Opinion
No. CV 04 0199611
April 12, 2005
MEMORANDUM OF DECISION ON DEFENDANTS' MOTION TO STRIKE COUNTS ONE AND TWO ( #109.00)
This residential purchase matter raises the question of whether the written buy-sell agreement can foreclose seller's liability for negligent misrepresentation as of the upcoming closing date despite that the contract itself (as well as a prior disclosure form) contains the allegedly false representation.
The purchasing Daltons have filed a revised three-count complaint against the seller-defendant Dampfs, arising out of a Norwalk home purchase. Plaintiffs allege that on April 13, 2002, they received a signed "Residential Property Condition Disclosure Report" from the sellers. Therein, it was represented that there were no water, seepage, or dampness problems in the basement. Plaintiffs then entered into the sale agreement and purchased the property on May 30, 2002. (This buy-sell agreement itself also represented the absence of water problems. See footnote 9.)
This "report" is a checklist sort of form that commands: "seller is obligated to disclose here any knowledge of any problem regarding the following . . ." Item fifteen is entitled "Basement Water/Seepage/Dampness? Explain amount, frequency and location." Defendants checked "no."
One week after moving in, plaintiffs allegedly became aware of water in the basement. The problem persisted through much of 2003. Plaintiffs claim to have spent a total of $11,654.40 on equipment and contractors in correcting water damage and seepage. Upon notification, the defendants allegedly admitted that in 2001 there had been minor seepage. (Paragraph 20 of Counts one and two). The defendants refused to reimburse the plaintiffs and suit was brought.
Only counts two and three are pertinent to the present motion to strike. In count two, plaintiffs allege defendants negligently misrepresented the absence of water problems and that, in reliance, they were induced into the $815,000 purchase. Count three alleges "innocent" misrepresentation in that defendants made false representations of material fact for the purpose of inducing the purchase.
Count one is a claim of fraud against the defendants, and it is not challenged in this motion to strike.
As noted, defendants have moved to strike counts two and three.
Discussion
The purpose of a motion to strike is to challenge "the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003.) In ruling on a motion to strike, the trial court must "take as true the facts alleged in the plaintiff's complaint and must construe the complaint in the manner most favorable to sustaining its legal sufficiency." Heim v. California Federal Bank, 78 Conn.App. 351, 359, 828 A.2d 129, cert. denied, 266 Conn. 911, 832 A.2d 70 (2003). "If facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Broadnax v. New Haven, 270 Conn. 133, 173, 851 A.2d 1113 (2004). When deciding the motion, "the court is limited to the facts alleged in the complaint." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997). "[G]rounds other than those specified should not be considered by the trial court in passing upon a motion to strike." (Internal quotation marks omitted.) Gaza v. Stamford, 255 Conn. 245, 259, 765 A.2d 505 (2001).
Beginning with count two, defendants argue that a claim of negligent misrepresentation is barred by the contract of sale. They specifically note paragraphs eight and thirty-five, that is, an "as is" clause and a clause which states that all representations made in the contract itself will terminate at closing. Defendant argued at the short calendar that this form contract has been used county-wide. This notion cannot be deemed to carry impact.
The plaintiffs had originally asserted a claim for statutory negligent misrepresentation based on General Statutes § 20-327b, which requires a Residential Property Condition Disclosure Report. Due to the holding in Giametti v. Inspections, Inc., 76 Conn.App. 352, 824 A.2d 1 (2003), which states that § 20-327b does not govern negligent misrepresentation actions, the plaintiffs have conceded that they have no statutory cause of action for negligent misrepresentation.
Paragraph eight: "Condition of Premises [This Agreement is not Subject to any Inspection Contingencies]. The BUYER agrees that he has inspected said Premises, is satisfied with the physical condition thereof and agrees to accept at closing the Premises in their present condition on an "as is" basis, reasonable wear and tear excepted, subject to the provisions of Paragraph 11 hereof . . . Neither SELLER nor SELLER's agents have made any representations or warranties as to said Premises on which BUYER has relied other than as expressly set forth in this Agreement. The SELLER agrees that the condition of the Premises shall be the same on the date of closing of title as of the date hereof, reasonable wear and tear excepted, subject to the provisions of Paragraph 11 hereof."
Paragraph thirty-five: "Representations. Unless otherwise specified in writing to the contrary, none of the representations made in the Agreement or any addenda attached hereto shall survive delivery of the deed and all representations by SELLER are made to the best of SELLER's knowledge and belief.
The court must first weigh the effect, if any, of the "as is" disclaimer on plaintiffs' negligent misrepresentation claim. A claim for negligent misrepresentation must allege that "(1) the defendant made a misrepresentation and (2) the plaintiff reasonably relied upon that misrepresentation." Giametti v. Inspections, Inc., 76 Conn.App. 352, 364, 824 A.2d 1 (2003). "Parties are free to contract for whatever terms on which they may agree. This freedom includes the right to contract for the assumption of known or unknown hazards and risks that may arise as a consequence of the contract." (Internal quotation marks omitted.) Gibson v. Capano, 241 Conn. 725, 730, 699 A.2d 68 (1997). Defendants rely on the Giametti rule and the holding in Gibson.
In Gibson, the plaintiffs purchased a home and later sought to recover damages for misrepresentation regarding the extent of termite damage. The Supreme Court held that the plaintiffs could not prevail on their negligent and innocent misrepresentation claims, as the contract of sale specifically disclaimed any reliance on representations made and the plaintiffs had prior knowledge of the termite infestation. This court studied Gibson to determine whether plaintiffs' foreknowledge was the salient feature of plaintiffs' failure to prevail without any expression of clear tolerance for the contract's language of foreclosure. However, the Supreme Court expressed no such disenchantment, citing broad freedoms to contract.
The present matter, however, is factually distinguishable in the absence of plaintiffs' foreknowledge. Unlike in Gibson, there has here been no defense allegation, even in oral argument, that the plaintiffs had prior knowledge. A similar distinction was made In D'Ambrosio v. Gilbertie, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 03 0401244 (July 7, 2004, Dewey, J.). There, the court denied the defendant's motion to strike the negligent misrepresentation counts. It explained that Gibson was factually distinguishable because the Gibson plaintiffs entered into the contract of sale to purchase the property "as is" with actual knowledge of the defects. "This case [the court noted] differs from Gibson in that the plaintiffs did not have any knowledge of the water problems. Therefore the Gibson holding is not determinative." Id.
Likewise, in Gershberg v. Kean, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket No, CV 99 0174316 (June 10, 2002, D'Andrea, J.T.R.) ( 32 Conn. L. Rptr. 305) the court explained that "[t]he controlling issue before the Connecticut Supreme Court in Gibson was the effect of the written disclaimer accompanied with the plaintiffs' actual knowledge." Id. The court emphasized that the central holding in Gibson was that "a party who purchases property `as is' could not thereafter maintain a claim based on alleged nondisclosure of known facts." (Emphasis in original; internal quotation marks quotation marks omitted.) Id.
In accordance with the well-reasoned cases above, this court holds that an "as is" disclaimer would only negate a negligent misrepresentation claim if plaintiffs had knowledge of the alleged defect. As prior knowledge has not been suggested here, the "as is" disclaimer should not bar plaintiffs' negligent misrepresentation claim on the mere assertion of the Gibson case.
The assessment of count two, however, does not end there. Defendants also contend plaintiffs' claim is defeated by the "death at closing" clause, which essentially states that all representations made in the contract itself shall not survive closing. `While this court recognizes parties' general freedom to contract, as it must pursuant to Gibson, the unique set of facts in this matter and the absence of any Connecticut case law addressing the specific "death at closing" issue raised by defendants, persuades this court to look beyond general freedom to contract notions in making its determination. Accordingly, the court looks to other jurisdictions for guidance.
While none of the foreign cases discussed address the preclusive effect of a "death at closing" clause on a negligent or innocent misrepresentation claim, they do address the effects of so-called merger, integration, or exculpatory clauses. These clauses essentially have the same effect, in that they deny the existence of anything outside the four corners of the agreement and preclude the introduction of any evidence to the contrary. As such, they are relevant to this court's discussion.
In Greenfield v. Heckenbach, 144 Md. App. 108, 797 A.2d 63, cert. denied, 370 Md. 269, 805 A.2d 266 (2002), the Maryland Court of Special Appeals examined an analogous general integration clause that made the contract the entire agreement and stated that the parties could not be bound by any representations not contained therein. Despite the existence of the "escape" clause, the court held that where a general integration clause did not specifically disclaim liability as to certain assurances made by the sellers, parol evidence was admissible in support of the purchasers' tort claims for fraud and negligent misrepresentation. The court based its decision on a "policy of encouraging honesty and candor in contract negotiations." Id., 138. In quoting a passage from a New York Appellate Division decision, it adopted the view that "[a] party to a contract cannot, by misrepresentation of a material fact, induce the other party to the contract, to enter into it to his damage, and then protect himself from the legal effect of such misrepresentation by inserting in the contract a clause to the effect that he is not to be held liable for the misrepresentation which induced the other party to enter the contract." (Internal quotation marks omitted.) Id., 137, quoting Jackson v. State, 210 App. Div. 115, 120, 205 N.Y.S. 658 (1924).
This view also finds support elsewhere. In Formento v. Encanto Business Park, 154 Ariz. 495, 744 P.2d 22 (Ariz.Ct.App. 1987), the court concluded that "[w]here a misrepresentation is fraudulent or a negligent misrepresentation is one of material fact, the policy of finality [of contracts] rightly gives way to the policy of promoting honest dealings between parties." (Internal quotation marks omitted.) Id., 499. The court further noted that a "seller should not be allowed to hide behind an integration clause to avoid the consequences of a misrepresentation whether fraudulent or negligent." Id.
The reasoning of the Maryland and Arizona appellate courts is persuasive. This court agrees that in order to remain consistent with the implied covenants of honesty and fair dealing in contracts, a party cannot induce another to contract by misrepresentation of a material fact, then shield itself from the consequences with a general disclaimer. It is especially so here, where plaintiffs were allegedly induced to enter into the contract of sale and ultimately close based on specific representations made in the actual contract and attached addenda, rather than some precontractual or oral agreement. In such an instance, it would seem rather entirely inequitable for a party to be able to void specific representations made in the same document as a general blanket disclaimer, as occurred here. This court holds the specific nature of the representation and the general nature of the disclaimer, coupled with allegations of defendants' knowledge of the defect render the "death at closing clause" ineffective. The court fully appreciates that there is a temporal distance between the contract and the closing (when the representation is said to disappear). This is not a sufficient factor to alter the court's conclusion, for if a representation contains some power to induce and foster reliance, it should also be seen as likely to deter or deemphasize ongoing skepticism and wariness. Accordingly, the motion to strike as to count two is denied.
The policy of honesty and fair dealing in contracts is commonly accepted and applied in Connecticut as well. On this matter, the Supreme Court has pronounced that "[I]t is axiomatic that the . . . duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship." De La Concha of Hartford v. Aetna Life Insurance, 269 Conn. 424, 432, 849 A.2d 382 (2004).
One can perceive in our somewhat indirectly related jurisprudence a resistence to nonspecific disclaimers of liability, consistent with this opinion's resistence to escape via a generic nullification in the contract. See Hyson v. White Water Mountain Resorts, 265 Conn. 636, 640-42 (2003).
Bar Association Standard Form Residential Real Estate Sales Agreement, the agreement at bar, Paragraph twenty-five. "Basement and Roof: The SELLER represents that during the period of the SELLER's ownership of the Premises, the basement has been free of any water except as disclosed herein, and represents that the roof currently is free of leaks."
The defendants also move to strike count three, a claim sounding in innocent misrepresentation, on the same grounds as the negligent misrepresentation claim. "A person is subject to liability for an innocent misrepresentation if in a sale, rental or exchange transaction with another, [he or she] makes a representation of a material fact for the purpose of inducing the other to act or to refrain from acting in reliance upon it . . . even though it is not made fraudulently or negligently." Gibson v. Cabano, supra, 241 Conn. 703.
In accordance with Gibson v. Cabano, (see also D'Ambrosio v. Gilbertie, supra, Superior Court, Docket No. CV 03 0401244 and Gershberg v. Kean, supra, 32 Conn. L. Rptr. 305) a claim of innocent misrepresentation may survive an "as is" clause if plaintiff is without prior knowledge. This court holds, however, that the "death at closing" clause is sufficient to bar the innocent misrepresentation claim. As a claim of innocent misrepresentation does not involve fraud or negligence, the policy reasons that would favor disregarding a general disclaimer do not exist when the misrepresentation is innocent. In such an instance, the law is better served by the general rule which affirms parties freedom to contract. Defendants' motion to strike is granted as to count three.
NADEAU, J.