Hinton v. Brooks

• Decision Date: 16 November 2001
• Docket Number: No. 5D00-1058.,5D00-1058.
• Citation: Hinton v. Brooks, 820 So.2d 325 (Fla. App. 2001)
• Parties: David M. HINTON, etc., et al., Appellant, v. Charles E. BROOKS and Elizabeth E. Brooks, Appellees.
• Court: Florida District Court of Appeals

820 So.2d 325

David M. HINTON, etc., et al., Appellant, v.Charles E. BROOKS and Elizabeth E. Brooks, Appellees.

No. 5D00-1058.

District Court of Appeal of Florida, Fifth District.

November 16, 2001.

Rehearing Denied July 8, 2002.

Robert E. Johnson of Broad & Cassel, P.A., Tampa, for Appellant.

Samuel M. Nelson and Douglas K. Gartenlaub of Graham, Clark, Jones, Builder, Pratt & Marks, P.A., Winter Park, Anthony W. Palma of Broad and Cassel, and Joseph A. Frein, Orlando, for Appellees.

THOMPSON, C.J.

This is an appeal from a final judgment of foreclosure.We reverse.

Charles and Elizabeth Brooks(sellers) sold David and Donna Hinton(buyers) a home in "as is" condition, but also agreed to disclose defects of which they were aware.The buyers discovered extensive termite damage to the home, and ceased making the purchase money mortgage payment to the sellers.In a related case, the buyers sued the sellers.

In this case, the sellers sued for foreclosure of the mortgage, and the defendants pleaded as affirmative defenses fraud in the inducement, unclean hands, failure of consideration, and set-off.The buyers alleged, among other things, that regarding termite activity and treatment in the previous five years, the sellers wrote in their disclosure statement "caretaker reported activity and Massy [Pest Control] treated same," when between 1992 and 1997 the home had been treated for infestation twelve times.

The sellers argue that the affirmative defenses are barred by the economic loss rule, characterizing the fraud allegations as ones for fraud in the performance of a contract rather than fraud in the inducement.The allegation, however, is that the sellers misled the buyers regarding the termite activity and treatment, and other matters, and that the buyers relied on the misleading information in entering the contract.These allegations are of fraud in the inducement.SeeHTP, Ltd. v. Lineas Aereas Costarricenses, S.A.,685 So.2d 1238(Fla.1996);La Pesca Grande Charters, Inc. v. Moran,704 So.2d 710(Fla. 5th DCA1998).

REVERSED and REMANDED.

HARRIS, J., concurs.

SAWAYA, J., concurs specially, with opinion.

SAWAYA, J., concurring specially.

I concur in the result reached by the majority.

David and Donna Hinton(the Hintons)¹ appeal the final summary judgment of foreclosure entered in favor of Charles and Elizabeth Brooks(the Brookses).Specifically, the Hintons claim that the trial court erred in ruling that their affirmative defenses grounded on allegations of fraud were barred by the economic loss rule and, therefore, material issues of law and fact remain regarding the Hintons' claim that they were fraudulently induced into entering into the contract for the sale of the subject property.The parties entered into a contract for the sale of a residence "as is," and the sellers, the Brookses, took back a purchase money mortgage from the Hintons, the buyers.The Hintons never paid the purchase money mortgage, however, because they discovered extensive termite damage to the residence.They instituted a suit for damages against the Brookses, the real estate broker, and Massey Services, Inc., which had performed termite inspections and treatments on the residence.The Brookses responded by filing a separate action against the Hintons on the note and mortgage.

In the Brookses' foreclosure case, which is the only action involved in the instant proceedings, the Hintons admitted the allegations of the complaint in their answer, but asserted the affirmative defense of fraud in the inducement.²The Hintons asserted that prior to closing, the Brookses had executed a disclosure form which represented that the residence had been owner-occupied until October 1996 and that there was only one termite treatment on the residence which "caretaker reported... and Massey treated."Contrary to these disclosures, the Hintons alleged, the house had not been solely owner-occupied and the Brookses knew or should have known that the residence had been treated for termite infestations a minimum of twelve times in the pertinent five-year period.The Hintons further averred that a report issued to them by Massey Services, Inc. at the Brookses' request failed to disclose all of those treatments, and, in fact, falsely advised that relevant exclusions from the termite bond coverage were not caused by prior termite infestation or treatment but rather resulted from the proximity of the residence to a certain well.In addition to the termite-related claims, the Hintons also alleged the existence of several substantial roof and pool-related problems.The Hintons claimed that they would not have purchased the residence if they had been aware of the above facts and that the above facts were not readily apparent upon reasonable inspection or inquiry.

The Brookses moved for summary judgment on the ground that the defenses were barred as a matter of law by the economic loss rule.The motion argues that the Hintons were attempting to allege fraud in the inducement, which is excepted from the economic loss rule, but were actually alleging fraud in the performance, which is not excepted.Our reading of the affirmative defense, however, clearly reveals that the allegations concern fraud in the inducement.³The specific issue we must determine is whether the economic loss rule bars the affirmative defenses raised by the Hintons.I agree with the majority that it does not and that summary judgment was improperly entered.

In Krol v. City of Orlando,778 So.2d 490, 491-92(Fla. 5th DCA2001), this court enunciated the appropriate standard of review that must be applied to appellate review of a summary judgment:

The proper standard of review of a summary judgment is de novo.Volusia County v. Aberdeen at Ormond Beach, L.P.,760 So.2d 126(Fla.2000);Sierra v. Shevin,767 So.2d 524(Fla. 3d DCA2000).In order to determine the propriety of a summary judgment, this court must resolve whether there is any "genuine issue as to any material fact" and whether "the moving party is entitled to a judgment as a matter of law."Fla. R. Civ. P. 1.510(c).Generally, "[t]he party moving for summary judgment has the burden to prove conclusively the nonexistence of any genuine issue of material fact."City of Cocoa v. Leffler,762 So.2d 1052, 1055(Fla. 5th DCA2000)(citingHoll v. Talcott,191 So.2d 40, 43(Fla.1966)).We must consider the evidence contained in the record, including any supporting affidavits, in the light most favorable to the non-moving party, the Appellants, and if the slightest doubt exists, the summary judgment must be reversed.See Sierra.

Because the trial court erred in holding that the Hintons' affirmative defenses should be excluded, application of this standard of review to the instant case clearly reveals that material issues of fact remain for the trier of fact to resolve at trial and that the Brookses were not entitled to judgment in their favor as a matter of law.

Affirmative defenses based on allegations of fraud are generally considered valid defenses to a mortgage foreclosure action.Johnson v. Claims Prevention & Mgmt. Servs., Inc.,673 So.2d 558(Fla. 1st DCA1996);Norris v. Paps,615 So.2d 735, 737(Fla. 2d DCA1993)(citingLake Region Hotel Co. v. Gollick,110 Fla. 324, 149 So. 204(1933));see alsoNajera v. Nationsbank Trust Co., N.A.,707 So.2d 1153(Fla. 5th DCA1998).Moreover, as the court stated in Norris,"[a]t least in some, if not all, cases, fraud in the inducement of a note or mortgage is a compulsory counterclaim to an action in foreclosure on the note or mortgage."Norris,615 So.2d at 737(citations omitted);see alsoKey Credit, Inc. v. Espirito Santo Bank of Fla.,610 So.2d 568(Fla. 3d DCA1992).

The trial court ruled that the affirmative defense of fraud in the inducement was an improper defense in a mortgage foreclosure action based on the economic loss rule.This was error.The economic loss rule does not prevent such defenses to a mortgage foreclosure action.SeeHTP, Ltd. v. Lineas Aereas Costarricenses, S.A.,661 So.2d 1221(Fla. 3d DCA1995), aff'd,685 So.2d 1238(Fla.1996);see alsoNerbonne, N.V. v. Lake Bryan Int'l Props.,689 So.2d 322(Fla. 5th DCA1997).

Moreover, the economic loss rule does not bar a direct action for damages based on fraud in the inducement.HTP, Ltd. v. Lineas Aereas Costarricenses, S.A.,685 So.2d 1238(Fla.1996);Davich v. Norman Bros. Nissan, Inc.,739 So.2d 138(Fla. 5th DCA1999),rev. denied,760 So.2d 947(Fla.2000);La Pesca Grande Charters, Inc. v. Moran,704 So.2d 710(Fla. 5th DCA1998);see alsoComptech Int'l, Inc. v. Milam Commerce Park, Ltd.,753 So.2d 1219(Fla.1999);⁴Mejia v. Jurich,781 So.2d 1175, 1178(Fla. 3d DCA2001)(stating, "[W]hen fraudulent misrepresentations in the formation of the contract are alleged, as is the case here, the economic loss rule does not bar recovery.")(citations omitted).If the economic loss rule does not bar a direct cause of action based on fraud in the inducement, it makes no sense to say that it would bar an affirmative defense to a foreclosure action based on the same fraudulent conduct.

In arguing that the economic loss rule bars the affirmative defense in the instant case, the Brookses rely mainly on Pressman v. Wolf,732 So.2d 356(Fla. 3d DCA1999).Pressman is distinguishable from the instant case.Pressman involved a direct cause of action by the buyer to recover damages for breach of contract and fraudulent misrepresentations.The instant case, on the other hand, involves an affirmative defense to a mortgage foreclosure action based on allegations of fraudulent inducement.

The rationale in Pressman is that a buyer cannot buy "as is" and then claim to be misled by...