STEVEN NEWMAN et al. v. FREDERICK ARENSTEIN and MERYL ARENSTEIN

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4624-04T54624-04T5

STEVEN NEWMAN and

VANESSA NEWMAN,

Plaintiffs-Appellants,

v.

FREDERICK ARENSTEIN and

MERYL ARENSTEIN,

Defendants-Respondents,

and

LEON RUSSELL and HOME

INSPECTION SERVICE, INC.,

Defendants.

______________________________________

 

Argued February 14, 2006 - Decided March 9, 2006

Before Judges C. S. Fisher and Yannotti.

On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. ESX-L-10420-03.

Andrew R. Turner argued the cause for appellants.

William J. Pinilis argued the cause for respondents (Pinilis Halpern, attorneys; Mr. Pinilis, of counsel; Adam Zipkin, on the brief).

PER CURIAM

Plaintiffs Steven Newman and Vanessa Newmann appeal from an order entered April 18, 2005 granting summary judgment in favor of defendants Frederick Arenstein and Meryl Arenstein and an order entered April 27, 2005 denying plaintiffs' motion for partial summary judgment. We affirm in part, reverse in part and remand for trial.

I.

This action arises from the sale by the defendants of their home to plaintiffs. The house was built in 1927 and damaged in 1971 by fire. Defendants purchased the home in 1986 after having obtained a report dated December 2, 1985 by Lamson Home Inspections (Lamson). The report stated in part that the "[a]ttic had been affected by fire and appropriate structural repairs had been made to rafters and roof decking." The Lamson report noted that in the basement

[s]ome floor joist[s] have sagged probably due to exposure to intense heat and application of water to suppress fire and smoldering and this deflection then permanently set as wood dried and cooled. As in attic, all structural members in basement have been painted to suppress odor from smoke. No sign of additional recurrent or structural deterioration visible at inspection.

The report also stated that "it can only be assumed" that when the repairs were made, "all work was properly done and inspected according to town building regulations." Moreover, some structural members had deteriorated because of charring "to various degrees" and more "severely affected" structural members "had been repaired and replaced by installation of new members."

In connection with the sale of their home, defendants completed a "Seller's Property Disclosure Statement" dated January 12, 2003 (the Disclosure Statement), which states in pertinent part, "This Statement discloses Seller's knowledge of the condition of the property as of the date signed by Seller and is not a substitute for any inspections or warranties that Buyer may wish to obtain." The Disclosure Statement includes a series of questions, which are to be answered either "Yes" or "No." Question 6(b) asks, "Are you aware of any past or present movement, shifting, deterioration, or other problems with walls, foundations, or other structural components?" Defendants checked "No" in responding to this question.

Defendants and plaintiffs entered into a contract dated January 14, 2003 for the sale of the property to plaintiffs at a price of $257,500. Paragraph 5 of the agreement states:

HOME INSPECTION: The Buyer may, at the Buyer's expense, have the property inspected by an engineer, builder or home inspector to determine the presence of any structural defects or environmental contaminants and to determine that all electrical, plumbing, heating, sewer/septic, well, and central air conditioning (if applicable) systems are in working order and need no major replacements or repairs. If the Buyer chooses to have the inspection, the inspection must be completed and the Seller notified of the results, within ten calendar days of the date of this Contract, otherwise the Buyer waives his rights under this paragraph. If any structural defects or environmental contaminants are found, or if all the aforementioned systems are not in working order or are in need of major replacements or repairs, Seller will be given ten calendar days after receipt of the report to notify the Buyer whether or not the Seller agrees at his own expense to correct the structural defect, remove the contaminants, put the aforementioned systems in working order and make all needed major replacements or repairs, or the Buyer may cancel this Contract. The Buyer, however, at [Buyer's] option may waive the results of the inspection in writing, and this Contract shall be binding.

In addition, paragraph 23 states the following in respect of the buyer and seller representations:

The agreement is entered into upon the knowledge of the parties as to the value of the land and whatever buildings are upon the same, and not on any representations made as to the character or quality. Unless otherwise indicated in this agreement, all representations and/or statements made by the Seller or Broker shall not survive Closing of Title. This means that the Seller and Broker do not guarantee the condition of the premises after the Deed and Affidavit of title have been delivered to the Buyer at the Closing.

Plaintiffs retained Home Inspection Service, Inc., (HIS), to inspect the property and Leon Russell (Russell) performed the inspection. The inspection report notes that the front roof was sagging, which could have been caused "by rafter spread and several other conditions." The floor in the master bedroom is "soft in spots and in need of major maintenance." The report states that plaintiffs should consult with a flooring contractor about this problem. There was no mention in the report of any damage to the structure from a previous fire.

By letter dated February 25, 2003, counsel for the plaintiffs wrote to defendants' attorney and requested that defendants repair certain deficiencies identified in the HIS inspection report. The parties thereafter agreed that defendants would undertake the treatment of any termite infestation and they would return $3,500 to plaintiffs in full satisfaction of any obligations defendants had under the report.

The agreement was confirmed in a letter dated March 6, 2003, from counsel for defendants to plaintiffs' attorney. The letter states in pertinent part that plaintiffs would accept the house "as is" and defendants would not be responsible for the repair or remediation of any defects affecting the property other than those specifically identified. The letter also states, "Without limiting the generality of the foregoing, [plaintiffs] accept any and all conditions and potential conditions set forth on the inspection report."

Closing of title took place on April 1, 2003. After the closing, plaintiffs began to clean the property. According to their answers to interrogatories,

it was determined the roof was burned, the walls, basement, and support beams exhibited severe water damage. Plaintiffs found damage to the living room, hall, and dining area, together with plywood and exterior wood shingles covering what appeared to be water damage to the floors, and concealing damage to the beams in the referenced floor areas.

In addition, in front of the upstairs bedroom there was a one-half inch covering of plywood which concealed a five-inch gap between the front wall and the floor. Under the said gap, there [were] "old chunks" of burned wood. The floor plate and studs were burned.

An examination of the attic, and scraping of the white paint in the attic, revealed the rafters were burned and debris was left between the ceiling joists.

On May 9, 2003, plaintiffs brought an action in the Special Civil Part against Russell, HIS and defendants. Plaintiffs alleged that Russell had been hired to inspect the house but he did a "poor job" and missed certain "visible" fire damage. Plaintiffs additionally alleged that defendants had not disclosed the fire damage and, if plaintiffs had been "told the truth," they would not have bought the house.

On plaintiffs' motion, the court entered an order on January 23, 2004 transferring the matter to the Law Division and permitting plaintiffs to amend their complaint. In the amended complaint, plaintiffs asserted claims of fraud and breach of contract against defendants. In addition, plaintiffs asserted negligence and breach of contract claims against Russell and HIS.

Plaintiffs obtained a report dated January 8, 2004 from ME Consulting Engineers, P.C. (MECE). The MECE report states that the fire in 1971 appeared to have originated in the basement and traveled up through the front exterior of the house to the attic and the roof. The wood structure had been damaged and had not been properly repaired. The MECE report states that the full extent of the damage was not completely known "as most of the framings are concealed by roofing, ceilings, sheet rocks and other finishing materials." However, the roof rafters, attic joists, the timber supporting the roof rafters, and wooden roof shingles had been "severely damaged" in the fire.

The MECE report additionally states that the attic joists were not completely visible but a "small portion" of the joists could be seen near the exterior front wall and they showed fire damage. The report states that the old roofing had been damaged in the fire but the damaged shingles had been "improperly" left in place and were supporting a new roof installed above. In addition, a few floor joists were partially visible at the front side of the second floor master bedroom and these showed severe fire damage. New joists had been added by plaintiffs to reinforce the damaged joists. Joists on the first floor also had been reinforced. A joist at the front bay was "severely cracked" and there were "visible excessive floor deflections" on the first and second floors. The report concludes, "The condition of the framing is found to be structurally unsound, undermining the structural integrity of the building."

Plaintiffs also obtained a report dated October 11, 2004 from Shupenko Engineering, Inc. (Shupenko). This report was apparently intended to respond to a report by Extended Warranties of New Jersey (EWNJ) dated August 11, 2004, which stated that the black char marks on the wood from the 1971 fire had been painted over and were not visible when HIS made its inspection. The Shupenko report states, however, that "areas of fire damage were readily visible during the home inspection and should have been reported on." The EWNJ report also stated that someone had dug into the wood and scratched the surface in many areas "to make the fire damage visible." The Shupenko report disputes this finding "since the site evidence does not support it."

Defendants moved in the trial court for summary judgment, arguing there was no basis for the fraud claim because defendants had disclosed to plaintiffs all material facts concerning the property. In his supporting certification, Frederick Arenstein asserts that he and his wife were aware that the home had been damaged by fire before they purchased the property in 1986. According to Frederick, their inspector did not give them any indication that any structural damage had resulted from the fire. He stated:

My wife and I lived in the house for 17 years. We raised our children in the House. The fire and repairs from 1971 were never an issue for us, although in the attic damage from the fire remained clearly visible. We never had any indication that there were any structural issues with the House.

Frederick also stated that when he and his wife decided to sell the house, they filled out the Disclosure Statement "completely and honestly." He added:

The Disclosure Statement did not ask any questions about fires or fire damage. On the question related to structural damage, my wife and I stated that there was none, which was true to the best of our knowledge, information and belief. Other than Plaintiffs' allegations in this lawsuit, we have never been advised of or seen any structural damage in the House.

Plaintiffs cross-moved for partial summary judgment. They asserted that they were entitled to a finding of liability against defendants based on their failure to disclose the latent defect. They also sought a finding that Russell and HIS had been negligent in the inspection of the property.

The judge heard argument on the motions on April 18, 2005 and ruled from the bench. The judge granted defendants' summary judgment motion. He stated:

The seller would be liable, if the seller knows of a latent defect and then doesn't reveal it. There's nothing to show that that's the situation which occurred here. Simply the fact that there may have been a fire itself, was something which I think was - is indicated by all the inspection reports. That in and of itself, was readily observable. But there's nothing to show that [defendants] knew or had any reasons to know that any damage from the fire was anything at all extensive, which would have material affect [on] the value.

The judge also denied plaintiffs' motion respecting the claims against Russell and HIS. An order was entered on April 18, 2005 granting defendants' motion for summary judgment, and on April 27, 2005 an order was entered denying plaintiffs' motion for partial summary judgment. Plaintiffs thereafter settled their claims against Russell and HIS, and this appeal followed.

II.

Under our court rules, summary judgment shall be granted if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. R. 4:46-2(c). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." Ibid. A genuine issue of material fact does not exist if there is "a single, unavoidable resolution of the alleged disputed issue of fact. . . ." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995)(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 2511, 91 L. Ed. 2d 202, 213 (1986)). When reviewing an order granting summary judgment, we apply the same standard. Prudential Property Ins. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

We are satisfied that the judge correctly granted summary judgment to defendants on plaintiffs' breach of contract claim. As we stated previously, defendants agreed to sell and plaintiffs agreed to purchase the property. Defendants lived up to their obligation under the agreement. They transferred title in exchange for payment by plaintiffs. In the circumstances, there is no basis for any claim by plaintiffs that defendants breached the agreement.

We are convinced, however, that the judge erred in granting summary judgment in favor of defendants on the common law fraud claim. To prevail on this claim, plaintiffs must establish that: 1) defendants made a material misrepresentation of a presently existing or past fact; 2) with knowledge or belief as to its falsity; 3) intending that the other party rely upon the material misrepresentation; 4) the other party reasonably relied thereon; and 5) plaintiff was damaged. Gennari v. Weichart Co. Realtors, 148 N.J. 582, 610 (1997) (citing Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624-25 (1981)).

In the sale of real estate, deliberate concealment of a latent defective condition that is material to the transaction is sufficient to justify rescission of the contract and may permit the recovery of monetary damages. Correa v. Maggiore, 196 N.J. Super. 273, 281 (App. Div. 1984)(citing Weintraub v. Krobatsch, 64 N.J. 445 (1974)). However, to support a claim of deliberate concealment, "the defective condition must be latent and not reasonably observable to the purchaser." Ibid. (citing Weintraub, supra, 64 N.J. at 455-56). In addition, the non-disclosure must relate to a matter that is "significant." Ibid. "Minor conditions which ordinary sellers and purchasers would reasonably disregard as of little or no materiality in the transaction would clearly not call for judicial intervention." Ibid. (citing Weintraub, supra, 64 N.J. at 455).

Notwithstanding defendants' assertions to the contrary, there is a genuine issue of material fact as to whether the alleged structural defects in defendants' home were "latent and not reasonably observable to the purchaser." Ibid. (citing Weintraub, supra, 64 N.J. at 455-56). Defendants maintain that the fact that the house had been affected by fire was readily observable. However, there is a genuine issue of material fact as to whether the alleged structural flaws resulting from the 1971 fire were all readily observable at the time the property was sold. Plaintiffs assert that the fire caused extensive structural damage to the roof, the attic, the second floor bedroom and on the first floor. There is evidence to support plaintiffs' claim that, even if some fire damage was exposed, not all of the alleged structural damage was visible.

For example, the MECE report notes that a new asphalt roof had been installed over the wooden shingles and sheathing damaged by the fire. Furthermore, according to the MECE report, the attic floor or ceiling on the second floor had to be removed so that attic joists could be inspected for structural damage. In addition, plywood had been installed over charred wood in the second story master bedroom. The floor was carpeted. Although a few floor joists were "partially visible" at the front side of the bedroom and these showed "severe" fire damage in some locations, the full extent of the damage to the second story was not visible.

Thus, even if some of the fire damage was observable, the record contains evidence which establishes that some of the structural damage may have been concealed from view. Some of the damage was beneath the new roof, under plywood, carpeted over or covered with sheetrock.

There also is a genuine issue of material fact as to whether defendants had knowledge of the alleged structural defects when they placed the home on the market. As we pointed out previously, defendants asserted in their Disclosure Statement that they were not aware of any "problems" with the "walls, foundation or other structural components" of the house. Defendants admit they were aware of the fire. Defendants contend, however, that they were not aware of any significant structural damage to the house when it was sold to plaintiffs.

In support of this contention, defendants rely upon the Lamson report which indicates that after the fire, certain structural repairs had been made. But the Lamson report states, "It can only be assumed that when repairs had been made by [the] insurance carrier, that all work was properly done and inspected according to town building regulations." The report additionally states that "Conditions in concealed areas could not be inspected." Thus, the Lamson report merely assumes that all structural repairs had been properly made and explicitly states that "concealed" areas had not been inspected. The report therefore does not establish that, when the home was sold to plaintiffs, it was without significant structural defects.

In addition, there is evidence from which a reasonable fact finder could infer that defendants knew that there were structural flaws in the home. Defendants had a new roof installed in 2002 and the new roof was installed over the burned wooden shingles. The HIS report states that the floor in the second floor bedroom was "soft in spots and in need of major maintenance." The floor had been covered with plywood and carpeting. Defendants also were aware that charred wood had been painted over with white paint. We emphasize that the evidence must be viewed in a light most favorable to the party opposing the motion for summary judgment. Brill, supra, 142 N.J. at 540.

Relying upon Byrne v. Weichert Realtors, 290 N.J. Super. 126 (App. Div.), certif. denied, 147 N.J. 259 (1996), defendants argue that the judge correctly granted summary judgment in their favor because plaintiffs obtained an independent inspection when they purchased the home. We disagree.

In Byrne, we noted that when a party undertakes an independent investigation and then relies upon it, the party cannot be said to have relied upon any alleged material misrepresentation related to the subject matter of that investigation. Id. at 137 (citing Golden v. Northwestern Mut. Life Ins. Co., 229 N.J. Super. 405, 415 (App. Div. 1988)). Although the plaintiffs in Byrne had obtained their own inspection of the termite damage, we refused to dismiss plaintiffs' common law fraud claim because there was a genuine issue of material fact as to whether plaintiffs had relied upon their own investigation or upon the alleged assurances by the seller and listing agent that the damage was minimal. Ibid. Here, as in Byrne, there is a genuine issue of material fact as to whether plaintiffs relied upon defendants' failure to disclose the structural damage in the property or whether they relied upon their own inspection. Thus, defendants' reliance on Byrne is misplaced.

Defendants also argue that the judge properly granted summary judgment in their favor because after plaintiffs obtained the HIS inspection report, they agreed to accept $3,500 to make certain repairs and further agreed to accept the house "as is." The letter confirming the agreement between the parties states that, except as otherwise agreed, defendants "shall not be responsible to repair or remediate any defects affecting the property." Defendants contend that the agreement bars any claim relating to alleged structural defects in the premises. Again, we disagree.

Generally, when the term "as is" is used in connection with the sale of realty, it means that the purchaser is "acquiring real property in its present state or condition." K. Woodmere Assocs., L.P. v. Menk Corp., 316 N.J. Super. 306, 316 (App. Div. 1998)(citations omitted). "The term implies real property is taken with whatever faults it may possess, and that the grantor is released of any obligation to reimburse purchaser for losses or damages resulting from the condition of the property conveyed." Id. at 317. However, the principle assumes that the seller has satisfied its duty to disclose all latent defects that are not readily observable by the purchaser. In this case, plaintiffs allege that defendants breached this duty. In the circumstance, the "as is" clause is not a bar to plaintiffs' common law fraud claim.

In sum, we are convinced that the judge erred in granting summary judgment in favor of defendants. Because there are genuine issues of material fact as to whether the defects in the premises were latent defects and whether defendants were aware of any such defects, summary judgment should not have been granted. For essentially the same reasons, plaintiffs were not entitled to partial summary judgment on their common law fraud claim.

Therefore, we affirm the entry of summary judgment in favor of defendants on the contract claim and the denial of plaintiffs' motion for partial summary judgment. We reverse the summary judgment entered for defendants on plaintiffs' fraud claim and remand for trial.

Affirmed in part, reversed in part and remanded for trial. We do not retain jurisdiction.

 

(continued)

(continued)

18

A-4624-04T5

March 9, 2006