Norton v. Poplos

• Decision Date: 11 March 1982
• Citation: 443 A.2d 1
• Parties: Barry A. NORTON and Constance Norton, his wife, Defendants, Appellants, v. Andrew W. POPLOS and Virginia L. Poplos, his wife, Plaintiffs, Appellees.
• Court: Supreme Court of Delaware

Page 1

443 A.2d 1

Barry A. NORTON and Constance Norton, his wife, Defendants, Appellants, v. Andrew W. POPLOS and Virginia L. Poplos, his wife,

Plaintiffs, Appellees.

Supreme Court of Delaware.

Submitted Dec. 15, 1981.

Decided March 11, 1982.

Upon appeal from the Court of Chancery. Affirmed in part, reversed in part and remanded.

Garry G. Greenstein, of Berkowitz, Greenstein, Schagrin & Coonin, P. A., Wilmington, for defendants-appellants.

David Roeberg, of Roeberg & Associates, P. A., Wilmington, for plaintiffs-appellees.

Before DUFFY, McNEILLY and QUILLEN, JJ.

DUFFY, Justice:

The critical issue in this appeal concerns the right to rescind a contract for the purchase of real property. We conclude that the Court of Chancery should determine whether the buyer has a right to rescind the agreement on the basis of innocent misrepresentations by the seller and, for that reason, we reverse the judgment and remand the case to the Court of Chancery.

I

For present purposes, the pertinent facts are as follows:

Andrew W. Poplos ¹ owned an improved lot in the Delaware Interstate Industrial Park which was subject to M-1 zoning. In September 1979, Poplos decided to sell the property and, for that purpose, he retained Phillip Berger, a real estate broker. As part of his effort to sell the property, Berger arranged for an advertisement in a local newspaper and also placed a sign on the property; both represented that the property was zoned M-1.

Barry A. Norton was president of a corporation which was in the business of blending, compounding, marketing and warehousing petroleum products and he was looking for a suitable site, with M-1 zoning, for relocation of the enterprise. ² The newspaper advertisement of the Poplos property came to Norton's attention and he then contacted Berger.

Negotiations followed during which Berger became aware that Norton's business required "outside" storage for oils and lubricants in 55-gallon drums and in tanks with a capacity up to 9,000 gallons. Norton also discussed his business with Poplos who became aware (apparently) that Norton's business involved outside storage of petroleum products.

During a visit by Norton to the Industrial Park, materials were then stored outside the building located thereon. Poplos referred to restrictions limiting relocation of a loading dock (which Norton had planned to change) and Poplos indicated that he would, before settlement, provide Norton with a copy of the restrictions, if he could find them. The restrictions were never supplied by Poplos, nor was Norton ever informed by Poplos that the restrictions required prior approval by an industrial park building committee for many uses normally associated with M-1 zoning. ³ It appears that Berger had not been told by Poplos about the restrictions, as such.

Norton and Berger met at the offices of Norton's attorney; they discussed a contract of sale and Norton's proposed use of the property, including outside storage drums and tanks. Norton signed a New Castle Board of Realtors Standard Form Sales contract which contained the following pertinent printed provisions:

"3. ... Title to said property to be good marketable, fee simple title, free and clear of all liens and encumbrances of record, but subject to all existing easements and restrictions of record.

15. IN SIGNING this agreement, Purchasers and Sellers agree that they have read and fully understand this contract & furthermore they acknowledge that they do not rely on any written or oral representations not expressly written in this contract."

In addition, because of the perceived importance of the zoning to Norton's business purposes, the following clause was added to the agreement by his attorney:

"... contract contingent on property being zoned M-1 ...."

A title search made after execution of the contract disclosed a restriction requiring approval of the Industrial Park Building Committee for many improvements and uses. ⁴ Upon learning of the restrictions, Norton sought formal approval of the Building Committee for changes and uses required for his business. Approval was denied and, shortly thereafter, Norton's attorney notified Berger that he would be unable to purchase the property because of the restrictions.

Poplos then filed an action in the Court of Chancery for specific performance of the contract and Norton counterclaimed for rescission and cancellation thereof on the grounds of misrepresentation and breach of warranty. ⁵ Norton sought return of $5,000 which he had deposited when the contract was signed and $1,150 in attorney fees. After suit was started, but before trial, the property was sold to a third person and Poplos then abandoned his complaint for specific performance; the case went to trial on Norton's counterclaim.

The Chancellor concluded that the contract unambiguously provided that it was contingent only as to M-1 zoning of the property and that the contingency language cannot be read to provide for any use permitted in an M-1 zone. He determined that, in the absence of mutual mistake, Norton assumed the risk of not being able to use the property as he had planned. Accordingly, he entered judgment for Poplos and Norton then docketed this appeal. ⁶

Norton argues that the provision of the contract making the sale contingent on M-1 zoning was not met and, in the alternative, he says that he is entitled to rescission and cancellation as a result of fraud, misrepresentation or concealment of material facts by the seller's agent. The seller argues that the terms of the contract were met, that affirmative representations were not made to the buyer, that the buyer did not rely on any representations made by the seller or his agent and that certain arguments were not raised below or were subsequently abandoned.

II

While we have considered all contentions made by the parties, our discussion is limited because we conclude that Norton is entitled to a remand for a determination of whether rescission of the contract should be ordered as a result of innocent misrepresentations made by the seller's agent.

A.

Essentially, the equitable remedy of rescission results in abrogation or "unmaking" of an agreement, and attempts to return the parties to the status quo. Common grounds for rescission of a contract for the sale of real property include fraud, misrepresentation and mistake. 8A Thompson on Real Property § 4465 pp. 366, 367 (1963). But in addition to rescission for fraudulent misrepresentation, Williston on Contracts § 1487 p. 322 (3rd Ed. 1970), rescission also may be granted under certain circumstances for innocent misrepresentations made by a seller. ⁷ Thus, as stated by Professor Williston:

"It is not necessary, in order that a contract may be rescinded for fraud or misrepresentation, that the party making the misrepresentation should have known that it was false. Innocent misrepresentation is sufficient for though the representation may have been made innocently, it would be unjust and inequitable to permit a person who has made false representations, even innocently, to retain the fruits of a bargain induced by such representations."

Williston, supra, at § 1500, pp. 400, 401. Similarly, the recently promulgated Restatement 2d of Contracts, § 164, states that,

"If a party's manifestation of assent is induced by either a fraudulent or material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient." (Emphasis added.)

See also Restatement 1st of Contracts, § 476 (1932). Most American jurisdictions which have addressed this issue appear to recognize that an innocent material misrepresentation by a vendor which induces the sale of the property is ground for rescission of the contract. Thompson, supra, § 4472, pp. 401, 402. ⁸ In addition to ordering rescission a court will generally direct that a down payment by a buyer be returned on a theory of restitution. See Restatement 1st of Restitution, § 55 (1937); Dobbs, Handbook on the Law of Remedies, § 4.1, p. 222 (1973).

A misrepresentation need not be in the form of written or spoken words. Stated simply, a misrepresentation is merely an "assertion not in accordance with the facts," Restatement 2d of Contracts, § 159, and such an assertion may be made by conduct as well as words. Id. Comment a. And although a statement or assertion may be facially true, it may constitute an actionable misrepresentation if it causes a false impression as to the true state of affairs, and the actor fails to provide qualifying information to cure the mistaken belief. See Equitable Life Ins. Co. v. Halsey Stuart & Co., 312 U.S. 410, 61 S.Ct. 623, 85 L.Ed. 920 (1941); McGlothin v. Nichoalds, D.Colo., 212 F.Supp. 757 (1962), aff'd, 330 F.2d 454 (10 Cir. 1964); Borzillo v. Thompson, D.C.Mun.Ct.App., 57 A.2d 195, 198 (1948). Stated another way,

"(a) statement may be true with respect to the facts stated, but may fail to include qualifying matters necessary to prevent the implication of an assertion that is false with respect to other facts. For example a true statement that an event has recently occurred may carry the false implication that the situation has not changed since its occurrence. Such half-truth may be as misleading as an assertion that is wholly false."

Restatement 2d of Contracts, § 159, comment b.

B.

Turning now to the case before us, it appears that the advertisement and the sign indicating that the property was zoned M-1 may be the kind of assertion to which we have just referred. ⁹ In our opinion, a finder of fact could conclude that, to the average purchaser with a rudimentary knowledge of the New Castle County Zoning Code or, indeed, to one who knows the Code, such an assertion amounts to a representation that the property can be used for the purposes which the Code permits in an M-1 zone, that is, for typical light manufacturing uses. ¹⁰ But the reality is that what M-1 zoning permitted, the...