Opinion
2007-1603.
Decided April 4, 2011.
LEVENE, GOULDIN THOMPSON, LLP, BY: GARY W. FARNETI, ESQ., OF COUNSEL, BINGHAMTON, NY, COUNSEL FOR PLAINTIFFS.
THE LAW OFFICE OF ALFRED PANICCIA, JR., BY: ALFRED PANICCIA, JR., ESQ., OF COUNSEL, BINGHAMTON, NY, COUNSEL FOR DEFENDANT.
Plaintiffs, Brian Morgan and Brenda Morgan, commenced this action against defendant Thomas Silvestri for breach of contract, fraudulent inducement, and fraudulent misrepresentations in a Property Condition Disclosure Statement with regard to the sale of real property.
This matter was tried before the court without a jury on August 9 and 10, 2010. Thereafter, the parties requested and were granted permission to submit post-trial submissions.
BACKGROUND
The real property involved in this action is located at 353 Twist Run Road in the Town of Union, State of New York. In March 2003, defendant purchased the property for about $18,000 which originally consisted of an old two story farmhouse. In April 2003 defendant purchased a vacant lot adjoining the farmhouse. Thereafter, defendant combined the parcels resulting in a single piece of property approximately 1 acre in size (hereinafter "Subject Property"). Defendant purchased the Subject Property with the goal of remodeling and selling the premises.
In April of 2003 defendant received a building permit from the Town of Union and over the next seven months began major reconstruction of the Subject Property. The reconstruction included, but was not limited to the additions of an attached two-car garage, a master bedroom suite, gutting and remodeling the bathrooms and bedrooms on the second floor, the living room, family room and bathroom on the first floor, as well as putting on a new deck, adding new heating, plumbing and electrical systems, installing new windows and doors, and new roofing and siding. Most importantly, however, to this litigation is the fact that defendant converted an existing sunroom/front porch on the first floor and constructed a kitchen and dining area in its place.
On December 2, 2003, plaintiffs entered into a contract to purchase the Subject Property from defendant (hereinafter the "Contract"). The parties' contract contained the standard contingency making purchase under the Contract subject to a satisfactory inspection of the Subject Property by a qualified inspector of the plaintiffs' choosing. On December 3, 2003, defendant signed the Property Condition Disclosure Statement (hereinafter "PCDS") as required by Real Property Law § 462 which was then signed by plaintiffs on December 4, 2003.
Thereafter, pursuant to the Contract, plaintiffs arranged for the inspection of the Subject Property by Enviro Testing of Binghamton, New York. Dennis Cole of Enviro Testing inspected the Subject Property and issued a written report dated December 13, 2003 (hereinafter "Inspection Report"). The Inspection Report listed, in pertinent part, the following observations by Mr. Cole:
1. Foundation. Mr. Cole checked the boxes marked "masonry block", "partially visible", and "not visible" and included a handwritten note "limited view at crawl/areas". Under the "comments" section, Mr. Cole wrote "Areas viewed appeared satisfactory."
2. Beams. Mr. Cole checked the boxes marked "wood" and "enclosed/not visible" and included a handwritten note stating "unable to view at crawl area."
(Inspection Report, p 9).
The cover letter from Enviro Testing transmitting the Inspection Report to plaintiffs further advised "hidden or concealed defects cannot be addressed in this report".
Plaintiffs admit to receiving this letter and Inspection Report. Plaintiffs took no further action with respect to the Inspection Report and proceeded to close on the Subject Property without any further inspection of those areas to which the inspector had noted he had either no view or a limited view.
On February 13, 2004, the parties held the closing and the Subject Property was transferred to plaintiffs.
Within a year and a half after the closing, plaintiffs testified they began to see cracking in the kitchen ceramic floor tiles, sheet rock separation in the kitchen, nail popping, as well as warping of the kitchen floor, particularly along the base of the kitchen cabinets. Plaintiffs testified that these defects were limited to the front of the house at the point where the old sunroom/front porch had adjoined the original frame of the old farmhouse.
Plaintiffs testified that they called a friend who was a contractor to assist them in determining the origin of these problems. Upon further inspection of the cellar area, plaintiffs noticed that a cinder block wall did not meet the kitchen floor joist and that there was a gap of several inches between the top of the cinder block wall and the kitchen floor joist. In other words, the cinder block wall was supporting nothing. Rather, the cinder block wall simply blocked off an area beneath the addition that defendant had constructed. Plaintiff testified that he removed some of the cinder blocks and moved back some plastic sheathing that had been hung from the floor joist behind the wall to allow him to see the underside of the addition. Plaintiff testified that this was the first time he learned that there was no new foundation under the kitchen addition, but simply an old concrete slab sitting on a dirt mound. Upon this discovery, plaintiffs promptly called Enviro Testing, their original home inspection company.
In response, Enviro Testing sent the original inspector, Dennis Cole, to revisit the Subject Property to perform an inspection of the areas behind the cinder block wall. Mr. Cole testified that he did not notice the gap at the top of the cinder block wall when he originally inspected the house in 2004, although conceding that nothing prevented him from doing so at that time. Mr. Cole testified that upon reinspection, he found potentially serious foundation defects under the new kitchen relating specifically to the manner in which the floor joists had originally been installed under the old sunroom/front porch prior to even defendant's ownership. Thereafter, plaintiffs commenced this litigation against defendant alleging that due to the absence of any appropriate foundation beneath the kitchen and dining area of the home (the former sunroom/front porch), the house was settling, cracking, shifting and twisting. Plaintiffs then sued defendant for breach of contract, fraudulent inducement, and fraudulent misrepresentations based upon their allegations that defendant had knowledge of the defective conditions and deliberately built "a false wall" — the cinder block wall — to conceal said conditions.
DISCUSSION
I. BREACH OF CONTRACT
There are four elements of a breach of contract action, namely: "(1) formation of a contract between plaintiff and defendant; (2) performance by plaintiff; (3) defendant's failure to perform; and (4) resulting damage [citation omitted]" ( Clearmont Prop., LLC v Eisner, 58 AD3d 1052, 1055 [3rd Dept 2009]). The court notes that generally separate causes of action for fraud cannot stand when the only fraud alleged relates to a breach of contract ( Egan v New York Care Plus Ins. Co., 277 AD2d 652, 653 [3rd Dept 2000]). However, where, as here, plaintiffs' allegations include intentional fraud, then such causes of action are not redundant of the breach of contract claim ( RKB Enters. v Ernst Young, 182 AD2d 971, 972 [3rd Dept 1992]).
Here, plaintiffs' allege that defendant failed to perform under the Contract to the extent that the PCDS did not accurately reveal the condition of the Subject Property. However, the court finds that pursuant to the parties' Contract, plaintiffs were entitled to a satisfactory inspection of the premises by a qualified inspector of the their own choosing. In accordance with their contractual right, plaintiffs arranged for an inspection of the Subject Property by Enviro Testing which performed an inspection and issued an Inspection Report to plaintiffs. The Inspection Report expressly stated that the inspector had no view or a limited view of those features relating to the foundation and the crawl spaces and specifically warned plaintiffs that no opinion could be rendered regarding the structural integrity of those unseen areas. Nevertheless, without any further inspection and/or inquiry, plaintiffs elected to proceed to close on the Subject Property. Moreover, the court notes that Enviro Testing and its inspector clearly missed the gap at the top of the cinder block wall in the basement which was open and obvious at the time of inspection.
The court cannot speculate on why Enviro Testing was not a named party to this action and makes no determination as to whether they should have been.
Plaintiffs had the contractual right, if they so chose, to insist upon further inspection or to refuse to proceed to closing based upon the limitations identified in the Inspection Report. Unfortunately, plaintiffs did neither. Stated another way, the inspections that were performed by plaintiffs experts in preparation for this litigation could have and should have been done prior to their purchase of the Subject Property in the first instance. In short, the failure of plaintiffs' agent to properly perform these inspections in the first instance and the failure of plaintiffs to further investigate the unseen areas prior to purchase does not equate to a breach by defendant of any contractual obligation to plaintiffs.
Based upon the foregoing and the credible evidence presented to the court, the court finds that plaintiffs have failed to sustain their breach of contract action against defendant.
II. FRAUDULENT MISREPRESENTATION
Plaintiffs second and third causes of action alleged fraud in the inducement and fraudulent misrepresentation. The elements of cause of action for fraud in the inducement are the same as those for fraudulent misrepresentation, thus the court will address the second and third causes of actions simultaneously ( Urstadt Biddle Props., Inc. v Excelsior Realty Corp. , 65 AD3d 1135 [2nd Dept 2009]). Thus, the elements of a fraudulent misrepresentation claim are that: (1) defendant made a material false representation; (2) defendant intended to defraud the plaintiffs thereby; (3) plaintiffs reasonably relied upon the representation; and (4) plaintiffs suffered damage as a result of their reliance ( Gizzi v Hall, 300 AD2d 879, 880 [3rd Dept 2002]). The burden of proof on these elements is by clear and convincing evidence ( Simcuski v Saeli, 44 NY2d 442, 452). Consequently, plaintiffs are put to a substantially greater burden of proof than the preponderance of the evidence standard. Rather, plaintiffs must establish evidence with clear and convincing proof that it is highly probable that what plaintiffs claim happened, actually did ( Szpakowski v Shelby Realty, LLC, 15 Misc 3d 1146[A], 2007 NY Slip Op 51186[U], lv dismissed 48 AD3d 268 [1st Dept 2008]; lv denied 12 NY3d 708). Thus, applying the facts of this case to the applicable standard of proof outlined above, plaintiffs needed to establish at trial by clear and convincing evidence that defendant had actual knowledge of the alleged defects existing under the kitchen area of the Subject Property and deliberately misled them with respect thereto. Mere constructive knowledge of an alleged defective condition does not suffice ( Meyers v Rosen , 69 AD3d 1095 , 1097 [3rd Dept 2010]; Real Property Law §§ 461 462 [2]).
The primary focus of plaintiffs fraud based claims are based upon defendant's answers to the PCDS. It is undisputed that a PCDS is designed to protect home buyers by providing a standard set of questions and responses from which a buyer may conclude whether or not any potential problems or issues exist in the structure they are contemplating purchasing. Here, defendant represented in both the PCDS and the Contract that there existed no "known material defects" with the foundation or other structural systems of the Subject Property.
Plaintiffs allege that defendant knew or should have known that there were material structural defects in the flooring and foundation at the time he signed the PCDS. Plaintiffs argue that defendant was an experienced tradesman and contractor and that he knew what type of foundation would be necessary to avoid separation, settling and heaving. Plaintiff further allege that defendant knew how the actual floor joist system was installed underneath the existing sunroom and that untreated lumber had been used. Thus, plaintiffs claim that when defendant signed the PCDS he was well aware of the structural defects and deliberately lied to them in that regard on the PCDS.
At best, however, the court finds that plaintiffs have produced circumstantial and equivocal evidence from which they claim the court should find that defendant had actual knowledge of these alleged defective conditions. Essentially, plaintiffs are asking this court to find that defendant must have had actual knowledge of the defective condition otherwise he would not have built the cinder block wall — false wall — in the basement. Plaintiffs argue that defendant's construction of the false wall was proof of his active concealment of defective conditions and demonstration of defendant's nefarious motives.
The court is mindful of defendant's testimony outlining his experience in the construction industry, having bought and sold more than 11 different homes under similar circumstances.
However, the court found defendant's testimony to be credible when he stated that when he purchased the Subject Property there was a wall of dirt separating the two levels. Defendant explained that he built the cinder block wall in front of the dirt wall for aesthetic reasons merely to hide the unsightly dirt wall, which is why he built the wall to reach only as high as the top of the existing dirt wall located behind the cinder block wall. Furthermore, defendant explained that the cinder block wall did not conceal any more of the original foundation than was already concealed by the dirt wall. Additionally, defendant testified that it was not necessary for him to modify the floor joists or foundation under the sunroom/front porch in order to construct the new kitchen/dining area. Therefore, defendant testified that he never actually uncovered or examined the kitchen area foundation during renovations.
After weighing all of the testimony at trial, expert and otherwise, the court finds that plaintiffs have failed to demonstrate that defendant had actual knowledge that the condition of the foundation was other than represented on the PCDS. The court finds defendant's testimony credible that the structural elements of the original foundation were not exposed or disturbed by him during the remodeling of the farm house or during the period of time he owned the Subject Property. Thus, the court concludes that when defendant completed the PCDS, he had no actual knowledge of any defects in the foundation or other structural elements of the Subject Property at the area where the kitchen and the dining area are now located. Rather, the court finds that these structural areas were buried below ground level when defendant originally purchased the Subject Property himself and remained so during defendant's reconstruction activities.
Parenthetically, the court notes again that plaintiffs' Inspection Report showed that their own inspector was fully aware of the existing cinder block wall and advised that he could not see beyond it. Ironically, Mr. Cole now acknowledges that while he warned that he could not see beyond the cinder block wall, he failed to observe that there was a gap at the top of the cinder block wall at the time of his original inspection. Clearly, had Enviro Testing done a more detailed inspection — noticing the gap at the top of the cinder block wall — then it would have alerted Mr. Cole to conduct additional inspections about what lay behind that wall. That having been said, however, Enviro Testing clearly and expressly warned plaintiffs in their Inspection Report that the inspector could not see certain areas and therefore could not warrant the structural integrity of those unseen areas.
In sum, the court finds that plaintiffs have failed to establish by clear and convincing evidence that defendant had actual knowledge of any defects in the foundation at the time he sold the Subject Property. Based upon the foregoing and the credible evidence presented to the court, the court is satisfied that plaintiffs herein are unable to sustain their causes of action for fraudulent misrepresentation and/or fraudulent inducement.
CONCLUSION
In view of the foregoing, the complaint is hereby dismissed.