys' immediate plans for the property included construction of a pole barn for Shaun McCoy's business and a guest house for Shaun McCoy's parents. Shaun McCoy asked Olsen if the property was subdividable prior to settlement. Olsen advised McCoy that she called Apex and was advised that the property could be subdivided, but she also advised McCoy to call Apex himself, because subdivision was not her area of expertise. Olsen knew that McCoy was a contractor, and told him "you probably have better connections than I do to find out what can be done, and that's what you need to do." Shaun McCoy never followed-up with Apex and proceeded with his plans for the pole barn and guest house. McCoy testified that he purposely avoided the subdivision process when building the home for his parents, because he knew that process could take ten months to two years. The first time McCoy explored the possibility of subdivision was in March 2006.

1. The Coxes Were Never Advised by Any New Castle County Government Officials That the Property Could Not Be Subdivided.

There is insufficient evidence to support McCoy's claim that the Coxes failed to disclose that they were told by New Castle County government officials that the property could not be subdivided. The only person in New Castle County government that the Coxes spoke to was Dale Streets, Sr., a drafting technician in the New Castle County Department of Special Services, who testified that Dana Cox went to his office in June 2002 to inquire about sewer availability. Streets did not discuss subdivision, per se, with Dana Cox, but suggested that Cox would not be able to subdivide without a sewer connection. Streets advised Dana Cox that he could not connect to the sewer line in front of his property, but Cox could access a nearby pump station with a grinder pump. Streets conceded that he is not directly involved with the subdivision process. Streets testified that the Land Use Department makes subdivision decisions, and, upon request, the Special Services Department gives Land Use information on sewer availability.

Streets was in no position to advise the Coxes whether or not the property could be subdivided. He merely gave them information on the sewer availability. Moreover, Streets did not rule out a sewer connection, indicating that the Coxes could connect to the sewer via a grinder pump. The evidence also demonstrates that subdivision approval was not contingent on a sewer connection, because the Coxes had the option of installing a separate septic system on the new lot. New Castle County officials never advised the Coxes affirmatively that the property could not be subdivided. The Coxes abandoned the process before submitting a subdivision plan to the New Castle County Land Use Department, the entity that has the authority to approve or deny a proposed subdivision.

2. The Coxes Did Not Breach the Contract, Because the Real Estate Agent Listed the Property as Subdividable.

McCoy failed to establish by a preponderance of the evidence that the Coxes breached the Contract by listing the property as subdividable. There is nothing in the Contract or Disclosure that represents that the property can be subdivided. The sole basis for McCoy's claim is the brochure prepared by Darenda Olsen, and the representations made by Olsen to McCoy about the subdivision. Olsen conceded at trial that she never discussed subdivision with the Coxes, and could not remember if they reviewed the brochure. Olsen represented both the McCoys and the Coxes as a dual agent for the sale of the property. Even if her actions could be attributed to the Coxes as a principal, the evidence shows that Shaun McCoy is a contractor with knowledge of the subdivision process. Olsen told McCoy that her knowledge of the subdivision process was limited and advised him to contact Apex to obtain more information. McCoy never called Apex. The McCoys stated in correspondence to their mortgage company that they did not have any plans to subdivide the property. They also knew that the Coxes did not have approval for subdivision, but investigated subdivision for "informational purposes only." McCoy, a professional contractor, testified that he did not independently research the subdivision issue, but relied on Olsen's representations and the Apex document for his belief that "there was a pretty good chance that the property is . . . able to be subdivided." This is an insufficient basis to support a claim that the Coxes breached the Contract.

McCoy also failed to prove by a preponderance of the evidence that he suffered any damages as a result of the Coxes' alleged breach. The property was offered for sale at $ 349,900. McCoy made an offer on May 3, 2003, for $ 335,000, which was accepted by the Coxes. Joan DiRosato, a certified appraiser, performed an appraisal of the property in connection with the sale on June 18, 2003. Ms. DiRosato appraised the value of the property at $ 335,000. She testified that her appraisal did not consider whether the property could be subdivided. Despite notations on the appraisal regarding subdivision potential, her appraisal was based on an undivided parcel with more than three acres and one dwelling. At the time of the Contract, McCoy got what he bargained for, a 3.4 acre parcel, partially located in the flood plain, with a single dwelling for $ 335,000, the appraised value. McCoy's attempt to use the 2006 appraisals of the property with and without subdivision is unpersuasive, considering the ever-changing landscape of real estate values. The appropriate measure of the value of the property is the 2003 appraisal.

In hindsight, it would have been helpful had the Coxes informed McCoy about Merestone's and Dr. Rebertus' work on the project in order to provide the property's complete history. The evidence shows that the Coxes' subdivision investigation was never completed. Neither Merestone nor Dr. Rebertus prepared a final report because the Coxes abandoned the project in mid-course. There is no evidence that the Coxes purposely concealed this information. Nor is there any evidence that the Coxes knew or should have known that McCoy would try to subdivide the property three years after settlement and would be interested in the Coxes' subdivision efforts. The Coxes were under no obligation to anticipate McCoy's improvement plans for the property and provide this information. Even if the evidence established that the Coxes' breached the contract by failing to disclose this information (which it does not), McCoy's claims fail, because he did not prove by a preponderance of the evidence that he suffered any damages as a proximate result of this breach.

B. Electrical Problems and Ceiling Fan.

McCoy alleges in the complaint that the Coxes failed to disclose that they "experienced electrical problems and/or performed unlicensed electrical work." McCoy also claims that the Coxes failed to disclose that the bedroom ceiling fan was broken. The pertinent portions of the Seller's Disclosure of Real Property Condition Report ("Disclosure") are items 94 and 96 under Section XIII, "Electrical System." The Coxes responded "unknown" in response to item 94, "Have there been any additions to the original service?" The Coxes responded "no" in response to item 96, "Are there wall switches, light fixtures or electrical outlets in need of repair?" In support of his claims, McCoy submits an invoice from McKee Electric, dated August 17, 2006, for $ 1,200 for installation of two ceiling fans, rewiring of switches and lights, and corrections to junction boxes.

1. Electrical Problems and/or Unlicensed Electrical Work.

The evidence adduced at trial does not support McCoy's claims that, prior to final settlement, there were problems with the electrical system of the house allegedly caused by unlicensed work. Dana and Joanna Cox both testified that they did not perform any electrical work on the property. Dana Cox also testified that he was never contacted by McCoy about the alleged deficient electrical service. McCoy's sole support for his claim was the invoice from McKee Electric, Inc., dated August 17, 2006. McCoy did not present any testimony from McKee regarding the extent and cause of the alleged electrical problems. Nor did McCoy prove that the Coxes knew about any such problems prior to final settlement. McCoy has failed to satisfy his burden of proving that a material defect existed with respect to the electrical system.

2. Ceiling Fan.

There is sufficient evidence to support McCoy's claims about the bedroom ceiling fan. Coxes' counsel conceded that the ceiling fan was broken. Dana Cox testified that ceiling fans were installed in the house approximately five or six years before the property was sold to McCoy. Six months to a year before settlement, he noticed that one fan would flicker. Dana Cox claimed that he forgot about the fan until the week before settlement. He testified that he told Heather McCoy about the problem and offered to replace the fan. Dana Cox claimed that Heather McCoy rejected the offer, because her husband was a builder and would "take care of all that stuff." Joanna Cox also testified that she was aware that there was a problem with the bedroom ceiling fan.

The evidence shows that McCoy knew the fan was defective before settlement, but did not disclose this fact to the Coxes. The parties dispute whether Dana Cox told Heather McCoy about the ceiling fan, or whether she discovered it on her own before settlement. Regardless, an oral disclosure about the ceiling fan does not relieve the Coxes of their duty under 6 Del. C. § 2572 to disclose all known, material defects to the buyers in writing prior to final settlement. In support of his damage claims, McCoy testified that he bought replacement fans at Home Depot for $ 125 to $ 180 each, but he did not provide a receipt. In addition to the cost of the fan, McCoy is also seeking $ 250 for the installment costs. The fans were installed by a friend who does business as McKee Electric. McCoy was not charged for the fan installation, because the friends routinely exchange services. McCoy testified that McKee Electric usually charges $ 250 to replace a ceiling fan, however, the McKee invoice, dated August 17, 2006, does not break-down the charges to reflect this. McCoy has not satisfied his burden of proving the labor charge for installation of the replacement fan. Accordingly, the Coxes are only ordered to reimburse McCoy $ 125.00 for the cost of the replacement fan. C. Shower Leak and Garage/Bathroom Leaks

The complaint alleges that the Coxes failed to disclose a leak in the shower and failed to disclose that water enters the garage and bathroom after heavy rains. On the Disclosure, the Coxes answered "no" to item 40, "Does the property have standing water in front, rear or side yard more than 48 hours after a heavy rain?" and item 79, "Are there any leaks, backups, or other problems relating to any of the plumbing, water and sewage related items?"

1. Shower Leak.

Dana Cox testified that the shower pan in the master bath leaked two years before the property was sold. The shower would leak from the steel pan around the drain down to the garage. Dana Cox fixed the problem himself by removing the old steel pipe from the drain and replacing it with PVC pipe. Dana Cox testified that he did not have any further problems with the shower pan. Joanna Cox also testified that in the twelve months before settlement, the shower did not leak.

Heather McCoy, however, testified that she discovered the shower leak on the day after settlement. When taking a shower in the master bathroom, water leaked into the basement. Heather McCoy also testified that she never asked the Coxes about the shower leak, which has not been repaired to date. Shaun McCoy's testimony was not consistent with his wife's testimony. Shaun McCoy testified that he first noticed the leak while he was walking around the property as the Coxes were moving out. Shaun McCoy claimed that he asked Dana Cox about the leak, and Cox explained that he tried to fix the problem with liquid weld and thought the problem was resolved. Dana Cox testified, however, that the shower did not leak at the time of settlement, and he was never advised about the leak.

In support of the damages caused by the shower leak, McCoy submitted an estimate from James Scalia Plumbing Heating, Inc., dated August 30, 2006. Scalia's estimate of $ 3,600 for labor and materials includes removing the old tile shower, installation of a new vinyl shower pan and two new shower faucets, and upgrading the drain pipe that does not meet the code requirements.

McCoy has not satisfied his burden of proving that the Coxes knew, but failed to disclose, that the shower pan leaked before or at the time of final settlement. A buyer cannot bring a cause of action for material defects that occur after final settlement. The Coxes' testimony was consistent. They admitted that there was a leak, which was corrected, but they had not experienced a recurrence for at least a year before settlement. The McCoys' testimony was inconsistent as to when they discovered the leak, and whether they advised the Coxes of the problem. Heather McCoy testified that she found the leak on the day after settlement, but the Coxes were not notified. Shaun McCoy's testimony on this point is not compelling. He claims that he told Dana Cox about the leak on the day the Coxes moved out. A reasonable buyer, however, who discovers a leak on the day of settlement, would bring it to the attention of the seller and demand the seller remedy the problem or escrow money to remedy the problem. There is no evidence that Shaun McCoy discussed a means of redressing the problem with Dana Cox.

Finally, the estimate from the plumber does not support a finding that the leak existed prior to final settlement. There is no testimony from the plumber regarding the cause of the leak or when it originated. Moreover, the estimate is dated August 30, 2006, over three years after final settlement. The delay in obtaining the plumbing estimate coupled with the McCoys' testimony does not support the argument the Coxes knew about the leak prior to settlement but failed to disclose it.

2. Garage/Bathroom Leaks.

At trial, Shaun McCoy testified that he first noticed the leak in the basement bathroom and garage during heavy rains. Shaun McCoy stated that someone purposely drilled two holes in the toe kick underneath the bathroom vanity to drain and divert the water to a drain in the center of the laundry room/bathroom floor. Prior to settlement, Heather McCoy visited the property on several occasions. Heather McCoy testified that she visited the property prior to settlement while it was raining. She did not testify that she noticed water leaking in the bathroom or garage. On that visit, she observed Dana Cox mopping the basement floor, and presumed he was doing housework. At trial, Heather McCoy suggested that Dana Cox was actually mopping up a leak.

Dana Cox conceded that, five years before final settlement, he had an issue with the French drain on the front wall of the house. Dana Cox explained that the previous owner installed the French drain, which consisted of a plastic tract that was glued to the bottom of the block wall. Holes were drilled into the block wall, so water could drain through the walls into the plastic track to the sump pump. On one occasion, the French drain overflowed with water when the holes became clogged with mud. Dana Cox rectified the problem by removing the mud from the holes, and never had an other problem. Other than the shower pan in the master bathroom, Dana Cox denied having any leaks in any other bathroom of the house. Dana Cox testified that there was no mud or water coming out of the holes in the bottom of the vanity at the time of settlement. He also denied ever mopping water after heavy rains. Dana Cox admitted that he did not disclose the French drain issue, because the problem was corrected five years earlier.

Shaun McCoy testified that the corrected the leak in the basement bathroom by digging up the front walk, installing stone, and a drainage pipe. He also coated the foundation around the house. As a general contractor, Dana Cox stated that he would have charged a client between $ 15,000 and $ 20,000 for the six days spent repairing the bathroom leak. Although the bathroom/laundry room leak has been repaired, Shaun McCoy testified that the garage leak remains a problem.

McCoy has failed to prove that the Coxes knew that the basement bathroom and garage leaked at the time of final settlement. The only evidence presented was conflicting accounts of whether Dana Cox was mopping the bathroom floor while it was raining when Heather McCoy was visiting the property before final settlement. Although Dana Cox admitted that, five years earlier, there was a clog in the French drain that caused the water to overflow in the laundry room (which he corrected by removing the mud from one of the drain holes), this sole incident is not tantamount to a material defect, pursuant to 6 Del. C. § 2572.

D. Breach of the Implied Covenant of Good Faith and Fair Dealing.

JUDGMENT IS ORDERED AS FOLLOWS:

2. As to the claims for damages to the electrical system of the property, in favor of defendants, William Dana Cox and Joanna L. Cox, and against plaintiff, Shaun D. McCoy.

3. As to the claims for damages to the ceiling fan in the master bedroom, in favor of plaintiff, Shaun D. McCoy, and against defendants, William Dana Cox and Joanna L. Cox, in the amount of $ 125.00.

4. As to the claims for damages to the shower pan, in favor of defendants, William Dana Cox and Joanna L. Cox, and against plaintiff, Shaun D. McCoy.

5. As to the claims for damages to the bathroom and garage caused by flooding after heavy rain, in favor of defendants, William Dana Cox and Joanna L. Cox, and against plaintiff, Shaun D. McCoy.

SO ORDERED this ___ day of June, 2007.