Alaface v. National Inv. Co.
| Decision Date | 01 September 1994 |
| Docket Number | CA-CV,No. 1,1 |
| Parties | Domenico ALAFACE (Deceased) and Beatrice Alaface, husband and wife, Angelo Alaface, as Personal Representative of the Estate of Domenico Alaface, Plaintiffs-Appellants, Cross Appellees, v. NATIONAL INVESTMENT COMPANY, an Arizona corporation, Defendant-Appellee, Cross Appellant. 91-0210. |
| Court | Arizona Court of Appeals |
This appeal concerns an action to recover damages that allegedly resulted from misrepresentations made in the sale of a subdivision lot. We hold that (1) appellants' consumer fraud claim is barred by the statute of limitations; (2) the Arizona subdivision reporting statutes apply to appellee, but appellants' remedy under the statutes is limited to rescission; (3) appellee is not liable for the alleged misrepresentations by appellants' agent but it may be liable under a negligent misrepresentation by omission and negligence per se theory; (4) appellants and appellee did not have a fiduciary relationship; (5) appellee is not liable under common law fraud; (6) appellee is not entitled to an award of attorneys' fees under the purchase contract.
In early May 1985, appellants Domenico and Beatrice Alaface ("the Alafaces") contacted Barbara Martin, a sales agent for Prescott Hills Realty and MG Construction Company, in response to an advertisement she had placed regarding lots for sale in the Diamond Valley subdivision in Prescott. 1 The Alafaces were interested in buying a lot on which they could build a house. They received a form letter from Martin regarding cabins to be constructed. The letter represented that water service was available to all of the Diamond Valley lots that Martin had for sale.
When the Alafaces met with Martin, she told them that anyone who bought a lot in Diamond Valley had to contract with MG Construction to build a house on the lot. The broker and owner of Prescott Hills Realty Michael G. Thowson, was also the owner of MG Construction Company. While meeting with the Alafaces, Martin confirmed the representation that water service was available to Diamond Valley lots through a water company.
Because the Alafaces wanted a flat lot, they did not like any of the lots Martin had for sale. In talking with Thomas J. McGilvra, who was also a sales agent with Prescott Hills Realty, Martin learned that National Investment Company ("NIC") owned a lot in Diamond Valley (lot 657) that might meet the Alafaces' requirements and that NIC might be interested in selling the lot. McGilvra and Martin looked at lot 657 together, and Martin then showed it to the Alafaces, who liked the lot. McGilvra then asked Joe Clark, the president of NIC, whether lot 657 was for sale. Clark told McGilvra NIC would sell the lot for $9,500 cash. NIC had acquired the lot through a tax sale and foreclosure.
On May 28, 1985, the Alafaces executed a real estate purchase contract prepared by Martin, offering to purchase lot 657 for $9,500. The Alafaces' offer was contingent upon a favorable "perc" test and "a cabin construction contract with MG Construction Co. within 10 days." The contract provided that 100 percent of the broker's commission would go to Prescott Hills Realty.
McGilvra called Clark and read him the terms of the Alafaces' offer to purchase lot 657 and explained the contingency that the buyers did not want to buy the lot unless they could get a construction contract. Clark accepted the offer and agreed to pay McGilvra a commission. NIC did not sign the purchase contract nor did NIC receive a copy of the contract, but both NIC and the Alafaces executed escrow instructions. Although these instructions contained no contingencies, the Alafaces signed a construction contract with MG Construction on July 8, 1985, gave written instructions to the title company to remove the contingencies from the May 28, 1985, contract, and instructed the title company to close the sale. The sale closed July 9, 1985.
In November 1985, when the Alafaces' cabin was substantially completed, their son, Angelo Alaface, contacted Triangle Development Corporation ("Triangle"), the water company for the subdivision, to apply for water service to lot 657. He was told that water service was not available. The Alafaces later learned that in August 1984, the Arizona Department of Water Resources ("DWR") had concluded that Triangle did not have enough water to service its existing customers and that the situation could be worse in the future because of poor water production and Triangle's inability to drill more wells in the area. They also learned that on July 6, 1985, Triangle sent an alert to all water users in Diamond Valley that there was a severe water shortage in the subdivision. On July 9, 1985, the Prescott newspaper printed an article about the severe water shortage in Diamond Valley and the temporary emergency hookup to the Prescott water system, and the Arizona Department of Health Services ("DHS") ordered Triangle not to issue any new meters due to the seriously overextended water supply in Diamond Valley. The Alafaces did not receive water service to their lot until January or February of 1988.
In the meantime, on June 11, 1987, the Alafaces demanded by letter that NIC rescind the sale of lot 657 due to the misrepresentations concerning the availability of water. In addition to rescission, the Alafaces demanded that NIC pay them $75,900 to return them to the status quo. NIC refused to rescind the contract.
On October 8, 1987, the Alafaces filed a complaint against NIC, Thowson, Martin, McGilvra and the title company. The complaint alleged fraud and misrepresentation regarding Martin's statements that water was available to the lot and that the Alafaces must have MG Construction build the house in order to purchase lot 657. The complaint also alleged that NIC, Thowson, Martin and McGilvra intentionally failed to disclose that lot 657 did not have an adequate water supply and/or system. The complaint further alleged breach of fiduciary duty, consumer fraud, and violation of Ariz.Rev.Stat.Ann. ("A.R.S.") section 32-2181 et seq., which requires notices regarding subdivisions. The Alafaces sought rescission of the contract and reimbursement for purchase of the lot, cabin construction, loss of use of property, loss of interest on monies, and travel expenses. They also sought damages, including punitive damages.
The Alafaces subsequently withdrew their claim for rescission and their RICO claim was dismissed. The case proceeded as a damages case only. In March 1989, the case was assigned to arbitration, and NIC filed a motion for summary judgment. NIC made the following arguments: (1) that the consumer fraud claim was barred by the statute of limitations, (2) NIC was not subject to any liability for civil remedies under A.R.S. section 32-2183.03 because it was not a "subdivider" as defined in the statutes, and (3) NIC made no misrepresentations to the Alafaces and did not breach any fiduciary duty.
The Alafaces responded and filed a cross-motion for summary judgment. They asserted that the consumer fraud action did not accrue until they discovered that they had been damaged, that NIC, as owner of four or more lots in Diamond Valley, was required to obtain a public subdivision report, and that NIC ratified the misrepresentations of the real estate salespersons and therefore was bound by and liable for them.
The arbitrator granted summary judgment in favor of the Alafaces and against NIC for violation of A.R.S. section 32-2181 et seq. and for negligent misrepresentation. Following an arbitration hearing, the arbitrator found in favor of the Alafaces against NIC, Martin and McGilvra and awarded the Alafaces $5,800 as damages and $1,768.46 in costs.
NIC filed a motion for judicial review of its motion for summary judgment and an appeal from the arbitration award. The Alafaces filed a motion for judicial review of their cross-motion for summary judgment.
Following oral argument, the trial court found that (1) with respect to the claims for common law fraud, negligent misrepresentation and breach of fiduciary duty, NIC made no representations either in person or through an authorized agent to the Alafaces nor was any relationship established between NIC and the Alafaces sufficient to create fiduciary responsibility; (2) the Alafaces' claim for consumer fraud was barred by the statute of limitations because they failed to file their action within one year after discovery of their injury; and (3) the Alafaces had a claim against NIC pursuant to A.R.S. section 32-2183 et seq. but their remedy was limited to rescission and they had abandoned their claim for rescission. Accordingly, the court granted NIC's motion for summary judgment and denied the Alafaces' cross-motion.
NIC applied for attorneys' fees of $32,496.50 and argued that it was entitled to a fee award under A.R.S. section 12-341.01 because the claims arose from the contract between NIC and the Alafaces and under A.R.S. section 12-349 because the claim was brought without substantial justification. In the judgment, the trial court awarded NIC its costs of $1,131.75 but did not award any attorneys' fees.
The Alafaces appealed from the judgment in favor of NIC. NIC cross-appealed from the denial of its application for an award of attorneys' fees.
1. Did the trial court err in dismissing the Alafaces' consumer fraud claim as barred by the statute of limitations?
2. Do the subdivision reporting statutes apply to NIC?
3. Did the trial court err in ruling that...
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