Napier v. Kearney

• Citation: 359 Ga.App. 196,855 S.E.2d 78
• Decision Date: 01 March 2021
• Docket Number: A20A1902
• Court: United States Court of Appeals (Georgia)
• Parties: NAPIER Jr. et al. v. KEARNEY.

359 Ga.App. 196

855 S.E.2d 78

NAPIER Jr. et al.

v.KEARNEY.

A20A1902

Court of Appeals of Georgia.

March 1, 2021

Reconsideration Denied March 25, 2021

David Jason Merbaum, Alpharetta, Andrew Jacob Backer, Matthew Christopher Mikkelsen, for Appellant.

Kim Monroe Jackson, Peter A. Jacxsens, Lauren Elizabeth Dick, Atlanta, for Appellee.

Mercier, Judge.

William Napier, Jr., and Katherine Napier filed a lawsuit against Paul Kearney, alleging that he falsely represented the condition of the house they purchased from him. Specifically, they contend that Kearney failed to disclose moisture intrusion and flooding. They sought rescission and alternatively damages for fraud, negligent misrepresentation, and breach of contract. Kearney filed a motion for summary judgment, which the trial court granted, and the Napiers appeal the trial court's order.¹ Finding that the Napiers waived their rescission claim and failed to show that Kearney had knowledge of flooding in the backyard, we affirm in part. However, as there is a question of material fact as to whether Kearney concealed moisture intrusion from the Napiers, we reverse in part.

"On appeal, we must view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the [Napiers] as nonmovants." Conway v. Romarion , 252 Ga. App. 528, 557 S.E.2d 54 (2001). So viewed, the evidence shows that in July 2015, the Napiers purchased a house from Kearney. Prior to the closing of the sale, a disclosure statement was completed by Kearney and provided to the Napiers. In the disclosure statement, Kearney stated that based on his knowledge and belief at the time, there had been no water intrusion into the dwelling, nor "any flooding."

While the sale was pending, the Napiers retained a home inspector who conducted an inspection. William Napier attended the inspection, during which time, neither the inspector nor William discovered any water intrusion or flooding.

The Napiers moved into the house in August 2015. In January 2016, they found that the floor and subfloor in the dining room were wet and "had experienced significant water intrusion," and there was "significant pooling of water in the rear of the backyard." On October 14, 2016, the Napiers sent a rescission letter to Kearney and his wife, to which Kearney did not respond.

1. The Napiers argue that the trial court erred in granting summary judgment on their rescission claim. They claim that there was a genuine issue of material fact as to when they learned of the problems leading to their attempted rescission. We disagree and find that the Napiers waived rescission as a matter of law by failing to act promptly.²

"In general, a party alleging fraudulent inducement to enter a contract has two options: (1) affirm the contract and sue for damages from the fraud or breach; or (2) promptly rescind the contract and sue in tort for fraud." Novare Group v. Sarif , 290 Ga. 186, 188 (1), 718 S.E.2d 304 (2011) (citation and punctuation omitted).

In order to effect a rescission, the purchaser must act promptly and adhere to the intent to rescind or risk waiver of his claim: An announcement of the intent to rescind the contract must be made in a timely fashion, as soon as the facts supporting the claim for rescission are discovered.

Conway , supra at 530 (1), 557 S.E.2d 54 (citation and punctuation omitted). Rescission "is not favored under the law, and courts are quick to find that the right to rescind has been waived." Id.

The Napiers discovered the problems in the house in January 2016. However, they did not attempt to rescind the contract until ten months later in a letter dated October 14, 2016. "Waiver generally is found where the intent to rescind is not asserted in a timely fashion[.]" Conway , supra at 530-531 (1), 557 S.E.2d 54. The Napiers argue that they did not learn of the underlying problems until their insurance company denied their claim in April 2016. However, William Napier averred that he observed "significant water intrusion" in the interior of the house and "significant pooling of water in the rear of the backyard" in January 2016. The timing of the insurance company's denial is immaterial as to when the "facts supporting the claim for rescission" were discovered. See id. at 530 (1), 557 S.E.2d 54. The Napiers’ failure to announce until 10 months after the discovery of the problems amounted to waiver as a matter of law. See Liberty v. Storage Trust Properties , 267 Ga. App. 905, 911-912 (2), 600 S.E.2d 841 (2004) (delay of almost nine months constituted waiver of rescission as a matter of law); Buckley v. Turner Heritage Homes , 248 Ga. App. 793, 795 (2), 547 S.E.2d 373 (2001) (buyer waived her claim to rescind sales contract when she waited ten months to rescind following her discovery of defects in house); Orion Capital Partners v. Westinghouse Elec. Corp. , 223 Ga. App. 539, 543 (2) (b), 478 S.E.2d 382 (1996) (attempt to rescind contract seven months after discovery was "too late as a matter of law"). As such, we affirm the trial court's grant of summary judgment regarding the Napiers’ claim for rescission.

2. The Napiers argue that the trial court erred by granting summary judgment on their fraud, negligent misrepresentation, and breach of contract claims, because Kearney made false representations in the disclosure statement as to whether he had knowledge of moisture intrusion and flooding on the property.

The tort of fraud has five elements: (1) a false representation or omission of a material fact; (2) scienter; (3) intention to induce the party claiming fraud to act or refrain from acting; (4) justifiable reliance; and (5) damages. When, as in the case at bar, the buyers allege fraudulent concealment, they must prove, as a factor of justifiable reliance, that they could not have discovered the alleged defect in the exercise of due diligence.

Lehman v. Keller , 297 Ga. App. 371, 372-373 (1), 677 S.E.2d 415 (2009) (citations and punctuation omitted). "The only real distinction between negligent misrepresentation and fraud is the absence of the element of knowledge of the falsity of the information disclosed." Bithoney v. Fulton-DeKalb Hosp. Authority , 313 Ga. App. 335, 343 (2) n. 19, 721 S.E.2d 577 (2011) (citation and punctuation omitted).

If a seller of real estate knows of a defect in the property of which the purchaser is ignorant, and which would likely influence the purchase decision, the seller has a duty to disclose his knowledge to the purchaser. Where a buyer seeks to recover from a seller who has passively concealed a defect, the buyer must prove that the vendor's concealment of the defect was an act of fraud and deceit, including evidence that the defect could not have been discovered by the buyer by the exercise of due diligence and that the seller ... was aware of the problems and did not disclose them.

Salinas v. Skelton , 249 Ga. App. 217, 221-222 (2), 547 S.E.2d 289 (2001) (citations and punctuation omitted).

(a) Claiming that Kearney misrepresented that the house had no moisture intrusion, the Napiers point to evidence that Kearney's placement of rugs inside the house concealed water intrusion during the sales process. Additionally, they point to evidence that the refrigerator was shown in one location in the listing photographs, but had been moved to a different location before the home inspection, which concealed evidence of water intrusion. Kearney does not dispute that there was evidence of water intrusion under the refrigerator and the rugs, but he claims that the location of the refrigerator and rugs was due to "routine home design choices." Moreover, Kearney seems to argue that the Napiers could have moved the rugs and refrigerator during the home inspection, and their failure to do so displayed an absence of due diligence. However, "the question of whether a purchaser has exercised reasonable diligence in inspecting real property is usually a jury question." Akins v. Couch , 271 Ga. 276, 278 (3) (b), 518 S.E.2d 674 (1999) (even when buyers failed to retain a home inspector, summary judgment was improper because a jury question existed as to whether the buyers exercised due diligence).

Here, there is evidence that Kearney moved a refrigerator and placed rugs in an attempt to conceal water intrusion. We cannot say that the Napiers failed to exercise...