Copland v. Nathaniel

• Decision Date: 01 February 1995
• Parties: Marc COPLAND and Joan Beth Lund, Plaintiffs, v. Roger NATHANIEL and Sharon Diamond, Defendants.
• Court: New York Supreme Court

Page 514

624 N.Y.S.2d 514

164 Misc.2d 507

Marc COPLAND and Joan Beth Lund, Plaintiffs, v. Roger NATHANIEL and Sharon Diamond, Defendants.

Supreme Court, Westchester County.

Feb. 1, 1995.

Richard L. Weisz, Hodgson, Ross, Andrews, Woods & Goodyear, Albany, for plaintiffs.

Robert F. Davis, Shamberg, Marwell, Cherneff, Hocherman, Davis & Hollis, P.C., Mt. Kisco, for defendants.

JOAN B. LEFKOWITZ, Justice.

This case raises very interesting questions concerning application of caveat emptor to the sale of real property that had previously been subjected to chlordane application.

Factual Background

In June 1973 the subject real property, on which is located a one-family residence, was treated for termites, presumably by application of chlordane. A ten-year guaranty to the homeowner was issued by the termite company, Central Termite Control, which was assigned by the homeowner (Elizabeth Gutterman) to the new homeowners (Drs. Vermund and Vargas) on sale of the property in June 1982. On May 3, 1989 Drs. Vermund and Vargas conveyed the subject property to the defendants. At that time the defendants were not given the out-of-date termite guaranty nor were they aware of it or of any termite condition. Defendants first learned about the guaranty after commencement of the action. Prior to the purchase, defendants caused the property to be inspected by Parkway Inspection Services, Inc. (Parkway). That company made a report, dated February 22, 1989, which stated:

"4-APPEARANCE OF PREVIOUS TERMITE CONTROL? NO"

The property consists of a one family residence with four bedrooms, a two-car garage and basement. The record does not reveal the amount of land on which the building is located. The defendants, both of whom are physicians, resided at the premises for over three years, with their children, until the property was sold to plaintiffs. Defendants aver that they never caused chlordane to be used on the premises. Indeed, its use as a popular chemical for termite control was outlawed in April 1988 before defendants purchased the subject property.

In the Spring of 1992 the defendants listed the property for sale. Simultaneously therewith they hired another company, Garrie Pest Control (Garrie), to do an inspection. By report dated April 7, 1992 Garrie said:

"EVIDENCE OF PREVIOUSLY TREATED INFESTATION WAS NOTED UNDER KITCHEN DOOR FRAME. NO EVIDENCE OF ACTIVE INFESTATION WAS FOUND. PERIODIC TERMITE INSPECTIONS ARE RECOMMENDED AS RE-INFESTATION CAN AND SOMETIMES DOES OCCUR."

On April 13, 1992 plaintiff made an offer to purchase the property for $325,000 subject to a satisfactory engineering, radon and termite inspection. Plaintiffs hired an engineer who provided them with a written report on April 16, 1992 wherein termite damage was found. On May 4, 1992 plaintiffs had Garrie recertify their report to Mr. Copland and plaintiffs' lender. Also, on May 22, 1992 plaintiffs had Parkway reinspect the premises, which was done with the same finding as it previously made regarding no evidence of termite control.

On April 17, 1992, the parties, represented by counsel, executed a contract of sale. The standard contract provided:

[In summary, that the purchaser inspected the premises and agreed to purchase it "as is"; all prior understandings were merged in the contract and no one was relying on any statement not contained in the contract; the seller had not made any representations other than those expressed in the contract and is relieved of all responsibility as to the present or future physical condition of the property; and acceptance of the deed shall constitute full compliance except as to matters that specifically survive the closing.]

On July 2, 1992 the sale was consummated and defendants delivered to plaintiff the usual Bargain and Sale Deed with covenants against Grantor's Acts.

In May or June 1993 plaintiffs retained a toxicologist who conducted tests in and around the residence and found chlordane present on the property. He recommended that plaintiffs move out of the premises, which they did. In August 1993 the Westchester County Health Department reported on tests it performed at the premises in May 1993, that the level of chlordane found at the property did not constitute a health concern.

On February 1, 1994 plaintiff instituted this action. The complaint contains six causes of action for: (1) rescission based on mutual mistake, (2) rescission based on fraud, (3) damages for fraud, (4) rescission based on constructive fraud, (5) damages for constructive fraud and (6) breach of contract for sale of an uninhabitable residence. The answer consists of general denials, twenty-three affirmative defenses and eight counterclaims for damages for defamation and prima facie tort.

In April 1994 plaintiffs commenced remediation of the property by having contaminated soil removed. They claim that the expense of removal has been $50,000 to date.

Defendants move for summary judgment dismissing the complaint upon the grounds, inter alia, caveat emptor, merger, no breach of warranty of habitability is implied on sale of a previously lived-in home, lack of confidential relationship, absence of mutual mistake and, factually, that no chlordane problem exists as evidenced by the Westchester County Department of Health Report and an expert's report and affidavit submitted in support of the motion. Plaintiffs argue that triable issues exist with respect to defendants' knowledge that requires discovery; also because of differing opinions on the extent of the chlordane problem; and by reason of paragraph 11(a) of the contract which survived delivery of the deed.

First Cause of Action

The first cause of action seeks rescission based on mutual mistake, that the parties were unaware of the chlordane problem.

Rescission premised on mutual mistake is a viable remedy where the parties have not greatly altered their positions. D'Antoni v. Goff, 52 A.D.2d 973, 383 N.Y.S.2d 117 (3rd Dep't 1976); 21 N.Y.Jur.2d, Contracts, § 121; Annotation 50 ALR 3d 1188 (1973), Rescission-Mutual Mistake-Realty. The mistake must be material and fundamental so as to defeat the object of the contract. Callanan v. Keeseville, Ausable Chasm & Lake Champlain R.R. Co., 199 N.Y. 268, 284, 92 N.E. 747 (1910); Clanton v. Smith, 170 A.D.2d 643, 567 N.Y.S.2d 67 (2d Dep't 1991), app. den., 78 N.Y.2d 852, 573 N.Y.S.2d 466, 577 N.E.2d 1058 (1991); Babylon Assocs. v. County of Suffolk, 101 A.D.2d 207, 215, 475 N.Y.S.2d 869 (2d Dep't 1984). Rescission for mutual mistake in real property transactions may occur where the status quo is restorable. Valintine v. Richardt, 126 N.Y. 272, 277, 27 N.E. 255 (1891); 91 N.Y.Jur.2d, Real Property Sales & Exchanges, § 138. The requirement of restoration of the status quo may sometimes be relaxed. Jones Chemicals Inc. v. City of Binghamton, 26 A.D.2d 710, 711, 271 N.Y.S.2d 507 (3rd Dep't 1966), aff'd, 20 N.Y.2d 808, 284 N.Y.S.2d 702, 231 N.E.2d 288 (1967) (unilateral mistake); K.M.L. Laboratories, Ltd. v. Hopper, 830 F.Supp. 159, 164 (E.D.N.Y.1993). Where the pre-contract status quo cannot be restored but rescission is otherwise appropriate, the Court may grant whatever relief it can in equity, with adjustments if necessary. Ungewitter v. Toch, 31 A.D.2d 583, 294 N.Y.S.2d 1013 (3rd Dep't 1968), aff'd, 26 N.Y.2d 687, 308 N.Y.S.2d 858, 257 N.E.2d 40 (1970); 91 N.Y.Jur.2d, Real Property Sales & Exchanges, § 150; CPLR 3017(a); 3 Weinstein-Korn-Miller, New York Civil Practice, p 3017.06. The deed merger rule does not bar rescission based on mutual mistake. Larsen v. Potter, 174 A.D.2d 801, 571 N.Y.S.2d 121 (3rd Dep't 1991).

Nonetheless, whether a mutual or unilateral mistake fundamental to the purpose of the contract has been made is determined by an objective test. First Regional Securities, Inc. v. Vilella, 84 Misc.2d 790, 377 N.Y.S.2d 424 (Civil Ct. New York County 1975), aff'd, 88 Misc.2d 81, 388 N.Y.S.2d 829 (App.Term. 1st Dep't 1976); see Ryan v. Boucher, 144 A.D.2d 144, 534 N.Y.S.2d 472 (3rd Dep't 1988).

Where a party bears the risk of a condition or problem, such as where he goes forward with a deal although he only has limited knowledge of the problem, the right to rescind is waived. Restatement 2d, Contracts, § 154; see Juliano v. McEntee, 150 A.D.2d 524, 541 N.Y.S.2d 232 (2d Dep't 1989). Here, plaintiffs were aware of a prior termite problem and treatment, conducted their own termite inspection, accepted the property "as is", with disclaimers in the contract as to physical condition. Under those circumstances, absent fraud, the plaintiffs cannot proceed in conscious ignorance (Restatement 2d, Contracts, § 154, Comment, at p. 404) and then seek rescission after having implicitly taken the risk of discovery of a post-closing defect. In re Schenck Tours, Inc., 69 B.R. 906 (Bank., Ct.E.D.N.Y.1987), aff'd on opinion below 75 B.R. 249 (E.D.N.Y.1987); see, Raner v. Goldberg, 244 N.Y. 438, 441, 155 N.E. 733 (1927); Holly Hill Holdings v. Lowman, 226 Conn. 748, 628 A.2d 1298 (Supreme Ct.Conn.1993) (buyer knew of existence of underground tanks but not of contamination).

Accordingly, as the Court finds that no fraud occurred (discussed infra ), the first cause of action lacks merit and is dismissed.

The Second, Third, Fourth and Fifth

Causes of Action

These causes of action are based on alleged fraud or constructive fraud and seek rescission or damages.

Rescission is an appropriate remedy for fraud, innocent or otherwise, as the transaction is voidable and damages may also be sought. 1A Warren's Weed, New York Real Property, Contracts, § 26.04; 91 N.Y.Jur.2d, Real Property Sales & Exchanges, § 37; Prosser & Keeton on Torts (5th ed.), § 105; CPLR 3002(e).

Generally, absent misrepresentation or concealment, a vendor is not liable to a vendee for a latent defect discovered after the sale as the rule of caveat emptor applies. Ann. 18 ALR 4th 1168 (1982), Vendor's Liability-Damage After Transfer. A general merger clause in a...